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A business plan is a good idea. I don't want to get into too much detail here about her art practice, but she is moving towards making more small easily-sellable work; but she's not going to abandon the large project right now either, especially given there's commitments for its completion to various organizations who have helped to fund it (it's a robot). The losses aren't making it hard for us to pay the bills. It's more that her regular employment income is 25% of our household income, and we don't have the ability to just drop that completely so that she could work full-time on her art practice. We can take a loss of $5k in a year, but not $25k, unless we reduced our standard of living dramatically. We're now considering getting professional advice. I think her business probably deserves the attention of an accountant. We need to know what the longer-term consequences will be of declaring as a not-for-profit this year, vs. running a third year of losses and probably getting audited. Just out of curiosity... suppose we declared the losses, and got audited, and the IRS decided that her business was actually not-for-profit. Aside from owing the tax we would have paid on the income not counterbalanced by the losses, would we be charged fees or penalties or something? I mean, we're not lying or being dishonest or anything, the business is genuine and she's trying to make it profitable. The economic conditions have been really harsh for small-time artists in the last three years, it's been tough to make big sales, and since early 2012 she's been focused a lot on a project that could pay off well, but not until late 2013 at the earliest. But then, this is the IRS - I can imagine some scenario where what we intended is irrelevant and we get our assess kicked anyway...
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Mar 13, 2013 20:37
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Leperflesh posted:A business plan is a good idea. I don't want to get into too much detail here about her art practice, but she is moving towards making more small easily-sellable work; but she's not going to abandon the large project right now either, especially given there's commitments for its completion to various organizations who have helped to fund it (it's a robot). They go back and disallow the losses for 2010 and 2011. They then go back and nail you for back interest, and sometimes penalties as well. They also notify your state (if you pay state income taxes) and they nail you also.
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Mar 14, 2013 00:42
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Schedule C has always felt like a giant landmine to me, especially because I'm in your wife's situation too. However, my stuff has always turned a profit. I'm a photographer and an artist and my schedule C is about 15% of my yearly income when compared against my salary for my day job (I make less than 50K/year). Even though I consistently turn a profit between my photography and art, I wonder if the IRS would ever audit me. I keep very good records (receipts, books, inventory for my art), I have websites, ads, etc. and records of all the trips I have ever made for my artwork (conventions, travel to photo shoots). I also have a business plan and I track my mileage when I have to travel in a car for business (which is, truthfully, not all that often because oftentimes I fly or take a train to conventions). But I haven't had a separate business checking account, and I don't use an accountant. When does it make sense to start separating accounts? I'm trying to be honest in doing this, as I know people less scrupulous than me just hide the cash under their mattress. I'm not making tens of thousands of dollars on this, but it's enough that I have to worry about it. kefkafloyd fucked around with this message at 01:03 on Mar 14, 2013 |
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Mar 14, 2013 01:01
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kefkafloyd posted:Schedule C has always felt like a giant landmine to me, especially because I'm in your wife's situation too. However, my stuff has always turned a profit. I'm a photographer and an artist and my schedule C is about 15% of my yearly income when compared against my salary for my day job (I make less than 50K/year).
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Mar 14, 2013 01:54
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scribe jones posted:If you're worried, form an S-corporation and your audit risk drops to basically nothing. Is an S-corporation really worth it for some dude who is hired to photograph jets a few times a year and sells his art at conventions on the weekends? If I was deriving my sole income from it, I would consider it, but it sounds like an awful lot of work for very little gain. I guess it's just because nobody likes getting audited.  People have always told me that schedule C puts a big target on you for an audit but I doubt the IRS would want to go after somebody unless they claimed gigantic losses year over year.
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Mar 14, 2013 02:50
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kefkafloyd posted:Is an S-corporation really worth it for some dude who is hired to photograph jets a few times a year and sells his art at conventions on the weekends? If I was deriving my sole income from it, I would consider it, but it sounds like an awful lot of work for very little gain. Talk to a professional if you want to hear more about the pros and cons, but I have seen plenty of people in your exact position electing S status, it's not weird at all.
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Mar 14, 2013 03:01
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OK, sounds fair enough. I've been hemming and hawing over getting more serious about running the business; I suppose it's getting more and more worth it to actually have an accountant.
