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Report all your income

By Kay Bell · Bankrate.com
Tuesday, March 13, 2012
Posted: 5 pm ET

You're getting ready to file your taxes and you discover that you didn't get a 1099-MISC form for one of your jobs. You called the company and the guy in finance said since you didn't earn at least $600 for the project, the company doesn't have to issue the tax statement.

Woo-hoo, you think, there's $599 I don't have to put on my tax return!

Wrong.

Your earnings, even if they're not enough to trigger a reporting requirement by the payer, are still taxable income that you're legally bound to include when you file.

If you make enough freelancing as a main job or as a side business to justify filing a Schedule C with your 1040, include the amount there. If this was just a one-off job, you probably can file the shorter, easier Schedule C-EZ.

And if you didn't make at least $400, then you don't have to worry about filing Schedule SE to pay self-employment taxes.

OK, I hear you asking that if the IRS won't know about this income because the employer doesn't have to report it to you or the tax man, why should you worry about reporting it yourself? How would the IRS ever find out?

As for the first question, let me channel your mother: Report it because it's the law and the right thing to do.

As for the second question, let me ask you one: Do you really want to find out how the IRS might be able to discover that you didn't report all your income?

Also remember that willful nonreporting of income is basically tax fraud. And in fraud situations, the IRS has no statute of limitations. It can come back and nab you for your "oversight" whenever it finds out, demanding payment of the original tax due plus penalties and interest.

You don't need that kind of potential financial hassle when the amount you're thinking of not reporting is probably so small that it won't make that much of a difference to your final tax bill.

Plus, if you're asking all these questions about whether you need to report the income, then it looks like to me that you know in your heart of hearts you do. If you aren't honest with the IRS on your return, then it probably will bother you that you cheated on your taxes.

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