All of us as taxpayers continually think we have a lot of expenses that we can itemize and deduct to help reduce our respective tax bills. But they come, they go, all for naught and no effect. The problem usually arises from the fact that our costs regularly fall just short of the required income thresholds for some categories of deductions. One solution is “bunching expenses,” which is a term used to describe incurring as many expenses as possible in a particular category during a particular tax year. Of course, doing this in one tax year will usually significantly diminish any chance of repeating it the following year.
Red Flags That Attract IRS Auditors
People typically think that the amount of their income is the biggest red flag that attracts an IRS auditor, and they would probably be right. But what are some of the other items on a tax return that may attract their attention? Some say that simple, plain returns are fairly safe and likely to avoid extended scrutiny by IRS auditors. According to the IRS, there are multiple ways a return may end up audited, here are some examples:
Erin Andrews Wins A $55 Million Verdict…Now For The IRS Bill
In early March, after a two-week trial and eight hours of deliberations, a Nashville jury awarded TV sports reporter Erin Andrews $55 million in damages for her lawsuit against a Nashville hotel after she was videotaped in 2008 without her knowledge. Andrews sued for $75 million in damages for negligent infliction of emotional distress and invasion of privacy.
Increased Compliance – Record High Fbars Were Filed In 2015
Do you live abroad? Do you own an asset or bank or investment account that had an accumulated value or total exceeding $10,000 at any time in 2015 (or any year)? If so, you are required to file a Report of Foreign Bank and Financial Reports (FBAR). Thus, if an asset was valued at, or an account totaled, $10,001 for just one day, an FBAR is due and must be filed. The Treasury Department’s Financial Crimes Enforcement Network (FinCen) received a record high 1,163,229 FBARs in 2015. What is surprising is that FinCen data shows that FBAR filings have grown an average of 17 percent per year during the last five years. Over 90,000 taxpayers filed FBARs in 2015.
Hulk Hogan Wins $140 Million. Windfall For The IRS (And Lawyers) Too.
A Florida jury awarded Terry Bollea, much better known as Hulk Hogan, $115 million in a lawsuit against Gawker Media for publishing footage of him participating in sexual activity four years ago. Jurors found that the defendant acted with reckless disregard publishing the video and awarded Hogan $60 million for emotional distress and $55 million for economic injury. This could increase as jurors still have to reconvene and deliberate whether punitive damages are appropriate.
Unsure if you should go with standard or itemize deductions?
Unsure of whether you should use the standard deduction amount, or take the time to itemize deductions? The answer is fairly straightforward; you should itemize deductions if your total deductions are more than the standard deduction amount. Also, you should itemize if you don’t qualify for the standard deduction. Taxpayers should initially calculate itemized deductions and then compare that amount to their standard deduction to determine which provides the greater benefit. A taxpayer may be subject to a limit on some itemized deductions if he or she exceeds the adjusted gross income limits.
Losses, Expenses and Interest between Related Taxpayers – Know The (Tax) Code: 26 U.S.C. §267
Congress, aware that related parties could create fictitious tax losses lacking economic substance based upon the related parties continued enjoyment of the property subject to the loss, enacted § 267 of the Internal Revenue Code to disallow certain losses and deductions on transactions between related taxpayers.
Gifts and Inheritances Under the Tax Code (26 U.S.C. §102)
Section 61 of the Tax Code states that “except as otherwise provided in this subtitle gross income means all income from whatever source derived”. Thus, the federal tax law requires taxpayers to pay income taxes on earnings, commissions, rents, royalties, retirement benefits, investment profits, tips, fringe benefits, bonuses and almost anything else of value, unless the Internal Revenue Code specifically provides an exception to the general rule contained in §61. An exception to the general rule is §102 of the Internal Revenue Code.
Tax on Capital Gains and Losses, Explained
A capital gain occurs when you transfer or sell a piece of property for more than its acquisition cost. To be more succinct, it’s the profit realized on the sale of a non-inventory asset. Capital gains are realized from the sale of all types of property, both real and personal such as investments and other traditional non-investment types of personal property. In the United States, with certain exceptions, individuals and corporations pay income tax on the net total of all their capital gains.
The Alternative Minimum Tax, Explained
Under the Internal Revenue Code and the vast body of rules and regulations related thereto, certain tax benefits can significantly reduce the amount of taxes that a taxpayer may owe. The alternative minimum tax (AMT) applies to those taxpayers with high levels of income by limiting these benefits and ensuring that these taxpayers pay at least a minimum amount of tax. If the AMT applies to you, you may lose many credits or deductions you would normally receive if you didn’t have to pay the AMT.