Cash Income? Wow!
Cash Income – Wow – Great for you.
Many people who used to be wage earners and get a W-2 Form, now work as independent contractors. They get paid in cash or by check. They usually make 20-30% more than someone earning a paycheck. it is fantastic. Like one client said, so often he runs out of money and then when he gets paid, he is suddenly, “ghetto rich,.” Then he can spend freely until he runs low on cash again.
This is pretty common for people who have cash income or will receive a Form 1099 showing how much they received by check. It really feels good to work and make money. Until tax time comes around. Because then a self employed person with either cash or check income would owe Social Security and Medicare taxes of 15.3% and between 10-35% for income taxes. This is when the smile fades to a frown. So many Americans do what makes the most sense to them at the time.
They stop filing tax returns and just hope that the IRS never asks them or anyone giving them the 1099’s about it. It is a time of more happiness, many of my clients just try to forget about IRS taxes and State taxes. They just go on year after year, trip abroad, new furniture, great cars, amazing life.
Then one year the IRS sends them a letter saying that they know that the person had income because their contractor reported it to the IRS. Busted! The IRS also kindly prepares their tax returns for them, using the worst possible method. The “Substitute for Return,” (SFR) program. That is where the IRS puts whatever it wants on your tax return and then sign your name on it- or at least it has that same effect.
Richard Schickel at RMS Tax can still help at this point, it is much easier than when the case goes to a mean tax collector later. But you have to ask for help. It is often a cold slap of reality- but it is necessary to preserve some semblance of normal in your future. Call now 520-668-3243