If you are self-employed you may be considering “shaving some off the top,” otherwise known as not fully reporting your income. Although you may think this practice is good for you, as the short term gain is paying less taxes, there are a few reasons why you should not do it; besides being illegal of course. Find out why it’s important to file a full claim.
The Digital Age
Also, these online payment platforms are not a form of credit cards, they are considered by the government as a form of a bank. As such, they are required to submit information on accounts for tax purposes. If you have an online account, it is very easy to track and trace the income from these sources. Eventually, the IRS will catch up to you.
It is technically even easier for a trail to lead back to you in the digital age. If you are earning over $600 from a single source, such as form one client, that client should be providing you with a 1099 or W2. These forms simply state the revenue that was paid to you for services rendered or items bought or sold. If you do not receive one, your own records and claiming the income should suffice, but having their contact details and history of the service or product provided should be kept.
How Claiming Helps
If you do claim 100% of your earnings there are a few good things that can help you. If you report less earnings then when you apply for any type of loan for a car, mortgage or personal loan you are more likely to be denied because your ‘income’ is not reported and therefore not verifiable through these loan applications.
Also, claiming the income in a family situation where you have children offers a benefit of even getting a refund back. In order to properly claim your income, you should also claim all expenses related to the business. If you work from home, you can claim a portion of the home expenses including interest paid on the mortgage, repairs and maintenance and even utilities of the home. Just be sure you actually have a designated “home office” space and not the kitchen table or these expenses could be denied. Imagine all the possible expenses that can be applied against your income including health insurance costs, retirement saving plans, office supplies and even child care.
You may be surprised by how little tax you have to pay, especially for home based businesses or new businesses after you claim your expenses.