My wife and I had our taxes done by a national tax firm. I told the representative–twice–that I had received $1700 in cash payments in addition to my normal income, and he told me–twice–not to bother reporting it. Is this SOP for filing a tax return, or was this guy as sketchy as it seemed to me?
He’s probably telling you about a common practice. I’d guess you probably would never get caught, but that doesn’t make legal, or a good idea. I’m sure lots of cash income isn’t reported though.
Just to be perfectly clear, was this $1700 in cash payments from your employer or for something else?
That’s sketchy as hell, because it’s illegal not to report income, very definitely including cash income. In the (fortunately unlikely) event that you were found out, there would be penalties and stuff.
I’d ask to speak with his boss, explain to him what the rep told you, and say that that just didn’t sound right to you, so you wanted to confirm it with him.
If you’re talking about H&R block, I would go somewhere else, preferrably a small private firm, not a national one. My son once went to H&R, but never again. They do not hire tax professionals, just pretty much clerks.
OK, this would be one possible legit explanation: if the cash was from the employer, and was accounted for already on the W-2 that the tax preparer used in preparing the return.
The OP didn’t specifically say that the money was wages or a bonus, etc, although perhaps that could be inferred. Some people have the misconception that they need to pay taxes on gifts. I just wanted to make sure that that wasn’t the case here.
The money was from tutoring folks in English; self-employment in addition to my actual payment. I knew that I would never in a million years get caught for not reporting it, but I figured I might as well try to be honest; I’m wealthy enough to support it, and the government needs every bit of cash they can get.
You probably won’t get caught, but it puts you in a very bad position if you are.
In general, the IRS is willing to be reasonable if you report deductions that are iffy (as long as you can justify them). If they find you took a deduction you should’t have, they tell you to pay the difference (plus interest), but not bother with penalities if it’s a matter of interpretation.
They are not reasonable if you underreport income. Then they start thinking “How much other income is he not reporting?” That’s not good for you. Even if they find it’s only this one item, they won’t waive anything you might owe.
Look at it like this:
If you had to pay the top rate of 35% on all $1,700, you would have to pay an additional $595 in taxes.
Is it worth $595 not to worry about this? If so, declare the income. If not, don’t.
To me, given that you can afford the money (as you claim), then pay the taxes. The uninterrupted nights of sleep will be well worth it.
Yeah, it’s better to pay. You do not want additional scrutiny if they do find out somehow, nor do you want to feel guilty about it. It’s easy to see the IRS as a bunch of crooks (my own experiences can be found on the board), but you have the opportunity to the right thing even if they don’t. I don’t what exactly he said, or under what circumstances, but personally I prefer professionals like accountants, lawyers, and doctors to be sticklers for details. And I have to wonder how much to trust someone who advises dishonesty.
Was the clerk a first-year newbie? He probably didn’t know where to enter it in the tax software and didn’t want to have to ask his boss for assistance.