By month: August 2014
In this precedent-setting case, the Tax Court had to decide for the first time whether a tax preparer’s fraud extends the statute of limitations for IRS audit of the client return when there is no charge of fraud against the client. If the court rules against the client, then by precedent a tax preparer’s fraud extends the client’s allowable audit period from three years to forever.
When you own a business, you should look at all possible assets that you own personally and how you might use them to increase your business deductions. This is particularly true for vehicles. And the beauty of identifying assets such as personal vehicles that you can use for business is that you don’t spend money to create deductions. You simply use assets you already own.
If you are going to attend a convention, seminar, or similar meeting, you need to know that tax law breaks the Earth into two locations. In location one, you deduct your convention, seminar, or similar meeting if the event benefits or advances the interests of your business. That’s easy. In location two, you have to meet a much more difficult reasonableness standard. That’s not easy.
You never, ever want to borrow money from this one place. It’s poisonous. If you don’t suffer immediately, you might wish you had. This is a situation in which the money is readily available, you think it’s yours, and you think you are simply borrowing the money. But that’s not what’s happening. You are in truth stealing the money and violating your fiduciary responsibilities.
The thought of an IRS audit is a worry, no question. But it’s worse when the IRS wants a lot of your money. And it’s even worse yet when the IRS wants your money because it interprets the law incorrectly and at the time you see the IRS adjustment, you have no idea whether the IRS is right or wrong.
If you buy a property, fix it up, and then sell it, is that property a dealer or an investor property? The classification boils down to your facts and circumstances. That makes it a tough call for both you and your tax preparer. And if investor status produces long-term capital gains, you want to avoid dealer status, because that causes ordinary income and self-employment taxes.
You are right to worry about the hobby loss rules when a business fails, because those rules would give you no tax deductions for the failed business. But if you worked at the business, kept decent records, and tried to make money, you had a business, and that business failure would produce tax deductions as explained in this article.
If you operate your business as a proprietorship and hire your spouse as an employee, you likely have questions about the need to pay wages to make your spouse a bona fide employee. And you likely want your spouse as a bona fide employee who receives as a tax-free fringe benefit a Section 105 medical reimbursement plan—family coverage, of course.
If you own rental property in your name or in the name of a single-member LLC, you report your rental property income and expenses on Schedule E of your IRS Form 1040. But what happens when you have an expense for which the IRS has not created a line item on the form? Answer: If it’s an ordinary and necessary expense, it’s deductible.