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Small business owners, are you ready for this one? A new IRS rule could cost you thousands in taxes, especially if you’re not prepared. Let me explain how this change could affect your business and how to protect yourself. Hi, I’m Hunter Brockway, founder of Boca Retirement Strategies, here to guide you to a successful stress-free retirement while spending more and avoiding being killed in taxes.

The new IRS reporting rule involves Form 1099-K, which payment processors like Stripe, Venmo, PayPal, and others use to report how much money they sent to you throughout the year. Here’s the catch, starting in 2025, the reporting threshold drops to $2,500, and by 2026, it plummets to just $600. Previously, these processors only had to report your payments if they exceeded $20,000 in a year.

So, what does that mean for you? If your tax return doesn’t match the income those processors report to the IRS, you could face penalties or audits, even if it’s a mistake. This rule can be especially tricky for small business owners or anyone running a little side hustle like babysitting, tutoring, or selling items online. Even if you’re already reporting all of your income accurately, which you should be, the way you use payment apps could create problems.

Here’s an example. You’re using Venmo or PayPal for both personal and business transactions, like a friend paying you back for dinner or a client paying you for services. It could look like business income to the IRS. Even if it’s not, you’ll still have to prove it wasn’t. And trust me, no one wants to go through that hassle.

So here’s how to protect yourself. Separate business and personal accounts. Use one account exclusively for business transactions and another account exclusively for personal payments. This helps you keep records clean and avoids confusion with the IRS. Keep detailed records. Always save receipts, invoices, and any other documentation that clearly shows what’s business income and what’s not. Plan ahead for taxes. Make sure your tax return reflects all income reported by payment processors. If you’re not sure how to do this, consult a financial professional.

The key takeaway, don’t wait until these new thresholds hit, start organizing your finances now to avoid unnecessary tax headaches down the road.

If you’re a small business owner or side hustler and want to make sure your financial house is in order, let’s talk. At Boca Retirement Strategies, we help clients create tax-smart plans to protect their income and build a better financial future. Book a call on our website at bocaretirement.com, head to the free assessment page, and open up the calendar, select the date and time that works for you, and we’ll call you then. Bye.