CPA's Annual Tax Time Help - Filing Day is over. This thread can be unstickied.

[EagleKeeper]

Originally posted by: Pliablemoose
Can I deduct the $1500 worth of woodworking tools I just bought?

(I don't do woodworking for a living)

Only if any type of income is created/intended from this - does not have to be a profit if the intent is to generate a profit within 5 year.

Carving a cross to hang your ex on does not count!!! :evil:


/beat to the punch by CPA w/ same advise

 

[CPA]

Originally posted by: johnjosh
cpa what is the chances of someone gettting audited if they are making $200,000 in grose?

p.s i am not asking this for me but for my friend

Contrary to popular beliefs, income levels are generally not the catalyst to an audit. It's deductions that trigger most audits. I would suggest a book called "What the IRS Doesn't Want You to Know". It's by Martin Kaplin. He used to work in the IRS and discusses many things, including the red flags that trigger an audit.

 

[EagleKeeper]

Originally posted by: m2kewl
if mrs. x worked off the books from jan-sept of 2003 (being paid ~$10k/month) and claimed unemployment. will she be in trouble with the irs???

The IRS may not care as long as taxes are paid on the income and employment comp. However, if the state finds out, then there exists financial/criminal fraud and possibly mail fraud (if checks were sent by mail). Figure need for a payback, penaly and interest. Jail time is also an option. Mail fraud willbring the Feds into the picture and trigger an extensive IRS audit for as far back as they can dig. Aslo,t he state will start digging into past records also.

Best bet would be to repay the employment quickly (@10K/month) that should not be difficult.
At that imcome level, it was stupid to try and get an additional $300/week :disgust:

beat to the punch by Vic w/ same advice

 

[johnjosh]

Originally posted by: CPA

Originally posted by: johnjosh
cpa what is the chances of someone gettting audited if they are making $200,000 in grose?

p.s i am not asking this for me but for my friend

Contrary to popular beliefs, income levels are generally not the catalyst to an audit. It's deductions that trigger most audits. I would suggest a book called "What the IRS Doesn't Want You to Know". It's by Martin Kaplin. He used to work in the IRS and discusses many things, including the red flags that trigger an audit.

ok thanks

 

[pulse8]

I work in the entertainment industry. I'm self-employed and mostly do video editing and graphics work at home and other places. This is my first year as self-employed.

What exactly can I deduct? I've heard several different versions of what I can and can't deduct.

I know I can deduct things like upgrades to my computer and thing that I use for work, but what about things like DVDs and going to the movies? I've heard I can deduct things like that. What about if I use my home theater system as a client monitor? Does that fall into the deductions? How much of my rent and utilities can I deduct? How about health insurance and meals during work?

Where is the line for what is and isn't related to my job? To I just need to use it for work to be able to deduct it? Is there any benefit I can gain if I set up an incorporated company?

 

[EagleKeeper]

Originally posted by: pulse8
I work in the entertainment industry. I'm self-employed and mostly do video editing and graphics work at home and other places. This is my first year as self-employed.

What exactly can I deduct? I've heard several different versions of what I can and can't deduct.

I know I can deduct things like upgrades to my computer and thing that I use for work, but what about things like DVDs and going to the movies? I've heard I can deduct things like that. What about if I use my home theater system as a client monitor? Does that fall into the deductions? How much of my rent and utilities can I deduct? How about health insurance and meals during work?

Where is the line for what is and isn't related to my job? To I just need to use it for work to be able to deduct it? Is there any benefit I can gain if I set up an incorporated company?

The litmus test for DVD & movies and other items are: can not having the item will prevent you from generating the income.

If needed for income generation, is it also used for personal use. If used for personal use also, then you can only deduct the business percentage. If audited, you need to be able to justify the percentage.

Insurance is deductable as an expense. Meals relating to client are deductable, going to McDonalds for lunch by yourself is not if your are at home and/or office.

I can not answer regarding incorporation.

 

[dullard]

Originally posted by: pulse8
I work in the entertainment industry. I'm self-employed and mostly do video editing and graphics work at home and other places. This is my first year as self-employed.

What exactly can I deduct? I've heard several different versions of what I can and can't deduct.

