Should I file even though it was a hobby?
April 1, 2009 7:40 AM Subscribe
Mortgage and work history question: Can I go back and file my taxes even though I was told I wasn't making enough? Is it worth it?
I was self employed for two years while in college just to make some side money. I was told I wasn't making enough to have to file taxes, that it was more like a hobby so I didn't worry about it. Fast forward to now three years or so down the line. I want a mortgage quote from another company but I need some kind of tax proof that I was working and making money those two years. What do I do? Having that as proof would be great and would get me more quotes but is it a good idea to go back and file? I don't know how that works. Help please and thank you.
I was self employed for two years while in college just to make some side money. I was told I wasn't making enough to have to file taxes, that it was more like a hobby so I didn't worry about it. Fast forward to now three years or so down the line. I want a mortgage quote from another company but I need some kind of tax proof that I was working and making money those two years. What do I do? Having that as proof would be great and would get me more quotes but is it a good idea to go back and file? I don't know how that works. Help please and thank you.
Do you understand that if you go back and file to get "tax proof" that you were making money those two years, that tax proof is going to be in the form of demands from the IRS for back taxes and penalties?
posted by iknowizbirfmark at 8:18 AM on April 1, 2009
posted by iknowizbirfmark at 8:18 AM on April 1, 2009
Best answer: It is never too late to file back taxes. You will need to go to the IRS web site and get forms for those years. You cannot use the forms for the current year. Or you can call the local IRS office and have them send you the forms.
If you have never filed a Schedule C before you may want to consult a tax professional or else use tax preparation software like TurboTax. There are some tricky issues with how you take business deductions, how to calculate and deduct self-employment taxes and deduction of health insurance premiums.
As noted above, you will owe penalties and interest. There are three penalties: failure to file which is 5% per month up to a maximum of 25%, failure to pay which is 0.5% per month with no maximum, and interest which varies from year to year but is currently about 5% per year.
If you don't want to compute the penalties, just send in the taxes due with your 1040 for each year. The IRS will send you a bill for the penalties. Or you could contact the IRS by phone and have them calculate it for you. The IRS will not treat you like a criminal. They will assist you in filing your back taxes. They just want to get paid and will be happy to help you.
posted by JackFlash at 9:53 AM on April 1, 2009
If you have never filed a Schedule C before you may want to consult a tax professional or else use tax preparation software like TurboTax. There are some tricky issues with how you take business deductions, how to calculate and deduct self-employment taxes and deduction of health insurance premiums.
As noted above, you will owe penalties and interest. There are three penalties: failure to file which is 5% per month up to a maximum of 25%, failure to pay which is 0.5% per month with no maximum, and interest which varies from year to year but is currently about 5% per year.
If you don't want to compute the penalties, just send in the taxes due with your 1040 for each year. The IRS will send you a bill for the penalties. Or you could contact the IRS by phone and have them calculate it for you. The IRS will not treat you like a criminal. They will assist you in filing your back taxes. They just want to get paid and will be happy to help you.
posted by JackFlash at 9:53 AM on April 1, 2009
Response by poster: To clarify (if it helps any)
I say self employed but it wasn't structured legally or otherwise. I just didn't have a boss so that equaled self employed, to me anyways. I wanted it to pay more, would have loved it, but it didn't and I was told that it wasn't anything more than a hobby since I wasn't making much to start with and since it wasn't something that I intended to make into an actual full fledged business when I went to talk about my taxes. I expected that person to know. I just wanted something to work on while in college though I did want to make money from it. Why not.
I just want to be able to prove that I was working and that I was making some money even though I was told it was a hobby.
I don't know if that helps any. It may or may not but I'm interested in whatever answers.
posted by grablife365 at 9:57 AM on April 1, 2009
I say self employed but it wasn't structured legally or otherwise. I just didn't have a boss so that equaled self employed, to me anyways. I wanted it to pay more, would have loved it, but it didn't and I was told that it wasn't anything more than a hobby since I wasn't making much to start with and since it wasn't something that I intended to make into an actual full fledged business when I went to talk about my taxes. I expected that person to know. I just wanted something to work on while in college though I did want to make money from it. Why not.
I just want to be able to prove that I was working and that I was making some money even though I was told it was a hobby.
I don't know if that helps any. It may or may not but I'm interested in whatever answers.
posted by grablife365 at 9:57 AM on April 1, 2009
I say self employed but it wasn't structured legally or otherwise. I just didn't have a boss so that equaled self employed, to me anyways.
This stuff doesn't really matter, just like it doesn't matter whether you consider it a hobby or not - the issue is whether or not you have income after you account for all the expenses related to these activities. There are a lot of details there, but that's the basic gist. I'm not sure, but if you had revenue which wasn't profit (because of the expenses), you may be required to file a Schedule C to establish that anyway.
