Business or Hobby?
Latest News about traditional investments.
The Internal Revenue Service reminds taxpayers to follow appropriate guidelines when determining whether an activity is a business or a hobby, an activity not engaged in for profit.In order to educate taxpayers regarding their filing obligations, this fact sheet, the eleventh in a series, explains the rules for determining if an activity qualifies as a business and what limitations apply if the activity is not a business. Incorrect deduction of hobby expenses account for a portion of the overstated adjustments, deductions, exemptions and credits that add up to $30 billion per year in unpaid taxes, according to IRS estimates.
In general, taxpayers may deduct ordinary and necessary expenses for conducting a trade or business. An ordinary expense is an expense that is common and accepted in the taxpayer’s trade or business. A necessary expense is one that is appropriate for the business. Generally, an activity qualifies as a business if it is carried on with the reasonable expectation of earning a profit.
In order to make this determination, taxpayers should consider the following factors:
- Does the time and effort put into the activity indicate an intention to make a profit?
- Does the taxpayer depend on income from the activity?
- If there are losses, are they due to circumstances beyond the taxpayer’s control or did they occur in the start-up phase of the business?
- Has the taxpayer changed methods of operation to improve profitability?
- Does the taxpayer or his/her advisers have the knowledge needed to carry on the activity as a successful business?
- Has the taxpayer made a profit in similar activities in the past?
- Does the activity make a profit in some years?
- Can the taxpayer expect to make a profit in the future from the appreciation of assets used in the activity?
The IRS presumes that an activity is carried on for profit if it makes a profit during at least three of the last five tax years, including the current year — at least two of the last seven years for activities that consist primarily of breeding, showing, training or racing horses.If an activity is not for profit, losses from that activity may not be used to offset other income. An activity produces a loss when related expenses exceed income. The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. It does not apply to corporations other than S corporations.
Deductions for hobby activities are claimed as itemized deductions on Schedule A (Form 1040). These deductions must be taken in the following order and only to the extent stated in each of three categories:
- Deductions that a taxpayer may take for personal as well as business activities, such as home mortgage interest and taxes, may be taken in full.
- Deductions that don’t result in an adjustment to basis, such as advertising, insurance premiums and wages, may be taken next, to the extent gross income for the activity is more than the deductions from the first category.
- Business deductions that reduce the basis of property, such as depreciation and amortization, are taken last, but only to the extent gross income for the activity is more than the deductions taken in the first two categories.
Future Africa recommends Individual Coaching and MentoringFurther information is available in IRS Publication 535, Business Expenses
Original source for this article: Successful Investments
Buy Gold, Be Smart, Diversify
Latest News about traditional investments.
David Galland, Managing Director of Casey Research, brings you his outlook on gold, diversity and current trends in smart investing.
After a relaxing Thanksgiving break, I anticipated to return to work in a lighter frame of mind. However, the following item from FOX News crushed that hope right away:
Lawmakers Propose ‘War Surtax‘ to Pay for Troop Increase in Afghanistan
Two top Democrats say they want to impose a new tax on the wealthy to finance any increase in U.S. troops for the Afghanistan war.†
Rep. David Obey, D-Wis., chairman of the purse string-controlling House Appropriations Committee, is calling the idea a “war surtax.” He said that just as the federal government is expected to pay for its proposed intervention in the health care sector with new taxes, any escalated involvement in Afghanistan should come with a payment plan.†
“If we have to pay for the health care bill, we should pay for the war as well … by having a war surtax,” Obey told ABC News in an interview that aired Monday. “The problem in this country with this issue is that the only people that has to sacrifice are military families and they’ve had to go to the well again and again and again and again, and everybody else is blithely unaffected by the war.”†
Readers of my free missive, Casey’s Daily Dispatch, know I’m vehemently opposed to the doomed adventure in Afghanistan. On that front alone, the idea of a war tax is like a shard of glass in my eye.
But it’s even worse than that. It shows just how degraded this country has become – picking the pockets of the productive is now pretty much the only remaining source of funding the administration and its allies can imagine.†
Just to be sure we keep this in perspective: At this moment, if you earn more than $250,000 a year (which isn’t what it used to be, given the steady erosion of inflation over the last 30 years), you will pay federal income taxes of about 35%, no estate taxes, and a 15% capital gains tax should the money you put at risk in the market return a profit. †
As soon as next year – if the government moves up the expiration of the Bush tax cuts, as I very much expect them to – the top tax bracket will go to 39%. On top of that, the current healthcare legislation will add a 5.4% surcharge. Then, add in the Democrats’ proposed 5% war tax. So straight up we’re talking 49%.
