Does the IRS Treat Makers Unfairly? Distinguishing between a Business or Hobby

Taxpayers can only deduct hobby expenses up to the amount of hobby income. 

If hobby expenses are more than its income, taxpayers have a loss from the activity. 

A hobby loss can’t be deducted from other income.

Nine Fabled Factors 

1. Whether you carry on the activity in a businesslike manner and maintain complete and accurate books and records.

2. Whether the time and effort you put into the activity indicate you intend to make it profitable.

3. Whether you depend on income from the activity for your livelihood.

4. Whether your losses are due to circumstances beyond your control (or are normal in the startup phase of your type of business).

5. Whether you change your methods of operation in an attempt to improve profitability.

6. Whether you or your advisors have the knowledge needed to carry on the activity as a successful business.

7. Whether you were successful in making a profit in similar activities in the past.

8. Whether the activity makes a profit in some years and how much profit it makes.

9. Whether you can expect to make a future profit from the appreciation of the assets used in the activity.

WARNING: IRS Auditors and Examiners play fast and loose with the rules. If you’re a maker and are being audited, contact Selig & Associates for a free legally privileged consultation. 

IRS Small Business Week Tax Tip 2017-04, May 3, 2017

Millions of people enjoy hobbies that are also a source of income. From catering to cupcake baking, crafting homemade jewelry to glass blowing -- no matter what a person’s passion, the Internal Revenue Service offers some tips on hobbies.

Taxpayers must report on their tax return the income earned from hobbies. The rules for how to report the income and expenses depend on whether the activity is a hobby or a business. There are special rules and limits for deductions taxpayers can claim for hobbies. Here are five tax tips to consider:

1. Is it a Business or a Hobby?  A key feature of a business is that people do it to make a profit. People engage in a hobby for sport or recreation, not to make a profit. For more about ‘not-for-profit’ rules, see Publication 535, Business Expenses.
2. Allowable Hobby Deductions.  Within certain limits, taxpayers can usually 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 appropriate for the activity.
3. Limits on Hobby Expenses.  Generally, taxpayers can only deduct hobby expenses up to the amount of hobby income. If hobby expenses are more than its income, taxpayers have a loss from the activity. However, a hobby loss can’t be deducted from other income.
4. How to Deduct Hobby Expenses.  Taxpayers must itemize deductions on their tax return to deduct hobby expenses. Expenses may fall into three types of deductions, and special rules apply to each type. See Publication 535 for the rules about how to claim them on Schedule A, Itemized Deductions.

NYS Tax Department Doesn’t Want Taxpayers to be Represented by Lawyers and Accountants

On June 3^rd 2019 the New York State Department of Taxation and Finance published a online article entitled “Resolve Your Tax Debt Directly with the Tax Department” subtitled “Taxpayers can save time and money by contacting a Tax Department representative themselves” 

Not surprisingly, the Tax Department is actively encouraging taxpayers to “work directly with New York State” without the aid of a tax attorney or accountant. 

The article invites taxpayers to call the State directly to: pay their balance in full; to set up a monthly payment plan, and to “discus their debt” with a State representative (who is in reality a Civil Enforcement Agent with the power to levy your bank account and garnish your wages). The article then quotes the Executive Deputy Commissioner of Taxation and Finance Andrew Morris, who says: “Taxpayers don’t need to hire outside help or enlist the services of a third party to settle their tax debt” and similar self-serving sentiments. 

But conspicuously absent from Mr. Morris’s lopsided observations are the many pitfalls that await these unsuspecting callers. For example, the State claims it will not levy certain exempt funds, e.g. Social Security, public assistance, alimony, child support, unemployment, disability, workers compensationand pensions. Unfortunately they neglect to mention that there is no protection once these so-called “exempt funds” are deposited into a bank account. 

In fact the State can and will seize your entire bank account. And after your entire bank account has been seized the State frequently refuses to grant taxpayers so much as a partial release to pay for food, diapers, medication and health insurance. 

As for “payment plans” the State has 20 years to collect on tax debts - but that doesn’t stop them from demanding taxpayers make a “good faith deposit” and agree to full pay their debt in 24 to 36 months *This unnecessary time requirement is why the vast majority of taxpayer negotiated payment plans default. And when a taxpayer defaults (as most do) he or she is punished with even more levies and tougher payment terms. 

Lastly, taxpayers have rights that must be properly asserted within a prescribed period of time (known colloquially as the doctrine of “use it or lose it”).  And whether you like it or not, the State has no obligation to tell you your legal rights and possible options. Meaning, when the time to contest an erroneous tax liability expires, the debt becomes “fixed and final” and you're stuck with it. 

