Month: October 2017

Millions of people enjoy hobbies such as stamp or coin collecting, craft making, and horse breeding, but the IRS may also consider them a source of income. As such, if you engage in a hobby that provides a source of income, you must report that income on your tax return; however, taxpayers (especially business owners) should be aware that the way income from hobbies is reported is different from how you report income from a business. For example, there are special rules and limits for deductions you can claim for a hobby.

Here are five basic tax tips you should know if you get income from your hobby:

Business versus Hobby. There are nine factors to consider to determine if you are conducting business or participating in a hobby. Make sure to base your decision on all the facts and circumstances of your situation. To learn more about these nine factors, please call.

Allowable Hobby Deductions. You may be able to deduct ordinary and necessary hobby expenses. An ordinary expense is one that is common and accepted for the activity. A necessary expense is one that is helpful or appropriate. Don’t hesitate to call if you need more information about these rules.

Limits on Expenses. As a general rule, you can only deduct your hobby expenses up to the amount of your hobby income. If your expenses are more than your income, you have a loss from the activity. You can’t deduct that loss from your other income.

How to Deduct Expenses. You must itemize deductions on your tax return in order to deduct hobby expenses. Your costs may fall into three types of expenses. Special rules apply to each type. Use Schedule A, Itemized Deductions to report these types of expenses.

Use a tax professional. Hobby rules can be complex, but using a tax professional makes filing your tax return easier. If you need have any questions about reporting income from a hobby, please call.

• By Leon Clinton
• October 22, 2017

If you gamble, these tax tips can help you at tax time next year: Here’s what you need to know about figuring gambling income and loss.

1. Gambling income. Income from gambling includes winnings from lotteries, raffles, horse races, and casinos. It also includes cash and the fair market value of prizes you receive, such as cars and trips and you must report them on your tax return

2. Payer tax form. If you win, the payer may send you a Form W-2G, Certain Gambling Winnings. This form reports the amount of your winnings to both you and the IRS. The payer issues the form depending on the type of game you played, the amount of winnings, and other factors. You’ll also receive a Form W-2G if the payer withholds federal income tax from your winnings.

3. How to report winnings. You must report all your gambling winnings as income on your federal income tax return. This is true even if you do not receive a Form W-2G. If you’re a casual gambler, report your winnings on the “Other Income” line of your Form 1040, U. S. Individual Income Tax Return.

4. How to deduct losses. You may deduct your gambling losses on Schedule A, Itemized Deductions. The deduction is limited to the amount of your winnings. You must report your winnings as income and claim your allowable losses separately. You cannot reduce your winnings by your losses and report the difference.

5. Keep gambling receipts. You must keep accurate records of your gambling activity. This includes items such as receipts, tickets or statements. You should also keep a diary or log of your gambling activity. Your records should show your winnings separately from your losses.

If you have questions about gambling income and losses, don’t hesitate to call.

• By Leon Clinton
• October 20, 2017

Key tax relief provisions are now available for victims of Hurricanes Harvey, Irma and Maria. This tax relief applies to individuals and businesses anywhere in Florida, Georgia, Puerto Rico and the Virgin Islands, as well as parts of Texas. A key component of this tax relief is that it postpones various tax deadlines. For example, individuals and businesses will have until January 31, 2018, to file any returns and pay any taxes due.

Those eligible for the extra time include:

• Individual filers whose tax-filing extension runs out on October 16, 2017. Because tax payments related to these 2016 returns were originally due on April 18, 2017, those payments are not eligible for this relief.
• Business filers, such as calendar-year partnerships, whose extensions ran out on September 15, 2017.
• Quarterly estimated tax payments due on September 15, 2017 and January 16, 2018.
• Quarterly payroll and excise tax returns due on October 31, 2017.
• Calendar-year tax-exempt organizations whose 2016 extensions run out on November 15, 2017.

A variety of other returns, payments and tax-related actions also qualify for additional time. Please call the office if you have any questions about this and other tax relief offered by the IRS since these hurricanes began affecting the US mainland and its territories, the US Virgin Islands and Puerto Rico.

In addition to extra time to file and pay, the IRS offers other special assistance to disaster-area taxpayers such as:

• Special relief helps employer-sponsored leave-based donation programs aid hurricane victims. Under these programs, employees may forgo their vacation, sick or personal leave in exchange for cash payments the employer makes, before Jan. 1, 2019, to charities providing relief. Donated leave is not included in the employee’s income, and employers may deduct these cash payments to charity as a business expense.
• 401(k)s and similar employer-sponsored retirement plans can make loans and hardship distributions to hurricane victims and members of their families. Under this broad-based relief, a retirement plan can allow a hurricane victim to take a hardship distribution or borrow up to the specified statutory limits from the victim’s retirement plan. It also means that a person who lives outside the disaster area can take out a retirement plan loan or hardship distribution and use it to assist a son, daughter, parent, grandparent or dependent who lived or worked in the disaster area. Hardship withdrawals must be made by Jan. 31, 2018.
• The IRS is waiving late-deposit penalties for federal payroll and excise tax deposits normally due during the first 15 days of the disaster period. Check out the disaster relief page for the time periods that apply to each jurisdiction.
• Individuals and businesses who suffered uninsured or unreimbursed disaster-related losses can choose to claim them on either the return for the year the loss occurred (in this instance, the 2017 return normally filed next year) or the return for the prior year (2016). If you need assistance or have any questions about disaster-related losses, please contact the office.
• The IRS is waiving the usual fees and expediting requests for copies of previously filed tax returns for disaster area taxpayers. This relief can be especially helpful to anyone whose copies of these documents were lost or destroyed by the hurricane.
• If disaster-area taxpayers are contacted by the IRS on a collection or examination matter, they should be sure to explain how the disaster impacts them so that the IRS can provide appropriate consideration to their case.

Help is just a phone call away.

Don’t hesitate to call if you would like more information, additional details, or have any questions about tax relief provisions for victims of Hurricanes Harvey, Irma, and Maria.

• By Leon Clinton
• October 18, 2017