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Business or hobby: Here's how the IRS decides

From arts and crafts to sailing, woodcarving or horse breeding, we all have hobbies in which we enjoy. Some of these hobbies you can use to make a little extra money on the side, in addition to finding pleasure in the activity itself. Sometimes these hobbies can blossom into a business, but the IRS has specific rules in determining whether or not what you do is ultimately for profit or just for fun.

When a hobby makes you money

Like a business, you can write off some expenses from a money-making hobby, but the amount differs when there's no profit motive. For example, say you have a woodworking hobby and like to attend craft fairs where you view the work of others and occasionally sell your own. In one year, you spend $3,000 in supplies, equipment and gas in getting to and from shows. In that same year, you made $1,000 back in selling your work. How much can you write off? 

The link between taxes and nexus

In business, we are surrounded with buzzwords that might mean a lot to us, but outside of your industry, it could seem like you're speaking a foreign language. One word for you to consider today is "nexus." This term does not apply to one industry, but rather to any company that does business in a state where it does not have a physical presence.

Another way to think of nexus is a connection or a link. If an entity, in this case, a state government, has a link to your business, then you have created a nexus. When it comes to taxes, each state has its own threshold for economic nexus. In New York, any corporation that does more than $1 million in business in the state is subject to taxation even if the company has no physical presence.

Changes coming to online sales tax for merchants

The number of people shopping online is growing daily. According to U.S. News, half of all Americans do regular shopping online, with nearly 20 percent of holiday gifts coming from online retailers in 2016. As a business owner, you know that accounting for sales tax is a regular part of brick-and-mortar sales. However, the rules for collecting sales tax from online transactions aren’t as clear.

In 1992, the U.S. Supreme Court ruled that states could not force online retailers to pay sales tax in each state to which they sell and ship products. For example, an online retailer in New York is not required to collect sales tax from a customer in Maine who receives products, even though the State of Maine would see it as a taxable transaction if done in a brick-and-mortar store.

Tax Considerations When Starting a Business

Every year hundreds of thousands of new businesses enter the marketplace. New businesses face many challenges to achieve success. One such challenge is taxes. The way in which a business addresses tax issues can make a critical difference in its ultimate success or failure. Each year the IRS discusses important tax-related issues for new companies. Here are four of the most important tax-related issues, as cited by the IRS:

De Blasio Seeks Tax on High Earners to Fix NYC Subways

 

As every New Yorker knows, the conditions of New York’s subway system have become progressively worse in recent years. Delays, subway car breakdowns, and even derailments have become all too familiar. Fixes to the system have been the focus of state and local officials recently.

How Does the IRS Appeals Process Work?

Yes, even the IRS knows that they do not and cannot get everything right. The IRS can make mistakes during audits, collection actions and in other areas. Thankfully, individual and business taxpayers have the right to appeal an IRS decision. In fact, according to the IRS, its Office of Appeals, an independent branch of the IRS, hears more than 100,000 cases each year. Obviously, there are other reasons why an audit or collection case may go to appeals, including but not limited to mere disagreements between taxpayer and IRS representative. 

What Is Innocent Spouse Relief And When Will the IRS Grant It?

When spouses file joint returns, each spouse is jointly and severally liable for all past due taxes. If the IRS believes that there is a tax deficiency on a jointly-filed return, it can undertake collection efforts against either or both spouses. Even if spouses divorced in the current year but filed joint returns in previous years, the IRS can pursue both spouses for past due taxes, interest and penalties in years where the couple filed joint returns.

This can lead to unjust outcomes, particularly if one spouse did not know and had no reason to know of the other spouse's malfeasance. The IRS has carved out exceptions to the rule of joint and several liability. These exceptions are known generally as Innocent Spouse Relief.

Congress Seeks Additional Guidance from IRS Regarding Bitcoin

Bitcoin is a private currency that is not under the control of a central bank. For these reasons, Bitcoin is attractive to many investors. For these same reasons, Bitcoin transactions are viewed suspiciously by the IRS and taxing authorities.

The use of Bitcoin and other so-called “virtual currencies” has increased dramatically in recent years. In fact, while Bitcoin’s value has fluctuated wildly in recent weeks and days, overall Bitcoin’s value has nearly quadrupled in the last year.

American Citizens with Foreign Accounts Must Comply with FATCA

The federal government devotes extensive time and resources to ensure that American taxpayers with foreign holdings pay appropriate taxes on these accounts. The Foreign Account Tax Compliance Act (FATCA) is one of the primary laws in this field. FATCA imposes many responsibilities on individual and business taxpayers with foreign holdings.

Perhaps most importantly, taxpayers who meet the FATCA threshold must file a Statement of Specified Foreign Financial Assets, known as Form 8938, along with their tax return. Taxpayers with foreign accounts must also file Form 114, the Report of Foreign Bank and Financial Accounts (FBAR). Failure to file either or both of these documents can bring on severe financial consequences. We will go into greater detail about various aspects of FATCA below.

What Are the Trends in the IRS Criminal Investigation Report?

IRS Criminal Investigation (IRS-CI) recently released its annual report. This report contains substantial information regarding the types of cases it investigates and the number of cases it recommends for prosecution.

Anyone reviewing this report will have a greater understanding of the IRS's priorities going forward, as well as overall trends in the data. Perhaps the most obvious trend is that IRS-CI, along with other areas of the IRS, has had reduced funding in recent years. This reduced funding is reflected in the number of investigations and prosecutions. Secondly a review of the report will show that IRS-CI investigates a broad range of cases touching on many cases in different areas of criminal law.

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