Tax Laws

One of the more interesting questions I get now and then is "I heard that I can hire my kid and save on my taxes.  Is that true?

The answer to that is yes - IF you follow the IRS rules.   I think their is a better reason to hire your children, though.  It is the best education they can learn to prepare them for life after they move out of your house - from either an employee''s point of view or a business owner''s point of view or both.

Here’s what you need to know. 

The IRS has set its sites on millions of people who enjoy gambling: the huge gap between tax collections and people reporting them on their tax returns. Those unreported winnings ad up to a whopping  $13.2 billion. 

Since sports betting and online gambling in the U.S. has increased in recent years, the Treasury Inspector General for Tax Administration (TIGTA) recently audited the IRS for signs of these missed gambling winnings.  This has prompted the IRS to take action to improve compliance. So, are you affected and if so, what steps will the tax agency take? I''m going to tell you what you need to know. Read on...

The IRS can take the fun out of just about anything.  Case in point:  Last week, baseball phenom Shohei Ohtani became the first major league player to start the “50-50 club” by hitting 50 home runs and stealing 50 bases in a single season.   And when he did that, one lucky fan in Miami caught the 50th home run ball and walked away with it even though he had the opportunity to give it to the Dodgers. No one yet knows whether the lucky fan will keep the ball or sell it. Should he decide to sell it , it could be worth hundreds of thousands, or even more than a million dollars. With these numbers, the ball could come with a huge tax bill.

Crowdfunding has become a very popular way for individuals to raise capital. It typically involves funding a project or venture by raising contributions from a large number of people, typically through online crowdfunding sites. Crowdfunding campaigns fund a broad range of projects, from producing a product or new technology to supporting a charitable cause.  Those supporting a product using can buy the product at a reduced price.

It's the season for tornadoes, hurricanes, flooding and devastating winds.  So, I thought it would be a good time to review the rules for taking money out of your retirement accounts to get you through the storms. 

The IRS has just released a new set of FAQs on the provisions that the SECURE Act 2.0 provides for relief of individuals impacted by federally declared disasters. The SECURE 2.0 Act allows for:

A lot of small businesses hire independent contractors to do projects that don't require a regular full or part time employee. Part of that process can be have that person fill out a W-9 form so that you have the proper information to give them a 1099-NEC form the next January showing how much you paid them.

That said, do you have to have every person you hire fill out a W-9? The simple answer is no.  The complex answer is maybe.  If you are hiring another business to do a single task for you, then probably not providing they give you invoices for the work.  However, if you are sub-contracting work out to another person or business, then you probably should.  

Did you know that there are several categories of income are not taxable in the eyes of the IRS?

Here is a list of some common types of nontaxable income. Needles to say, it's good to consult a trusted tax professional or financial adviser if you are uncertain about your tax burden and how to minimize it. 

Here are Some Examples

Note: The following are examples of nontaxable income. (This list is not all-inclusive.) In some cases, you may have to report nontaxable income on your federal income tax return even though it isn't subject to tax.

For more information on what the IRS considers taxable, see IRS Publication 525.

One of the most - I think - was the tax rule concerning those whose join the military was that your state of residence for tax purposes was where you signed up for the military.   So, if you joined the military from a state that has state income tax laws, you had to pay state taxes to to that state - even if you currently live in a state that had no tax.

Congress finally fixed it.

The Veterans Auto and Education Improvement Act of 2022 (VAEIA) was signed into law Jan. 5, 2023. The Act expands existing legislation protecting military service members’ and their spouses’ residency. 

Increased small employer plan start-up credit

Eligible small employers may claim a general business credit of up to $5,000 for the cost of establishing a pension plan, such as a SEP or SIMPLE plan, for eligible employees. An eligible employer is one with 100 or fewer employees who received at least $5,000 in compensation the previous year. The credit is allowed for the year the plan is established and each of the two subsequent years.

For plan years starting after Dec. 31, 2022:

Prior to 2020, a "Stretch IRA" was used to extend the tax-deferred status of an inherited IRA  when it passed to a non-spouse beneficiary (i.e. children and/or grandchildren).   This way you could pass an IRA down to the next generation and beneficiaries would enjoy the tax benefits of an IRA over their respective lifetimes.