I’ve heard it said so many times that I can’t keep track of it: what you don’t know won’t hurt you. For some, ignorance is bliss. Maybe in some cases, this can be true. However, if you project this kind of thinking to the IRS, you might find yourself in deep trouble.
How many times have you been tempted to NOT report income because you think that the IRS will not be able to track it anyway? Perhaps your best friend might have told you – if you can get away with not reporting something, why not? Or maybe another freelance writer has shared experiences wherein he/she did not report part of his/her earnings and didn’t have any trouble.
Do you really want to risk it? If anyone can track an individual’s earnings, it’s the IRS. What the IRS doesn’t know may not hurt it, but it will probably hurt you. In fact, I’d go as far as to say that what the IRS doesn’t know just might make it even more curious.
So what is there to do? If there is one rule that you ought to remember when it comes to your taxes, it is this: declare everything. Don’t even think that you can hide.
I am not trying to make out the IRS as the big bad wolf here. All I am saying is that – cliche as this may be – honesty is the best way to go. You earn money. You pay taxes.
Now here’s something to think about: How many times have you been tempted to hide part of your income? How many times have you actually done it? (Not that I am expecting any answers for the second question.;))
Photo by howcheng
One thing to keep in mind is that although you may not report income, the person for whom you did the project may report it. That makes it easier for the IRS to find you through its highly sophisticated computer network. And don’t think that because they don’t catch you right away that they can come back years later demanding the tax that was due plus interest and penalties. Ditto for the state. If you have a payment agreement with the agency for back taxes you’re even more vulnerable because they review your 1040s for the years owed on a yearly basis.
An important additional note: Statute of limitations for most items on a tax return is three years — notable exception is undeclared income, NO statute of limitations. Remember, this is how they got Al Capone.
Thanks for that, Phil. Yup, one can’t run/hide forever.
Not to argue, but I’ve heard ACCOUNTANTS say the same thing “off the record”- usually followed by the fact that the IRS is understaffed and overworked.
*I* on the other hand report EVERYTHING. Just for the record.
Debra Stang says
I have a friend that got burned really bad by the IRS. They found out she was doing contract work from her home and hadn’t reported it, and they nailed her for almost $50,000 once all the penalties were added. I learned my lesson from her. I’ve become so anal that I report it to the IRS if I find a penny on the ground!