Most people who file income tax in the U.S. receive their income via check or credit cards. They follow all the standard procedures, and usually they have no problems doing so. However, there are those people who get their income in cash. This can sometimes cause confusion. People might think there are different standards for taxes on cash income, but in truth the procedure is largely the same. Today we’ll talk about the process, so you can be well informed and file your taxes the right way.
First, it is imperative that you keep track of both your income and your expenses. Keeping detailed records is best.
You want to be sure that you also have documented proof of all your cash income so that you can support all of your cash income claims.
You might keep copies of the production records and sales records from your business. You can also keep copies of things such as inventory sheets, banking statements, and all slips from cashdeposits you made. You don’t have to deposit all your cash income, but it is advisable to do so since deposit slips make it easier to prove your income should you be audited.
Also, be sure to keep track of any cash withdrawals you make for your own personal use.
Second, be sure to complete a Form 1040 every year and submit it by April 15.
Also fill out a Schedule C form.
This form does not allow for you to differentiate your cash income from other sources, so you should be sure to report
all of your income, both from cash and from other sources. If you received your cash income via tips from your job, all those earnings should be reported and shown on the W-2 form your employer sends you. This amount should be noted on line 7 of the 1040 form. Also, if your employer reported your tips incorrectly on the W-2, they are required to give you a W-2c form, which is basically a W-2 that has been corrected.
Finally, don’t be fooled by those who say that you don’t have to claim cash income. There have been rumors circulating that you only have to claim cash if it exceeds $600. Make no mistake, there is no minimum. The IRS expects you to claim every dollar, so be meticulous and claim all cash. This will be to your benefit should you be audited. Also, be sure to keep track of your city and state taxes, and if you are filing for a business, also make sure all of your licenses and official documents are up-to-date. This is not really a federal tax requirement, but keeping all these things current will go a long way towards making you or your business more legitimate in the eyes of the IRS. Remember, the more income you receive in cash, the more likely it is that you will be selected for an audit. Therefore, be honest when you file, and you won’t have any worries if the IRS comes calling.
You can download the 1040 Form directly on the site from the IRS
IRS 1040 Individual Income Tax Return