I know I can deduct things like upgrades to my computer and thing that I use for work, but what about things like DVDs and going to the movies? I've heard I can deduct things like that. What about if I use my home theater system as a client monitor? Does that fall into the deductions? How much of my rent and utilities can I deduct? How about health insurance and meals during work?

Where is the line for what is and isn't related to my job? To I just need to use it for work to be able to deduct it? Is there any benefit I can gain if I set up an incorporated company?

Filling out a schedule C will quickly tell you the ~20 groups of things that can be deducted. I'd say from that list the computer is deductable (only up to the % of time it is used for work), the movies most likely are not (it would be a stretch to call that an expense required for your work). The home theater system is deductable (again up to the % of work use). The rent and utilities is a simple form as well and it generally depends on the % of your home that is used for work. Health insurance is allowed under extreme conditions (such as it must be explicitly bought from your work, and you cannot qualify for health insurance reductions in any other form such as a second job). The meals count if you are (A) on a trip for more than 1 day or (B) if you can prove it is work related, and then it is only 50% of your meal cost.

Note: As it should be obvious from my posts above, I'm not a licensed CPA, but I feel the Schedule C form and instructions are pretty cut and dry - thus they are easy to learn.

 

[m2kewl]

Originally posted by: EagleKeeper

Originally posted by: m2kewl
if mrs. x worked off the books from jan-sept of 2003 (being paid ~$10k/month) and claimed unemployment. will she be in trouble with the irs???

The IRS may not care as long as taxes are paid on the income and employment comp. However, if the state finds out, then there exists financial/criminal fraud and possibly mail fraud (if checks were sent by mail). Figure need for a payback, penaly and interest. Jail time is also an option. Mail fraud willbring the Feds into the picture and trigger an extensive IRS audit for as far back as they can dig. Aslo,t he state will start digging into past records also.

Best bet would be to repay the employment quickly (@10K/month) that should not be difficult.
At that imcome level, it was stupid to try and get an additional $300/week :disgust:

beat to the punch by Vic w/ same advice

1- let's assume that all taxes were paid on the income by the employer and the employment comp. BUT the unemployment checks were never cashed and expired. will mrs x still be in trouble?

2- so if mrs x writes a check for $90k back to the employer for the months worked - she's off the hook??

NOTE: this is NOT a reference to any real life situation!!! i am just curious as to how people can cheat the system...as i know folks work of the books at one time or another.

 

[gluck]

Okay this is my problem. I came down from CA for a contract to TX in Nov '02. Filled 02 taxes from CA. I am here in TX since then. For six months in 03 my employer taxed me CA state taxes. Then he changed my address to the one in TX and stopped cutting the CA taxes. Now do I have to file taxes from CA ? How do I get the amount paid ? Is my scenario complex ? Would I need a CPA doing the taxes ?

 

[SuperTool]

Do I have to live in a house to deduct the interest?

 

[badmouse]

My mother died and I got $4500 in insurance money. Is that taxable?

 

[CPA]

Originally posted by: badmouse
My mother died and I got $4500 in insurance money. Is that taxable?

Generally, no the insurance policy is not taxable. Only if what you received is more than what was payable to you at the time. Seeing as this is not the case, you would not have to pay any taxes or show any income.

 

[CPA]

Originally posted by: SuperTool
Do I have to live in a house to deduct the interest?

No, as long as you don't rent it out. If you rent it out, there are tests that must be passed in order to get the interest deduction on schedule A.

 

[CPA]

Originally posted by: gluck
Okay this is my problem. I came down from CA for a contract to TX in Nov '02. Filled 02 taxes from CA. I am here in TX since then. For six months in 03 my employer taxed me CA state taxes. Then he changed my address to the one in TX and stopped cutting the CA taxes. Now do I have to file taxes from CA ? How do I get the amount paid ? Is my scenario complex ? Would I need a CPA doing the taxes ?

Since this is a state tax question, I will need to ask some buddies here at work about it.

 

[cpals]

I have kind of a strange one....

