IRS Insider: Seasonal Income Reporting Pitfalls

If you’re a food vendor, your income probably looks nothing like a traditional business.

You might make $10,000 one month during festival season and $800 the next. You might take cash, card, Venmo, or even old-school checks—all within the same week.

That’s normal for seasonal businesses. But to the IRS? Inconsistent or missing income records can look like underreporting.

As a former IRS Agent, I’ve seen many vendors trip over the same mistakes—not because they were dishonest, but because they didn’t know how to record seasonal income correctly.

Here’s what you need to know to avoid the pitfalls and keep your numbers clean, compliant, and credible.

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1. Seasonal Income Isn’t an Excuse for Sloppy Records

The IRS doesn’t expect your business to earn evenly every month.But they do expect your records to explain the fluctuations.

When your income drops to zero in January and spikes in June, that’s fine—as long as your

records show why.

💡 Example:If your books show no income in January, your expense records should show things like equipment repair, commissary fees, or supply restocking. That creates a logical story.

When income and expenses both vanish during “off months,” agents start to question whether income was unreported.

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2. Multiple Payment Methods = Multiple Tracking Points

If you accept sales through Square, Venmo, or cash, you must record all of them—even the small ones.

According to IRS IRM 4.10.4.3.3 (Cash Intensive Business Audits), agents are trained to match third-party payment reports (like Form 1099-K) to your books and bank deposits.

Here’s what to do

:✅ Download annual reports from Square, PayPal, and Venmo.

✅ Add up all cash sales from your log or receipt book.

✅ Match those totals to your bank deposits.

When everything ties out, your income tells a consistent story.

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3. The Danger of Missing Deposits

This one’s common—and costly.

If you take cash from an event but don’t deposit it right away (or mix it with personal money), the IRS assumes it’s personal income unless proven otherwise.

During an audit, agents use what’s called the Bank Deposit Method—they total all your deposits and compare them to your reported income.

If they find extra deposits with no explanation, they’ll count them as income.If they see missing deposits, they’ll assume income was underreported.

✅ Fix:

Deposit all event income, even if you plan to withdraw it later.This creates a clear trail of business activity.

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4. The 1099-K Confusion

Many vendors don’t realize that Square, Stripe, and PayPal issue Form 1099-K when you exceed $5,000 in transactions (even lower thresholds may apply in future years).

If your 1099-K shows more income than your tax return, the IRS automatically flags it for review.

💡 Fix:

Make sure your books match your payout reports—not the gross amount before fees.

Record your gross sales, then deduct processing fees as expenses.That way, your return matches your 1099-K exactly, and you stay audit-proof.

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5. Mixing Years: The Cutoff Problem

Many vendors make sales in late December but don’t receive deposits until January.

That’s fine—but it must be recorded correctly.

Under cash-basis accounting, income counts when you receive it.

So if Square pays you on January 2 for a December 30 event, that’s next year’s income.

✅ Fix:

Check your December payout dates before filing. It’s better to report it in the right year than explain it during an audit.

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6. Missing or Unlabeled Events

One of the easiest ways to lose credibility with the IRS is having income totals with no documentation behind them.

When you list income, make sure you can tie it to:

• An event name or location

• Date of sale

• Payment method

This shows that your income wasn’t “random”—it came from legitimate business activity.

💡 Keep a master list of all events, even if you skipped a few. Consistency is key.

7. The “Cash Discount” Trap

Some vendors offer discounts for cash sales (to avoid processing fees). There’s nothing wrong with that—but you still have to report the full income.

If your menu item is $12 but you charge $10 for cash, record $10 as your sale price—not $12 and a “$2 discount.”

Why? Because cash sales should always match actual received amounts.This keeps your totals clean and prevents over-reporting or confusion later.

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8. Documentation Is Everything

Here’s what I used to look for as an IRS Agent during small vendor audits:

✅ Sales reports (Square, Venmo, PayPal, etc.)

✅ Bank deposit slips

✅ Event calendar

✅ Cash logs

✅ Expense receipts by event

If all those pieces connect, your numbers are solid.

When one piece is missing—especially cash logs—it opens the door to assumptions.

💡 IRM 4.10.7.3.8 (Evaluation of Evidence) specifically notes that consistency across documents is one of the strongest forms of proof in a small business audit.

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9. Need Help Getting It Straight?

If you’re behind on your records or unsure how to track multiple income sources, we can help.

Our Cleanup Packages are built specifically for food vendors and event-based businesses who need reconciled books and clear income reporting.

We translate all those Square reports, cash deposits, and commissary fees into one clear, IRS-ready record.

👉 Explore Cleanup Packages here 

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The IRS doesn’t expect perfection—just proof.

When your income matches your deposits, and your deposits match your reports, your credibility is solid.

Clean, consistent records are your best defense against seasonal income confusion.