Walt Eddy's Blog - Posts Tagged "audits"
Taxes for Writers 2
Well, maybe I've given you enough time (see my post on February 19th) for now to think about Doug’s chances relative to his taxes and the risks he'd be taking with IRS.
Way back on March 3, 2005, Peter Jennings wrapped up a newscast by saying, “Finally here this evening, one very large tax bill. The government says it has never seen anything like it before. Walter Anderson, a multimillionaire businessman, appeared in a Washington, D.C. court today, accused of failing to pay more than $200 million in taxes. The government alleges that Mr. Anderson used several elaborate schemes to hide his considerable income. It's a lot of money.”
(How a guy like that ever got my name, Walter, makes me wonder.)
Anyway, that’s $200,000,000 smackers of taxes. That's a lot of money. Any normal person would ask himself: with government going after the likes of Walter Anderson and getting that large a return on their investment in resources, why would IRS operatives even care if Doug deducts the measly costs of his trip to Vietnam to get pictures depicting oversized loads on motorcycles?
Then a few months later, on August 29, 2005, the IRS reported that the accounting firm KPMG LLP (KPMG) had admitted to criminal wrongdoing and agreed to pay $456 million in fines, restitution, and penalties as part of an agreement to defer prosecution of the firm. In addition to the agreement, nine individuals—including six former KPMG partners and the former deputy chairman of the firm—were headed for criminal prosecution in relation to the multibillion-dollar criminal tax fraud conspiracy. The fraud per the IRS and Justice Department related to the design, marketing, and implementation of fraudulent tax shelters.
So, again, one has to ask one's self, does it make any sense to worry about the IRS devoting resources to Doug’s crummy little Vietnam trip? Even if—shame on him—he takes his family with him and deducts their costs, too?
Why should the IRS care about Doug when it can get the kind of return they have on KPMG? Or the return they’ll possibly get on KPMG’s clients, who claimed billions of dollars in tax benefits from the fraudulent tax schemes and will all owe the tax back plus interest and penalties? We’re talking about billions of dollars.
What’s the risk to little old Doug of the IRS throwing its resources after him for deducting one lousy trip to Vietnam? Not much? A lot? Somewhere in the middle? And if the IRS does go after Doug, what’s the risk to him that the IRS will prevail? How much will it cost Doug? Does he risk serving jail time? And what about monetary fines or penalties? Is he at risk? What about his reputation? He is, after all, an aspiring author on the possible precipice of great things. Could the publicity help him?
So again, I'm going to leave you with a little more to think about concerning Doug.
Making Expression Less Taxing: A Freelancer's Tax Resource
Way back on March 3, 2005, Peter Jennings wrapped up a newscast by saying, “Finally here this evening, one very large tax bill. The government says it has never seen anything like it before. Walter Anderson, a multimillionaire businessman, appeared in a Washington, D.C. court today, accused of failing to pay more than $200 million in taxes. The government alleges that Mr. Anderson used several elaborate schemes to hide his considerable income. It's a lot of money.”
(How a guy like that ever got my name, Walter, makes me wonder.)
Anyway, that’s $200,000,000 smackers of taxes. That's a lot of money. Any normal person would ask himself: with government going after the likes of Walter Anderson and getting that large a return on their investment in resources, why would IRS operatives even care if Doug deducts the measly costs of his trip to Vietnam to get pictures depicting oversized loads on motorcycles?
Then a few months later, on August 29, 2005, the IRS reported that the accounting firm KPMG LLP (KPMG) had admitted to criminal wrongdoing and agreed to pay $456 million in fines, restitution, and penalties as part of an agreement to defer prosecution of the firm. In addition to the agreement, nine individuals—including six former KPMG partners and the former deputy chairman of the firm—were headed for criminal prosecution in relation to the multibillion-dollar criminal tax fraud conspiracy. The fraud per the IRS and Justice Department related to the design, marketing, and implementation of fraudulent tax shelters.
So, again, one has to ask one's self, does it make any sense to worry about the IRS devoting resources to Doug’s crummy little Vietnam trip? Even if—shame on him—he takes his family with him and deducts their costs, too?
Why should the IRS care about Doug when it can get the kind of return they have on KPMG? Or the return they’ll possibly get on KPMG’s clients, who claimed billions of dollars in tax benefits from the fraudulent tax schemes and will all owe the tax back plus interest and penalties? We’re talking about billions of dollars.
What’s the risk to little old Doug of the IRS throwing its resources after him for deducting one lousy trip to Vietnam? Not much? A lot? Somewhere in the middle? And if the IRS does go after Doug, what’s the risk to him that the IRS will prevail? How much will it cost Doug? Does he risk serving jail time? And what about monetary fines or penalties? Is he at risk? What about his reputation? He is, after all, an aspiring author on the possible precipice of great things. Could the publicity help him?
