SHORT NEWS WEEK
This is a short week for the Dinesen Tax Times Tax News Roundup. Your correspondent is leaving on Friday for a week-long vacation to Montana, South Dakota and Wyoming. The Tax News Roundup will return at some point in August!
PROPOSAL TO ELIMINATE ESTATE TAX VOTED DOWN
Here's the latest in the saga of the estate tax: the U.S. Senate this week voted down a proposal to eliminate the estate tax altogether. Senator Jim DeMint, a Republican from South Carolina, made the proposal. It was defeated by a vote of 39-59. Read more about it in the Wall Street Journal.
THE TAX COURT, GAMBLING AND FENG SHUI
The U.S. Tax Court this week ruled in favor of a couple who used Feng Shui and other traditional Vietnamese methods to determine their “lucky days” for gambling. The couple had claimed that they were professional gamblers but the IRS disagreed. The Tax Court sided with the couple. Read more in the Dinesen Tax Times blog posting.
RECYCLED: WILL MY HEALTH INSURANCE BE TAXABLE?
This question keeps popping up: will my health insurance be taxable? The short answer to the question is NO. The Dinesen Tax Times has covered this story, once on June 27th and again on July 21st. Read the July 21st article here.
UNEMPLOYMENT BENEFITS EXTENDED
Congress extended unemployment benefits for 2.9 million unemployed Americans this week. Read more here.
As a friendly reminder, unemployment benefits are taxable, so if you receive unemployment in 2010, you'll have to report it as income on your 2010 tax return. For 2009, you were exempt from taxes on the first $2,400 of unemployment benefits, but Congress has not extended that exemption for 2010 (at least not yet).
Thursday, July 22, 2010
Wednesday, July 21, 2010
Recycled: Will My Health Insurance Be Taxable?
I am recycling this article from last month because I've had more questions come up about this:
-----------------
(Originally posted June 27, 2010)
I saw one of my clients yesterday, and he asked me whether the rumor is true that the government is going to start taxing people on health insurance provided by their employers. The answer to that question is, NO.
My client is right that there is a rumor going around about this, including one of those wonderful "chain" e-mails that breathlessly states that starting in 2011, you'll be taxed on employer-provided health insurance and that you need to forward the e-mail on to all your friends.
As with most rumors like this, there is a small grain of truth here. The health care bill passed in the spring does indeed impose an excise tax on employer-provided health insurance (this is the so-called "Cadillac Tax" that you may have heard of). Here are the facts about this excise tax:
http://www.snopes.com/politics/taxes/hr3590.asp
-----------------
(Originally posted June 27, 2010)
I saw one of my clients yesterday, and he asked me whether the rumor is true that the government is going to start taxing people on health insurance provided by their employers. The answer to that question is, NO.
My client is right that there is a rumor going around about this, including one of those wonderful "chain" e-mails that breathlessly states that starting in 2011, you'll be taxed on employer-provided health insurance and that you need to forward the e-mail on to all your friends.
As with most rumors like this, there is a small grain of truth here. The health care bill passed in the spring does indeed impose an excise tax on employer-provided health insurance (this is the so-called "Cadillac Tax" that you may have heard of). Here are the facts about this excise tax:
- The tax starts in 2018, not 2011
- The tax applies only to employer-provided health insurance that exceeds $27,500/year, and the tax is imposed on the insurance company, not on you
- It is true that the value of your employer-provided health insurance will be reported on your W-2, but that's all -- it's reported on your W-2 but it's not a taxable item to you; it will be shown for reporting purposes only
http://www.snopes.com/politics/taxes/hr3590.asp
Tuesday, July 20, 2010
Tax Court Finds in Favor of Couple that Claimed to be Professional Gamblers
The U.S. Tax Court has ruled in favor of taxpayers who used “Feng Shui” to determine their lucky days for gambling. The taxpayers had claimed to be professional gamblers and had claimed their gambling losses on Schedule C (business return for a sole proprietor) rather than as an itemized deduction on Schedule A.
For casual gamblers (which is the overwhelming majority of us), gambling winnings are reported as income on the front side of the 1040, and gambling losses (up to the amount of gambling winnings) are reported as itemized deductions on Schedule A. Professional gamblers report winnings and losses on Schedule C. Without going into detail (that’s another blog post for another day), the difference in reporting is significant.
In this case, the taxpayers took up gambling to create another source of income after the husband learned that his employer planned to move the business to Costa Rica. He and his wife would drive 130 miles one way to Nevada on Friday nights to gamble, and would gamble most of the weekend. According to the Tax Court report, the couple would only sleep three or four hours a night, and would return home on Monday morning. They were both born in Vietnam, and used Feng Shui and other religious beliefs to determine which one was having a “lucky day,” and that person would bet the heaviest that day.
In 2006 (the year being contested in Tax Court), the taxpayers had gambling winnings of about $850,000, and gambling losses of over $1 million. The taxpayers claimed to be professional gamblers that year, and the IRS disagreed. The IRS said the gambling activity was not a business because it wasn’t conducted full-time and because the taxpayer’s Feng Shui approach was “not businesslike and that it was irrational.”
