Advice 101

Question - Wile i always had the the trash hobby / finding what i need / My real discovery to actually sell scrap was end of summer 2009 - previous to that I Painted and did other types of construction work ,the yr 2010 all i did was scrap (the selling of metal) but 2010 i was still in a mind set that i was still a painter craftsmen just - I had Zero Work (Very True) so my fed tax returns listed me as a self employed Painter craftsmen but since I did no construction at all,
the money i made from scrap I declared as my income , I take the standard deductions set by the gov and do not add to them at all.
NOW I am being ask to provide written verification of the money AMT from 2 yards i do business with, as some one in the Gov. thinks my tax returns represent construction income only. I truly have no 1099's or any customers for 2010 to corroborate construction (& I did just sell scrap)
The yards - Yard one i only sold 2 times = $125 give or take they use a very good booking keeping system complete computer receipts
Yard two - While a huge & well known one gives hand written receipts and files theres away alphabetical . They once told me there bookkeeping is what is required for theft prevention. If one day 1099's are required then there system will change.
For 2011 I will inform my accountant i make income from scrap only. What I am concerned with is this written verification as Yard #2 will not able to print out any thing All i have is my own hand log book and some receipts that i did manage to keep I made consistent income this year & will declare as required.
Can my word be the written verification ? & is my log book sufficient ? Its not like i am making crazy huge money here.
but certainty I'll be darned if some one thinks i made twice the the income , cause if i did I sure would not be behind on my bills.

I would think so. That's all I've got is my own record (same as your log book). Did both yards give you scale tickets or some form showing how much you had and what you got for it? I keep those as the yards here do not send 1099s.

The IRS can't expect you to prove what you DIDN'T get. They'll want to know what you DID get (receipts and deposits) and where it came from. Just because you claimed to be a painter doesn't mean you had any income as a painter. As long as you held yourself out as a painter (advertised).

HOWEVER - I am not a tax atty. My OPINION means nothing.

well I should have save each receipt But If some one went to that yard to look at the all there receipts for each day to find me amongst all the other customers like at-least 100 if not more each day 7 days a week it would be a huge undertaking and the result would be like this guy did not really make any thing big any way. No I don't run ads for Painting.

Yup gotta love uncle same. I would say you want my receipts here is the yards number call them and ask them for it. If they can't verify your income then they have to just make a guess and that's what you gotta pay. Good luck calling the irs is like pulling teeth first you have to wait 20 mins to talk to someone then answer a million questions. Just be truthfull and don't say more then you have to one word answers are the best yes or no.

Well its my fault to the point that my neighbors hate my stuff that I work on . sure its a turn over, but all they see is the ugly stuff that looks all the same to them,so its really harassment due to my free expression. Hence they made a bogus call to some body.

I guess I'm confused about what the problem is - you say you do have receipts? Isn't the burden on the IRS to prove that you made money, not on you to prove that you didn't? Maybe you could keep your own receipt book and give the yards receipts for the scrap you sell them as an additional form of documentation. The book would have carbon copies of the dates and amounts on it.

I know someone that works for the IRS and he told me about some of the systems they have in place that triggers anyone’s tax return for further inspection.

First, Every self employed person should file a profit/loss statement, because every business incurs expenses that need to be itemized (cost of goods sold, supplies, rent, etc.). Claiming the standard deduction instead of itemizing your business expenses probably triggered your tax filing for further attention.

Second, You earned zero income as a self employed painter, then you should have filed zero income as a painter, and claimed your scrapping income as ‘scrap metal recycling’ in the Other Income category. This way, you can claim the standard deduction without arising any questions.

Third, The IRS can easily audit all banking records that are associated to your social security number or taxpayer ID. Most income has a paper trail (1099 or W-2) that can be verified. Claimed income that’s unverified will be compared to your total banking deposits for the year. If both amounts aren’t within a certain allowable percentage; it’ll trigger a flag for further inspection.

For example:
You claim $50,000 of unverified income, but your total bank deposits for the year are $80,000, and you don’t have a 1099 or w-2 to back up the difference; this should trigger an audit.

