One of the benefits of owning your own business is the ability to take advantage of certain tax savings. In some cases, space in your home used as an office could result in a deduction as well as computer expenses and the like. These more traditional expenses are well defined by the Internal Revenue Service (IRS). For example, a home office deduction requires the taxpayer uses the space regularly and exclusively for business and that the space is the principal place of business.
Gifts and taxes: Recent case questions whether gift was income
The line between a gift and income in the eyes of taxpayers is not always clear. A recent case, Felton v. Commissioner, provides an example. In this case, the Internal Revenue Service (IRS) argues a taxpayer’s claimed gift was actually income. As such, it would be subject to a higher tax rate.
The case involved a religious figure — a pastor who received donations from his congregation. The pastor listed these donations as gifts. The IRS took issue with this designation. Instead, the agency claimed the congregation provided donations in exchange for religious leadership. As such, the pastor should claim the funds as income.
Be aware of these red flags as you prep your 2018 tax returns
As we enter tax season, it is good to keep in mind some common red flags that can trigger an audit by the Internal Revenue Service (IRS). Things that can increase the risk of an audit include:
- Filing unusual returns. Any tax return that includes large or questionable items that are unusual compared to a typical tax return are at an increased risk of a closer look by the IRS. If you have such a return, be sure to keep a copy of paperwork to back up the claims. This will help to ease the process in case the agency asks for additional information or conducts a more thorough audit after reviewing your returns.
Three lessons from the recent Ronaldo tax evasion case
Cristiano Ronaldo, soccer superstar from Portugal, has agreed to plead guilty to charges of tax evasion. Ronaldo entered a Madrid court this past Tuesday and plead guilty, agreeing to pay a fine of $21.6 million dollars for his alleged tax fraud crimes.
A bit of history: The basis of the allegations
Can states tax trust income if the trust is in another state?
The Supreme Court of the United States (SCOTUS) has agreed to hear a case that questions whether the due process clause prohibits states from taxing trusts based on the trust beneficiaries’ in-state residency. It is important to note this case addresses the taxation of the trust income itself, not distributions. In most cases, it is legal for a state to require the payment of taxes on distributions made to a resident of the state.
How will the government shutdown impact your 2018 tax filings?
The United States is currently entering the third week of a partial government shutdown. As the shutdown continues without an apparent end in sight, taxpayers are likely voicing concerns about how the shutdown will impact their taxes.
The truth is the shutdown will impact tax returns. The extent of the impact will depend on the length of the shutdown. At this time, two impacts to note include:
Will Texas require businesses to pay an online state sales tax?
The Supreme Court of the United States issued a decision last year that will change the future of online shopping. The decision, Wayfair v. South Dakota, resulted in the ability of states to tax online purchases. Previously, a state would need to establish that the online business had a physical presence within the state in order to charge a state sales tax on an online transaction.
The holding and Wayfair changed this rule.
Three tax questions to ask before the end of 2018
Taxpayers have a short time to take advantage of tax savings before the end of 2018. Before ringing in the New Year, consider the following:
- Have you reviewed your tax deductions? As noted in previous posts, the Tax Cuts and Jobs Act led to a serious overhaul of the tax system. One key change: the increase to the standardized deduction. As such, those who itemized tax returns in the past may find it more advantageous to use the standardized deduction for the 2018 tax year. Take some time to review the deductions for 2018 to determine the best option for your tax returns, as the rules have changed.
Pros and cons of the IRS’ new voluntary disclosure process
The sunset of the Offshore Voluntary Disclosure Program (OVDP) in September of 2018 left many taxpayers wondering how the Internal Revenue Service (IRS) would handle future disclosures. Would the IRS choose to renew the program? Would another take its place? The agency recently provided some guidance.
Can taxpayers voluntarily come into compliance? Yes, taxpayers can still voluntarily bring foreign assets into tax compliance in exchange for a decreased risk of criminal prosecution.
IRS accuses tax preparer of cheating taxpayers
The United States Department of Justice (DOJ) and Internal Revenue Service (IRS) recently charged a tax preparation professional with 18 counts of aiding in the preparation of false tax returns. These charges were based on allegations the man filed fraudulent tax returns over a span of four tax years, from 2014 through 2017.
What did the tax preparation professional do wrong? The agencies state the man used various methods to illegally increase his client’s tax returns for his own gain. These methods allegedly include claiming false mileage expenses and inflated charitable donations.