Then there’s a near doubling of capital gains taxes, from 15% to as high as 28%. And, of course, the return of the estate tax.
But that’s just for starters, because everywhere you look states and municipalities are raising taxes and fees, and attorney generals, taking a page out of Caligula’s playbook, are casting about for their next deep-pocketed victim.
At the end of the day, the top tax rate in the U.S., starting as early as next year, will soar way over 50% of income. While further number crunching is required, it is a very safe assumption that top income earners will soon be paying over 65% of their income in taxes.
Which is to say, if you are in a top tax bracket, every penny you earn between January 1 and August 25 will go straight into the coffers of one layer of government or another. †
And this while more than 40% of Americans pay no income taxes at all.
This is just another symptom of the single biggest problem now facing the U.S. (and for that matter, the world): the ballooning size and cost of government. And there are no speed bumps in sight.
Even so, endless complaining won’t really do anything other than raise the blood pressure. So, what can we actually do about it? Some ideas:
1. Buy gold.
As I write, gold has again broken to a new, non-inflation-adjusted high. As with all markets, it will fall back now and again, but the trend is very much up.
2. Buy gold shares.
3. Be smart about taxes.
4. Diversify globally.
Personally, I favor Argentina. Some years ago I went on a three-year quest to find paradise on earth, and Argentina was ultimately the hands-down winner.
5. Recognize the bureaucracy for what it is.
Now, there are two schools of thought as to how you deal with the bureaucrats. My dear friend and partner, Doug Casey, would tell you to take every opportunity to let the bureaucrats know you hold them in low esteem. For example, by asking airport security personnel how old they were before they realized they wanted to make a career out of pawing through people’s underwear.
The second approach is to accept that the bureaucrats, backed by the voting masses, hold most of the cards at this point. Poking at them with a stick risks unnecessary aggravation and worse. So, keeping a low profile and going about your business is certainly a rational choice.
Of course, there’s no better way of maintaining a low profile than moving to another country where you’ll be welcomed as a visitor and not viewed as a serf.
Is there no hope? One obvious scenario is for the Democrats to lose control of either the House or the Senate come next November’s elections, thereby returning the nation to some form of political gridlock. The best of all worlds, in my view. And the way things are heading, this is now a certainty.
But before you get overly excited about the prospects of a political solution, don’t forget the role the Republicrats have played in bringing the nation to this sorry state over the past several decades. If you’re holding out for an outbreak of capitalism or other signs of fiscal sanity once Republicans regain some modicum of political power, you are delusional. They may package their programs in different-colored paper, but when you rip away the wrappings, you’ll find the same statism and the same promises of a chicken in every pot.
Look after yourself – no one else is going to do it for you.
Gold has just hit a new record-high… and the small-cap Canadian explorers with good-sized deposits are sure to be dragged along into the stratosphere. In the current issue of Casey’s International Speculator, Editor Louis James names eight junior gold miners that – due to their top-quality assets – are destined to become takeover targets for the big players in the gold industry.
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These are not “public servants” but rather an entrenched interest group that is actively engaged in a systematic effort to look after itself, with no regard for the damage it’s doing to your family finances and to the country.Why do it? The short version is that it’s a big world out there, and there are a lot of places that are incredibly beautiful, safe, and unbelievably inexpensive. For many non-U.S. citizens, expatriating means you’ll pay no income tax, but even if you are a U.S. citizen, there are substantial tax benefits in moving offshore. And what you can save in cheaper everyday living allows you to live like royalty, for a fraction of the cost. Which means you can save more. Keep an eye on Pelosi’s tax trap – if you have appreciated assets that qualify for long-term capital gains, consider selling them before year-end to lock in the lower capital gains tax. Likewise, if you run a business and you can pull any income into this year, versus next, consider doing so.The leverage in the high-quality gold shares can boost your returns by a factor of 2X to 10X, and more. Again, there will be setbacks, but shares in the right companies with the right projects will trend higher and higher until the Mania phase kicks in, and then things will get really interesting.Unless and until there is an angry upwelling of popular discontent at the growing size of government – and it has to be far more substantive than just a few vocal talk radio jocks, or even 100,000 or so people peacefully gathering on the Mall in Washington DC – the government will continue to grow, or even just keep running at current levels, which means the destruction of the dollar. Many tangible assets will do well, but their intrinsic value as money means gold (and silver) will do best.
Original source for this article: Contrarian Profits