I'm running a couple of side businesses:

1. My website does advertising which brings in a little money (will be around 4-600 last year). I usually deduct things like web server costs, domain names and such and register it as a schedule-c (I think)

2. This year I started doing sporadic computer jobs for a couple companies and just keeping record of who paid what and when. I recently also purchased a web server which I plan on hosting websites for my "business", but currently haven't started.

I was thinking I would just enter these two separately as different businesses. One problem I have is that the money I have been getting from the website is paying for the server, which I will be hosting customer websites on. Should I charge the server to the computer business or the website or..... ?

THanks. 🙂

 

[cchen]

My mom made about 48k, I made about 10k. I'm paying all of my college tuition myself. What of the following options would benefit us the most financially?

1. file as dependent of mother, she claims deduction of 4k for "tuition and fees deduction"
2. file as dependent of mother, she claims lifetime learning credit of 2k
3. file as independent, i claim lifetime learning credit
4. file as independent, i claim deduction of 4k

 

[Christoph]

Originally posted by: m2kewl

Originally posted by: EagleKeeper

Originally posted by: m2kewl
if mrs. x worked off the books from jan-sept of 2003 (being paid ~$10k/month) and claimed unemployment. will she be in trouble with the irs???

The IRS may not care as long as taxes are paid on the income and employment comp. However, if the state finds out, then there exists financial/criminal fraud and possibly mail fraud (if checks were sent by mail). Figure need for a payback, penaly and interest. Jail time is also an option. Mail fraud willbring the Feds into the picture and trigger an extensive IRS audit for as far back as they can dig. Aslo,t he state will start digging into past records also.

Best bet would be to repay the employment quickly (@10K/month) that should not be difficult.
At that imcome level, it was stupid to try and get an additional $300/week :disgust:

beat to the punch by Vic w/ same advice

1- let's assume that all taxes were paid on the income by the employer and the employment comp. BUT the unemployment checks were never cashed and expired. will mrs x still be in trouble?

2- so if mrs x writes a check for $90k back to the employer for the months worked - she's off the hook??

NOTE: this is NOT a reference to any real life situation!!! i am just curious as to how people can cheat the system...as i know folks work of the books at one time or another.

1. If the taxes were payed on the income, then it's not very "off the books", is it? Doesn't off the books generally mean in cash?

2. Wouldn't you want to repay the unemployment to the state, rather than the wages to the employer, since the amount is so much less

If this were a real situation, the person involved should see a lawyer and determine how to reimburse the state for the unemployment they were inadvertently overpaid.

 

[CPA]

Originally posted by: cpals
I have kind of a strange one....

I'm running a couple of side businesses:

1. My website does advertising which brings in a little money (will be around 4-600 last year). I usually deduct things like web server costs, domain names and such and register it as a schedule-c (I think)

2. This year I started doing sporadic computer jobs for a couple companies and just keeping record of who paid what and when. I recently also purchased a web server which I plan on hosting websites for my "business", but currently haven't started.

I was thinking I would just enter these two separately as different businesses. One problem I have is that the money I have been getting from the website is paying for the server, which I will be hosting customer websites on. Should I charge the server to the computer business or the website or..... ?

THanks. 🙂

Why would you consider setting these up as seperate businesses? If you did that, they would have to be C corporations or S Corps or LLCs. Then you would have to worry about intercompany revenues and expenses.

 

[FelixDeCat]

I received a distribution from a 'Qualified Settlement Fund' class action lawsuit last year after a multi-year court battle. The amount was $3,400 (about 1/6th of the actual damages but about 33% of the class period damages, a separate suit is pending against the auditors). This was a settlement amount from a fund that earned interest and paid its own taxes through an administrator until approved by the judge for distribution. No other damages (punitive, etc) other than actual were considered.

The remittance attached to the check seemed somewhat vague on the matter and I have turned the IRS website upside down looking for info. Heres some wording, "The Regulations further provide that whether the distribution to the climant is includable in the claimants gross income is generally determined by reference to the claim in respect to which the distribution is made. " I have more info if you need it.

What do you think?