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Mar 14, 2013 03:13
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scribe jones posted:Talk to a professional if you want to hear more about the pros and cons, but I have seen plenty of people in your exact position electing S status, it's not weird at all. Fair warning - it gets more difficult to deduct your office in home, and you might need to take a payroll (entails doing payroll taxes). Check with a professional. Seconding the audit issue though - all of our audits were sch. C this year, and when I asked the auditors, they all said "we get more money back with schedule c returns so we're not auditing corporations at all." Also heard the same thing from another CPA in the area who was complaining about all of his audits going all, and all of them were Sch C returns as well.
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Mar 14, 2013 03:43
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But aren't most schedule C folks small fry like me who don't derive their sole income from their side business? Is it really worth an auditor's time to try to collect the, what, $1000 or so of potential back taxes I might owe going back three years if I didn't have a home office and travel expenses, especially considering that I have always turned a profit? All of my expenses are legitimate or provable, so I don't think an audit would actually come back with me having problems, but it just sounds scary. I do my own taxes and TaxCut (this shows how long I've been using that software, I think it's technically branded as H&R Block at Home now) has always said my audit risk is "low." Are any of you guys posting in this thread from Massachusetts? Because I'd consider giving you a phone call. kefkafloyd fucked around with this message at 14:15 on Mar 14, 2013 |
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Mar 14, 2013 14:09
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If I've already filed a tax return for 2012 but only now have decided to contribute to a Roth IRA for 2012, do I have to do anything special (like file an amended return or submit an addendum)? As it's a Roth IRA, I assume not, since it won't actually affect my tax burden for the year, but just wanted to make sure. Thanks!
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Mar 14, 2013 15:32
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kefkafloyd posted:But aren't most schedule C folks small fry like me who don't derive their sole income from their side business? Is it really worth an auditor's time to try to collect the, what, $1000 or so of potential back taxes I might owe going back three years if I didn't have a home office and travel expenses, especially considering that I have always turned a profit? Also, Schedule C businesses that turn a profit aren't nearly the audit risk that loss-generating businesses are. There's a ton of people who use Schedule C "businesses" that constantly report net losses in order to offset wage income, especially since it's a lot easier to prove material participation in a business as opposed to rental real estate. I'd imagine these people get more frequent visits from the IRS.
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Mar 14, 2013 20:03
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10-8 posted:There are a lot of large-dollar Schedule C businesses out there. You'd think once you're generating six figures of revenue each year you'd bother to register a separate business entity but a lot of people don't. Yeah. If I was deriving my sole income I would absolutely start an LLC or S-corp. I find it hard to believe that someone who is self-employed and pulls in the median income via their own business would not want to protect themselves, especially if they are running a big enough business to generate that kind of income. Especially just for the liability purposes alone. quote:Also, Schedule C businesses that turn a profit aren't nearly the audit risk that loss-generating businesses are. There's a ton of people who use Schedule C "businesses" that constantly report net losses in order to offset wage income, especially since it's a lot easier to prove material participation in a business as opposed to rental real estate. I'd imagine these people get more frequent visits from the IRS. Got it. I will at least get separate accounts going forward (My bank's small business checking is not expensive at all and I believe the monthly fee is a business expense) and get in touch with an accountant about handling my taxes next year. Now that I started actually selling my artwork and traveling across the country to do so (as opposed to just being hired to do photo shoots locally in the northeast) things have gotten far more complicated. This year's return was much more complicated than my previous schedule C returns (due to inventory, travel expenses, and so on) and it's getting to the point where I'm willing to pay someone $500 to just not have to worry about it anymore. On an unrelated note, I haven't been able to find a clear answer about depreciation schedules on digital cameras. Computers and other stuff are on a one-year schedule now, but if I wanted to buy a new camera body (which would be an instrumental tool for my photography business), I'm unsure how long it should be a capital asset. Lenses are a different matter, they can last a long time, so I don't mind a five year schedule. But bodies wear out a lot faster. I could not take depreciation on my previous camera investment (I bought it all about two years before I started doing this stuff for actual money) but I'm looking at replacing my six year old a700 with a new full frame a99 (costs about $2800) and I do not expect to keep the a99 for five-plus years. But this camera isn't exclusively for business use, which muddies the water considerably. Yeah, I need a professional for this.