In conclusion, I suggest readers consider the severity of their debt and the likely consequences they will encounter before deciding to “go it alone”. 

We take a practical approach to problem solving and strive to obtain the best possible outcome for our clients.

Effective Tax Advocates we successfully resolve most IRS and New York State tax problems including suspended Drivers Licenses and Passports. We specialize in unpaid payroll, sales and income taxes and negotiate excellent installment agreements for businesses and individuals. To schedule a free consultation with a results driven Federal Tax Practitioner and Attorney please call us directly at (212) 974-3435.

Large Insurance Claims we settle insured property damage claims in the shortest amount of time and at the least cost to the policyholder and insurance company. Insurance litigation is costly and time consuming. Accordingly we provide policyholders and their insurance companies with a cost effective alternative to litigation. Commercial and residential insurance representation includes: Environmental Damage, Mold (removal & remediation) Fire, Business Interruption, Burglary, Vandalism, Windstorm and Water Damage.  

Trust Selig & Associates our offices are conveniently located in New York City and we meet with each and every client personally. To schedule a free legally privileged consultation with a Federal Tax Practitioner CPCU and Attorney please call us directly at (212) 974-3435.

  

Can NY State Suspend My Drivers License for Unpaid Taxes? (Yes)

If your drivers' license has been suspended for unpaid taxes, we can help. New York State can suspend your drivers' license if you owe $10,000 or more in taxes, penalties and interest. See: New York Tax Law Section 171-v. Call (212) 974-3435 for immediate assistance. 

Selig & Associates is a Tax Representation and Insurance Claims settlement firm in New York City. Same day and emergency appointments are available Monday through Friday. To schedule a legally privileged consultation call (212) 974-3435 or contact us online. 

We successfully resolve civil and criminal tax problems including suspended Passports and Drivers Licenses. Specializing in unpaid income, sales and payroll taxes. We provide practical solutions to difficult tax problems. For example, we negotiate affordable installment agreements, and if you have missing or unfiled tax returns, we can have them prepared and filed for you within 48 hours guaranteed. For immediate assistance call (212) 974-3435 now. 

Is your Insurance Company treating you unfairly?  Have they offered you substantially less than your claim is worth? If the answer is yes, then call us directly. We successfully settle most first-party insurance claims without ever having to go to court. Commercial and residential insurance representation includes: Environmental Damage, Mold Removal, Remediation & Restoration claims, Fire, Business Interruption, Burglary, Vandalism, Windstorm and Water Damage. To consult with us personally call (212) 974-3435 or contact us online. 

Our mission is to identify and obtain the best outcome through transactional negotiations. We take a practical approach to problem solving and continuously evaluate the likelihood of success, the potential consequences, and the costs associated with taking, or failing to take a particular action. For additional information about our services call (212) 974-3435. 

   

Doctor Sentenced to Prison for Tax Evasion and Disability Fraud (NOT SMART)

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He Evaded Paying Taxes on Over $1.6 Million in Income While Claiming to be Disabled. A South Florida doctor residing in Hobe Sound, Florida, was sentenced to 51 months in prison yesterday for tax evasion, wire fraud, and Social Security disability fraud, announced Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Justice Department’s Tax Division and U.S. Attorney Ariana Fajardo Orshan for the Southern District of Florida.According to court documents and information provided to the court, Arthur John Kranz was a doctor specializing in psychiatry. Beginning in 2002, Kranz made a claim on his private disability policy that he was unable to work, and began receiving disability payments from his insurance company. In December 2003, Kranz submitted an application to the Social Security Administration (SSA) for disability benefits The SSA approved his application. Kranz then began receiving SSA disability payments, in addition to the private disability insurance payments. Because of the disability payments, Kranz was required to notify his insurance company and the SSA if he returned to work. From January 2006 to March 2013, Kranz worked as a psychiatrist at a hospital in Pennsylvania and earned over $1.6 million in income. Kranz did not report his employment to either the SSA or his insurance company. Rather, in order to continue collecting disability benefits, Kranz took steps to conceal his income from the insurance company, the SSA, and the Internal Revenue Service (IRS). He directed that his income be paid to nominee individuals and sham corporations he had created to receive his payments. Kranz also filed false personal tax returns that did not report the income from his work as a psychiatrist, and provided fraudulent documentation to his insurance company that falsely stated that he was not working. In addition to the term of imprisonment imposed, Kranz was order to serve three years of supervised release and pay restitution of $1,013,284.

