Ordinary and necessary expenses incurred in operating a business are deductible against Federal income tax. This is even true for side gigs or moonlighting work. The IRS frequently challenges these deductions if the activity does not produce a profit. The recent Jones v. Commissioner, T.C. Summary Opinion 2007-21, court case provides an opportunity to consider these rules.… Continue reading The Hobby Loss Rules: Planning for Unprofitable Businesses
Category: Tax
Tax Basis Planning for Inherited Property
The gain from the sale property is subject to income tax. Gain is generally the sales price minus tax basis, and tax basis is generally the cost or investment into the property. When a person owns property at death and the property passes to the heirs, the heirs get a tax basis equal to the… Continue reading Tax Basis Planning for Inherited Property
Reconsidering Murphy: Restorative Payments vs. Return of Human Capital
Last year’s Murphy v. United States decision was one of the most controversial tax cases in recent history. Unlike many other tax attorneys, I am not sure that I agree that the Murphy case was wrongly decided. One reason for this is that, in thinking about Murphy, I find it difficult to reconcile why “restorative… Continue reading Reconsidering Murphy: Restorative Payments vs. Return of Human Capital
IRS Clarifies Real Estate Broker Filing Requirement – Again
The IRS has released Revenue Procedure 2007-12, which clarifies what “assurances” real estate brokers must obtain from persons who sell their principal residence. Real estate brokers are generally required to provide a Form 1099-S to a person selling or exchanging real estate. This form helps the IRS track the seller’s proceeds from the sale, to… Continue reading IRS Clarifies Real Estate Broker Filing Requirement – Again
Tax Free IRA Rollovers as Short-Term Loans: Two Examples of What Not to Do
Taxpayers often withdraw funds from their IRAs to cover short-term expenses with the hope that they can put the funds back in their IRA within the 60 day window for making a tax-free IRA rollover. When taxpayers miss this 60 day window, they are forced to ask the IRS to waive the 60 day time… Continue reading Tax Free IRA Rollovers as Short-Term Loans: Two Examples of What Not to Do
What is a “Foreign Country” for Income Tax Purposes?
Our tax laws allow individual taxpayers to exclude income earned in certain foreign countries. This begs the question as to whether a taxpayer working outside of the U.S. is in a foreign country if he is working in an area that is not governed by the equivalent of what we think of as a government. … Continue reading What is a “Foreign Country” for Income Tax Purposes?
Taxation of Employer Provided Education: A Look At Section 127 Plans
During a recent conversation that I had with another tax blogger, I commented about how many taxpayers fail to take advantage of Section 127 plans. This comment came up in a very brief mention of how Congress recently frustrated the tax plan of many parents who are saving for their children’s college education, by extending… Continue reading Taxation of Employer Provided Education: A Look At Section 127 Plans
Taxing Online Video Game Earnings
I came across this very interesting article about taxing online video game transactions. This type of issue does show the flaw or challenge presented by a tax system that is dependent upon the concept of “income” and the problem is likely to become a much more serious problem for the US Treasury. It is now… Continue reading Taxing Online Video Game Earnings
Planning for and Documenting Covenant Not To Compete Allocation
The recent Becker v. Commissioner, 92 T.C.M. 481 (2006), case shows why it is important for taxpayers to plan and document transactions at or near the time that the transactions take place. This is particularly true for larger dollar transactions. The transaction in the Becker case involved the sale of a family-owned business and a… Continue reading Planning for and Documenting Covenant Not To Compete Allocation
Should the IRS be Able to Rewrite Tax Laws that it Doesn’t Agree With?
Estate of Gerson shows how the IRS uses its ability to promulgate regulations and how the IRS positions cases for litigation in an effort to create pro-IRS tax laws. Facts & Procedural On Gerson’s Case Gerson is a generation skipping transfer tax case. Mr. Gerson created a revocable trust that became irrevocable upon his demise.… Continue reading Should the IRS be Able to Rewrite Tax Laws that it Doesn’t Agree With?