started my own business this year (3 months ago) and earn about $3500/month. i want to report my income as aroudn $60K when I file for tax returns this year. I know reporting LESS is illegal and saw many people getting in trouble for doing that but how about the opposite? (Is it even possible anyway? it surely is not if i'll have to show them my bank statements to proove)
2006-08-27 15:41:46 · 6 answers · asked by Jan K 1 in Business & Finance ➔ Taxes ➔ United States
hi, thank you all very much for answering.
sorry i forgot to state the reason. it's because i want to first qualify for an apartment (they require me to make 3 times the rent) to move in and possibly get a small loan to grow my business.
but like one of you said if it's very illegal and could get me in to big trouble (going to jail or fine of over 5K) because it's committing fraud (lying) on lenders, i probably won't do it.
2006-08-27 17:14:12 · update #1
I'm not sure if it is legal or not, but the biggest downfall for you is that you'll be required to pay taxes on 60k, whether you made that much or not. You are looking at roughly 7 months of income at 3500 a month, and that means your income is only around 25000 for the year. Paying taxes on over double that will hurt big, as well as put you into a whole different tax bracket, and qualify you for less grants, or breaks.
Is there a reason you want to more than double your income on paper?
2006-08-27 15:48:56 · answer #1 · answered by Anonymous · 0⤊ 1⤋
You really should get an accountant as soon as possible or talk to a tax professional. There are many important things to keep track of when you start a business that you will need when you do your taxes.
Ultimately, the IRS (after all the forms are filled out and receipts are counted) wants to know how much PROFIT you made, not how much INCOME. They tax you only on that PROFIT. You could have sales of $100,000 (for example), but if you spent $95,000 to earn it, then you really only made $5000. The IRS taxes you only on that $5000 profit. That's why it is so important to know what you need to determine your real profit. Among items you need are receipts and automobile mileage.
After you accurately determine your profit, you can save even more in taxes by putting money aside for retirement. The government has many options available including IRAs, SEPs, and SIMPLEs. At some point, you may even want to consider incorporating (becoming a company) or forming a partnership.
So you can see, going it alone without any financial assistance make April 15th a very unpleasant, very unprofitable day.
Good luck!
2006-08-27 22:52:58 · answer #2 · answered by TaxMan 5 · 0⤊ 0⤋
If your question is only a tax issue you could at least get away with what you are suggesting as the IRS will be happy to get the extra tax. However you must have a reason for wanting to do so and I would imagine your real purpose would cause you to be in violation of the law. As an example, if you were to do so to support the income necessary to get a loan you would be committing fraud upon the lender. I would hope that I don't have to explain how this would not work if you are attempting to cover ill gotten gain such as drug money. Basically any thing that would benefit you from increasing you income is going to place you in legal jeopardy.
2006-08-27 23:16:28 · answer #3 · answered by ? 6 · 0⤊ 1⤋
I really recommend having an accountant (or at least a professional tax preparer) do your taxes the first time around. In future years, you can do your own, but it really helps to get started right the first time.
To your particular question, you should make a good faith effort to accurately declare your income. There is no reason to overstate it. If you think that (for whatever reason) you may owe additional taxes, you can just make an estimated tax payment and take care of it. Being self employed is fundamentally different from being a wage earner. That's why I recommend having an accountant work through this with you the first time.
2006-08-27 22:49:46 · answer #4 · answered by AngiesHusband 5 · 1⤊ 0⤋
The safest thing to do is to report what you make I don't think the IRS will audit you for OVERpaying though. I wonder if what you are doing is a form of money laundering though. That would be a no-no but no harm no foul right.
The one thing that you should be doing is paying your small business taxes quarterly not at the end of the year and any self employment income over $400 is subject to an additonal 15% of federal income tax. Do you have an accountant.
2006-08-27 23:26:16 · answer #5 · answered by Anonymous · 0⤊ 1⤋
get your self an accountant, you'll have to pay your estimated taxes quarterly. the accountant will tell you how much income you should report. don't go to h&r block. get a local guy
2006-08-27 22:52:17 · answer #6 · answered by xjoizey 7 · 0⤊ 0⤋