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paying back taxes

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  • paying back taxes

    when it comes to paying back taxes who determines how much money you've made from authorised work? do you just give IRS a figure and is there anyway of verifying the total amount earned?
    thanks

  • #2
    when it comes to paying back taxes who determines how much money you've made from authorised work? do you just give IRS a figure and is there anyway of verifying the total amount earned?
    thanks

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    • #3
      Do you have W2? or is it mainly cash payment?

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      • #4
        marmaduk,
        No W2. Mainly freelancing work and paid directly by client/customer, sometimes with cash but mostly with check. what are the implications of either?

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        • #5
          There are two ways the income can be verified through an audit process.

          If the clients paid with checks and you deposited them into a bank account, then IRS would have an ability to verify any figure you offer, by comparing the activity in your bank account(s), if audited. If there is anything unusual on your return or you are merely a random pick, you can be audited. If it appears that you had more incoming funds than those you declared as income, then likely IRS would wish to probe further in an audit, unless you can offer clear explanation as to the source of those funds (i.e. spouse's income, gifts etc.).

          You should be aware that many companies and corporations send a 1099 form to their contractors, and also keep W-9's for respective vendors and service providers. Do you recall receiving any 1099's or filling out any W-9 forms? If so, the company has a record of what they remitted to you and it will most likely be reported in their tax return. If you received less than $600.00 from any one source, you will not necessarily receive a 1099 form, and chances are it may not be declared by the client..but that is not always the case.

          Also, if an audit is triggered, and you did not deposit the checks, but simply cashed them and did not deposit the funds into your bank account, then remember that your typical living expenses will be taken into account, and should the income you report not be sufficient to support your cost of living, then it might indicate to IRS that there could have been additional cash income as well.

          Just be careful to report accurately - audits can be a lengthy process; their principal aim is for IRS to find unpaid taxes - and they do try. So, they aren't fun! Well, not for the one being audited, anyway!

          If you are audited, don't worry. As long as you have good records, which support your declarations, you can prevail!

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