New York City Tax Accountant and Tax Attorney Discuss your tax problem with an experienced Tax Accountant and Attorney today. Our civil and criminal tax consultations are confidential and legally privileged. Same day and emergency appointments may be scheduled Monday through Friday. Our New York City offices are conveniently located and easily accessible by car, train and subway. For immediate assistance call (212) 974-3435 or contact us online. 

Restaurant Sales Tax Accountant and Tax Attorney We negotiate excellent installment agreements and provide restaurants with effective audit representation, including unfiled tax returns and all Department of Labor issues. For a no-obligation consultation call us directly at (212) 974-3435 or contact us online.

Business Payroll Tax Accountant and Tax Attorney We negotiate affordable repayment plans and provide our business clients with effective audit representation, obtaining government contracts with a tax lien, compliance checks, missing tax returns and Workers Compensation audits. For immediate assistance call (212) 974-3435 or contact us online. 

Commercial Insurance Consultant and Attorney We assist businesses, nightclubs, schools and religious institutions with their specialty insurance needs including: Active Shooter and Workplace Violence Insurance Protection; Cyber Insurance, Sexual Harassment and Employment Practices Liability Insurance. For more information call us directly at (212) 974-3435. 

Property Insurance Claims We settle commercial property insurance claims, including business interruption, burglary, fire, windstorm and water damage for top dollar. To discuss your insurance claim with a Public Adjuster and Attorney call (212) 974-3435 today. 

Don’t be Victimized by Scam Tactics this Filing Season

Stay vigilant to thwart identity thieves and fraudsters

The New York State Department of Taxation and Finance today urged taxpayers to remain vigilant and guard against scams during the tax filing season. Strategies used by scammers to steal private information can be as simple as a phone call or as sophisticated as a phishing campaign to install malware on victims’ home computers.

“It’s a nonstop battle to identify and prevent fraud by identity thieves and scam artists,” said New York State Taxpayer Rights Advocate Margaret Neri. “The Tax Department is constantly updating its award-winning analytics to keep pace with these criminals, but it’s also critical for taxpayers to be alert to common scam tactics and protect themselves.” 

Telltale signs of a scam

Threatening calls: Scam artists who use this tactic try to bully or trick victims into disclosing private information, or convince them to wire money to pay a tax debt or fine. If a caller, perhaps posing as a New York State Tax Department or IRS agent, threatens arrest it’s a scam. Neither agency threatens taxpayers, and they notify taxpayers by letter first before making any calls or sending any emails.

Unusual emails: Phishing emails often contain links that activate malware or lead to phony websites that request personal information. Misspellings or unfamiliar logos in the email or subject line are obvious clues that it’s a scam attempt, but some of the bogus emails and websites are convincing. Hovering over the links may reveal an unusual webpage address (URL) that confirms the sender’s true intent. To be safe, simply delete these emails and any that are unsolicited, and never click the links within them.Remember, the Tax Department never requests personal or financial information by email.

Offers to collect a tax payment in person: If a caller claiming to be from the Tax Department or IRS offers to meet you at a specified location to collect a payment, it’s a scam. This is never an option with the IRS or Tax Department. End the call immediately.

Requests for a specific type of payment: If you’re being told to pay through a prepaid debit card or an iTunes gift card, this is an obvious sign of a scam. The Tax Department and IRS provide various payment options, but the use of gift cards isn’t one of them.

Report it If you are a victim, or believe you may be a potential victim of tax-related identity theft, alert us immediately. We will track your information to help keep it private and protected. Visit the Tax Department’s Report fraud, scams, and identity theft webpage.

For more information call SELIG & Associates (212) 974-3435

Today's Tip 

Insurance Protection. Mass shootings in schools, churches, temples, private businesses and other public settings have become commonplace, says David Selig of Selig & Associates. Accordingly, we recommend our clients purchase “Active Shooter Insurance” and “Workplace Violence Insurance”. For more information, call us directly. 

Free Consultation 

We Solve Tax Problems. To meet with an experienced Federal Tax Practitioner and Attorney, in our conveniently located New York City office today, call (212) 974-3435 or contact us online.

Restaurants 

Specializing in Unpaid Sales Taxes, installment agreements, audit representation and all Department of Labor issues. *Ask us about Debt Restructuring, including settling judgments, renegotiating bank loans and merchant cash advances. For immediate assistance call (212) 974-3435 or contact us online. 

Contractors 

Specializing in Payroll and Withholding Taxes, installment agreements, audit representation and Workers Compensation insurance audits. To schedule a free consultation call (212) 974-3435 or contact us online. 

Businesses 

We Settle and Restructure Business Debts, including judgments and most insurance claims. To meet with us personally call (212) 974-3435 or contact us online. 