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Mar 14, 2013 20:42
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kefkafloyd posted:Yeah. If I was deriving my sole income I would absolutely start an LLC or S-corp. I find it hard to believe that someone who is self-employed and pulls in the median income via their own business would not want to protect themselves, especially if they are running a big enough business to generate that kind of income. Especially just for the liability purposes alone. Camera would be a five year depreciable asset, even if you won't keep it for five years.
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Mar 14, 2013 20:56
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AbbiTheDog posted:Camera would be a five year depreciable asset, even if you won't keep it for five years. Couldn't he also take Sec. 179 depreciation on the camera the year he buys it? Nice and easy and he can do it again in 2 years when he replaces the camera.
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Mar 15, 2013 15:53
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sullat posted:Couldn't he also take Sec. 179 depreciation on the camera the year he buys it? Nice and easy and he can do it again in 2 years when he replaces the camera. It depends. You CAN, but it might not mean he SHOULD. If it's new it also qualifies for the bonus depreciation.
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Mar 15, 2013 16:14
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Hey guys, we've been discussing the responses we got and figuring out what we should do. At this point we're like 80% sure we should file this year under the not-for-profit rules, that is, claim expenses only to the extent they counterbalance the income and not a penny more. But, we're still unclear about the longer-term consequences of doing so. As a tl:dr if you missed the previous discussion; my wife's got a sole proprietorship in addition to her primary employment. In 2010 and 2011 we used Schedule C to claim net business losses. 2012 was another year of losses, which hits against the IRS's limit of no more than 2 years in 5 of losses as a sole proprietorship. If we switch to not-for-profit, as described in Pub 535, do we do this using Schedule C? How do we inform the IRS that this is what we're doing (as opposed to just randomly managing to exactly not make a profit or a loss for 2012)? If we do this, what happens in 2013? Suppose she makes a profit this year. We'd be in a situation where, looking back, we have two years of a loss, a year of no-profit-or-loss, and a year of profit. Would we still file it like a not-for-profit? Or a hobby? Or could we go back to schedule C sole proprietorship for-profit filing? What about 2014, what if we alternate losses/gains, or make gains for two years? I guess what I'm really asking is, does the IRS get pissy if you have a marginal business and switch how you choose to declare it from one year to the next; alternatively, do they assume you've started a new business each time you start declaring like a for-profit, if you've had interim years of not-for-profit? We've looked at the S-corp stuff and it seems inappropriate for an artist. It seems to me like an S-corp is run like a sellable entity, but no artist would sell their business since it's based on a personal brand (in my wife's case, literally her name and reputation as an artist). But maybe this is irrelevant? We're planning to find a tax advisor as soon as possible, but we'd like to have opinions from the knowledgeable goons first.
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Mar 15, 2013 18:46
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Leperflesh posted:Hey guys, we've been discussing the responses we got and figuring out what we should do. At this point we're like 80% sure we should file this year under the not-for-profit rules, that is, claim expenses only to the extent they counterbalance the income and not a penny more. But, we're still unclear about the longer-term consequences of doing so. Income will be reported on Line 21, other income. Your expenses (to the extent of income) will be reported on Schedule A, line 23. Note that your expenses will be limited to 2% of AGI. So if you have 1,000 of income, 2,000 of expenses and a 30,000 AGI: You will put "1,000" on line 23, but will only actually be able to deduct 400. Assuming you even itemize (if you don't itemize, you can deduct nothing). Your second question about flip flopping the treatment of your income: you don't want to do that. You need to be able to clearly define an activity as business or personal based on the set of guidelines listed earlier. It sounds like you're not sure what your wife's activity should even be. You've been losing 3-4k a year for the past three years. If your wife wasn't doing art, and instead, say, cleaning bathrooms as a job where she was actually losing 3-4k a year, would she still be doing it? Your wife is way too small time to warrant an S-Corp or any kind of entity, and doesn't necessarily prevent the IRS from deeming the activity a hobby (the IRS would just reclass the expenses into distributions). It just makes it much less likely to be looked at. But then you're paying for that in Federal/State corporate tax preparation fees, so...
