People who come to me because they’re under a tax audit often tell me they didn’t think they needed to report income they made because they didn’t get a 1099, or because it was “under the table”. This is a common, and dangerous misconception that can cost taxpayers thousands of dollars in an audit.
There are exceptions, but in general, if you receive money or anything else in payment for doing some sort of work, you owe tax on that money or the value of whatever else you received in payment, like if you did some work for someone and they agree to do other work for you in exchange. This is true even if the payments you received were under the $600 threshold to cause a 1099 filing requirement.
If the IRS finds out you received money but didn’t report it (and they often do), they’re likely to start an audit of your taxes, which could end up much more involved than if the original income had just been reported. They may look at your bank statements and start asking about every deposit you’ve made, assuming it’s all income. They might even look at purchases you’ve made and question how you had enough money to pay for them based on how much income you’re reporting.
It might not always be obvious at first glance that an audit was triggered due to unreported income instead of for some other reason, but the audit paperwork should tell you what you need to provide. If you don’t feel comfortable handling an audit alone, a tax professional experienced in audits can help. They should have a good idea of the types of details an auditor is really looking for and the process that will make the audit go more smoothly.
If you’d like to discuss a tax audit or some other tax problem you’re dealing with, contact Ohio Tax Rescue at:
614-636-1040 or
don@ohiotaxrescue.com