So again, I'm going to leave you with a little more to think about concerning Doug.
Making Expression Less Taxing: A Freelancer's Tax Resource
IRS: I’m Really Sorry
There are many good questions about the taxation of individuals who want to write to make money. Many things for Doug and all of us like him to think about, to learn, to consider and ponder before we put the costs of a trip or other expenses on a profit-and-loss statement on a Schedule C and attach it to a Form 1040, exposing us to the potential ravages of a dreaded IRS agent or auditor.
And maybe, just maybe, those answers and many, many more important ones like them, both for Doug and for you, are just as important as finding a perfect simile or eliminating an unnecessary gerund, finishing the last chapter of your novel, entering that disquieting contrapposto or portrait in an art contest, or acquiring an agent to sell your work or a gallery to display your sculptures.
What does it mean to carry on the freelancing of expression in a businesslike manner? How does a person maintain a complete and accurate set of books? How important is it to consult advisors and have expertise? How much time and effort does a person need to expend in the actual conduct of freelancing? Does anybody care? Questions. Many pertinent and probing questions for every freelancer of expression.
Now, don’t be naïve like the anxious taxpayer who was visited by a revenue agent. The agent completed her audit and presented a proposal for a lot more taxes. It seems the taxpayer had claimed costs of a vacation trip for her entire family to Hawaii, arguing that she needed to personally experience snorkeling in order to achieve realism in her television drama Nowhere to Be Found. The agent evangelized as he watched the taxpayer’s eyes and mouth widen as he reviewed her proposal for more taxes and penalties. “You know, Ms. Taxpayer, it’s a great privilege to live and work in the USA,” he said. “Citizens have an obligation to pay their fair share. And we really expect you to pay with a smile.”
“Thank God,” said the taxpayer. “I thought you’d want cash.”
There are answers to these questions, pertinent statistics, possibilities, and strategies. And learning about them could be entertaining, too, and relieve some worry and banish much anxiety. There are effective strategies for managing your freelancing business as you express yourself --- making the process literally less taxing.
You can sit back and relax when the IRS calls. You can learn to change the IRS acronym from Internal Revenue Service (or as many taxpayers call it, the Infernal Revenue Service) to: I’m Really Sorry, IRS . . . but I don’t owe those taxes.
And maybe, just maybe, those answers and many, many more important ones like them, both for Doug and for you, are just as important as finding a perfect simile or eliminating an unnecessary gerund, finishing the last chapter of your novel, entering that disquieting contrapposto or portrait in an art contest, or acquiring an agent to sell your work or a gallery to display your sculptures.
What does it mean to carry on the freelancing of expression in a businesslike manner? How does a person maintain a complete and accurate set of books? How important is it to consult advisors and have expertise? How much time and effort does a person need to expend in the actual conduct of freelancing? Does anybody care? Questions. Many pertinent and probing questions for every freelancer of expression.
Now, don’t be naïve like the anxious taxpayer who was visited by a revenue agent. The agent completed her audit and presented a proposal for a lot more taxes. It seems the taxpayer had claimed costs of a vacation trip for her entire family to Hawaii, arguing that she needed to personally experience snorkeling in order to achieve realism in her television drama Nowhere to Be Found. The agent evangelized as he watched the taxpayer’s eyes and mouth widen as he reviewed her proposal for more taxes and penalties. “You know, Ms. Taxpayer, it’s a great privilege to live and work in the USA,” he said. “Citizens have an obligation to pay their fair share. And we really expect you to pay with a smile.”
“Thank God,” said the taxpayer. “I thought you’d want cash.”
There are answers to these questions, pertinent statistics, possibilities, and strategies. And learning about them could be entertaining, too, and relieve some worry and banish much anxiety. There are effective strategies for managing your freelancing business as you express yourself --- making the process literally less taxing.
You can sit back and relax when the IRS calls. You can learn to change the IRS acronym from Internal Revenue Service (or as many taxpayers call it, the Infernal Revenue Service) to: I’m Really Sorry, IRS . . . but I don’t owe those taxes.
Is Your Writing Just a Gamble; Does That Make It Necessarily a Hobby?
I've found that writers who haven't made money yet from their writing activities are often sqeamish in claiming their losses --- the excess of their costs over their income --- against other employment income or self-employment or investment income. I write about this in my tax book for writers, and discuss some tax disputes that have actually gone to court where the IRS was calling the writing activity a hobby, while the writer was claiming it was a business.
In that vein --- although it doesn't involve a writer --- I found the case of John and Esther Chow interesting. You can read it at http://www.ustaxcourt.gov/InOpTodays/.... It's about Esther Chow and her argument that she was a professional gambler. She had gambled for awhile and was claiming gambling losses from her gambling on her income tax return. The IRS said her gambling was a hobby.