The Tax Court sided with the taxpayer. In the ruling, the Court said the time spent by the taxpayers on weekends was close to the amount of time the husband devoted to his day job during the week. The Court also disagreed with the idea that the approach wasn’t businesslike, saying that the taxpayer’s profit motive was legitimate.
The ruling saved the couple almost $9,400 dollars in taxes and another $1,880 in penalties.
But before you all run out to become professional gamblers: this ruling is not necessarily a happy ending for the couple. They gave up on trying to be professional gamblers in early 2007 after they realized that they were almost $200,000 in debt. They had withdrawn money from retirement accounts and took out loans to finance their failed attempt at making a living as professional gamblers.
For casual gamblers (which is the overwhelming majority of us), gambling winnings are reported as income on the front side of the 1040, and gambling losses (up to the amount of gambling winnings) are reported as itemized deductions on Schedule A. Professional gamblers report winnings and losses on Schedule C. Without going into detail (that’s another blog post for another day), the difference in reporting is significant.
In this case, the taxpayers took up gambling to create another source of income after the husband learned that his employer planned to move the business to Costa Rica. He and his wife would drive 130 miles one way to Nevada on Friday nights to gamble, and would gamble most of the weekend. According to the Tax Court report, the couple would only sleep three or four hours a night, and would return home on Monday morning. They were both born in Vietnam, and used Feng Shui and other religious beliefs to determine which one was having a “lucky day,” and that person would bet the heaviest that day.
In 2006 (the year being contested in Tax Court), the taxpayers had gambling winnings of about $850,000, and gambling losses of over $1 million. The taxpayers claimed to be professional gamblers that year, and the IRS disagreed. The IRS said the gambling activity was not a business because it wasn’t conducted full-time and because the taxpayer’s Feng Shui approach was “not businesslike and that it was irrational.”
The Tax Court sided with the taxpayer. In the ruling, the Court said the time spent by the taxpayers on weekends was close to the amount of time the husband devoted to his day job during the week. The Court also disagreed with the idea that the approach wasn’t businesslike, saying that the taxpayer’s profit motive was legitimate.
The ruling saved the couple almost $9,400 dollars in taxes and another $1,880 in penalties.
But before you all run out to become professional gamblers: this ruling is not necessarily a happy ending for the couple. They gave up on trying to be professional gamblers in early 2007 after they realized that they were almost $200,000 in debt. They had withdrawn money from retirement accounts and took out loans to finance their failed attempt at making a living as professional gamblers.
Saturday, July 17, 2010
Tax News Roundup 7/17/2010
Here's a roundup of some of the tax news from this week....
SNIPES SENTENCED
Actor Wesley Snipes has lost his appeal of his 2008 conviction for willfully failing to file tax returns. Snipes had said he failed to receive a fair trial and that the three-year prison sentence he received was not fair, but an appeals court in Florida this week disagreed. Snipes was convicted of failing to file tax returns and pay income tax on more than $37 million of income between 1999-2004. You can read more about his case in a variety of locations, including here and here.
Jason’s comments: Snipes aligned himself with dubious tax advisors who led him into frivolous tax positions. What is a frivolous tax position? Here’s a good example, from the Orlando Sentinel:
“(Snipes) claimed that as a "fiduciary of God who is a 'non-taxpayer,' he was a foreign diplomat and not obligated to pay U.S. taxes….”
Those kinds of arguments never work. Bottom line? File your tax returns!
RETURNED MAIL COSTS THE IRS $57.9 MILLIONThe Treasury Inspector General for Tax Administration (TIGTA) this week released a report showing that, of the 200 million pieces of mail the IRS sends out to taxpayers, more than 19 million of those pieces of mail were returned as undeliverable in 2009. The report says the returned mail costs the IRS $57.9 million, and can cause harm to taxpayers because penalties and interest can rack up when notices are not received.
The report recommends that the IRS provide more ways for taxpayers to update addresses. Currently, the IRS accepts changes over the phone or the internet only in limited circumstances. For most people, your address gets updated at the IRS when you file a tax return with a new address on it, or when you submit Form 8822. Form 8822 should be submitted if you move after you have filed your tax return for the year.
Brave souls can read the entire TIGTA report here.
Jason’s comment: If you move and are concerned about the IRS not having your current address, contact your tax advisor. You may want to file Form 8822.
ESTATE TAX RUMBLINGS
Another estate tax proposal was made this week, this time a bipartisan proposal from Democrat Senator Blanche Lincoln of Arkansas and Republican Senator John Kyl of Arizona. Their proposal calls for an exemption of $5 million (phased in over 10 years and indexed for inflation), and a flat rate of 35%. It appears their proposal would allow taxpayers to either use this year’s estate tax rate (0%) but not get a basis step up, or use the 35% rate with a basis step up.
There have been a number of estate tax proposals out there. Iowa Senator Tom Harkin recently co-sponsored legislation that would provide an exemption amount of $3.5 million. Estates valued between $3.5 million and $10 million would be taxed at 45%, estates between $10 million and 50 million would be taxed at 50%, and estates worth more than $50 million would be taxed at 55%. The proposal also calls for an additional “billionaire’s surtax” of 10%.
