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Thread: low income and new car IRS

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    Veteran Member monicabi's Avatar
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    Default low income and new car IRS

    ok here is my question.
    i've been working for the past 4 years at a same club. i was getting my 1099 from a club with amounts around $6000 per one year, these are drink commissions club payed to me. the club never reports to IRS our tips or lapdance money. so, i alweys filed for IRS the same ammount that in my 1099, i never filed(reported to IRS) any tips or lapdane money.

    last year i bought $10,000 car and at a dealers i sayed that my income was $24,000 a year, they believed me, God bless them. hehee

    this year should i report to IRS some of mine lapdance money too to make my income look higher or i shouldn't worry about it at all?

  2. #2
    Banned Melonie's Avatar
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    Default Re: low income and new car IRS

    ^^^ obviously, the law requires that workers receiving 'tip income' in excess of 1099 amounts to report and pay taxes on 100% of that 'tip income'. There is a specific line for entering this excess 'tip income' on the 1040 tax return form.

    Under recently enacted regulations for lenders, it is now necessary for the lender to 'verify' the claimed income of would-be borrowers. This was a 'closing the barn door after the horse had left' reaction to the huge default rate on real estate loans involving 'stated income', 'low doc', 'no doc' etc. Where self-employed persons are concerned, one of the only iron-clad methods of 'verifying' income is to show past year tax returns. It appears that you managed to avoid such income 'verification' requirements when seeking a new car loan.

    From an IRS / legal standpoint, if a person only reports a $6,000 income on their tax return, then their 'official' income level is only $6,000 ! Similarly, from an IRS standpoint, when a state motor vehicle bureau reports that a person with social security number XYZ just purchased a car for $10,000 with say $2,000 down and $8,000 financed through financial institution ABC at a monthly payment amount of say $300, IRS computers are going to run a records check on past tax returns filed under social security number XYZ. If the 'official' income reported on the person's tax returns appears to be insufficient for that person to have saved up $2,000 in down payment money plus afford to pay $300 a month in car payment ... while also paying 'average' cost of living expenses in that person's zip code area ... then the probability of an IRS audit will be extremely high.

    Based on a couple of incidents I know about involving New York dancers ( which for better or worse were triggered by new car purchases and resulting state motor vehicle bureau reports to the IRS), if past years' tax returns tend to show a huge discrepancy between the amount of 'officially' reported income and the actual lifestyle / cost of living / spending that exists, the IRS will quickly reach a conclusion that past reporting of financials / taxable income by that person is 'lacking in credibility' if not deliberately fraudulent. Once the IRS adopts such a conclusion, they will then proceed to develop an 'estimated income level' for past years which more accurately reflects the actual amount of earnings necessary for that person to maintain the actual lifestyle / cost of living / spending levels that actually existed. The IRS can immediately go back 3 years with such an investigation and 'estimated income levels'.

    Again based on the New York incidents I know about, it is very possible that the IRS could reach a conclusion that the person actually earned say $35,000 per year for the last 3 years ... thus under-reported some $90,000 in income over that three year period ... thus that person now owes the IRS some $30,000 in unpaid income taxes plus penalties plus interest for that three year period.

    This is the 'flip side' of tip income that is not officially documented by a third party ( like the club ) - i.e. that the person who earned the tip income has no way to conclusively prove how much tip income they actually did or DID NOT EARN ! And the existance of 'ludicrously' low reported income levels on past years' tax returns only aids the IRS's position / credibility and hurts the person's position / credibility if the person chooses not to pay the IRS 'estimate' of back taxes due thus taking the issue to tax court.

    ~
    Last edited by Melonie; 01-31-2010 at 08:25 AM.

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    Default Re: low income and new car IRS

    I think you should because you could open a can of worms on yourself. They know you didn't make the exact same $6,000 every single year. They maybe planning to audit you, but normally the computer generates names when it seems like something is suspicious it most likely pulls your name. I would up the income for this year and pay the taxes you owe because they will get money from you. Just for future references, you need to put more money on your taxes and also pay the taxes you owe because when you think that you maybe getting over on the IRS, you're really not. Plus it benefits you also to show more income because it would be easier to buy things on credit. You were lucky that the car dealerships are in desperate need otherwise any other day they wouldn't have let you buy that car!
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    Default Re: low income and new car IRS

    The $10,000 car purchase by itself should not trigger an IRS audit, unless you paid for it in cash, which would require the dealer report on Form 8300.

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    Default Re: low income and new car IRS

    ^^^ FYI, the IRS has information sharing agreements in place with 40 different states which require those state DMV's to automatically report the details of every new / second hand auto title registration ... buyer's info, titleholder's ( lender's ) info, amounts involved etc. Same is true for real estate titles, boat titles, motorcycle and snowmobile titles etc.

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