Juggling tax responsibilities as a freelancer is a unqiue challenge. Shortcuts, "Handshake Deals" and "Under the Table" payments temp you. You think you'll get away with it, but watch out!
The IRS looks for these deals, and they'll bring the hammer down hard when you get caught!
Setting the Record Straight
When I talk about "handshake deals" and "under the table" payments, Im not talking about paying a neighborhood kid $50 bucks to help with the yard work.
I'm talking about doing work that would normally be a couple thousand dollars for a bartering of services, or giving a friend a special price and not reporting those earnings on your form 1099 when it's time to file.
The IRS Wants it All!
The IRS wants you to report every amount you earn and spend as a business or as a freelancer/independent contractor. If the IRS finds out you've been doing lots of work "under the table" (not reporting your earnings) you'll get slammed with an audit, fines, or worse!
Think about it... Even if you take away the possibility of the IRS breathing down your neck, you're really not helping each other when you make these "handshake deals". If you do work for someone under the table then you can't report it on your taxes as income. Your friend can't report it on his 1099 as a deduction for business expenses.
The IRS-Hitman's "Under the Table" Quick Fix
I have a solution that takes care of this problem. You'll be able to work out deals with fellow small business owners/independent contractors without incurring the IRS's wrath.
Bartering is a form of paying for goods and services, so it should be reported to the IRS. The next time you barter one good or service for another, draw up a contract.
State the terms just as you would any other business transaction. This way you both report your income correctly, and you will be able to claim the value of the "payment" as deductions. Everyone wins!
Remember: Report every cent you earn to the IRS if you don't want to owe the IRS back taxes!