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Mar 15, 2013 19:31
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My wife is going to continue to work as an artist regardless. It's worth it even if it never makes a profit (for both of us). The recession of the last few years has severely impacted the ability of fine artists to make money, but we're hopeful that as the economy turns around, things will get just a little bit easier. We will always itemize (our home loan interest deduction is annually higher than our standard deduction would be, all on its own) but that 2% is certainly going to be a limiting factor. Still, it's better than nothing. My wife will continue to operate in California as a sole proprietorship; it allows her to sell via avenues she can't use otherwise, and she can purchase raw materials pre-tax. (She collects sales tax and sends it to the state annually in July, of course, so the state still gets its due.) It sounds like, from what you're saying, the best option is to file as not-for-profit, until she is consistently making a profit annually; and after doing that for at least three years, we can consider a switch back to filing as a for-profit (because we'll have three profitable years in the past five, definitively).
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Mar 15, 2013 21:20
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sullat posted:Couldn't he also take Sec. 179 depreciation on the camera the year he buys it? Nice and easy and he can do it again in 2 years when he replaces the camera. I've heard of Sec 179 but the IRS' documentation is about as opaque as all get out. I take it a camera would be "tangible personal property," and according to PPA cameras should fall under it. I've found a lot of discussions about this and it's looking like most small-time photographers take Sec 179 for their assets instead of depreciation schedule. Most of the photographers I've been googling also use Sec. 179. http://www.ppa.com/ppa-today-blog/finance/irs-section-179-reminder.php
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Mar 15, 2013 22:05
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He would be able to take a loss on the adjusted basis of the camera in the year of disposal regardless. If he's only keeping it for 2 years it's a very trivial timing difference.
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Mar 15, 2013 23:17
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kefkafloyd posted:I've heard of Sec 179 but the IRS' documentation is about as opaque as all get out. I take it a camera would be "tangible personal property," and according to PPA cameras should fall under it. I've found a lot of discussions about this and it's looking like most small-time photographers take Sec 179 for their assets instead of depreciation schedule. Most of the photographers I've been googling also use Sec. 179. It still winds up on the depreciation schedule. If it's under $500 per asset I just shove it through as "supplies" on the sch. C. Section 179 goes on page one of the Form 4562, and carries through as "depreciation" on sch. C. If you sell it down the road it is subject to depreciation recapture on Form 4797.
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Mar 16, 2013 00:00
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I've got a question on how to best handle this situation. I've been doing taxes for my brother and other family members for years now. My brother started working early last year at a small business. He gets paid by check. There was never any discussion on how taxes are handled. Each paycheck the boss has him write an invoice of stuff done that pay period. Obviously they are trying to treat him like an independent contractor, but he is clearly an employee. Works 9-5, has have no control over what is done or how, works in their office, doesn't have any expenses (he can't even claim mileage because he walks to work). He did not get a W2 or a 1099, and from what he can gather from other employees those are never given out to anyone. He doesn't want to cause problems right now because he can't find another job yet. Could I eFile as if he had a W2 and in X months/years when the IRS comes investigating (after he no longer works there), we can file the paperwork disputing his classification? Or should I file as if he has a 1099, pay the extra money, and then when he leaves this job we can file for misclassification and get his money back? Or is he just plain screwed and going to lose his job? I asked an (actual) accountant and was told to not claim the income at all. This is probably the worst option because I think he is high risk for an audit. H&R even says so any way I put the numbers (W2, 1099, leaving it out) and he was audited a couple years ago.
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Mar 17, 2013 05:24
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Question: Graduated college 3 years ago. Only ever worked overseas, so far in Korea. I've paid only Korean taxes but I don't have a job this time around and I still live in Korea, going back only to America a couple months ago. I have an investment account that's doing well enough and since I'm not paying Korean taxes this time around I probably need to do the American ones. When I try to do the free online 1040 services on sites like H&R Block and whatnot, it doesn't really seem to get through to their services or whatever that my income was always overseas and paid to the Korean government. So, I'm kind of confused about what to do. I'm sure I need to file taxes for the investment account I have at one of those financial firms, but I don't know which one. Also, I had at one point last year over $10k USD in an overseas bank here and I'm aware that I have to report that. Not sure how, though. Advice?
