The IRS is tracking your income (here's how)

D. Rhodes, CPA, Writer and Editor

Tax season brings a critical document that affects every business owner's bottom line: Information Forms. The primary information form is a 'Money In' form - that reports income received or deposited digitally. In this article, we'll discuss this form and others, while highlighting that understanding these documents and how the IRS uses them could mean the difference between building wealth and facing penalties.

The reality is straightforward – laying low from the IRS and staying under the radar is becoming remotely impossible in today's digital payment age. Your income transactions are captured as metadata and most likely being reported to multiple federal agencies, creating a permanent record of your business income.

Those responsible in creating the forms (which in some cases can be you) will need at least three copies furnished every time one is created. One copy is kept by the sender, one copy is sent to the recipient and one copy is sent to the IRS. This tri-reporting system is reshaping how businesses approach their finances, including their taxes.

Recent IRS guidance (IR-2025-15) highlights the serious financial impact of non-compliance with information return requirements. As a sender penalties can quickly add up:

• Late filing penalties start at $50 per form for submissions within 30 days

• Delays beyond 30 days increase to $110 per form

• Forms filed after August 1st or not filed at all face $290 per form penalties

• Maximum penalties can reach $1,177,500 per year for small businesses

• Intentional disregard raises the penalty to $580 per form with no annual cap

  
  

These penalties apply to both late filing with the IRS and late furnishing to recipients. The financial stakes make it crucial to understand which forms you need to handle this January. So let's break down some key and common forms you may come across this tax season.

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Information Forms (you need to be familiar with)

Ordinary Income: 

• Form 1099-NEC: Tracks payments received as an independent contractor 

• Form 1099-K: Reports income from payment processors and booking platforms 

• Form W-2: Documents employee wages and tax withholdings 

• Form 1099-MISC: Reports various income types, including certain rental payments 

  
  

Miscellaneous Income: 

• Form 1099-DIV: Records dividend payments from investments 

• Form 1099-B: Documents proceeds from stock or cryptocurrency sales 

• Form 1099-INT: Reports interest earned from bank accounts 

• Form 1099-R: Shows distributions from retirement accounts 

• Form W-2G: Reports qualifying gambling winnings (including certain sports betting payouts when specific thresholds are met) 

  
  

Family and Education: 

• Form 1098-T: Records tuition payments for education 

• Form 1098-E: Documents student loan interest 

• Form 5498: Shows IRA contributions 

• Form 1099-Q: Reports education program payments 

  
  

Property Related:

• Form 1098: Records mortgage interest payments 

• Form 1099-S: Documents real estate transaction proceeds 

  
  

Each of these forms creates a direct line of communication between you and the IRS. When you receive one, the IRS has its copy, making accuracy crucial. 

Beyond compliance, these information returns:

• Create a verifiable income history for loans and leases 

• Support business expansion plans 

• Build credibility with financial institutions 

• Provide documentation for wealth-building strategies 

"What's my next step now that I got this list?"

I'm glad you asked.

1. Review your records now to identify which forms you need to send or should receive (if you don’t have records to review, that’s the first thing we do for you – so feel free to reach out to get started) 

2. Verify all tax identification numbers and addresses once you receive any information forms 

3. Double-check amounts on the forms against your records 

4. Keep your copies of every form – do not shred or throw away 

These information returns aren't just paperwork - they're building blocks for your business's financial future. They create a permanent record of your business's growth and success. 

Remember: Our ultimate goal is to help you save time and money, while building wealth and legacy.

The choice is yours, but the clock is ticking. Reach out today so we can help get you from where you're at, to where you want to be. Your move boss.

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*This article provides general information, not individual tax advice. Tax situations vary; consult with a qualified tax professional, like myself, for advice specific to your circumstances.