Dumb Question: On Schedule C, do I report my gross receipts or the actual received amounts as income?

This is actually a really common question, not dumb at all! You need to report the GROSS amount ($500 in your example) as your income on Schedule C. This is the full amount the customer paid for your services, before any fees were taken out. Then, you can deduct the processing fees ($15 in your example) as a business expense on your Schedule C, usually under "commissions and fees" or "credit card processing fees" depending on which tax software you're using. This way, the net effect on your taxable income is the same ($485), but you're properly accounting for both the full income and the legitimate business expense of processing payments. Square should provide you with a year-end summary showing both the gross payments and the fees they collected.

I was in the exact same situation last year with my pet grooming business. After getting conflicting advice from friends, I used taxr.ai (https://taxr.ai) to analyze my Square statements. The AI tool confirmed exactly what the previous commenter said - you need to report the gross amount as income and then deduct the processing fees separately as business expenses. What I found super helpful was that I could upload my Square annual summary and taxr.ai automatically identified which numbers needed to go where on my Schedule C. Saved me so much stress about potentially reporting things incorrectly. The tool also flagged some deductions I was missing related to my payment processing that I wouldn't have thought of otherwise.

Just wanted to follow up after trying taxr.ai for my mess of PayPal and Venmo transactions. It was actually super helpful! I uploaded my statements and it clearly separated my gross sales from all the processing fees, even identified which transactions were personal vs business (which I always struggle with). The breakdown it gave me made filling out my Schedule C way less confusing than last year. I was definitely reporting some things wrong before - I had been under-reporting my income by only counting the net deposits, so this probably saved me from potential audit issues too.

If you're still having trouble understanding your tax obligations or getting Square to provide the right documentation, I'd recommend using Claimyr (https://claimyr.com) to get through to the IRS directly. I was in a similar situation last year where I couldn't figure out if I was reporting correctly, and I spent DAYS trying to reach the IRS for clarification. With Claimyr, I got a callback from the IRS in about 15 minutes instead of waiting on hold for hours. The agent walked me through exactly how to report my Square payments and fees correctly on Schedule C. You can see how it works here: https://youtu.be/_kiP6q8DX5c It was seriously worth it to get the definitive answer straight from the IRS rather than stressing about whether I was doing it right.

I have to eat my words and apologize to the person who recommended Claimyr. After my skeptical comment, I decided to try it anyway because I was desperate to ask about my Square payment reporting without spending another day on hold. It actually worked exactly as described - I got a call back from a real IRS agent in about 20 minutes. The agent confirmed what others said here (report gross as income, deduct fees as expenses) and also helped clear up some confusion I had about quarterly estimated payments for my side business. What I thought would be another frustrating day dealing with the IRS phone system turned into a quick 15-minute call. Definitely using this again next time I have tax questions.

Something else to consider - make sure you're keeping track of ALL your business expenses, not just the Square fees. When I first started my business, I focused so much on reporting income correctly that I missed out on tons of legitimate deductions. Some commonly overlooked deductions for small businesses: - Portion of your internet/phone if used for business - Home office deduction if applicable - Mileage for business travel - Software subscriptions - Professional development/courses - Business insurance

Has anyone here actually gotten audited for Schedule C stuff? I'm paranoid about reporting things wrong and getting in trouble with the IRS. I'm only making like $12k a year from my side gig.

Don't worry too much about getting audited, especially at your income level. The IRS typically focuses audit resources on much higher earners or businesses with obvious red flags. At $12k annually, you're pretty low on their priority list. That said, it's still smart to keep good records - just don't let audit paranoia prevent you from claiming legitimate deductions you're entitled to. I see too many small business owners leave money on the table because they're scared. A few tips to stay out of trouble: - Keep receipts for everything you deduct - Don't round numbers to nice even amounts - Make sure your business expenses are reasonable compared to your income - Be conservative on gray areas like mixed personal/business use items The key is being able to substantiate what you claim. If you can prove your deductions with documentation, you're in good shape even if they do ask questions.