One problem in not being candid is that someone the therapist knows, works with or does business with may turn them in for the reward. The IRS rewards these whistleblowers with up to 15% of the amount of taxes and penalties recovered (but not interest) (though the money may take up to two years to arrive and an IRS study indicates only 1% of whistleblowers actually see any money. Another source put the percent of paid whistleblowers at 8%. By the way, the reward is fully taxable. ) It is undesirable to give another that kind of power.

The IRS reportedly keeps a close eye on the self-employed because it believes most of the cheaters are there. In an audit, the IRS will have access to bank account and other financial records to look for deposits of unreported income. Potential problem areas include reporting personal living expenses as business ones (including automobile and travel expenses), large entertainment expenses, employees wrongly classified as independent contractors, not making payroll tax deposits, borrowing from employee tax funds, and skimming cash off receipts. The self employed cash business's chance of being audited is said to be well above average. The IRS has prepared guides for its auditors on about one hundred largely self-employed businesses (massage does not have its own guide).

On the other hand, the therapist should take all deductions available. Ones that self-employed people often miss are health insurance premiums, business credit card finance fees, and cell phone and Internet connection charges.

Timing in paying taxes can be important. Self-employed persons may need to pay estimated taxes four times a year. Being late on these taxes or underestimating the amount due can result in fines. Payroll taxes must also be paid on time. Payroll service companies and banks may offer to pay those taxes for a fee.

The bottom line is that reporting income correctly and immaculate recordkeeping goes a long way towards peace of mind.