It doesn't sound like you were getting very good tax advice. If you have a business again, you should get better tax advice. Regardless, if the income was significant enough that it will make a difference for mortgage purposes, you're certainly going to get hosed on taxes and penalties by the IRS if you report it, as you were legally required to do and did not.
posted by iknowizbirfmark at 10:26 AM on April 1, 2009 [1 favorite]
This stuff doesn't really matter, just like it doesn't matter whether you consider it a hobby or not - the issue is whether or not you have income after you account for all the expenses related to these activities. There are a lot of details there, but that's the basic gist. I'm not sure, but if you had revenue which wasn't profit (because of the expenses), you may be required to file a Schedule C to establish that anyway.
It doesn't sound like you were getting very good tax advice. If you have a business again, you should get better tax advice. Regardless, if the income was significant enough that it will make a difference for mortgage purposes, you're certainly going to get hosed on taxes and penalties by the IRS if you report it, as you were legally required to do and did not.
posted by iknowizbirfmark at 10:26 AM on April 1, 2009 [1 favorite]
Pay stubs?
posted by jerseygirl at 10:26 AM on April 1, 2009
posted by jerseygirl at 10:26 AM on April 1, 2009
You don't require any legal structure to be self-employed. You could be mowing your neighbor's lawn and being paid out of his wallet, you are still self-employed. If you made more that $400 in self-employment, it is likely that you are required to file.
You haven't given us any idea how much money you are talking about. The standard deduction for a single person is $5950 this year and the personal exemption is $3500, so if you made less than about $9000, you won't owe income taxes. You will owe FICA taxes.
posted by JackFlash at 10:30 AM on April 1, 2009
You haven't given us any idea how much money you are talking about. The standard deduction for a single person is $5950 this year and the personal exemption is $3500, so if you made less than about $9000, you won't owe income taxes. You will owe FICA taxes.
posted by JackFlash at 10:30 AM on April 1, 2009
Response by poster: I didn't make anywhere near even 1000 dollars let alone 9000 for both years combined which is why I was told I didn't need to file. Didn't make enough either year.
Looking back on it, I'm pretty sure I didn't have good tax advice. I'm planning to go back and look at receipts that I'm sure I have somewhere to check how much came in.
I taught dance out of the childcare center my mom owned. There was no regular room rental fees only money put out at the end of the first year for a show for the families or things in the second year for the kids.
Just looking to close the gap within the last few years to account for my work history. It wont make much difference in the mortgage whole I'm sure other than to prove that I was doing something.
I am planning to file just needed to know how to go back and do that.
posted by grablife365 at 10:56 AM on April 1, 2009
Looking back on it, I'm pretty sure I didn't have good tax advice. I'm planning to go back and look at receipts that I'm sure I have somewhere to check how much came in.
I taught dance out of the childcare center my mom owned. There was no regular room rental fees only money put out at the end of the first year for a show for the families or things in the second year for the kids.
Just looking to close the gap within the last few years to account for my work history. It wont make much difference in the mortgage whole I'm sure other than to prove that I was doing something.
I am planning to file just needed to know how to go back and do that.
posted by grablife365 at 10:56 AM on April 1, 2009
Response by poster: Oh. I forgot to say thanks for the answers already.
posted by grablife365 at 12:28 PM on April 1, 2009
posted by grablife365 at 12:28 PM on April 1, 2009
Best answer: Three years? No problem. The IRS's web site has the forms. Though from reading through the thread I'd recommend finding a tax professional to help you out.
Not only can file, but should file. Many many people make the mistake of thinking "don't owe tax" with "don't have to file". You usually have to file, even if you don't owe. The filing is proof that you don't owe anything. At any point the IRS can get suspicious about why there's nothing on file for you for a year and ask for it. If it turns out you owe anything, even if it's only a couple dollars originally, years of fines, penalties, and interest can make it a large problem. So do this soon. (Though I'd recommend waiting a couple weeks before calling an accountant, they're all incredibly busy at the moment.)
posted by Ookseer at 12:39 PM on April 1, 2009
Not only can file, but should file. Many many people make the mistake of thinking "don't owe tax" with "don't have to file". You usually have to file, even if you don't owe. The filing is proof that you don't owe anything. At any point the IRS can get suspicious about why there's nothing on file for you for a year and ask for it. If it turns out you owe anything, even if it's only a couple dollars originally, years of fines, penalties, and interest can make it a large problem. So do this soon. (Though I'd recommend waiting a couple weeks before calling an accountant, they're all incredibly busy at the moment.)
posted by Ookseer at 12:39 PM on April 1, 2009
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posted by caddis at 8:16 AM on April 1, 2009