Tax Issues 1

Few things in life are quite as taxing as having to pay taxes. For starters, you know you are going to have to pay the IRS a painfully large chunk of your hard-earned income. Then, to make matters worse, you know you will have to give up a healthy chunk of your time to collect the receipts you need and read up on the latest changes in tax laws.
To add insult to injury, you are likely to stumble on the estimated preparation time in the instructions to Form 1040 and realize: .
.
(1) The estimated time figures couldn't possibly be accurate.
and.
(2) The IRS used your tax dollars to pay someone to tell you how long it should take to prepare your tax return.

While nothing may dispel your aggravation with the system, this chapter and the next one will help you gain a better understanding of tax regulations governing self-employment and home offices. In them you will find dozens of answers to frequently asked self-employment and home office tax questions. The subjects covered run the gamut from the most basic "Do I have to report it" questions to what you should do if you inadvertently run afoul of the tax laws.

The information in this chapter applies only to questions arising from Schedule C or Schedule C-EZ self-employment income. Schedule C is the sole proprietor business return; Schedule C-EZ is a simplified Schedule C designed for use by businesses with business expenses of $2,500 or less. While every attempt has been made to insure the accuracy of the information, neither this chapter nor any book or source of general information can substitute for your own personal tax adviser. Tax laws change frequently and the interpretation of the laws, in some instance, can vary according to specifics of your individual situation.

INCOME AND TAXES--SORTING THEM OUT

I sell handicrafts at flea markets and just make a little extra spending money. Do I have to report this income to the IRS?

Yes. The income has to be reported on your tax return. You will have to pay income tax and possibly self-employment tax on your profits (net income). In addition, if your state has a sales tax, you probably should be collecting sales tax on tht: items you sell.

Do I have to report all income I make on my own to the IRS?

Yes. Whether you make money from full-time self-employment, from moonlighting, from a hobby, or from work as an independent contractor or freelancer, the IRS expects you to report the income and pay taxes on it.

Suppose I don't get paid in cash. Do I still have to report the income?

Yes. If you barter what you sell for other people's goods and services, or for credits toward goods and services, the IRS expects you to report the value of the trade. It you run a business, the income from bartering (value of goods and services received) is also subject to self-employment tax.

My records show one of my clients reported less on the 1099 form they submitted to the government than they actually paid me. Can I use their figures in reporting my income on my tax return?

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