 Count On Us. Guaranteed. 

✔    Same day and emergency appointments available.

✔    We negotiate excellent re-payment plans with IRS and State.

✔    Missing tax returns prepared and filed in 48 hours, guaranteed. 

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Two Unhappy Hombres Charged With Conspiring To Harbor Aliens and Tax Crimes

A federal grand jury returned an indictment against two residents, charging each with one count of conspiracy to harbor an alien, one count of conspiracy to defraud the United States, 48 counts of failure to withhold and pay over employment tax, and 12 counts of aiding and assisting in the preparation of a fraudulent tax return, announced Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Justice Department’s Tax Division and U.S. Attorney Peter G. Strasser of the Eastern District. 

As alleged in the indictment, Imad “Eddie” Hamdan and Ziad “Z” Mousa owned and operated over 30 locations of Brothers Food Mart. Hamdan and Mousa are alleged to have hired undocumented workers to work in their stores and paid them in cash. To further conceal these undocumented workers, Hamdan and Mousa allegedly filed false employment tax returns with the Internal Revenue Service (IRS) that did not report the cash wages paid to the undocumented workers.

In addition, the indictment charges that Hamdan and Mousa paid the salaries of the managers of the Brothers Food Mart stores partially in cash. Allegedly, employment taxes were also not withheld or reported in connection with these cash wages. Finally, according to the indictment, Hamdan and Mousa issued and filed false Forms W-2 that underreported their wages. The indictment further alleges that Hamdan and Mousa aided in the filing of fraudulent tax returns for the managers of Brothers Food Mart stores.

An indictment merely alleges that crimes have been committed.  The defendants are presumed innocent until proven guilty beyond a reasonable doubt.

If convicted, Hamdan and Mousa each face a statutory maximum sentence of ten years in prison for the conspiracy to harbor aliens count, five years for the conspiracy to defraud the United States count, five years for each count of willful failure to withhold and pay over employment tax, and three years for each count of aiding and assisting in the preparation of a fraudulent tax return.  They also face substantial monetary penalties, supervised release, and restitution.

Principal Deputy Assistant Attorney General Zuckerman and U.S. Attorney Strasser commended Assistant United States Attorney Greg Kennedy and Trial Attorney Lauren Castaldi of the Tax Division, who are prosecuting this case. The case was investigated by special agents of IRS-Criminal Investigation and Homeland Security Investigations.

 Today's Tip 

Insurance Protection. An umbrella insurance policy provides additional financial security when you are sued for damages to other people's property or injuries caused to others in an accident. Accordingly, we advise our clients purchase excess liability umbrella insurance protection.

Free Consultation 

We Solve Tax Problems. To meet with an experienced Federal Tax Practitioner and Attorney, in our conveniently located New York City office today, call (212) 974-3435 or contact us online.

Restaurants 

Specializing in Unpaid Sales Taxes, installment agreements, audit representation and all Department of Labor issues. *Ask us about Debt Restructuring, including settling judgments, renegotiating bank loans and merchant cash advances. For immediate assistance call (212) 974-3435 or contact us online. 

Contractors 

Specializing in Payroll and Withholding Taxes, installment agreements, audit representation and Workers Compensation insurance audits. To schedule a free consultation call (212) 974-3435 or contact us online. 

Businesses 

We Settle and Restructure Business Debts, including judgments and most insurance claims. To meet with us personally call (212) 974-3435 or contact us online. 

 Count On Us. Guaranteed. 

✔    Same day and emergency appointments available.

✔    We negotiate excellent re-payment plans with IRS and State.

✔    Missing tax returns prepared and filed in 48 hours, guaranteed. 

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Specializing in Restaurant Sales Tax & Department of Labor

For a Free Legally Privileged Consultation with a Federal Tax Practitioner and Attorney call (212) 974-3435 or contact us online. Don’t delay another day, meet with us personally in our conveniently located New York City office.

Restaurants We specialize in unpaid sales taxes, installment agreements, audit representation and all Department of Labor issues. For immediate assistance call (212) 974-3435 or contact us online. 

Contractors We specialize in payroll and withholding taxes, installment agreements, audit representation and Workers Compensation insurance audits. To schedule a free consultation, call (212) 974-3435 or contact us online. 

Businesses In addition to our Federal and State Tax Practice, we also settle debts, judgments and most insurance claims. To meet with us personally, call (212) 974-3435 or contact us online. 

 Count On Us. Guaranteed. 

✔    Same day and emergency appointments are always available.

✔    We negotiate excellent repayment plans with the IRS and State.

✔    Missing tax returns prepared and filed within 48 hours, guaranteed. 

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