The IRS Audit Blog

Archive for April, 2009

Question: Can you stop claiming a dependent after claiming them for two years?

First of all, the dependent is my husband’s sister who moved back to her parents home this year. She is 17. Her parents will be claiming her. My next question is her younger sister, 12 switched places and came and live with us this year. If all of a sudden we file this year under the younger sisters name and ss#, and the names changed in the forms from last year, will IRS be suspicious, cosidering her parents doesn’t claim her.

Answer: Yes, if they are no longer a dependent…you can stop putting them as one.

Be prepared for tax season with helpful tips from IRS

THE VILLAGES — Love bloomed at first sight about a year ago, when Gloria Filbert met Stephen Muratore during a singles Christmas dance at Lake Miona Recreation Center.

IRS TAX TIPS: DIRECT DEPOSIT (ASL, CAPTIONS & AUDIO)

The Internal Revenue Service reminds all home based business operators to follow appropriate guidelines when determining whether an activity is a home based business or a hobby, an activity not engaged in for profit.

In order to educate taxpayers regarding their filing obligations, the IRS guidelines explain the rules for determining if The Savings Highway qualifies as a business and what limitations apply if the activity is not a business. Incorrect deduction of hobby expenses account for a portion of the overstated adjustments, deductions, exemptions and credits that add up to $30 billion per year in unpaid taxes, according to IRS estimates.

In general, taxpayers may deduct ordinary and necessary expenses for conducting a Savings Highway business. An ordinary expense is an expense that is common and accepted in the taxpayer’s trade or business. A necessary expense is one that is appropriate for the business. Generally, an activity qualifies as a business if it is carried on with the reasonable expectation of earning a profit.

Auditors are being told to use several tests to determine if your “activity” is really a “hobby” or a “business.” Hobbies get a few tax breaks, but home-business owners get substantianly more!

If they can reclassify you as a hobby, the IRS gets more of your money.

IMPORTANT: As A Savings Highway representative. One of the tests that is not well understood, has to do with how much time you spend on the activity.

You need to prove “Material Participation” in your Savings Highway opportunity. Here are seven ways to prove you qualify for the tax savings:

1: If you work your business at least 500 hours per year. Tax Savings Allowed

2. If you work your business at least 100 hours per year AND no one else working in your business puts in more time than you do.Tax Savings Allowed

3. The taxpayer does substantially all the work in the activity.Tax Savings Allowed

4. The activity is a significant participation activity (SPA), and the sum of SPAs in which the taxpayer works 100-500 hours exceeds 500 hours for the year.Tax Savings Allowed

5. The taxpayer materially participated in the activity in any 5 of the prior 10 years.Tax Savings Allowed

6. The activity is a personal service activity and the taxpayer materially participated in that activity in any 3 prior years.Tax Savings Allowed

7. Based on all of the facts and circumstances, the taxpayer participates in the activity on a regular, continuous, and substantial basis during such year. However, this test only applies if the taxpayer works at least 100 hours in the activity, no one else works more hours than the taxpayer in the activity, and no one else receives compensation for managing the activity.Tax Savings Allowed

In order to determine wether the Savings Highway is a qualified home based business or hobby, taxpayers should consider the following factors:

* Does the time and effort put into the activity indicate an intention to make a profit?

* Does the taxpayer depend on income from the activity?

* If there are losses, are they due to circumstances beyond the taxpayer’s control or did they occur in the start-up phase of the business?

* Has the taxpayer changed methods of operation to improve profitability?

* Does the taxpayer or his/her advisors have the knowledge needed to carry on the activity as a successful business?

* Has the taxpayer made a profit in similar activities in the past?

* Does the activity make a profit in some years?

* Can the taxpayer expect to make a profit in the future from the appreciation of assets used in the activity?

The IRS presumes that an home based business is carried on for profit if it makes a profit during at least three of the last five tax years, including the current year — at least two of the last seven years for activities that consist primarily of breeding, showing, training or racing horses.

