Forget to Declare Income? You May Incur a “Failure to Pay” Penalty

Given the nature of today's economy, many independent contractors and freelancers derive their income from multiple sources, juggling three or four projects at any given time and maintaining an extensive client base. In the course of paying quarterly taxes or filing yearly returns, these individuals may, quite honestly, overlook one of these multiple income streams, thus underreporting their yearly pay and the amount of taxes they owe.

If you're a busy freelancer with dozens of clients, it would be extremely unusual for the IRS to pursue you to the ends of the earth for underreporting your income by a couple of thousand dollars. Most likely, the worst you'll face is a “failure to pay” penalty, which can add up to 25 percent of the unpaid tax due to your unreported income.

(How would the IRS find out about your failure to report this income in the first place? Well, your client probably filed a 1099 form with the government, and your records did not match those of the IRS.)

At what point does an honest oversight in reporting one's income shade over into active tax evasion? Well, that's up to the individual judgment of an IRS revenue officer. But, if you have underreported your income by tens of thousands of dollars, you may be in serious trouble and subject to onerous fines and penalties. And, if you neglect to declare income in the six or seven figures, you may well be facing criminal prosecution and even prison time.

Questions? Call the Oklahoma tax professionals at Travis W. Watkins, PC today (800-721-7054) for a free consultation!

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