2006-10-10 09:30:54 · 10 answers · asked by tony_balogna 1 in Business & Finance ➔ Taxes ➔ United States
My wife is a sole proprietor, and occasionally she does work for individuals who pay her with a personal check. We were originally under the impression that as long as her clients don't ask for her SS# and report it to the IRS, then she doesn't need to claim the income.
Now we've been told by someone that if we are ever audited, then the IRS will look at our bank accounts and question anything that is deposited into the accounts... even if it's a cash gift from grandma.
Is this true?
2006-10-10 10:15:33 · update #1
No, but you may have to prove where they came from.
2006-10-10 09:32:54 · answer #1 · answered by WJVV 4 · 1⤊ 0⤋
The first thing your wife should do is go to the bank and open a separate Business Account. NEVER use the same account for business and personal use. Next she needs to set up a proper accounting system for her business. All income most be reported for tax purposes regardless of the amount. It is her responsibility, not her customers, to report income to the IRS. Not all bank deposits are considered income, but if an account is routinely used to deposit business receipts, you will have to demonstrate deposits are not income. Consult a CPA immediately to sort out what you have already done and set up proper accounting for the business. Whatever the cost, it is better than letting the IRS correct things for you.
2006-10-10 21:21:08 · answer #2 · answered by STEVEN F 7 · 1⤊ 0⤋
you may have received a settlement on a lawsuit, for example, a personal injury lawsuit. so far as i know, this is non-taxable income, so i would not think that the irs auditors would question it at all. you should keep receipts of income and expenses, if you deduct them, for 7 years, even though the irs says only keep them for 5, just in case you are audited.
i'm self employed and am sick of keeping little scrap receipts in a pouch, ordered by date and type. therefore, this year i'll just scan them onto a cd. then i will throw all of them, not in any order, into a shoebox and put it into storage. the gov's got to get with it! if i am audited and they don't like using a cd, they they can get the shoebox full of little papers to look through, which wastes our taxpayer dollars while uncle sam won't pay you a dime of interest on your withholding taxes anyhow!
2006-10-10 09:44:04 · answer #3 · answered by Louiegirl_Chicago 5 · 0⤊ 0⤋
Most likely the IRS are looking at Wages, Self Employment Income, Investment Interest, and Dividends. Please repost your question with more information. Why is the IRS auditing you? They are usually very clear in the letter as of what items are in question.
2006-10-10 09:50:40 · answer #4 · answered by RamsGod 3 · 0⤊ 2⤋
>>>>>as her clients don't ask for her SS# and report it to the IRS, then she doesn't need to claim the income.<<<<<
Wrong.....wrong....wrong....
All self-employment income must be claimed whether it is reported to the IRS or not.
Bank deposits are one of the ways the IRS audits taxpayers. Any "non-income" deposits such as gifts or loans would be independently verified.
2006-10-10 10:32:54 · answer #5 · answered by Wayne Z 7 · 3⤊ 4⤋
You bet they look at your bank accounts. Thats why you need to have separate accounts for business and home.
2006-10-11 11:43:04 · answer #6 · answered by linluv2001 2 · 1⤊ 0⤋
No, but check in with the local authorities.
2006-10-10 09:38:12 · answer #7 · answered by Anonymous · 0⤊ 2⤋
Sorry, I have nothing insightful regarding this question
2016-08-08 16:53:45 · answer #8 · answered by ? 3 · 0⤊ 0⤋
Not if you can show where it came from and it is not income.
2006-10-10 09:33:03 · answer #9 · answered by oil field trash 7 · 1⤊ 0⤋
Thanks everyone for all the answers.
2016-08-23 08:32:40 · answer #10 · answered by ? 4 · 0⤊ 0⤋