How to File Federal Taxes on Cash Income
Filing federal taxes on cash income involves basically the same procedure as filing taxes on income you receive in the form of checks and credit cards: Keep track of your income and expenses, and complete a Schedule C form calculating the difference. If you receive most of your income in cash form, you are more likely to be audited by the Internal Revenue Service than you would be if your income were easier to document. So it's a good idea to keep meticulous records in order to verify the income and expenses you claim on your taxes.
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Instructions
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Record all of your cash income, including tips, as well as your expenses in any other payment form. Develop strategies to document and support your claims of cash income, such as your business's production and sales records, inventory sheets, and bank statements and deposit slips. If you file sales reports with any supervising agencies, keep copies of these as well. The IRS does not require you to deposit all cash income in the bank, but if you do, you will have solid documentation if you're selected for an audit. Note any cash that you withdraw for personal use, as well as cash payments for business materials and supplies.
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Fill out IRS Form 1040 each year by the April 15 deadline. Complete the Schedule C form detailing your income and expenses. This form does not require you to specify how much of your income you received in cash, so you should report cash income along with income you received through any other payment method. Complete and file your federal employment taxes on time, as well.
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Stay current on all of your licenses and official paperwork, as well as your state and city taxes. While this is not an official requirement for filing federal taxes, your conscientiousness in this regard can help give your business additional legitimacy if the IRS decides to audit you.
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