Volunteer Income Tax Assistance (VITA) Certification Practice Test

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What kind of income should a taxpayer disclose even if they believe the IRS is unaware of it?

Only salary income

Only capital gains

Cash income

A taxpayer must disclose cash income because it is still considered taxable by the IRS, regardless of whether the taxpayer believes the IRS is aware of it or not. Cash income can come from various sources, such as tips, freelance work, or side jobs, and must be reported on the tax return to accurately reflect the taxpayer's total income for the year. The IRS has guidelines for reporting all types of income, and failure to report cash earnings can lead to penalties or audits, as these are taxable even if no withholding occurs.

While other forms of income, such as salary or investment accounts, are typically reported through documentation like W-2s or 1099s, cash income does not usually generate such formal paperwork, which can lead to underreporting if the taxpayer assumes it is untracked. Thus, full disclosure of cash income ensures compliance with tax laws and helps maintain accurate records.

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Income from investment accounts

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