"Getting Legal" Question

Discussion in 'Business Operations' started by Havok, Mar 1, 2002.

  1. Havok

    Havok LawnSite Member
    from Fl
    Messages: 6

    From doing searches for the past few days on this site and looking for an answer through the search function I realize I am going to catch major hell for this, but I am still curious. When making the transistion from a "scrub" non-tax paying operation into a legal tax paying business would one expect to pay taxes from the time they started under the table to the present time? For the sake of the argument let's say it's been 2 years in business part time with about 20 accounts dealing with checks.

    I understand this individual must turn to an accountant and he will, but I wanted to get an idea of what he is in for. There is no need to turn this into a "you are going to go to hell for not paying taxes" lecture, but of course it is expected.

    I would think that the person would present himself to the accountant as beginning operations within the current timeframe to avoid back taxes and take a loss on the deductions that would have been gained 2 years ago, but I am just guessing.
  2. AL Inc

    AL Inc LawnSite Bronze Member
    Messages: 1,209

    Havok, You don't need me to tell you to keep this to yourself. Your accountant probably won't ask either. The less the IRS knows, the better. The world's three biggest lies: The check's in the mail, Of course I'll still love you in the morning, and I'm from the government and I'm here to help you. Good luck. Mike
  3. heygrassman

    heygrassman LawnSite Senior Member
    Messages: 509

    Bruce may be a better person to respond..

    If I am not mistaken an accountant has no privlidge to stand behind. You tell him, he/she has to fess up. Also, accountant can only attest for a tax return to the extent that he/she knows about. You get audited and mysterious checks show up on the table, watch how fast that accountant pushes back from the table and a tax atty business card gets pushed in front of you. This home office provision and the write offs that are allowed my lead to a few checks showing up. You would be amazed at the number of "home offices" that are out there for Avon, Tummerware,etc.

    Havoc, off topic and a piece of advice on posting stuff like this. I used to work for an Internet Service Provider and we logged IP addresses with users for 6 months. I realize this is only a hypothetical so there is no worry. Just fyi....

    Might want to read earlier posts on an increase in random audits for 2001 tax year.

    Good Luck. Hope the individual does well and sleeps better.

  4. bruces

    bruces LawnSite Senior Member
    Messages: 648

    Unless your conscience is really bothering you, I would start reporting your business income whenever you want to become a "real legitimate business". In other words, start now, or for 2001, what is past is past.

    If you go to an accountant, don't tell them more than you want them to know. We can be subject to fines for negligence, etc. if we do things wrong and know it. What the accountant doesn't know won't hurt you or them.

    You probably aren't really raising any flags to the IRS if you show that you started a business this year or in 2002. If you really want to be a good tax paying citizen, you could file amended returns for prior years. If you had lots of deductions and equipment purchases, you might even have losses and be entitled to refunds. Example, bought 5,000 mower, grossed 2,000 mowing, had other income (wages, spouses wages etc. of 40,000), you would have a loss on Schedule C of 3,000 if you take the Section 179 depreciation deduction on the mower.

    That would reduce your other income and save you taxes. If you had income greater than expenses, you woul owe tax and penalty.

    Your decision, but if you really intend for this to be a business, ever anticipate needing to borrow money, establish credit, etc. based on the business, you will have to establish tax and financial records to show that it is a legitimate business.
  5. Havok

    Havok LawnSite Member
    from Fl
    Messages: 6

    Thanks for the info.

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