Thanks to the Tax Cuts and Jobs Act of 2017, many of us saw our income tax requirements and need for withholding shift. The IRS is now warning a particular demographic of the need to carefully review withholdings in light of upcoming changes brought about by the TCJA: retirees.
A recent tax court decision reveals just how important it is to not ignore income on Form 1099-C come tax time. The case, TCM 2018-140, involves a taxpayer who received debt discharge to the tune of over $360,000 back in 2010. Lacking any other income for the year, the taxpayer chose to not file a tax return. In 2018, he incurred failure-to-file and failure-to-pay penalties due to his lack of tax reporting.
Over the last decade, the IRS has sought to close the tax gap by going after unpaid taxes on income earned in foreign financial accounts. The historic crackdown started with a whistleblower detailing how UBS and other Swiss banks helped Americans hide money to avoid taxes.
We’ve discussed previously the importance of proper estimated tax payments if you have a profitable hobby or so-called “side-gig.” It’s understood and fairly well-known that if your side project brings in more than $1000 per year (via cash, check, bank account transfers, electronic currency or other source), you need to report that income, even if you don’t receive a 1099-MISC, W-2 or other similar tax form. You can also deduct qualified business expenses for a side gig just like you’d be able to with a full-time job.
Imagine this: a while back, your business was having some cash flow problems and you got behind on your taxes. You weren’t able to make an offer in compromise or cover the taxes in the timeframe requested by the IRS, so they put a tax lien on your business assets. Fast forward to today, when you are trying to raise capital to grow your operation. Will that tax lien make it impossible to secure financing?