If an activity is not for profit, losses from that activity may not be used to offset other income. An activity produces a loss when related expenses exceed income. The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. It does not apply to corporations other than S corporations.

Tax savings for hobby activities are claimed as itemized deductions on Schedule A (Form 1040). These deductions must be taken in the following order and only to the extent stated in each of three categories:

* Tax savings that a taxpayer may take for personal as well as home based business activities, such as home mortgage interest and taxes, may be taken in full.

* Tax savings that don’t result in an adjustment to basis, such as advertising, insurance premiums and wages, may be taken next, to the extent gross income for the activity is more than the deductions from the first category.

* Tax savings that reduce the basis of property, such as depreciation and amortization, are taken last, but only to the extent gross income for the activity is more than the deductions taken in the first two categories.

As you can see from the guidelines established by the IRS qualifying as a legitimate home based business such as The Savings Highway are extremely straight forward. (Work at your business opportunity for 100 hours a year, and intend to make a profit). Turn your everyday activities (Eating and Driving) into substantial tax savings when you join the Savings Highway today.

Contact Me:

Jim Roche NJ

(908)413-5363

Tax and insurance tips if you’re renting out your home

Q: I will be transferred to a new city soon for my job, but housing prices have dropped so much since we bought our house that we can’t afford to sell it. Our only real option is to rent it out and wait for the market to recover. What do I need to know about insurance and taxes?

Depreciation: Straight Line Method

Question: Will you please sign my petition to have “In God We Trust” placed on every IRS form & page of instructions?

I think, people will be much happier to deal with the IRS paperwork if every page clearly reaffirms our nation’s commitment to God the Creator. The annual run up to the April 15th deadline would be a perfect opportunity to remind the citizens about the correctness of rendering unto both God and Caesar, under penalty of fines, imprisonment, or eternal damnation. Caesar loveth a cheerful taxpayer, and trust is a virtue which we should encourage in our populace.

And don’t be snarky by asking “Which god?” He’s the same God whose name is on our money. You know, GOD.

Answer: You couldn’t pay me to sign that petition. God has no place in our government, in our courthouses, or on our money. Just because you “trust in God”, doesn’t mean the rest of us do or that we should be pressured to conform to your views.

Landover nonprofit under state investigation

Maryland officials are investigating an educational nonprofit group run by Prince George’s County Executive candidate Rushern Baker for failing to report the charity’s financial situation over the past three years.

What is the Right to Petition?

Question: If former commissioner of the IRS Joseph Nunan went to jail for tax evasion, why isn’t Geitner?

Joseph Nunan

He’s not exactly the most high profile tax evader in the world, but Joseph Nunan may hold the record for being the most ironic of our alleged cheaters. That’s because Nunan was a former commissioner of the IRS (1944-1947) and in 1952 was busted for tax evasion. What sort of horrible fraud did he commit? Apparently Nunan won an $1,800 bet that Harry Truman would win the election, but forgot to claim his winnings on his taxes.
But he is so BRILLIANT!

Answer: Amazing how people give more credit to Geitner’s purity than Geitner does.
He got paid an agreed “after taxes” amount padded so he would have the extra to pay the taxes with along with printouts stating how much was for tax payments and KEPT ALL THE MONEY.
After being busted, he paid ONLY the amounts they could still force him to pay. (over the time-limit on a couple years)
This is the most obvious case of deliberate tax evasion I’ve ever head of.

Vail Valley Voices: Had enough of Obama yet?

United Nations: At Obama’s nuclear summit in Washington, the discussion includes possible sanctions against Iran for allegedly developing nuclear weapons. The president hopes to protect us from terrorists who are set on obtaining weapons of mass destruction, a noble goal. The only effective sanction, however, that the United Nations can create is to control the flow of gasoline into Iran. The …

Michael Minns debates the former IRS Commissioner

One of the key concerns for SMEs and business entrepreneurs who wish to establish a business is zeroing in on an ideal jurisdiction for their company incorporation. The crucial questions that concern company incorporation in any jurisdiction are: What are the statutory requirements to incorporate a company? What is the country’s foreign ownership policy? Is the incorporation procedure simple or complex, time-consuming or quick? What is the cost of company incorporation? What are the compliances that the company needs to adhere to after incorporation? Is it easy for foreigners to relocate to a country for running the company?

