“Do I have to eat all my dinner?” My kids ask me this frequently. So frequently that it has actually has made me ponder on the question…What in life do we actually have to do? Taken literally, I suppose there really isn’t anything in life we are forced to do…it’s just that the consequences can be so bad if we don’t, that we feel it’s required. For my kids, eating all of their dinner is a requirement if they want to have dessert…which usually works for all but one…but we’ll save that for a different post.
Do I Have To Report My Blogging Income?
Likewise, we ask the question, “Do I have to report my business activity on my tax return?” It really is more of a moral question and depends on whether you want to face the consequences of not reporting it.
There is no minimum amount of income that has to be earned before it must be reported on the tax return. Once the IRS has determined you are running a business, you are required (there’s that word again) to report it on your tax return. Even if you lose money, it is supposed to be reported, and in fact will be a tax benefit to you by doing so.
Now, here is the natural question that follows…”Really? Even if I only make one dollar I still have to report it?” My response connects back to the beginning of this post…”You don’t have to do anything…You only have to be willing to face the consequences of your choice.” The consequences of not reporting one dollar of income are certainly different from the consequences of not reporting $1,000 of income.
So What If I Chance It?
Since the IRS’ tax law enforcement methods are a little more effective than copyright enforcement methods, it is good to at least be aware of what the consequences are. The following potential penalties are applied to the amount of tax you end up owing if/when the IRS finds out that you didn’t report:
- Late Filing: 5% per month that you are late in getting your return filed
- Late Payment: 1% per month that you are late paying taxes owed
- Negligence: 20% for not doing your due diligence to inform yourself of what was required of you (sorry, now that you have read this post, you probably won’t fall under this category, but closer to the “F” word one below …just kidding, there is some wiggle room still)
- Substantial Understatement: 20% for understating what the IRS considers a “substantial” amount of your income
- Fraud: 75% for willfully, intentionally not reporting your taxes accurately
If you get audited, an IRS agent will go through your records, transaction by transaction in some cases, and find out how much income you should have reported on your tax return. Any of the above penalties that apply to you will be added together and multiplied by the amount of taxes you should have paid.
So I guess this is really a subjective question. After all, 100% of ten bucks isn’t much of a consequence. So if you are in that boat, the pill may be easy to swallow. The uneasiness comes when you don’t know how big the pill might be. Vyde’s hassle-free accounting service helps with that, but you can also put in the time and energy to figure it out. The next post in our series will give you some help for running your own numbers.
If you have any questions about your circumstance, don’t hesitate to contact us.
Disclaimer: We know our readers aren’t dummies, but have to say this just in case… The information provided above is for reference only and not for your specific situation. It does not cover every scenario and may not apply to yours. Please consult us or another professional before executing any of the above advice.