Esther Chow won the argument before the Tax Court.
In that vein --- although it doesn't involve a writer --- I found the case of John and Esther Chow interesting. You can read it at http://www.ustaxcourt.gov/InOpTodays/.... It's about Esther Chow and her argument that she was a professional gambler. She had gambled for awhile and was claiming gambling losses from her gambling on her income tax return. The IRS said her gambling was a hobby.
Esther Chow won the argument before the Tax Court.
Yikes! All The Facts And Circustances?
Perhaps you’re saying it’s simple. It can’t be that hard to say whether Doug can go to Vietnam to get pictures of motorcyles for use in a picture book and deduct the costs? If you can’t answer, Walt, you don't know squat.
Okay, that’s fair; I’ll give you an answer.
Yes, he can.
How’s that? Is that what you wanted to hear?
But the answer could also be “no.”
Or “maybe.”
You see, it depends. It’s as simple as that, and as difficult. Federal income taxes are complicated.
If you think otherwise, you are naïve. Don’t be.
The answers involving federal taxation pertaining to “expression activities,” whether your expression is made as a journalist, a painter, a book designer, woodworker, fiction writer, poet, or any other way you may express or intend to express yourself are based upon the premise that all of the facts and circumstances and applicable law have to be considered.
I hear you groaning. Suck it up.
You can't skim the surface. Such would leave you in the lurch if your tax benefits are challenged by the IRS. If you don't consider all the details, it will leave you scratching your head wondering what to do if a revenue agent or auditor alleges that you owe thousands of dollars more in taxes, interest, and perhaps even penalties. Of course, you can dabble in an expression activity, sticking a toe in to see if the water is frigid or not. But if you really want to know you have to take the plunge. So be prepared.
Most people read a mystery for the intrigue, to find out who did it and to figure things out as they go. It certainly doesn’t hurt if the mystery is masterfully written, with an elegance of expression, and is entertaining. In any case, readers don’t want the answers to a mystery all up front or there’s little reason to keep reading.
People enjoy art for similar reasons. The art they afford for themselves is acquired to enjoy its subtleties over the long haul.
If finding out whether your expression activity can be less taxing isn’t mystery enough for you, doesn’t have adequate subtlety, and the knack of the telling isn’t captivating enough for you, please don’t stick with me. You’ll possibly be disappointed if you read on under those circumstances.
Also, if you’re experienced in the business of expression, already making scads of money and are well established and skilled, maybe what I have to say isn’t for you either. (However, maybe you’ll enjoy comparing what you’ve done with what I suggest and pick up some pointers, too.) In any event, if you decide not to read on, maybe you know somebody on the cusp of great things that could benefit from this information.
Okay, that’s fair; I’ll give you an answer.
Yes, he can.
How’s that? Is that what you wanted to hear?
But the answer could also be “no.”
Or “maybe.”
You see, it depends. It’s as simple as that, and as difficult. Federal income taxes are complicated.
If you think otherwise, you are naïve. Don’t be.
The answers involving federal taxation pertaining to “expression activities,” whether your expression is made as a journalist, a painter, a book designer, woodworker, fiction writer, poet, or any other way you may express or intend to express yourself are based upon the premise that all of the facts and circumstances and applicable law have to be considered.
I hear you groaning. Suck it up.
You can't skim the surface. Such would leave you in the lurch if your tax benefits are challenged by the IRS. If you don't consider all the details, it will leave you scratching your head wondering what to do if a revenue agent or auditor alleges that you owe thousands of dollars more in taxes, interest, and perhaps even penalties. Of course, you can dabble in an expression activity, sticking a toe in to see if the water is frigid or not. But if you really want to know you have to take the plunge. So be prepared.
Most people read a mystery for the intrigue, to find out who did it and to figure things out as they go. It certainly doesn’t hurt if the mystery is masterfully written, with an elegance of expression, and is entertaining. In any case, readers don’t want the answers to a mystery all up front or there’s little reason to keep reading.
People enjoy art for similar reasons. The art they afford for themselves is acquired to enjoy its subtleties over the long haul.
If finding out whether your expression activity can be less taxing isn’t mystery enough for you, doesn’t have adequate subtlety, and the knack of the telling isn’t captivating enough for you, please don’t stick with me. You’ll possibly be disappointed if you read on under those circumstances.
Also, if you’re experienced in the business of expression, already making scads of money and are well established and skilled, maybe what I have to say isn’t for you either. (However, maybe you’ll enjoy comparing what you’ve done with what I suggest and pick up some pointers, too.) In any event, if you decide not to read on, maybe you know somebody on the cusp of great things that could benefit from this information.