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Mar 17, 2013 12:24
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I have a question for you brainy smarties: I moved to the US from Canada this year to work for a start-up. My somewhat bumbling employer didn't manage to get me on the payroll until over three months after I arrived  I was paid retroactively, but to help me along, the employer gave me a $5,000 check for a lump-sum moving stipend about a month after I arrived. After another month passed, I was given an advance (ie personal loan from the CEO) that I repaid several months later. I don't think either of these are included in my W-2. I'm wondering if I can ask my employer for some additional paperwork to include in my tax return that will account for this additional income?
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Mar 17, 2013 19:07
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I have a question for any qualified goons who may want to take a stab at murky international tax-exemption laws involving a country that semi-officially exists. My girlfriend received a Form 1042-S recently for a program she was doing at a research lab through a university. She's from Taiwan, which is not recognized officially by the United States as its own country due to the 1979 U.S.-P.R.C. Joint Communique (reaffirms Beijing's stance that there is only one China, and Taiwan is included in that). Looking through the income tax treaty page on the IRS website, I couldn't find reference to Taiwan. Only China: http://www.irs.gov/Businesses/International-Businesses/United-States-Income-Tax-Treaties---A-to-Z This would mean that it falls within the scope of mainland China's treaty. To further back this up, according to this IRS Tax Treaty information document, only Hong Kong falls outside of the US-China tax treaty in Article 3: http://www.irs.gov/pub/irs-trty/chintech.pdf (more details here: http://www.irs.gov/Businesses/International-Businesses/China---Tax-Treaty-Documents ). I'm having difficulty reading the legalese to determine if the Chinese tax treaty covers this. Is any of her Gross income from line 2 of form 1042-S tax-exempt? Another odd bit of information, line 16 of 1042-S says her country code is TW, does this have any impact? Thanks!
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Mar 17, 2013 23:47
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Love Stole the Day posted:Question: Report your bank account on TD F 90-22.1 ("FBAR") available here: http://www.irs.gov/pub/irs-pdf/f90221.pdf Due June 30. File directly with Treasury, not with your taxes. You are taxable by the US on your worldwide income as a US citizen, it does not matter if you paid Korean taxes. You do get a credit against your US taxes for Korean tax (presuming its an income tax), and you probably qualify for the foreign earned income exclusion. Your investment income will be taxable in the US and you should file a 1040 to report the income (presuming there have been realization events, if your stock just went up without any sale, it is not income). If the account is foreign, you should report it on the FBAR as well as your bank account.
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Mar 19, 2013 02:18
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Backweb posted:I have a question for any qualified goons who may want to take a stab at murky international tax-exemption laws involving a country that semi-officially exists. What kind of income did she receive? I'm presuming the code in box one was 16-19. The US-China treaty exempts income in compensation for research (article 19), subject to some rules. Your GF will qualify for the benefits of the Treaty if she is subject to tax in the PRC. I don't believe citizens of Taiwan are subject to tax in the PRC. I don't think she is entitled to an exemption under the US-PRC treaty. If she is, she would file a 1040NR and claim a refund on the withheld income.
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Mar 19, 2013 02:41
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Hey, I have a question. I can probably guess the answer, but thought I would check the goon hivemind real quick. States that have medical marijuana... can I take a medical deduction for that expense, even if the feds obviously disallow it? I'm guessing not, because the feds be jerks about it, but hope springs eternal. 
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Mar 19, 2013 04:03
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sullat posted:Hey, I have a question. I can probably guess the answer, but thought I would check the goon hivemind real quick. States that have medical marijuana... can I take a medical deduction for that expense, even if the feds obviously disallow it? I'm guessing not, because the feds be jerks about it, but hope springs eternal. Nope.
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Mar 19, 2013 15:29
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scribe jones posted:Nope. Here in Oregon I get asked that question more than I'd care to admit. Illegal for federal is illegal for federal taxes.
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Mar 19, 2013 19:31
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AbbiTheDog posted:Here in Oregon I get asked that question more than I'd care to admit. Illegal for federal is illegal for federal taxes. Pub 17 1/2 posted:Your net Oregon itemized deductions are your: Yeah, I figured. Even though it's legal for medical treatment in the state, the Pub says you can only itemize whatever the federales allow, and since isn't allowed on the Schedule A, it means that we can't allow it on the Oregon return either. Thought there might be some hope since Oregon says that RDPs can disregard DOMA, but without any specific provisions saying that MM users can also, seems like we gotta follow the federal rules. Nuts. I'm gonna write my state rep and get him to change it.
