NATP
The IRS announced that the tax break for the purchase of new motor vehicles is also available in states such as Alaska, Delaware, Hawaii, Montana, New Hampshire, and Oregon that do not have a state sales tax. Under the American Recovery and Reinvestment Act of 2009, taxpayers who buy a new motor vehicle this year are entitled to deduct state or local sales or excise taxes paid on the purchase.
Taxpayers who purchase a new motor vehicle in states that do not have state sales taxes are entitled to deduct other fees or taxes imposed by the state or local government. The fees or taxes that qualify must be assessed on the purchase of the vehicle and must be based on the vehicle’s sales price or as a per unit fee. According to the IRS, Congress intended for these fees or taxes to qualify for this special tax deduction.
To qualify for this deduction, the vehicle must be purchased after February 16, 2009, and before January 1, 2010. Taxpayers can claim this special deduction only on their 2009 tax returns to be filed next year.
The deduction is limited to the fees or taxes paid on up to $49,500 of the purchase price of a qualified new car, light truck, motor home, or motorcycle. The deduction is phased out for taxpayers whose modified adjusted gross income is between $125,000 and $135,000 ($250,000 and $260,000 for joint filers).
Saturday, August 1, 2009
IRS Releases Audit Technique Guide on Hobbies
NATP
The IRS has released a new Audit Technique Guide, IRC § 183: Activities Not Engaged in For Profit, that auditors will use to differentiate between a business activity in which deductions are allowable, an activity not engaged in for profit where deductions are limited, and personal activities for which deductions are generally not allowed.
Some of the factors examination agents will consider when determining if an activity is engaged in for profit include whether: (1) the activity has large expenses with little or no income; (2) losses from the activity offset other income on the taxpayer's return; (3) the activity results in a large tax benefit to the taxpayer; and (4) the taxpayer's history of the activity shows that it generated profits in any tax year.
The guide also provides a list of possible activities that may be affected by the hobby loss rules of §183. The appendix lists the nine relevant factors used to evaluate whether an activity is engaged in for profit with a brief explanation of each factor.
A more simplified version can be found by the IRS below.
Is your hobby really an activity engaged in for profit?
By the IRS
In general, taxpayers may deduct ordinary and necessary expenses for conducting a trade or business or for the production of income. Trade or business activities and activities engaged in for the production of income are activities engaged in for profit.
The following factors, although not all inclusive, may help you to determine whether your activity is an activity engaged in for profit or a hobby:
An activity is presumed for profit if it makes a profit in at least three of the last five tax years, including the current year (or 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.
What are allowable hobby deductions under IRC 183?
If your activity is not carried on for profit, allowable deductions cannot exceed the gross receipts for the activity.
The IRS has released a new Audit Technique Guide, IRC § 183: Activities Not Engaged in For Profit, that auditors will use to differentiate between a business activity in which deductions are allowable, an activity not engaged in for profit where deductions are limited, and personal activities for which deductions are generally not allowed.
Some of the factors examination agents will consider when determining if an activity is engaged in for profit include whether: (1) the activity has large expenses with little or no income; (2) losses from the activity offset other income on the taxpayer's return; (3) the activity results in a large tax benefit to the taxpayer; and (4) the taxpayer's history of the activity shows that it generated profits in any tax year.
The guide also provides a list of possible activities that may be affected by the hobby loss rules of §183. The appendix lists the nine relevant factors used to evaluate whether an activity is engaged in for profit with a brief explanation of each factor.
A more simplified version can be found by the IRS below.
Is your hobby really an activity engaged in for profit?
By the IRS
In general, taxpayers may deduct ordinary and necessary expenses for conducting a trade or business or for the production of income. Trade or business activities and activities engaged in for the production of income are activities engaged in for profit.
The following factors, although not all inclusive, may help you to determine whether your activity is an activity engaged in for profit or a hobby:
- Does the time and effort put into the activity indicate an intention to make a profit?
- Do you depend on income from the activity?
- If there are losses, are they due to circumstances beyond your control or did they occur in the start-up phase of the business?
- Have you changed methods of operation to improve profitability?
- Do you have the knowledge needed to carry on the activity as a successful business?
- Have you made a profit in similar activities in the past?
- Does the activity make a profit in some years?
- Do you expect to make a profit in the future from the appreciation of assets used in the activity?
An activity is presumed for profit if it makes a profit in at least three of the last five tax years, including the current year (or 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.
What are allowable hobby deductions under IRC 183?
If your activity is not carried on for profit, allowable deductions cannot exceed the gross receipts for the activity.
- 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 claim for certain personal expenses, such as home mortgage interest and taxes, may be taken in full.
- Deductions that don’t result in an adjustment to the basis of property, 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.
- 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.
President Approved “Cash for Clunkers”
NATP
On June 24, President Obama signed HR 2346, the 2009 Supplemental Appropriations Bill for Iraq, Afghanistan, Pakistan, and Pandemic Flu. Contained within this bill is a provision under Title XIII, Consumer Assistance to Recycle and Save Act of 2009 that provides $1 billion for vouchers of $3,500 or $4,500 to be applied toward the purchase or lease of a new fuel efficient automobile or truck. This provision is more commonly known as “Cash for Clunkers.”
The vehicles must be purchased or leased between July 1 and November 1, 2009. To qualify for a voucher, the vehicle traded in must be scrapped, and the purchased vehicle must achieve greater fuel efficiency than the vehicle to be turned in. The amount of the voucher the purchaser is entitled to receive will depend on the type of vehicle purchased and the amount of the increased fuel efficiency.
On June 24, President Obama signed HR 2346, the 2009 Supplemental Appropriations Bill for Iraq, Afghanistan, Pakistan, and Pandemic Flu. Contained within this bill is a provision under Title XIII, Consumer Assistance to Recycle and Save Act of 2009 that provides $1 billion for vouchers of $3,500 or $4,500 to be applied toward the purchase or lease of a new fuel efficient automobile or truck. This provision is more commonly known as “Cash for Clunkers.”
The vehicles must be purchased or leased between July 1 and November 1, 2009. To qualify for a voucher, the vehicle traded in must be scrapped, and the purchased vehicle must achieve greater fuel efficiency than the vehicle to be turned in. The amount of the voucher the purchaser is entitled to receive will depend on the type of vehicle purchased and the amount of the increased fuel efficiency.
Make Work Pay Credit
This credit for working people, $400 individuals and $800 for working married couples, is a credit utilized during this year by reducing increments in tax due by 6.2% resulting in possible higher paychecks for those who qualify. Those working individuals that do not receive the full amount or any of this credit during the year may be able to apply for it on their income tax returns. Employers will have generally calculated this change in withholding by early last Spring. You can make changes to your withholding by filing Form W-4 with your employer.
Those that are self-employed may also benefit from this credit if they qualify by adjusting their scheduled estimated payments during the year and filing their 2009 Income Tax Return.
"If you're not eligible for the Making Work Pay tax credit, withholding changes could mean a smaller refund next spring. A limited number of people, including those who usually receive very small refunds, could in some situations owe a small amount rather than receiving a refund. Those who should pay particular attention to their withholding include:
- Pensioners
- Married couples with two incomes
- Individuals with multiple jobs
- Dependents
- Some Social Security recipients who work
- Workers without valid Social Security numbers" (IRS)
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