Reporting cash income to the IRS?

Question

In 2007 I worked part time for a couple of months and made about $14000 on W-2. I also sold books/used textbooks the same year on the beach and online and made about $5800 after deducting expenses. My business was all cash. I didn't even use a bank account or applied for any business license etc.

In my original return I did not include this business income as I did not know how to do it and did not want to miss the Apr 15 deadline. I recently filed a 1040X and added the $5800 as business income and attached a schedule C. Will the IRS impose any penalties? Also, I just realized I was supposed to attach schedule SE also.

Does one need to have sales tax, business licenses etc etc. for this kind of business? Did i do the right thing by including the cash business income in the amended return? Does anyone know? Thanks

Answer 1

The IRS will in all likelihood adjust the the amounts for you withouht the Schedule SE.  They will assess interest and penalties.  Don't complain though the reality is you signed your tax returns under penalty of pergury.  By not reporting your self-employment income on your original return you perjured yourself, comitted fraud before the Federal government and in theory could be prosecuted for criminal offenses.  You were smart to file the amended return. If you have not already amended your state tax return to include the income, you should do that as well.  In reality, you will in all likelihood just be assesed penalties.  Maybe a fraud penalty, but more likely a negligence penalty will apply as well.  I would advise not letting this happen again.  People that do this repetitively or with large dollar amounts have been known to find themselves behind bars.

Christopher R. Jacquez

President eTaxrelief

Answer 2

get ready for the audit

Answer 3

Yes there will be penalties and interest, but since you're just a couple months late it won't be a lot.  And yes, you'll owe an additional amount for the self-employment tax, and interest and penalties on that too.

You did the right thing by including the cash business on your amended return - it would have been even MORE right to include it on your original return.

You might or might not need a business license, depending on your local laws.   If books are taxed in your state, then you need to get a sales tax license from your state.

Answer 4

The IRS will send you a schedule SE.

The taxes were due 4/15, so you will pay penalties and interest from 4/15.

As for sales tax, that is a state issue, though you probably should have been charging it and there are penalties  there too.