Taxpayer has 23 year old son in college (2010). T/P also took out an education loan for $10k for tuition, plus gave the son $550 per month allowance for expenses. The student earned $4,000 on a W-2 from the school in a work study program. The parents are going to claim a dependency exemption for the student. All seems pretty “cut and dry” except… The father says his son (the student) did private tutoring to earn extra money all year, but did not keep track of it. He has no idea how much was earned but thinks it is several thousand dollars (cash payments). So basically all I have for the student at this point is a 1040-EZ and a W-2 for $4k. Normally I would file the students return at no extra $$ but I’m a bit uneasy knowing there is income missing.
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Student's Return
Well...
Don't the regs still say that if you don't charge to do the return, you don't sign it?
Yes, I know...
That doesn't really address the issue, because your fee for the parent's return could be construed to include the kid's return, not to mention the new rules that govern "non-signing" preparers.
I think you have to get the kid to somehow estimate what his income was from the tutoring.
C'mon...
He knows what he was charging per hour, and he knows about how many hours a week he was doing it, or how many students he had, and how frequently he was tutoring them.
"Several" thousand dollars? Even at $25/hour, that would work out to be a couple hundred hours, or more, if his hourly rate was lower. And all those hours were quite possibly condensed into the 9-month academic year. Then back out breaks and vacations. It had to be several hours a week.
How did he not keep track of it? So maybe he didn't keep track of the money. But I'll bet he tracked the appointments.
Doesn't he have a calendar on his iPhone?
If not, then it's probably on his Droid.
BMKBurton M. Koss
koss@usakoss.net
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The map is not the territory...
and the instruction book is not the process. -
I should probably have him get together with the kid and come back with some numbers to use. He's not going to owe much if any income tax but the SE tax may disappoint him.Comment
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And remind him to include the barter income, the payments in beer are taxable too!"A man that holds a cat by the tail learns something he can learn no other way." - Mark TwainComment
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In some situations, the beer is clearly a de minimis fringe benefit.Last edited by JohnH; 03-29-2011, 02:28 PM."The only function of economic forecasting is to make astrology look respectful" - John Kenneth GalbraithComment
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So now I'm curious... Let's just say this client comes back and says something like "I was mistaken... There actually was no other income." Would you then file the 1040 EZ for the student?Comment
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Reality Check
This is the probable outcome - when Daddy realizes what a monkey wrench has been inserted into this situation, chances are he will say, "Oops! I think I was mistaken about this tutoring income after all." If this hasn't happened yet, expect it.
We have all done simple forms for teenagers and college students, more so as a courtesy to their parents than anything else. However, if it were me, this situation now calls for a head-to-head meeting with the student to determine how much income there was. It is HIS tax return, and not his daddy's.
I agree with Burton that this image of raking in "thousands of dollars" may border more on delusion than fact. Also if there is ANY amount more than de minimis, the same estimate used to focus on revenue may also be used to focus on other costs, such as mileage. My best guess is that Daddy's $550/month represents MUCH more over the course of the year than tutoring.Comment
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You could always "suggest" that he prepare his son's return himself ! (and you may mention that you would NOT be able to prepare it without more info..)Comment
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