Hobby Losses and How they Effect your Tax Return, Former IRS

by Fresh Start Tax | Aug 11, 2014 | Tax Help

Tax Tips about Hobbies

Millions of people enjoy hobbies that are also a source of income.

Some examples include stamp and coin collecting, craft making, and horsemanship.

Important – You must report on your tax return the income you earn from a hobby.

The rules for how you report the income and expenses depend on whether the activity is a hobby or a business.

There are special rules and limits for deductions you can claim for a hobby.

Here are  tax tips you should know about hobbies:

1. Is it a Business or a Hobby?

A key feature of a business is that you do it to make a profit. You often engage in a hobby for sport or recreation, not to make a profit. You should consider nine factors when you determine whether your activity is a hobby. Make sure to base your determination on all the facts and circumstances of your situation. For more about ‘not-for-profit’ rules see Publication 535, Business Expenses.

2. Allowable Hobby Deductions.

Within certain limits, you 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, you can only deduct your hobby expenses up to the amount of hobby income.

If your hobby expenses are more than your hobby income, you have a loss from the activity.

You can’t deduct the loss from your other income.

4. How to Deduct Hobby Expenses.

You must itemize deductions on your tax return in order to deduct hobby expenses.

Your expenses may fall into three types of deductions, and special rules apply to each type. See of Publication 535 for the rules about how you claim them on Schedule A, Itemized Deductions.

Hobby Losses and How they Effect your Tax Return, Former IRS

IRS Tax Notices Help – Former IRS Agents and Managers, A + Rated BBB

by Fresh Start Tax | Aug 1, 2014 | Tax Help

IRS Notices and Bills, Penalties and Interest Charges

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General Information

April 15 is the deadline for most people to file their individual income tax returns and pay any tax owed.

Tax returns are checked for mathematical accuracy. If there is any money owed, you will be sent a bill.

Generally, interest is charged on any unpaid tax from the due date of the return until the date of payment.

The interest rate is determined quarterly and is the federal short-term rate plus 3 percent. Interest is compounded daily.

If you file a return but don’t pay all amounts shown as due on time, you will generally have to pay a late payment penalty of one-half of one percent for each month, or part of a month, up to a maximum of 25%, on the amount of tax that remains unpaid from the due date of the return until the tax is paid in full.

The one-half of one percent rate increases to one percent if the tax remains unpaid 10 days after the IRS issues a notice of intent to levy.

For individuals who file by the return due date, the one-half of one percent rate decreases to one-quarter of one percent for any month in which an installment agreement is in effect.

If you owe tax and don’t file on time, the total failure to file penalty is usually five percent of the tax owed for each month, or part of a month that your return is late, up to five months. If your return is over 60 days late, the minimum penalty for late filing is the lesser of $135 or 100 percent of the tax owed.

You must file your return and pay your tax by the due date to avoid interest and penalty charges.

Often the funds necessary to pay your tax can be borrowed at a lower effective rate than the combined IRS interest and penalty rate.

To ensure your payment on a bill for tax is credited properly, be sure to return the tear-off stub on your bill and use our return envelope, if provided.

Please make your check or money order payable to the United States Treasury.

Enter the primary social security number or employer identification number, the tax year and form number, and your telephone number on your check or money order.

The penalties for filing and paying late may be abated if you have reasonable cause and the failure was not due to willful neglect.

If you’re billed for penalty charges and feel you have reasonable cause, send your explanation along with the bill to your service center, or call the IRS at 800-829-1040 for assistance.

In addition, making a late payment as soon as you are able may help to establish that your initial failure to pay was due to reasonable cause and not willful neglect.

Generally, interest charges are not abated; they continue to accrue until all assessed tax, penalties, and interest are paid in full.

There are possible exceptions to the general deadlines for filing a return and paying tax.

• One possible exception is if you are a member of the armed forces and are serving in a combat zone. Refer to Publication 3, Armed Forces’ Tax Guide, for additional information and qualifications.
• Another is if you are a citizen or resident alien working abroad. Refer to Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad, for details. The IRS also has the authority to extend filing and payment deadlines in certain disaster situations. For more information, enter “disaster” in the search box on IRS.gov.

Errors on Your IRS Notice

If you believe there is an error on your notice or bill, write to the IRS office that sent it to you within the time frame given. You should provide photocopies of any records that may help correct the error.

Also, you may call the number listed on your notice or bill for assistance. If you are correct, we will make the necessary adjustment to your account and send you a corrected notice.

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by Fresh Start Tax | Jul 31, 2014 | Tax Help

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