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Mar 19, 2013 20:09
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Not only can't you deduct your own personal expenses relating to medical marijuana, a recent Tax Court ruling held that medical marijuana dispensaries can't deduct their otherwise ordinary and necessary business expenses because they're related to a federally criminal activity. That ruling effectively means that dispensaries are taxed on their gross receipts rather than net profits, which tends to make the whole endeavor unprofitable.
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Mar 19, 2013 21:52
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10-8 posted:Not only can't you deduct your own personal expenses relating to medical marijuana, a recent Tax Court ruling held that medical marijuana dispensaries can't deduct their otherwise ordinary and necessary business expenses because they're related to a federally criminal activity. That ruling effectively means that dispensaries are taxed on their gross receipts rather than net profits, which tends to make the whole endeavor unprofitable. I got clients that have started grow operations and I've had to tell them from a tax perspective they're screwed. Some dingbat tax professor was trying to argue that "set it up as a nonprofit" but there's no way in hell the IRS would approve an illegal activity as a nonprofit to start with.
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Mar 19, 2013 22:42
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10-8 posted:Not only can't you deduct your own personal expenses relating to medical marijuana, a recent Tax Court ruling held that medical marijuana dispensaries can't deduct their otherwise ordinary and necessary business expenses because they're related to a federally criminal activity. That ruling effectively means that dispensaries are taxed on their gross receipts rather than net profits, which tends to make the whole endeavor unprofitable. Shortest episode of Tax Court ever: 26 IRC 280E posted:No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted. The tax code seems pretty clear on that issue. I think that's the only specific limitation on illegal activity, too, so a cat burglar could deduct the cost of his tools, his steaks, and his mileage between houses, while a hitman could deduct his ammo expenses (might have to depreciate his fancy guns though), the humble crack dealer or meth manufacturer can't deduct anything. To say nothing of the worst scourge of them all, the medical grow-op.
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Mar 19, 2013 23:21
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My dad passed away and I'm trying to figure out my dad's IRA disbursement for my mom in order to minimize taxes on it. Is this the right place to ask?
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Mar 20, 2013 00:09
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Steve Yun posted:My dad passed away and I'm trying to figure out my dad's IRA disbursement for my mom in order to minimize taxes on it. Is this the right place to ask? If they're not too far apart in age your mom can do a spousal IRA and "inherit" it into her own account. http://www.obliviousinvestor.com/inherited-ira-rules/
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Mar 20, 2013 00:18
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sullat posted:Shortest episode of Tax Court ever: The tax code seems clear, but the IRS is clearly overstepping their bounds in the interpretation. The COST of the weed should be disallowed, but the remainder of the costs should have been allowed. The company is appealing, but that might take a couple years. Simplest thing would be to change weed to be regulated at the state level, like alcohol, and let each state make up it's mind on the issue (class I to class III?)
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Mar 20, 2013 00:19
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AbbiTheDog posted:I got clients that have started grow operations and I've had to tell them from a tax perspective they're screwed. I've been drinking but I seem to recall that they can deduct COGS, no? Which just means you need to get a little creative when allocating costs.
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Mar 20, 2013 02:23
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I'm still confused about bonus depreciation and would really appreciate clarification as I've gotten a lot of conflicting information- thanks. Let's say I buy a new $20k car for my business in 2013. I finance the purchase. It will be used 80% for business and 20% personal. I have W-2 income from another job. Is this correct? $20k x 80% = $16k $16k x 50% bonus depreciation = $8k Let's say my income for 2013 will be $10k and my expenses (not including the new car) are $9k. Net income = $1k $1k (income) - $8k (bonus depreciation) = $(7k) $7k can be deducted from W-2 income.
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Mar 20, 2013 05:33
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AbbiTheDog posted:The tax code seems clear, but the IRS is clearly overstepping their bounds in the interpretation. The COST of the weed should be disallowed, but the remainder of the costs should have been allowed. The company is appealing, but that might take a couple years. Uh, how do you figure? It says no deduction or credit in carrying on the trade or business. The trade or business is selling marijuana, which is prohibited by federal law. It's a lovely law, but the point remains - even in states with legal weed, if you're selling you're taxed on your gross, not your net.
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Mar 20, 2013 13:39
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