You should have your tax person file an amended 1040 & 540 to reflect your occupation as ‘unemployed’, and claim your income as ‘scrap metal recycling’ in the Other Income category.

Also, make sure your bank deposits don’t exceed your claimed income.

Hand written receipts are acceptable as long as it has the business info printed or rubber stamped.

Just remember that the IRS usually shows no mercy for poor record keeping.

Standard Deduction is for you personally and the Schedule C is for Business Deductions, do not confuse the two. If you need some tips I would be happy to talk to you.

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Originally Posted by Copper Head

Question - Wile i always had the the trash hobby / finding what i need / My real discovery to actually sell scrap was end of summer 2009 - previous to that I Painted and did other types of construction work ,the yr 2010 all i did was scrap (the selling of metal) but 2010 i was still in a mind set that i was still a painter craftsmen just - I had Zero Work (Very True) so my fed tax returns listed me as a self employed Painter craftsmen but since I did no construction at all,
the money i made from scrap I declared as my income , I take the standard deductions set by the gov and do not add to them at all.
NOW I am being ask to provide written verification of the money AMT from 2 yards i do business with, as some one in the Gov. thinks my tax returns represent construction income only. I truly have no 1099's or any customers for 2010 to corroborate construction (& I did just sell scrap)
The yards - Yard one i only sold 2 times = $125 give or take they use a very good booking keeping system complete computer receipts
Yard two - While a huge & well known one gives hand written receipts and files theres away alphabetical . They once told me there bookkeeping is what is required for theft prevention. If one day 1099's are required then there system will change.
For 2011 I will inform my accountant i make income from scrap only. What I am concerned with is this written verification as Yard #2 will not able to print out any thing All i have is my own hand log book and some receipts that i did manage to keep I made consistent income this year & will declare as required.
Can my word be the written verification ? & is my log book sufficient ? Its not like i am making crazy huge money here.
but certainty I'll be darned if some one thinks i made twice the the income , cause if i did I sure would not be behind on my bills.

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when I filed with h&r block last year, I just had to tell the lady how much money that I made, how many miles that I drove, what misc items I had ( purchase of tools etc).


she did all the calculatons and then told.me what I paid in, how much I owed them which came out automatically, and how much we were getting back.

that is how it went for me.

this year I scanned it all to my hard drive and will take it in using a 4gb little thum drive.

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Originally Posted by KC-SF

You should have your tax person file an amended 1040 & 540 to reflect your occupation as unemployed, and claim your income as scrap metal recycling in the Other Income category.
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Sounds like a good start for 2010 / 2011 I'll just let accountant know i made money as a scraper I am still self employed

Since I can see it both ways I feel the deductions are more or less same
scrapers
Use fuel
tools
work gloves
and often have to buy metals to sell at a profit
at a set price of sale.
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Painting has same
but you try to match job price with material cost (compared to metals set selling price)
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certainly state to state have many other rules like - insurance - licensing - etc

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If they can't verify your income then they have to just make a guess and that's what you gotta pay.

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they don't have to guess, they'll go back 5 or 10 years and get an average per year and that's what you owe.

Copper Head I am confused here. You state you claimed your scrap earnings on your tax return, how did you come up with these numbers?
If you don't have receipts from the yard from each trip then one can only assume you took a guess at the amounts.

If I were you I would "somehow" come up with something on paper to prove what you claimed to have made or the IRS is going to audit you and nail you to the wall.

The book keeping or lack there of is on you. People always think being self employed is all about racking in the dough without having to answer to there boss. But self employed is far more then that, you have to be the Boss, the worker, the book keeper, customer service rep., shop maintenance, etc.

Hopefully you get this worked out but be sure to start a file with every receipt this year!

Good luck

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Originally Posted by injunjoe

Copper Head I am confused here. You state you claimed your scrap earnings on your tax return, how did you come up with these numbers?
If you don't have receipts from the yard from each trip then one can only assume you took a guess at the amounts.