Singapore. A local registered address (commercial or residential but no PO Box). At least one local resident director (a Singapore Citizen, a Singaporean Permanent Resident, a person who has been issued an Entrepass, Employment Pass, or Dependent Pass) and unlimited maximum number of directors. Directors must be at least 18 years of age and must not be bankrupt or convicted for any malpractices. Directors must be natural persons. A local resident and qualified company secretary who is a natural person and not a corporate. A minimum of 1 and maximum of 50 shareholders. A director and shareholder can be the same or different person. A shareholder can be an individual or corporate.

Minimum paid up capital of SGD 1.00. No authorized capital required.
Malaysia. A local registered address. At least two local resident directors (a Malaysian Citizen or a Malaysian Permanent Resident, a person who has been issued an Employment Pass) and unlimited maximum number of directors. Directors must be at least 18 years of age and must not be bankrupt or convicted for any malpractices. Directors must be natural persons. A local resident company secretary who is a natural person and not a corporate. The company secretary must either be a member of a professional body prescribed by the Minister of Domestic Trade and Consumer Affairs; or licensed by the Companies Commission of Malaysia. A minimum of two shareholders and maximum of 50 shareholders. A director and shareholder can be the same or different person. A shareholder can be an individual or corporate. A minimum authorised capital of RM 100,000 and paid-up Capital of RM 2.00.

Company registration in Singapore can be completed within 1 day. In Malaysia it takes 7-10 days to incorporate a company. Singapore. Fees for company incorporation with Companies Registrar: SGD 315. Fees for company registration with tax department: None. Malaysia. Fees for company incorporation with Companies Commission varies depending on the amount of authorized capital and can range from SGD 400 to SGD 28,000. Fees for company registration with tax department: None. Singapore. Annual returns along with audited annual accounts must be filed with Companies Registrar within 1 month of the Annual General Meeting. Tax returns along with audited accounts must be filed with the Inland Revenue Authority of Singapore by 31 October each year.

Malaysia. Annual returns along with audited annual accounts must be filed with the Companies Commission within 1 month of the Annual General Meeting. Note: Exempt private companies (not more than 20 shareholders and shares are not held by another company) need not file audited accounts. However, they are required by law to maintain their audited accounts for inspection by the authorities at any given time. Every company must keep accounting and other records as are necessary to explain the transactions and financial position of the company and to allow a profit and loss account and a balance sheet to be prepared.

Singapore. A company shall appoint an auditor within 3 months from the date of incorporation, unless it is exempted from audit requirements under Section 205B, or 205C, of the Companies Act. Malaysia. Every company must appoint one or more auditors who must be approved auditors in Malaysia. Appointment of auditors must be done before the first Annual General Meeting.

Although it is relatively easy to set up a business in Singapore and Malaysia, there are certain key differentiators between both the jurisdictions for company set up. Singapore is known for its ease of company set up which can be completed within 1 day, as compared to the 7-10 days norm of Malaysia. Moreover, a Singapore company can be registered with a fee of SGD 315. This is significantly low when compared to the registration fee for a Malaysian company which ranges from SGD 400 to SGD 28,000 depending on the company’s authorized capital. Last but not the least; it is easier for foreign investors to satisfy the eligibility criteria for Singapore work passes as compared to the requirements for a valid Malaysian work visa. Thus, Singapore offers a better business environment for company incorporation as compared to Malaysia.

Labour and Employment

This Commentary highlights the principle year-end reporting requirements for employee stock plans that we see repeatedly when U.S. multinationals offer these programs to their employees worldwide.