In 2009, the top rate was 45% with an exemption amount of $3.5 million. If Congress does nothing, the estate tax will return in 2011 with a flat rate of 55% and an exemption amount of $1 million.
Jason’s comments: It will be interesting to see what happens. I wonder if the death this week of billionaire New York Yankees owner George Steinbrenner will spur action on the estate tax. Speaking of Steinbrenner, here’s an article that talks about the estate tax implications of Steinbrenner’s death.
YOURS TRULY FEATURED IN ONE IOWA ARTICLEI recently had an article featured at One Iowa, talking about gift tax issues facing same-sex couples. You can read the article here.
SNIPES SENTENCED
Actor Wesley Snipes has lost his appeal of his 2008 conviction for willfully failing to file tax returns. Snipes had said he failed to receive a fair trial and that the three-year prison sentence he received was not fair, but an appeals court in Florida this week disagreed. Snipes was convicted of failing to file tax returns and pay income tax on more than $37 million of income between 1999-2004. You can read more about his case in a variety of locations, including here and here.
Jason’s comments: Snipes aligned himself with dubious tax advisors who led him into frivolous tax positions. What is a frivolous tax position? Here’s a good example, from the Orlando Sentinel:
“(Snipes) claimed that as a "fiduciary of God who is a 'non-taxpayer,' he was a foreign diplomat and not obligated to pay U.S. taxes….”
Those kinds of arguments never work. Bottom line? File your tax returns!
RETURNED MAIL COSTS THE IRS $57.9 MILLIONThe Treasury Inspector General for Tax Administration (TIGTA) this week released a report showing that, of the 200 million pieces of mail the IRS sends out to taxpayers, more than 19 million of those pieces of mail were returned as undeliverable in 2009. The report says the returned mail costs the IRS $57.9 million, and can cause harm to taxpayers because penalties and interest can rack up when notices are not received.
The report recommends that the IRS provide more ways for taxpayers to update addresses. Currently, the IRS accepts changes over the phone or the internet only in limited circumstances. For most people, your address gets updated at the IRS when you file a tax return with a new address on it, or when you submit Form 8822. Form 8822 should be submitted if you move after you have filed your tax return for the year.
Brave souls can read the entire TIGTA report here.
Jason’s comment: If you move and are concerned about the IRS not having your current address, contact your tax advisor. You may want to file Form 8822.
ESTATE TAX RUMBLINGS
Another estate tax proposal was made this week, this time a bipartisan proposal from Democrat Senator Blanche Lincoln of Arkansas and Republican Senator John Kyl of Arizona. Their proposal calls for an exemption of $5 million (phased in over 10 years and indexed for inflation), and a flat rate of 35%. It appears their proposal would allow taxpayers to either use this year’s estate tax rate (0%) but not get a basis step up, or use the 35% rate with a basis step up.
There have been a number of estate tax proposals out there. Iowa Senator Tom Harkin recently co-sponsored legislation that would provide an exemption amount of $3.5 million. Estates valued between $3.5 million and $10 million would be taxed at 45%, estates between $10 million and 50 million would be taxed at 50%, and estates worth more than $50 million would be taxed at 55%. The proposal also calls for an additional “billionaire’s surtax” of 10%.
In 2009, the top rate was 45% with an exemption amount of $3.5 million. If Congress does nothing, the estate tax will return in 2011 with a flat rate of 55% and an exemption amount of $1 million.
Jason’s comments: It will be interesting to see what happens. I wonder if the death this week of billionaire New York Yankees owner George Steinbrenner will spur action on the estate tax. Speaking of Steinbrenner, here’s an article that talks about the estate tax implications of Steinbrenner’s death.
YOURS TRULY FEATURED IN ONE IOWA ARTICLEI recently had an article featured at One Iowa, talking about gift tax issues facing same-sex couples. You can read the article here.
Thursday, July 8, 2010
Can I Deduct Summer Camp Expenses?
If you send your kids to camp this summer, you might be able to deduct the cost on your tax return. The IRS allows a deduction for summer day camps, but not for overnight camps. In order for a day camp to be deductible, you have to meet two basic rules.
The cost of the day camp would be included with your other childcare expenses, such as daycare expenses. You can claim up to $3,000 of childcare expenses per child per year, up to a maximum of $6,000 total for two or more kids. You then get to claim a credit of between 20-35% of that amount, depending on your income.
As mentioned earlier, the cost of overnight camps is not deductible, nor is the cost of sending your kids to summer school.
This is a basic overview of the subject. As always, if you have specific questions about your situation, consult your tax advisor.
- Your child must be under age 13.
- The expenses must be incurred so you can work or look for work.
The cost of the day camp would be included with your other childcare expenses, such as daycare expenses. You can claim up to $3,000 of childcare expenses per child per year, up to a maximum of $6,000 total for two or more kids. You then get to claim a credit of between 20-35% of that amount, depending on your income.
As mentioned earlier, the cost of overnight camps is not deductible, nor is the cost of sending your kids to summer school.
This is a basic overview of the subject. As always, if you have specific questions about your situation, consult your tax advisor.
Subscribe to:
Posts (Atom)
