By month: August 2006
You do not want a hobby for tax purposes. The fact that hobby losses are not deductible is minor compared to the other problems caused by the hobby. For example, you report hobby income above-the-line and hobby expenses below-the-line as miscellaneous itemized deductions where they suffer the 2 percent of adjusted gross income floor, or, worse yet, the AMT.
Hobby gambling can trigger taxes when you have a zero income because the law makes your winnings reportable above-the-line and losses deductible below-the-line.
The more than 2 percent owner of an S corporation may not benefit from a fringe benefit like corporate paid health insurance. Further, this owner-employee is not “self employed” for purposes of deducting self-employed health insurance on page 1 of IRS Form 1040. This leaves the more than 2 percent owner with only one IRS approved method for gaining the maximum deduction from health insurance.
Nothing explains how to deduct “associated entertainment” better than the deduction of scuba diving. Why? Associated entertainment is strictly fun—no business discussions take place in this non-business entertainment setting. Scuba diving fits this definition perfectly. Tax law allows the deduction for scuba diving as associated entertainment when you connect the scuba diving to either directly related entertainment or a business meeting in a business setting.
Follow this golden rule: Do not make charitable contributions to individuals. Make your donations directly to the qualifying charitable organizations.
In Chief Counsel Advice, the IRS clarified its position that a sole proprietor may deduct the cost of health insurance on his or her Form 1040 regardless of whether the insurance is purchased in the individual’s or the proprietorship’s name.