One of my favorite statements come tax time is “I did some work for a guy on the side but he said he wasn’t going to 1099 me.” It is a HUGE mistake not to report it anyway. The most important thing about taxes is to report your worldwide income from ALL sources – whether you received the 1099 or not. The reason to do so is simple: failure to report income is an obvious omission … you either earned it or you didn’t. There is no nuance to that idea. With expenses you can argue the “why” about the legitimacy of the expense, but there is no such argument about income.
Besides, a year or two later, when you receive a letter from the IRS saying they got notice you earned money that you didn’t report because a) He DID report it or b) He got audited and when it came to a decision between you or him picking up the taxes he rolled on you faster than a snowball going downhill … your choices become very limited. For you, the one who didn’t report the income, it’s a pretty hard sell to now try and prove legitimate expenses for the income you reported you never had which can quite possibly land you with a higher tax because of it.
It happens – in fact, it happened to my client which is why I’m writing this post.
The most common reason I hear for not reporting income is that it fell under the 1099 limits. I want you all to be aware that those limits are meant to ease the paperwork burden for the reporter NOT for the earner.
Here are some income sources that are odd or challenging, but reportable nonetheless:
- Illegal activities including prostitution or drug sales (you don’t have to call it what it is, you just have to report it)
- Bonus cash you got for opening up a bank account
- The Prize you won from the radio station or were given at an event (think Oprah – “Everyone gets a car!” … and a tax bill)
- Jury Duty….yes even that little check you got to compensate you for your missed day of work is reportable
- Web Sales (even if under 200 transactions or $20,000 revenue – the IRS is on to this particular omission)
- Using Bitcoin or other CryptoCurrencies
- Unemployment Compensation
- Alimony although that may change in 2019
- Trade or Barter of goods and services
- Debt Forgiveness by a credit card or mortgage – sure you lost the home, but the money you don’t repay will be considered a windfall income and is completely reportable
- College Grants in excess of tuition/fees/books – and this means grants that cover travel or room and board are reportable and taxable
- Legal Settlements for “Pain and Suffering”
- Winnings from that Rodeo or Beauty event you participated in just for fun
Now there are some non-taxable sources of income for sure – Workers Compensation or State Disability are some pretty common ones. I always say that each case is different and may have varying degrees of mitigating factors available. But the main caveat here is that if you don’t report all of your income, and the IRS finds out, you have put yourself in jeopardy for not just the tax on that income but also for stiff penalties and interest and the likelihood of continued auditing for past and future years.
Have a question about your income? Please leave a comment or Contact Us!
We’ll chat again soon –