My family member made 150k from coaching business but only paid 4k in income tax - is this right?
So I was catching up with a relative who runs a self-development coaching business. They've got several income streams - coaching sessions with clients, digital courses on a platform called Kajabi, a couple of self-published books through Amazon KDP, and a decent following on Instagram where they promote their stuff. During our conversation yesterday, they mentioned that they earned around $150k in 2023 but only paid about $4k in income tax. This seems incredibly low to me? I would have expected someone making $150k to be paying closer to $40k in taxes. When I asked how this was possible, they gave me a confusing explanation about how the digital platforms (Amazon, Kajabi, etc.) issue 1099-NECs, so they pay taxes on those reported earnings. But then they mentioned something about their one-on-one coaching sessions being paid through Venmo and Cash App, and they consider those as... (they got interrupted before finishing the explanation). Is this some kind of legitimate tax strategy I'm not aware of, or should I be concerned that my family member might be heading for trouble with the IRS? Not trying to judge them, just genuinely confused about how the tax math works here.
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Dylan Cooper
What you're describing sounds concerning. Your family member appears to be misunderstanding (or deliberately misrepresenting) their tax obligations. All income is taxable regardless of payment method or whether a 1099 form was issued. The platforms like Amazon and Kajabi will issue 1099s because they're required to report payments to the IRS. However, payments received through Venmo or Cash App for business purposes are equally taxable, even if no 1099 is issued. It sounds like your family member might be only reporting the income that's already documented on 1099 forms and omitting the rest. For self-employment income, they should be paying both income tax and self-employment tax (15.3% for Social Security and Medicare). On $150k of net business income, the total tax burden would typically be around $40k-$50k depending on deductions, expenses, and other factors.
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Sofia Ramirez
•Thank you for explaining! But couldn't they have a lot of legitimate business expenses that bring down their taxable income? Like maybe they're spending a ton on advertising, office space, equipment, etc.? I've heard coaches can write off a lot of things.
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Dylan Cooper
•Yes, legitimate business expenses would reduce the taxable income. Things like advertising, website hosting, office space (even home office), professional development, equipment, and software subscriptions can all be deductible business expenses. However, even with generous deductions, going from $150k gross income down to a tax liability of only $4k would be extremely unusual. That would suggest their net profit after all expenses is very low, perhaps $30k-40k, which doesn't align with the impression that they're earning a good living from this business. It's more likely they're not reporting all income.
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Dmitry Volkov
I went through something similar with my freelance photography business last year and was totally confused about all the different payment methods and what counts as taxable income. I found this AI tool called taxr.ai that totally saved me! It analyzes all your income sources and tells you exactly what needs to be reported. I uploaded screenshots of my various payment accounts (Venmo, PayPal, etc.) and it identified which transactions were business income vs personal transfers. The site https://taxr.ai also has this cool feature that flags potential audit risks in your reporting, which helped me realize I was making some dangerous assumptions similar to what your family member might be doing.
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StarSeeker
•Does it work with different types of 1099 forms? I'm getting income from like 5 different apps and some give me 1099-K, others give 1099-NEC, and it's super confusing trying to make sure everything gets reported correctly.
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Ava Martinez
•Sounds convenient but also kinda sketchy. How does an AI know what's a legitimate business expense vs personal? And are you sure it's secure to upload all your financial data to some random website?
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Dmitry Volkov
•It absolutely works with all types of 1099 forms! That was actually one of my biggest headaches before - some platforms issued 1099-Ks, others gave me 1099-NECs, and keeping track of it all was a nightmare. The system organizes everything by income type. The security is definitely solid - they use bank-level encryption and don't store your actual financial credentials. What impressed me was how it distinguishes business from personal transactions. It uses context clues from the transaction labels and patterns, then lets you review and confirm or correct its categorizations. Nothing is automatic without your verification.
