self employment income reporting error ... help please!

Jun 18, 2006 3 Replies

I started an online business last May of selling imported goods from China. I obtained a seller's permit from the city of Oakland and set up the business as a sole proprietorship. I recently received my state board of equalization sales and use tax return form asking me for my total gross sales from June of 2006 to June of 2006. After reading the return and doing some research I learned that the taxes I owe from the income of my company is not paid on this form - but rather should of been paid on my tax return I filed in April of



2006. The use and sales tax form is only to pay for the sales tax on the items i sell. Now I fear I have underreported my income, and therefore underpaid my taxes for tax year 2005. The online business I started had gross sales of $39,000 from June of 2005 to June of 2006 - I am fearful of an audit and want to disclose this income to the irs - however I do not know how to proceed. It was a careless error on my part - can you give me any advice about how to proceed - or the name of a tax attorney I can retain for consultation? I am quite worried about this problem - and dearly need some advice.

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You need to file an amended (or original) return for 2005, preparing a Schedule C for your 2005 business income and expenses. I think your chance of being prosecuted for criminal fraud is nil, and that's the only reason you'd need an attorney. You do, however, desperately need an accountant.

-- Phil Marti Clarksburg, MD

You should seek a good tax professional in your area. They can save you more money than they cost you. Missy Doyle

Did you report this income on Schedule C of your federal return? If not, you need to file amended federal and state returns. If you did include the income on your federal return all you should need to do is file an amended state income tax return. The California tax enforcers make the IRS look like push overs but you still shouldn't need a tax attorney. You might benefit, however, from engaging the services of a tax professional (CPA or EA) who specializes in small business taxation. My guess is that misreporting your state income is not the only error you made. Good luck.

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