How to Report 1099-K Income for Small Martial Arts School?

Thanks for the quick response! So just to make sure I understand - I report the full amount from the 1099-K on Schedule C, then subtract my expenses separately on that same form? Would Square fees count as a business expense I can deduct?

Yes, that's exactly right. You'll report the full 1099-K amount on Schedule C, then list all your business expenses on the same form. And absolutely, the fees that Square charges you are deductible business expenses - they're considered "merchant fees" or "payment processing fees" and should be deducted. The profit that remains after subtracting all legitimate business expenses is what you'll pay taxes on. Also, since this is self-employment income, make sure you're aware you'll need to pay self-employment tax (Medicare and Social Security) on your profits, which is currently 15.3% in addition to regular income tax.

Does it actually help with the specific 1099-K reporting requirements? I've heard there are special rules about reconciling payment processor reports vs actual income.

How much does it cost? I'm always skeptical about these tax services because they advertise one price but then upsell you on everything.

Yes, it handles the 1099-K reporting perfectly. The tool specifically asked me about refunds, chargebacks, and even timing issues (like December payments that didn't deposit until January). It helps you reconcile everything so the numbers make sense and match your actual income, not just what's on the form. As for pricing, I don't remember the exact amount because I used it as part of my overall tax filing. But it wasn't expensive - definitely worth it for the peace of mind and probably saved me money by finding deductions I would have missed. They don't do the annoying upsell thing that some tax services do.

Wait, how does this actually work? They somehow get you through the IRS phone system faster? That seems impossible with how backed up the IRS lines always are.

Yeah right. Nothing gets you through to the IRS faster. They probably just connect you to some random "tax expert" who gives generic advice you could find on Google.

It's not magic, but it actually works! They use an automated system that navigates the IRS phone tree and waits on hold for you. When a real IRS agent picks up, you get a call connecting you directly to them. So instead of you waiting on hold for hours, their system does it for you. They're definitely connecting you to the actual IRS, not some random expert. The agent I spoke with had access to my full tax history and previous filings, so it was definitely legitimate. I was skeptical too, but when you're desperate to get tax questions answered before filing, it's worth trying.

Oh that's scary! What kind of documentation did they want to see during the audit? I have most of my receipts but probably not all of them...

They wanted to see actual receipts or bank/credit card statements showing the purchases. But the bigger issue was they wanted proof that the equipment was used exclusively for my business and not for personal training/use. For things like uniforms, they questioned whether these were actually required for the business or just personal fitness clothing. I learned you need to be really specific - like having business policies that show why certain equipment is necessary. For anything that might have mixed personal/business use, they really scrutinize the deductions. Take photos of equipment in your teaching space and save any promotional materials that show the equipment being used for classes.

The 1099-K reports the gross amount processed through Square, which typically includes everything - your fees, sales tax collected, tips, etc. When you complete your Schedule C, you would report the full 1099-K amount as gross receipts, but then you can make adjustments. Sales tax you collected and then remitted to your state should not be counted as income. You'd subtract this amount on Schedule C (usually on the "Other expenses" line with a clear description like "Sales tax collected and remitted"). This way, you're only paying income tax on your actual earnings, not on the sales tax you collected as an intermediary.

Wow I had no idea about this deduction! Is there anything special I need to qualify? My martial arts school is pretty small, just teaching evening classes a few times a week.

You should qualify even with your small evening classes! The main requirements are: 1) You have qualified business income (basically profit from your business) 2) You file as a sole proprietor, partnership, S corporation, or LLC There are income limitations but they're pretty high ($170,050 for single filers in 2025), so unless your total taxable income from all sources exceeds that, you should be fine. You don't need to have employees or a formal business structure. The calculation is straightforward for smaller businesses - it's generally just 20% of your net profit from the business. Use Form 8995 (the simplified version) unless your income is above the threshold. It's definitely worth taking the time to claim this deduction!