This is one of the most common questions asked by freelancers, consultants, and independent contractors every year.
Technically speaking, if you find a twenty dollar bill on the street and pick it up, that’s income. But we both know the IRS has no way to find out about it.
Does that mean you should make all your tax reporting decisions based on whether or not you think your income is traceable?
Nope. Especially if you’re talking about amounts that add up to significant dollars. It’s a total myth that there are some kind of limits you have to go over before you’re required to “declare” certain income.
- You have to report cash payments you get from customers
- You have to report goods or services you receive by bartering
- You have to report income you get from a part-time business
- You have to report income from a business that’s not your “regular” work
- You have to report commissions, bonuses, awards, gifts, and prizes (listen up, direct sellers)
In other words, income is income, regardless of the source, the amount, or the frequency with which you receive it.
Think about it for a minute. Suppose you had 100 clients last year who hired you as a freelance writer and each one paid you $400. None of them sent you a 1099. Do you think you got $40,000 in tax-free income?
Not a chance!
[Heads up: Excerpted from “Tax Guide for Freelancers, Consultants, & Independent Contractors” by Sheryl Schuff, CPA]