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Am I really supposed to report all the money I make? Yes, every penny. No matter how you make money or how much, the IRS expects you to report your earnings and pay taxes on it. -
How could the IRS know whether I report all the money I make? Trust us ”they have their ways. In fact, there are several ways the IRS could learn of your unreported income. First, suppose the IRS audits one of your customers. In that case, the IRS can elect to audit all the companies that do business with this company. Second, a 1099 form filed by another company or individual does not match your income. Third, a disgruntled client or partner could report you to the IRS just to harass you. The IRS will investigate their reports and may conduct an audit. Fourth, your return may attract attention because of either substantial losses or profits. Fifth, you may not know this but the IRS does conduct random audits and your name could be selected. Sixth, the IRS also looks at lifestyle and determines if reportable income can support it. -
What happens if I don't file a tax return? This wouldn't be a good habit to get into. Imagine a snowball rolling downhill and growing larger and larger. When you don't comply with the tax codes and regulations established by the IRS, there are penalties to pay. In the event that you don't turn in a return at all, you will be charged with penalties. The penalty is set up this way: 5 percent of the unpaid tax for each month or part of a month that the tax is unpaid. This 5 percent can jump to 25 percent or more of the tax depending on the circumstances. What if you fail to pay the penalties? You could really be digging a hole for yourself because once again, there are penalties for that. -
I sell handcrafted picture frames at house parties. Am I supposed to report this small income to the IRS ? Yes, you will need to indicate this extra income on your tax return. Additionally, you may have to pay income tax and even self-employment tax on your profits. And keep this in mind ”if you live in a state with sales tax, you ought to be collecting it with every picture frame you sell. -
I am thinking of creating a part-time home business as a web designer. What taxes am I supposed to pay to the IRS ? People who work for themselves are expected to pay the following: federal income tax and self-employment tax if you earn more than $400 for the year. Check with your accountant to see if you are also obligated to pay local and state income taxes. -
How long should I keep my tax returns and tax- related records? If you want to rest easy, keep your tax returns forever. Think of it as your tax time capsule . Store them away in a safe place and if you ever need them, for whatever reason, there they are. This is also true for property records. Toss them in with the tax returns. All records related to your taxes, such as cancelled checks, receipts, and other tax documents that appear on your return, should be kept until the statute of limitations expires for the return. When is that? Typically, it is three years from the date the return was due or filed or two years from the date the tax was paid, whichever date is the latest. -
What is a tax credit? A tax credit is not the same as a tax deduction. While a tax deduction entitles you to make a deduction off of your taxable income, a tax credit entitles you to take the credit amount off of your final tax liability. For example, if you owe $15,000 in taxes, you can subtract the tax credit directly off of this amount. Tax Software There are three tax preparation software programs that are flying off the shelves . Tax Guide Books -
Taxes for Dummies . Eric Tyson and David Silverman. Hungry Minds: Chicago, 2001. Paperback, $16.99. -
H & R Block Income Tax Guide . Simon & Schuster: New York, 2001. Paperback, $15.95. -
J.K. Lasser's Taxes Made Easy for Your Home-Based Business: The Ultimate Handbook for Self-Employed Professionals, Consultants, and Freelancers . Gary W. Carter. John Wiley & Sons: New York, 2000. Paperback, $16.95. -
The Vest-Pocket CPA. Nicky A. Dauber. Prentice-Hall: Upper Saddle River, NJ: 1997. $16.95. IRS Publications There may be plenty about the IRS that can make you nervous, but we recommend a visit to their website for a thorough compilation of reader-friendly publications. Whether you are a telecommuter, freelancer, or small business owner, the IRS has the tax information you seek. You can find these publications online at www.irs.gov/formspubs/display.html or by contacting the IRS at 800-829-1040. Publication 334 “ Tax Guide for Small Business Publication 463 “ Travel, Entertainment, Gift, and Car Expenses Publication 529 “ Miscellaneous Deductions Publication 533 “ Self-Employment Tax Publication 535 “ Business Expenses Publication 538 “ Accounting Periods and Methods Publication 541 “ Partnerships Publication 542 “ Corporations Publication 547 “ Casualties, Disasters, and Thefts Publication 587 “ Business Use of Your Home (Including Use by Day Care Providers ) Publication 15-A “ Employer's Supplemental Tax Guide |
