Taxing Information for Those Making News in
This week's column is devoted to providing answers to questions that haven't yet been asked, but that I know are on the minds of all Americans. In light of the recent controversy surrounding our president and his alleged dalliances, have you stopped to consider the tax consequences of all of this confusion? Well, you can be sure the IRS is paying careful attention to the events as they unfold.
Quarterly estimated payments:
Anyone who stands to benefit monetarily from this ordeal, be it from a book contract, a movie deal, or a magazine modeling assignment, will want to start contemplating making quarterly tax payments. Although a penalty for underpayment of taxes might seem like an insignificant worry when faced with penalties for perjury, one must always be reminded of the IRS, even in dire circumstances.
Unwanted gifts of clothing, even if previously worn and slightly soiled, make wonderful tax-deductible contributions to the needy. Be sure to get a signed receipt when donating used items, as even the watchdogs at the IRS like to have evidence.
Royalty income from book contracts:
Here's a potential pitfall for first-time authors to avoid. The first page of Schedule E, Supplemental Income and Loss, is devoted to "Income or loss from rental real estate and royalties." So is this where you report your royalty income? Wrong! Speaking as one author to another, royalty income from book contracts actually gets reported on Schedule C, Profit or Loss from Business. All that stuff on Schedule E is just there to confuse you.
Legal fees, part one:
Legal expenses can be deducted as an itemized deduction to the extent that they relate to attempts to produce or collect taxable income. So if its the case that certain participants in certain national scandals are running up astronomical legal fees with the underlying intent to produce taxable income (such as in the form of book contracts, movie deals, or magazine modeling assignments), these legal fees may suddenly become tax deductible expenses. Basically that means that we taxpayers may find ourselves footing the bill for legal fees so those friends of the president can achieve their particular 15 minutes of fame and related prosperity.
Legal fees, part two:
One doesn't wish to second guess the IRS or those who might pull its strings, but in case certain players in this production find themselves at the center of intense IRS audits somewhere down the road, they should know that legal expenses relating to the resolution of tax issues are tax deductible expenses.
I'm still trying to figure out how travel expenses between Arkansas and Washington, D.C., might be allowed as deductible expenses. Typically travel expenses are deductible if they relate to an existing job. For example, if you have to travel in order to meet with high-ranking former employers in order to produce taxable income (such as in the form of book contracts, movie deals, or magazine modeling assignments), there might be an argument for a deduction. Perhaps the travel expenses can be grouped with related legal fees and deducted in that manner. The jury, as they say, is still out on this one.
Surely every player in this drama has had to seek psychological counseling. If there are some who haven't, perhaps they should consider doing so. Not only will the nation be better for it, treatment of mental health falls into the medical expense category and thus generates a tax deduction.
No matter how many dresses, books of poetry, or other appropriate business gifts you give to your loyal employees during a year, you are limited to $25 per employee as the amount you can deduct as business gifts on your tax return. And what about the employee who receives the gifts? Do business gifts that are valued beyond the deductible $25 constitute taxable income to the recipient? The IRS is a little vague on this issue, but claims it looks to the intent of the gift when determining the taxable status. Generally speaking, if it appears that the gift was made out of a true feeling of generosity, the recipient can gladly take possession of the gift without worrying about tax consequences. If, on the other hand, the gift was made in recognition of length of service, or as consideration for future services, the gift is considered compensation and the value of the gift becomes taxable income.
Even if your boss requires that you telephone him at all hours of the night, thus making your home telephone seem like an extension of your, uh, job, you are not allowed to deduct a portion of your telephone bill as a business expense.
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