The Tax Professionals Blog
Tax Consequences of Noncash Prizes
Posted by Lee Reams Sr. on
Every so often tax practitioners will encounter a client who has won a noncash prize or vacation trip from a game show, or won a car or even a house from the purchase of a charity raffle ticket. Whatever the noncash prize or the source of the prize, one thing is for certain, the winner must pay taxes on the fair market value (FMV) of the prize (Reg. Sec. 1.74-1(a)(2)).
Disabled Individuals May Be Missing Out On The Earned Income Tax Credit
Posted by Lee Reams Sr. on
There are several requirements to qualify for the Earned Income Tax Credit (EITC) (IRC Sec 32), one of which is to have earned income. Many taxpayers and tax preparers alike overlook the fact that long-term disability benefits received prior to the minimum retirement age (generally age 55) are treated as earned income for purposes of the EITC computation (IRS Publication 4808, Disability and EITC).
Deducting Travel Insurance on Your Taxes
Posted by Lee Reams Sr. on
The deductible travel expenses, for a business trip, would include the cost of travel insurance, visa fees, customs fees, and books about the destination (TC Memo 1998-272), and would be deductible on Schedule C as a travel expense for a self-employed individual or as a Schedule A, miscellaneous itemized deduction for an employee.
C or S Corporation and the 3.8% NIIT
Posted by Lee Reams Sr. on
One of the factors to consider in regards to deciding to do business as a C Corporation or utilize the Sub S election (where there are 100 stockholders or less) is the 3.8% net investment income tax. If you are the owner of an S corp. and you are active in your business, and you sell the stock in your business at a gain, you eliminate the requirement to pay the 3.8% Medicare surtax on the gain, which can be a serious sum of money. If the business is currently a C Corp, one possibility would be to switch to an S Corp status prior to the sale, keeping in mind that the election must be made within the first 2 months and 15 days of the corporation’s tax year for the election to apply to that year.
Reporting Hobby Income and Expenses
Posted by Lee Reams Sr. on
When an activity is determined to be a hobby and not a for profit business activity, special reporting rules apply.