Of the nearly 19 million taxpayers who filed a Schedule C (showing profit or loss from a business) between January and July of 2010, 25% reported a net loss on the form and 65% reported a net profit of less than $25,000. Another 6% reported profit of between $25,001 and $50,000, leaving just 4% with net earnings above $50,000. (A Schedule C listing revenues and expenses is supposed to be attached to the 1040 of taxpayers who operate businesses as unincorporated sole proprietors, including those who are paid by companies as independent contractors and those who sell online through eBay, Amazon.com and other Internet sites.) The big question is are you a hobby?
Uncle Sam Says
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?
Point being – those extreme losses you’re incurring year after year may be a big indication of your business being a hobby. Keep an eye out for future legislation that may be more aggressive in shifting the burden of “for profit” proof back to the taxpayer.
In 2011 there are a few changes to the EITC. Due to the Education Jobs and Medicaid Assistance Act of 2010 the Advance EITC is no longer available. This provision previously allowed workers who expected to qualify for the EITC to receive part of the credit in their paycheck by filing a form with their employer.
Also this year the maximum EITC has increased slightly to $5,666, and the maximum income limit rises to $49,078. The maximum credit goes to families with three or more children. Another change this year, due to the American Recovery and Reinvestment Acct, increased the EITC by 5% for families with 3 or more children. The provision is set to expire at the end of 2012.
The Internal Revenue Service recently opened the 2011 tax-filing season by announcing taxpayers have until April 18 to file their tax returns. The IRS reminded taxpayers impacted by recent tax law changes that using e-file is the best way to ensure accurate tax returns and get faster refunds.
Taxpayers will have until April 18 to file their 2010 tax returns and pay any tax due because Emancipation Day, a holiday observed in the District of Columbia, falls this year on April 15.
If you live in a State that observes a Monday Holiday, your due date may be extended even further.
There will be a 2% decrease in Social Security withholding in 2011. We are normally taxed at 6.2% up to the first $106,800 earned. The benefit comes out to about $20 per thousand. This could mean a maximum savings of $2,136 (per spouse).
Irony -
Since we’re losing the making work pay credit, low income households may very well see a decrease in tax benefits in comparison to last year.
Isn’t Social Security underfunded as it is? How will this help to catch up?
By lowering Social Security withholding instead of providing an untaxed credit, they are able to still tax all of your savings – aka – social security wages and non social security wages are subject to the Federal Income Tax. The making work pay credit is not…
Great job guys… Please don’t become air traffic controllers
Blade and New Jack City actor Wesley Snipes is prepping to get hauled off to federal prison over his tax evasion charges after appealing it on several occasions.Wesley Snipes who got his start alongside Goldie Hawn in the 1986 movie Wildcats based off the real-life Memphis Coach Shirley McCray, has been battling his tax evasion case for the last two years and it seems U.S District Judge Terrell Hodges, who has been lenient to Snipes who has also been out on bail the past two years, now feels that Snipes has had a fair review of his case.On Friday, it was ordered for Snipes to begin serving his three-year sentence, however there was no surrender date set although he is listed as in transit awaiting the judge’s ruling.
Senate Finance Committee Chairman Max Baucus (D., Mont.) plans to propose renewing a slate of tax breaks that have expired or are about to expire, Senate Democratic aides said.
Included are popular items such as a measure protecting millions of middle-class taxpayers from the alternative minimum tax, as well as a college-tuition tax break. The proposal also includes dozens of corporate-tax reductions benefiting specific industries and companies.
The Internal Revenue Service is looking to return $164.6 million in undelivered refund checks. A total of 111,893 taxpayers are due one or more refund checks that could not be delivered because of mailing address errors.
“We want to make sure taxpayers get the money owed to them,” said IRS Commissioner Doug Shulman. “If you think you are missing a refund, the sooner you update your address information, the quicker you can get your money.”
A taxpayer only needs to update his or her address once for the IRS to send out all checks due. Undelivered refund checks average $1,471 this year, compared to $1,148 last year. Some taxpayers are due more than one check.
On Tuesday, the Democratic chairmen of the House and Senate tax committees teamed with those committees’ top Republican members to tell the IRS they are working on a bill to provide taxpayers with temporary relief from the Alternative Minimum Tax.
They advised the agency to “take all steps necessary” to adjust tax forms to reflect the anticipated changes.
“We will work to craft the AMT provision so that, in the aggregate, not one additional taxpayer faces higher taxes in 2010 due to the onerous AMT,” the lawmakers wrote in a letter to IRS Commissioner Douglas Shulman.
Putting a temporary “patch” on the AMT to shield middle- and upper-middle-class taxpayers has become an annual event for Congress, although lawmakers have left this year’s fix to the last minute.
“[Obama] believes that it is important for this to be extended and for families to have the certainty and confidence that this [credit] will be there when they are making the choices about sending their children to college,” said Gene Sperling, Counselor to the Treasury Secretary.
The tax break, introduced under the government’s 2009 Recovery Act and applicable to 2009 or 2010 college tuition, expands the existing Hope Credit to include more lower- and higher-income Americans.
Unlike the Hope Credit, the AOTC is also partially refundable and covers more of the expenses associated with sending a child to college, like textbooks and computers. It is available for the first four years of post-secondary education, up from two years under the Hope Credit.
WASHINGTON — President Barack Obama’s top adviser suggested to The Huffington Post late Wednesday that the administration is ready to accept an across-the-board, temporary continuation of steep Bush-era tax cuts, including those for the wealthiest taxpayers.
Of the nearly 19 million taxpayers who filed a Schedule C (showing profit or loss from a business) between January and July of 2010, 25% reported a net loss on the form and 65% reported a net profit of less than $25,000. Another 6% reported profit of between $25,001 and $50,000, leaving just 4% with net earnings above $50,000. (A Schedule C listing revenues and expenses is supposed to be attached to the 1040 of taxpayers who operate businesses as unincorporated sole proprietors, including those who are paid by companies as independent contractors and those who sell online through eBay, Amazon.com and other Internet sites.) The big question is are you a hobby?
