Countless Americans take pleasure from hobbies that also generate income. Collectibles of all types have skyrocketed in popularity, as well as income potential, in the last fifty years. Whether its dolls, baseball cards, stamps, coins, or Star Trek action figures, all types of hobbies have the potential to generate some amount of income, which, of course, is taxed by Uncle Sam.
The rules for reporting the income and expenses associated with a “hobby” depends upon whether or not the activity in question is a hobby or business. There are deductions that hobbyists may claim but they, like most everything, are subject to special rules and limits imposed by the Tax Code.
It’s already fall and before you know it, another year will be upon us. It’s never too early to plan ahead to minimize your tax bill. An experienced and knowledgeable tax professional can help any individual or business make the right year-end savings moves with important advice and assistance. Here is the first part of a two part series on some things to ponder when considering potential tax moves between now and the end of 2016:
- Make time to plan
The U.S. taxes its citizens on all income, regardless of where they live and earn this income. With the impending presidential election, the notion of some citizens renouncing their citizenship and moving abroad to some place like Canada based upon the result regularly appears in mainstream and social media.
The Immigration and Nationality Act provides the details regarding U.S. citizens and their right to voluntarily renounce U.S. citizenship. But renouncing American citizenship is a serious matter as signing an oath of renunciation is an irrevocable act for anyone over the age of 18. The number of expatriates that renounced their citizenship in 2015 was eighteen times as many Americans that renounced their citizenship in 2008, which broke a record for the third year in a row.
In late August, the European Commission ruled that Ireland must collect $14.5 billion in back taxes from Apple. The antitrust regulator for the European Union claimed that Ireland had given Apple an extremely favorable tax arrangement for over ten years allowing the tech giant to pay a tax of less than 1 percent. The EU further claimed that Apple had two companies in Ireland with a head office that existed only on paper, but received all of Apple’s European profits. The ruling fuels the debate about multinational corporate existence and tax responsibility worldwide.
Many of life’s events such as losing a job, foreclosure of a home or even forgiveness of a debt impact the payment of taxes. The tax law offers hope in these situations. As an example, if a taxpayer’s income decreases, he or she may be eligible for certain tax credits, such as the Earned Income Tax Credit. In this blog, We will present a list of quick answers to life event situations that have a potential impact on an individual’s tax burden. For more information see our blogs: Part 1 – What If: Job Related Life Events and Struggling Taxpayers; and Part 2 – What If: Debt Related Life Events and Struggling Taxpayers.
Individuals that are U.S. citizens or resident aliens of the United States living abroad are taxed on their income by more than one governmental entity. However, these taxpayers may qualify to exclude from their income an amount of their foreign earnings (adjusted annually for inflation) under I.R.C. § 911. They may also be eligible for either a foreign housing exclusion or the foreign housing deduction (this will be discussed in a future blog). To determine eligibility to claim either the foreign earned income exclusion, the foreign earned housing deduction or foreign earned housing exclusion, please consider the following analysis. Remember, that an experienced tax professional can offer assistance in making this analysis.
Recently the IRS together with state tax agencies and the nation’s tax preparers warned that criminals are focusing their cyber theft crimes on tax professionals. Anyone that is a potential target of these cybercriminals should respond appropriately to protect clients from identity theft.
With this issuance of caution, the IRS provided new information containing safeguards to help tax professionals protect clients’ data. Known as the Protect Your Clients; Protect Yourself campaign, it’s an expansion of the Security Summit’s 2015 Taxes. Security. Together program aimed at increasing public awareness for using security software, creating stronger passwords and avoiding phishing emails.
Individuals and businesses in the State of New York are both subject to income tax. New York enacted a sweeping tax-reduction bill in 2011, creating the lowest mid-bracket tax rates in the state in 58 years. These tax breaks affected over four million taxpayers. Despite this legislation and other New York tax breaks, New York still has one of the highest state income tax rates in the nation.
New York Personal Income Tax
Income tax deductions are expenses that may be deducted from pre-tax gross income. Of course, deductions reduce New York income tax and maximize a refund. One of the experienced tax professionals at the Thorgood Law Firm can assist any New Yorker in determining the deductions for which they qualify under New York law.
New York has a standard state income tax deduction. For 2015, they are as follows:
|Filing Status||Amount of Standard Deduction|
|Single (and can be claimed as a dependent on another taxpayer’s federal return)||$3,100|