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sram81
03-29-2012, 12:01 AM
Ok, so I know someone who is working from home doing something that isn't exactly legal in their state. Nothing crazy, but you aren't allowed to sell food products out of your home in this state, and this person is selling cakes and cupcakes.

My question is related to taxes. We were talking and they expect to make 2-3k this first year (it's a stay at home mom doing it very part-time). I wouldn't be so much worried about getting caught by the health department, but I would be deathly afraid to be caught not reporting the income to the IRS. What would you do in this situation? Do you report the income? If so, how do you do it?

vangogh
03-29-2012, 11:26 AM
I would say the right answer is to report everything honestly and let the chips fall where they may. And do what needs to be done to make things legit in the future.

Having said that I think there's minimum revenue you need before having to file in the first place. I'm not sure what that amount is or even if there is a minimum, but I think so. It's possible this person doesn't need to file. They probably do, but it's worth looking into. Assuming they file I think it's unlikely the IRS would know they aren't allowed to legally sell their food products. I wouldn't think filing would lead to a visit by the health department. Odds are the IRS wouldn't come calling either if there's no return. Still I think the right thing to do is the honest one. File honestly, get everything set up so the business is legit, and let the chips fall where they may.

Business Attorney
03-29-2012, 12:08 PM
Having said that I think there's minimum revenue you need before having to file in the first place. I'm not sure what that amount is or even if there is a minimum, but I think so. It's possible this person doesn't need to file. They probably do, but it's worth looking into.

If this is a stay at home mom who has a working husband, and they are filing a joint return, then ANY additional income needs to be reported.

vangogh
03-29-2012, 04:26 PM
Yeah I was thinking that might be the case. I figured if this was the sole income that might be reported then it might not meet minimum requirements. I'm certainly not the expert on this though.

To me the right thing to do is still report everything honestly. If there are consequences then learn from them. Mainly get things in order for next year so this issue doesn't come up again.

Evan
03-29-2012, 09:34 PM
All income needs to be reported. The business being conducted isn't necessarily illegal, it just requires some additional permits to be more "legitimate".