Post by Boudreaux on Jun 7, 2012 8:41:46 GMT -5
www.irs.gov/publications/p334/ch05.html#en_US_2010_publink100025187
IRS Publication 334
Cash is easy to hide, but you don't want to try to hide it from the IRS. If the IRS suspects you have unreported cash income from a side business, they will create a monthly budget and compare your actual expenses and reported income against the lifestyle budget they create. If you're reported income doesn't support the budget expenses, get ready for a full scale audit.
Don't chance it!
IRS Publication 334
Kinds of Income
You must report on your tax return all income you receive from your business unless it is excluded by law. In most cases, your business income will be in the form of cash, checks, and credit card charges. But business income can be in other forms, such as property or services. These and other types of income are explained next.
If you are a U.S. citizen who has business income from sources outside the United States (foreign income), you must report that income on your tax return unless it is exempt from tax under U.S. law. If you live outside the United States, you may be able to exclude part or all of your foreign-source business income. For details, see Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad.
Bartering for Property or Services
Bartering is an exchange of property or services. You must include in your gross receipts, at the time received, the fair market value of property or services you receive in exchange for something else. If you exchange services with another person and you both have agreed ahead of time on the value of the services, that value will be accepted as the fair market value unless the value can be shown to be otherwise.
Example 1.
You are a self-employed lawyer. You perform legal services for a client, a small corporation. In payment for your services, you receive shares of stock in the corporation. You must include the fair market value of the shares in income.
Example 2.
You are an artist and create a work of art to compensate your landlord for the rent-free use of your apartment. You must include the fair rental value of the apartment in your gross receipts. Your landlord must include the fair market value of the work of art in his or her rental income.
Example 3.
You are a self-employed accountant. Both you and a house painter are members of a barter club, an organization that each year gives its members a directory of members and the services each member provides. Members get in touch with other members directly and bargain for the value of the services to be performed.
In return for accounting services you provided for the house painter's business, the house painter painted your home. You must include in gross receipts the fair market value of the services you received from the house painter. The house painter must include the fair market value of your accounting services in his or her gross receipts.
Example 4.
You are a member of a barter club that uses credit units to credit or debit members' accounts for goods or services provided or received. As soon as units are credited to your account, you can use them to buy goods or services or sell or transfer the units to other members.
You must include the value of credit units you received in your gross receipts for the tax year in which the units are credited to your account.
The dollar value of units received for services by an employee of the club, who can use the units in the same manner as other members, must be included in the employee's gross income for the tax year in which received. It is wages subject to social security and Medicare taxes (FICA), federal unemployment taxes (FUTA), and income tax withholding. See Publication 15 (Circular E), Employer's Tax Guide.
Example 5.
You operate a plumbing business and use the cash method of accounting. You join a barter club and agree to provide plumbing services to any member for a specified number of hours. Each member has access to a directory that lists the members of the club and the services available.
Members contact each other directly and request services to be performed. You are not required to provide services unless requested by another member, but you can use as many of the offered services as you wish without paying a fee.
You must include the fair market value of any services you receive from club members in your gross receipts when you receive them even if you have not provided any services to club members.
Information returns. If you are involved in a bartering transaction, you may have to file either of the following forms.
Form 1099-B, Proceeds From Broker and Barter Exchange Transactions.
You must report on your tax return all income you receive from your business unless it is excluded by law. In most cases, your business income will be in the form of cash, checks, and credit card charges. But business income can be in other forms, such as property or services. These and other types of income are explained next.
If you are a U.S. citizen who has business income from sources outside the United States (foreign income), you must report that income on your tax return unless it is exempt from tax under U.S. law. If you live outside the United States, you may be able to exclude part or all of your foreign-source business income. For details, see Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad.
Bartering for Property or Services
Bartering is an exchange of property or services. You must include in your gross receipts, at the time received, the fair market value of property or services you receive in exchange for something else. If you exchange services with another person and you both have agreed ahead of time on the value of the services, that value will be accepted as the fair market value unless the value can be shown to be otherwise.
Example 1.
You are a self-employed lawyer. You perform legal services for a client, a small corporation. In payment for your services, you receive shares of stock in the corporation. You must include the fair market value of the shares in income.
Example 2.
You are an artist and create a work of art to compensate your landlord for the rent-free use of your apartment. You must include the fair rental value of the apartment in your gross receipts. Your landlord must include the fair market value of the work of art in his or her rental income.
Example 3.
You are a self-employed accountant. Both you and a house painter are members of a barter club, an organization that each year gives its members a directory of members and the services each member provides. Members get in touch with other members directly and bargain for the value of the services to be performed.
In return for accounting services you provided for the house painter's business, the house painter painted your home. You must include in gross receipts the fair market value of the services you received from the house painter. The house painter must include the fair market value of your accounting services in his or her gross receipts.
Example 4.
You are a member of a barter club that uses credit units to credit or debit members' accounts for goods or services provided or received. As soon as units are credited to your account, you can use them to buy goods or services or sell or transfer the units to other members.
You must include the value of credit units you received in your gross receipts for the tax year in which the units are credited to your account.
The dollar value of units received for services by an employee of the club, who can use the units in the same manner as other members, must be included in the employee's gross income for the tax year in which received. It is wages subject to social security and Medicare taxes (FICA), federal unemployment taxes (FUTA), and income tax withholding. See Publication 15 (Circular E), Employer's Tax Guide.
Example 5.
You operate a plumbing business and use the cash method of accounting. You join a barter club and agree to provide plumbing services to any member for a specified number of hours. Each member has access to a directory that lists the members of the club and the services available.
Members contact each other directly and request services to be performed. You are not required to provide services unless requested by another member, but you can use as many of the offered services as you wish without paying a fee.
You must include the fair market value of any services you receive from club members in your gross receipts when you receive them even if you have not provided any services to club members.
Information returns. If you are involved in a bartering transaction, you may have to file either of the following forms.
Form 1099-B, Proceeds From Broker and Barter Exchange Transactions.
Cash is easy to hide, but you don't want to try to hide it from the IRS. If the IRS suspects you have unreported cash income from a side business, they will create a monthly budget and compare your actual expenses and reported income against the lifestyle budget they create. If you're reported income doesn't support the budget expenses, get ready for a full scale audit.
Don't chance it!