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Archive for July, 2019

Is Your Self Employed Activity a Hobby or a Business?

Wednesday, July 31st, 2019

Many people often have hobbies where they make some additional income, an example would be an artist who wants to deduct expenses. Both hobby income and business income need to be reported on your tax return but the big difference between the two is whether you can deduct the expenses or not which is why the classification is important.

If the activity is deemed a business then the expenses can get written off on a Schedule C and could possibly produce a loss. If the activity is a hobby then the expenses are a miscellaneous itemized deduction which can no longer be deducted on your return so you gain no benefit from them.

The IRS deems a business one that has the primary purpose of producing income or profit and is engaged with continuity and regularity. Another rule of thumb the IRS uses is that an activity for profit should make a profit in at least three out of the last five years. So if you are claiming losses every year the IRS could deem your activity a hobby. The IRS lists a guideline of nine different factors that can help guide you on the determination of whether you have a business or a hobby:

https://www.irs.gov/faqs/small-business-self-employed-other-business/income-expenses/income-expenses

Please consult your tax advisor on all the above information.

IRS Outlines Warning Signs of Tax Scams

Wednesday, July 10th, 2019

As we are in the middle of the 2019 summer, the IRS warns that the tax scams are still happening. The scammers usually don’t take breaks, they work all year round. The IRS recently issued general guidelines to follow to help taxpayers recognize potential scams:

Phone Scams
• The IRS does not leave threatening messages.
• The scammers will normally tell you that you will be arrested, deported, or have your license revoked if you do not pay them.
• Scammers can call you from numbers that appear to be from the IRS on your caller ID.

Email Scams
• The IRS does not initiate contact by email, they will send a letter as the first contact.
• If you receive an unsolicited email, you should forward it to phishing@irs.gov.

General Signs of a Scam
• The caller demands immediate payment via methods such as wire transfers, prepaid debit cards, or gift cards. The IRS does not use these methods to collect tax payments.
• Ask for checks to be made out to a third party. All payments to the IRS need to be addressed to “U.S. Treasury”.
• Threaten to arrest the taxpayer.
• Demand the taxes get paid with no way to appeal.

If you have any doubt about a call you receive you should hang up the phone immediately and call the IRS directly, 800-829-1040, to find out if the claim is real.

Please consult your tax advisor on all the above information.