If I were you I would "somehow" come up with something on paper to prove what you claimed to have made or the IRS is going to audit you and nail you to the wall.

The book keeping or lack there of is on you. People always think being self employed is all about racking in the dough without having to answer to there boss. But self employed is far more then that, you have to be the Boss, the worker, the book keeper, customer service rep., shop maintenance, etc.

Hopefully you get this worked out but be sure to start a file with every receipt this year!

Good luck

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since i always seem on the edge of the paying of bills ,I will say i get paid and deposit
and that unfortunately seems to be my life , If did more painting contractor work the amt could at times be generous then no real work for a wile. As of now i have found I can't do both types of work at the same time. Putting my hart in to scrap for finding and working it seem not compatible , If just what my truck has become from the work
Yes for the new year I will start to keep all receipts from yard and have my own receipt sheet on any metals i purchased in relation to that load or connection to that receipt.
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I know how much I make each week or month in respect to the fact the bills are boss
& thats all there is to it. I try to keep a floating amount in my pocket if not just to be ready for the fast purchase of goods from people .
I realize scrap if handled proper wealth can happen , But as any work that will end up being me and how successful I allow my self to become . Since 2010 is my first real year of scrap I think I'll be able to restructure since i really have only been scraping
& don't have any 1099 showing up from painting employers or personal checks from home owners or even any real activity concerning paint purchases.
If an income averaging of 5 yrs was to occur scraping wont even come into play , years previous i used to work for companies so they used to do my paper work in a sense .
If I could hit it big as i do know metals, I would, but for sure i can't bring home this work as people who live near me hate to look at me tearing down things and the sounds of grinders and such . The only reason i am in this pickle is due to some body trying to cause trouble to make me move.
I have been having other things also .The complaints are easy to see the source. I have discovered all states have a 1 800 tip line that heartless people can use improperly to harass So far the state workers for most of the complaints work with me as they also can see it is harassment
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My 2012 resolutions
All metal items not in sight so people near me can't be annoyed
Keep track of all income proper.
Make this a good year and utilize all the skills I have ,
If i get a what others consider a real job I'll scale back with scrap. But thanks to all in helping me realize the need to keep better records.
I wish all a happy new year & 2012 be a great year

Copper I think you will be able to print out your bank statements and use them.. You should make an appointment with them to settle this matter. bringing in the bank statement should show you reported about the same that made the bank and you are not hiding anything.

Good luck!

Keep in mind it is just as important to track your expenses associated with your business as it is to track income. Here's an example of a Schedule C form. Whoever files your taxes will fill this out to determine income.
http://www.irs.gov/pub/irs-pdf/f1040sc.pdf

There are also some Youtube Vids if you want some more info.

Advise I got once I thought was good - Never go to the IRS for advise, they know less than you.

Any written record can be used to show income and expenses. I use a combination of Quickbooks Basic (which is free) and a Word Document. Plus the scale tickets. The key is "reasonable". Are your claimed expenses reasonable for the income generated?

I will be honest I really don't do any book keeping anymore since all of my receipts and such are kept up through my online bank statements. Kinda nice not to have all this paperwork stacking up all over the place anymore. I just go through each line item in my account and add it up at the end of the year. I get one 1099 from the yard or yards I worked for pretty easy to do my taxes. I just always hate looking at the final number. I would suggest to copperhead of opening a separate account and only doing business transactions through it and get a debit card with it that you use for everything. I don't pay cash for anything ever.

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Originally Posted by Mick

Advise I got once I thought was good - Never go to the IRS for advise, they know less than you.

Any written record can be used to show income and expenses. I use a combination of Quickbooks Basic (which is free) and a Word Document. Plus the scale tickets. The key is "reasonable". Are your claimed expenses reasonable for the income generated?

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Since i see & know scrap business is a volume business (what the heck .10 for mix per lb.) I seem to be at 38% net profit with my fuel cost being the main issue .Fellows & gals I am not close AT ALL to getting 38% of a million , I am at chicken feed level .
Each month fixing flats , Cut off wheel blades ECT. What i see now is try to get the most you can for the fuel .