By now, you should know that you really never get away with anything.
The IRS is ALWAYS watching.
And they want to see that you report every last little bit of money you make – even things that you wouldn’t think counted as “income.”
When people don’t report their entire income, the government suffers from a sad condition called the tax gap (the amount of taxes that go unpaid every year). We can’t have THAT.
You already know that you have to report wages, salary, commissions, tips, interest and dividends on your tax return (Form 1040). (At least, we hope you know this!) But did you know….
If it’s under $600, you still have to report it. This is one of the most common misconceptions about taxable income. Many people think that if you’re self-employed and haven’t received a Form 1099 from your client, or have been paid less than $600, the income isn’t taxable.
Not true. There is no minimum amount that can be excluded from your gross income.
If it’s money, then it’s income. And you have to pay taxes on it.
This means that everything you do to earn a little extra money on the side makes you an independent contractor. And all the extra money you earn is self-employment income and must be reported on Form 1040, Schedule C, Profit or Loss from Business, or Form 1040, Schedule C-EZ, Net Profit from Business (Sole Proprietorship). If you’ve earned more than $400 for the year, you’ll also need to fill out Form 1040 Schedule SE for self-employment taxes. (We can help you with all this – just give us a call.)
And that means….
- Lemonade stands.
- Craft fairs.
- Snow shoveling and yard work.
It’s all “self-employment,” and it’s all taxable.
Are you sad yet?
This gets sadder.
You also have to report bartering (an exchange of property or services), by filling out a Form 1040 in the amount of the fair market value of the services exchanged.
You have to report gambling winnings, which are fully taxable (including the fair-market value of non-cash winnings like cars and vacations).
And you even have to report prizes and awards (or the fair-market value of non-cash prizes).
In fact, there’s really only one kind of income you don’t have to pay taxes on: income you don’t have.
In case you’re confused, the IRS has lots more information here!
- Publication 525, Taxable and Nontaxable Income
- Publication 505, Tax Withholding and Estimated Tax
- Publication 529, Miscellaneous Deductions
Or you could just give us a call at 844-841-9857, or schedule a free consultation here.