Tax season can be a stressful time for many individuals, but the stress can intensify if you realize you have omitted income on your tax return. Whether it was an honest mistake or a deliberate act, omitting income from your taxes is a serious issue that can lead to financial penalties or even criminal charges.

Fortunately, with the help of our skilled attorneys, you can navigate this complex issue with more ease and confidence. Our team can provide you with preventive advice, representation during audits, negotiation strategies, and potential defenses, guiding you through each step of the process and helping you to achieve the best possible outcome. You should not hesitate to seek counsel if you find yourself in this situation. It can all make the difference in protecting your rights and minimizing the consequences.

For a free case evaluation, contact our attorneys for omitting income at McCormick Tax Law by calling (888) 973-3503.

What Counts as Income for Tax Purposes

The IRS considers a wide array of financial gains as income for tax purposes. Understanding what counts as income can help you avoid unpleasant surprises come tax season. If you are unsure about whether certain income is taxable, our attorneys for omitting income can help you prepare your return so that your income is accounted for. The following are the types of payment that the IRS considered income at tax time:

Wages, Salaries, and Tips

Earned income is the most common type of income that people receive, and it includes wages, salaries, and tips. This type of income is the money that you earn by working as an employee or as a self-employed individual. When you work as an employee, your earned income is generally reported on a W-2 form. On the other hand, if you are self-employed, your earned income is typically reported on a 1099 form.

Regardless of how it is reported, earned income is taxable and must be included on your tax return. Your tax liability is determined based on your taxable income, which is calculated by subtracting any deductions and credits from your total income.

Interest and Dividend Income

Interest and dividend income are forms of income earned by individuals that are also subject to taxation. Interest income is earned through interest-bearing accounts such as savings accounts, certificates of deposit, or money market accounts.

Dividend income is earned by owning stocks or mutual funds that pay dividends. This income must be reported on your tax returns just like other sources of income. Financial institutions are obligated to issue a 1099-INT form for interest income and a 1099-DIV form for dividend income.

These forms report the amount of interest or dividend income earned during the year and must be provided to the taxpayer by January 31st. Properly reporting all forms of income is crucial to ensure compliance with tax laws and avoid penalties or legal action.

Retirement Income

If you are retired, it is likely that you are receiving income from a pension, annuity, or retirement account, such as a 401(k) or an IRA. In most cases, this income is subject to taxation, although the specific tax implications can vary depending on the type of retirement account and your individual circumstances.

For example, if you have a traditional IRA or 401(k), the withdrawals you make in retirement will be taxed as ordinary income. However, if you contribute to a Roth IRA or Roth 401(k), the withdrawals you make in retirement will generally be tax-free.

Additionally, your Social Security benefits might also be subject to taxation, depending on your other sources of income. If your combined income (which includes your adjusted gross income, nontaxable interest income, and half of your Social Security benefits) exceeds a certain threshold, then a portion of your Social Security benefits might be taxable.

Rental Income

If you own rental property, you should be aware that the rent you receive from your tenants is generally considered taxable income. However, you might be able to reduce your taxable income by deducting certain expenses related to the property. These expenses include repairs, maintenance, property management fees, insurance, property taxes, and mortgage interest.

It is important to keep track of all your expenses and maintain accurate records, as this will be crucial in determining the proper amount of deductions you can claim. Additionally, you might also be able to claim depreciation expenses, which is the gradual decrease in the value of your property over time. Deducting these expenses can help you reduce your taxable rental income and, ultimately, save you money on your taxes.

Capital Gains

When you sell a capital asset, such as stocks or real estate, for more than what you paid for it, the profit you earn is considered a capital gain. In most cases, this capital gain is taxable. However, the tax treatment of capital gains can be quite complex and depends on several factors.

For instance, one of the crucial factors that determine the tax on capital gains is how long you owned the asset. If you owned the asset for more than a year, it is considered a long-term capital gain, and the tax rate on it is generally lower than that of short-term capital gains.

Another factor that affects the tax on capital gains is your overall income. If your income is in the lower tax brackets, you might be able to avoid paying taxes on certain types of capital gains. However, if your income is higher, the tax on your capital gains might be significantly higher as well.

Unemployment Compensation

If you have received unemployment benefits, they are usually considered taxable income. This means you will have to report the amount of benefits you received on your tax return. You should expect to receive a Form 1099-G, which is a document that reports the total amount of unemployment compensation you received throughout the year. Be sure to keep this form in a safe place, as you will need it when you file your taxes.

Alimony

When a couple gets divorced or legally separated, they might agree to provide spousal support or alimony payments to one another. The recipient of alimony payments is required to report the amount received as taxable income on their tax return.

This applies to divorce or legal separation agreements that have been made or modified after December 31, 2018. Individuals making the alimony payments can no longer claim them as a tax deduction, as per the Tax Cuts and Jobs Act (TCJA) that went into effect on January 1, 2019.

Miscellaneous Income

The IRS also considers various other types of income to be taxable. These can include gambling winnings, jury duty fees, and income from bartering or the sharing economy.

Our Attorney for Omitting Income Can Help

Call McCormick Tax Law at (888) 973-3503 to get your free case review with our attorneys for omitting income.