How To Determine Your Income For Purposes Of Taxation
The IRS rules allow the Service to collect a certain portion of your income as a tax. This means every year you have to file an income tax return, and report what you made. By the end of the tax form, you will either have calculated an overpayment in taxes and be entitled to a refund, or learn that you still owe the government some of what you took to the bank the previous year. Reporting what you earned sounds easy enough, especially since employers are required to provide a W2 in January listing the wages you earned, and the taxes withheld. But not all people work 9-5 jobs and receive a W2, and not all money you receive throughout the year is in the form of W-2 wages.
Classifying your funds as income or derived from a source other than work can be tricky. Even situations like classifying the difference between a gift vs. other funds impacts this determination. To make the distinction, the following factors may be considered:
- The closeness of the relationship between the people exchanging the funds.
- Whether any business related ventures were undertaken involving the funds.
- If services were provided in anticipation of receiving the funds.
These types of cases usually arise where one party is receiving financial benefit from another, in the form of payment or tangible items of value. This scenario does not apply to most familial relationships. If you have questions about how the IRS defines income, and whether money you’ve received could be considered wages, consult a knowledgeable legal tax professional. It is always better to be safe than sorry when dealing with tax related issues. Reporting the money could save you an investigation or audit, along with involvement in protracted litigation. Call us today to learn more.
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