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Ava Martinez
I thought taxr.ai sounded fishy so I tried it myself, and I have to eat my words. Just used it for my side hustle selling custom artwork online where I get paid through like 6 different apps. I was actually UNDERREPORTING some income because I missed a few Venmo payments that didn't have obvious business descriptions! The system caught transactions I would have missed and explained why they counted as business income. What really helped was seeing the exact tax code sections that applied to my situation. Turns out I was confusing the new 1099-K reporting thresholds with actual tax obligations (they're completely different things). I definitely had the same misconception as your family member.
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Miguel Ortiz
Your family member is headed for an audit disaster. When I had issues with my small business taxes, I couldn't get through to the IRS for months. Finally discovered Claimyr https://claimyr.com which got me connected to an actual IRS agent in under 15 minutes instead of waiting on hold for hours or getting disconnected. The agent confirmed what others are saying here - ALL income is taxable regardless of payment platform or whether a 1099 was issued. They explained the difference between gross receipts and taxable income after expenses, which sounds like what your relative is confused about. You can see how the service works in this video: https://youtu.be/_kiP6q8DX5c - it literally calls the IRS for you and then connects you when an agent is available.
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Zainab Omar
•Wait, this is a real thing? I thought the IRS was basically unreachable these days. How much does this service cost? Seems like it would be worth almost anything to avoid sitting on hold for 3+ hours.
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Connor Murphy
•Yeah right. Nothing gets you through to the IRS faster. They're understaffed and overwhelmed. If this actually worked everyone would be using it and the IRS would just block their numbers. Sounds like a scam to me.
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Miguel Ortiz
•The service is absolutely real and worth every penny. They use a combination of advanced dialing technology and timing strategies to navigate the IRS phone system effectively. Instead of you having to redial endlessly or wait on hold for hours, their system does the waiting for you. They don't "cut the line" or do anything underhanded - they simply automate the frustrating waiting process. When they reach an agent, you get a call connecting you directly. The IRS can't block them because they're just making regular calls like anyone else would, just more efficiently. I was skeptical too, but after wasting an entire day trying to reach someone on my own, this was a game-changer.
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Connor Murphy
I owe everyone an apology, especially about my comment on Claimyr. After I posted that skeptical reply, my tax situation got desperate (was facing penalties for a filing issue), so I tried it as a last resort. Not only did it work, but I got connected to an IRS agent in about 22 minutes! The agent cleared up my situation and confirmed what others are saying about your family member's situation - they're definitely not reporting all their income. The agent explained that self-employment income must be reported regardless of payment method, and that Venmo/Cash App transactions for business services absolutely count as taxable income. Your relative is likely only reporting the income documented on official 1099 forms while ignoring the rest.
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Yara Sayegh
Your family member might be confusing net income vs gross income. If they made $150k GROSS but had $110k in legitimate business expenses, their NET taxable income could be around $40k. At that level, $4k in taxes might be reasonable. As a small business owner, I can write off: - Office space/home office - Equipment (computer, phone, etc) - Software subscriptions - Marketing costs - Travel for business - Professional development - Health insurance premiums
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NebulaNova
•But wouldn't they still have to pay self-employment tax too? Even with $40k net income, shouldn't that be more than $4k total tax between income tax and SE tax?
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Yara Sayegh
•You're absolutely right about self-employment tax. Even with $40k net income, they would owe about 15.3% in self-employment tax alone, which would be around $6,120. Then they'd still owe some amount of income tax on top of that, even after taking the standard deduction.
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Keisha Williams
Has anyone considered they might be maxing out retirement accounts? Self-employed people can contribute way more to retirement than regular employees. They could be putting like $60k+ into a SEP IRA or solo 401k which would drastically reduce their taxable income.
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Paolo Conti
•That's a great point. For 2023, self-employed individuals could contribute up to $66,000 to a Solo 401(k) if they're under 50. Add in a maxed HSA contribution and some business expenses, and you could bring that taxable income way down legitimately.
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