Monday, August 10, 2009

I Don't Pay Tax on That

A dirty bug-a-boo showed up again today. I thought it was dead, buried for all time, but somebody at the tavern must be spouting tax law after their seventh Bud.

Client calls this morning and wants to verify he didn't need to pay tax if the amount is under $600. After pounding my head into the corner five or six times, I return to the phone and explain that all earned income is reportable. If you do a small side job for $350, you still need to report it.

He didn't believe me. Actually, he thought I was stupid and nearly said so.

How do I convince said client on actual tax law? The light bulb flashes on. I rephrase my advice. "Okay, you got me. You don't have to pay tax on income under $600. That is why I charge so little for my services; haven't paid taxes since Reagan was in the White House."

It took a while for the light to go on over his head.

The $600 rule is for filing Form 1099. If you receive $600 or more from a vendor during the year, they will inform the IRS on Form 1099. Just because you don't get a 1099, doesn't mean it is tax free. And if you get caught, the penalties and interest are usury.

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