 

[gluck]

thanks CPA

 

[Bleep]

Unless, you can show that you sold some of your woodworking (that it was not just a hobby). Then you could take a section 127 deduction for the full cost

Not to start a flamewar or anything but this is not correct.
The only requirement to having a business according to the IRS is the intent to make money which I am sure that the woodworker has intentions of.
If down the road a couple of years he sells some carvings that he made using these tools the tools are a business expense but are not now deductable because of the time lapse involved.
Hobby businesses are just as viable as any other business. The thing is if you intend to make any money from any tool you purchased the cost of the tool is deductable, even the prospect of making money with the tool purchased allows it to be deducted as a expense.
The quote is also incorrect in that if you purchased the tool on the last day of the year and did not make money until the 1st day of the next year it would not be deductable, which on the face of it appears to be in error.

Bleep

 

[JEDI]

i own a house. if i rent out a room, can i take depreciation?

 

[m2kewl]

Originally posted by: Christoph

Originally posted by: m2kewl

Originally posted by: EagleKeeper

Originally posted by: m2kewl
if mrs. x worked off the books from jan-sept of 2003 (being paid ~$10k/month) and claimed unemployment. will she be in trouble with the irs???

The IRS may not care as long as taxes are paid on the income and employment comp. However, if the state finds out, then there exists financial/criminal fraud and possibly mail fraud (if checks were sent by mail). Figure need for a payback, penaly and interest. Jail time is also an option. Mail fraud willbring the Feds into the picture and trigger an extensive IRS audit for as far back as they can dig. Aslo,t he state will start digging into past records also.

Best bet would be to repay the employment quickly (@10K/month) that should not be difficult.
At that imcome level, it was stupid to try and get an additional $300/week :disgust:

beat to the punch by Vic w/ same advice

1- let's assume that all taxes were paid on the income by the employer and the employment comp. BUT the unemployment checks were never cashed and expired. will mrs x still be in trouble?

2- so if mrs x writes a check for $90k back to the employer for the months worked - she's off the hook??

NOTE: this is NOT a reference to any real life situation!!! i am just curious as to how people can cheat the system...as i know folks work of the books at one time or another.

1. If the taxes were payed on the income, then it's not very "off the books", is it? Doesn't off the books generally mean in cash?

2. Wouldn't you want to repay the unemployment to the state, rather than the wages to the employer, since the amount is so much less

If this were a real situation, the person involved should see a lawyer and determine how to reimburse the state for the unemployment they were inadvertently overpaid.

1- yes, i would take it that OTB means in cash. let's assume that the employer wrote mrs x payments in business checks and not report on 1099. then i assume it's traceable - since banks are forced to report to irs deposits correct?? supposed the employer said "look, i'll eat the taxesfor you but pay you very low rate for your work"

2- true, but i was answering eaglekeeper's question about paying it all back then no harm done. how does soemthing like that work?

that is all - my last questions on this fictitious tax situation. 😀

 

[glenn1]

Here's one which has a bit more for you to chew on. It's more for future planning purposes than an immediate need.

I'm considering gifting some securities to a charity as a charitable gift remainder trust. Some of the assets will be bonds. What basis would be assigned to the bonds for the immediate deduction? For OID bonds, do i claim the face value or current market value? For straight bonds bought at a premium, do i or the charity pay the amortization? Do I or the charity claim the accrual on bonds bought at a discount?

 

[Zebo]

Originally posted by: Bleep

Unless, you can show that you sold some of your woodworking (that it was not just a hobby). Then you could take a section 127 deduction for the full cost

Not to start a flamewar or anything but this is not correct.
The only requirement to having a business according to the IRS is the intent to make money which I am sure that the woodworker has intentions of.
If down the road a couple of years he sells some carvings that he made using these tools the tools are a business expense but are not now deductable because of the time lapse involved.
Hobby businesses are just as viable as any other business. The thing is if you intend to make any money from any tool you purchased the cost of the tool is deductable, even the prospect of making money with the tool purchased allows it to be deducted as a expense.
The quote is also incorrect in that if you purchased the tool on the last day of the year and did not make money until the 1st day of the next year it would not be deductable, which on the face of it appears to be in error.

Bleep

Thats right but you better keep a journal/log of your profit intent (who you meet with, work done, business plan, etc) or it will be disallowed under audit.

Remember the IRS is unconsitutional in the you must prove validation to them not the other way around.