tax question,?

Question

my wife only claims on taxes what her company checks are written out for, she is a day spa owner and the company writes her a check every 2 weeks,and this is the amount she claims on her taxes, her personal bank account however shows that she has deposited about 20,000 more than what she made, can this 20,000 be considered income as well

Answer 1

A sole owner (sole proprietor) must report as income the difference between business income and business expenses. The money that a sole proprietor takes out of the business is not an expense, it is considered a draw. In other words, if your wife had $10,000 in business income and $6,000 of expenses (before her withdrawals) she must report $4,000 of income. Whether she takes that $4,000 out of the business account or not does not matter... she must still report it on Schedule C of your tax return.

If she is using her personal account as the business account that is not a good practice. She should separate them. It is easier to track business activities.

Finally, if she owns a corporation then the corporation is taxed on the difference between its income and expenses. The money that it pays to its employees (i.e. your wife) would be deductible to the corporation and it would be income to your wife. (I am assuming, like the contributor above stated, that if this is the case she is not just claiming her net pay... she would have to issue herself a W-2 at the end of the year.)

An owner of a company can not be an independent contractor for the company. So either her withdrawals are a draw down of profits which are not taxable or they are payroll which are taxable.

Answer 2

The $20,000 CAN be considered as income. When doing an audit, the IRS will ask about the source of deposits made in a bank account. If there isn't a sufficient explanation (along with some proof of the explanation), then it is income.

Answer 3

That depends on where it came from. If it's from some kind of work or business, then it would be taxable income. But if, as your followup question suggests, it's money coming from you, then no, it's not taxable or reportable as income.

Keep good records in case she ever is audited and questions are asked. Keep your bank statements to show where the money came from.

Answer 4

Your question is confusing. Is she an independent contractor? Is she an employee only claiming the net amount rather than gross (and how does she do this with her W-2s showing a different amount)? And where is she earning the extra $20,000?

Answer 5

Not necessarily.

That 20k could have been sitting under her mattress for a few years.

It could lead to an audit if it triggers some alarms, though. If that 20k -is- income, she should claim it, or face the consequences if she's caught.

Answer 6

All worldwide income, regardless if received by pay "check" or if paid in cash is taxable.

Remember, Al Capone did not go to prison for murder, he went to prison for under reporting his income on his taxes.

Answer 7

If this was part of tips paid to her from her customers, she needs to claim it as income.

Answer 8

Yes. not considered it is income

Answer 9

depends on where she got the 20k

if it smells like income, it's income.

Answer 10

u can show these deposits as savings of prevoius years and there is no tax on this deposit if u prove it