|
|
Post by elmerfudd on Jan 13, 2022 22:12:07 GMT
found this and copied and pasted with permission: www.cnbc.com/2021/12/22/tiktoker-started-with-a-bobby-pin-and-bartered-her-way-to-a-house.htmlThis is a neat story with income tax implications the lady might learn about the hard way. I hope not, though. This article tells of a lady who started with a bobby pin and traded her way up to a house with a value of $80,000. Her plan now is to trade it back down to a bobby pin. Neat story with possible income tax consequences and she's done the work for the IRS in making it happen. Her "basis" in that house is whatever she paid for that bobby pin. She says that was one cent. She says the value of the house she ended up with in 2021 is $80,000. That's a taxable gain of $79,999.99 over the period that began in May of 2020 and ended when she got the house, late 2021. So taxable over two years. And it's taxable as ordinary income. And she's done all the work for the IRS except in allocating it between the two tax periods, 2020 and 2021. They know who she is and how much she made. Maybe she reported it as income already, but I doubt it. And as she trades her way back down to the bobby pin, none of the losses are deductible. Because that constitutes a hobby under IRS regulations, and hobby losses are not deductible. Hobby gains are taxable, but losses are not deductible. Beware sharing your good news in the media.
Wow, that's fairly incredible. What I don't quite understand, is, if she trades back down to a bobby pin, then she'd have zerio gains, right?
And if these are really non deductible hobby gains/losses, then would a work around be to create a business around the bobby pin bartering, so everything can be reported as income and losses?
The other thing, which you hint at, is to keep one's mouth shut about any private bartering/deals, gains or losses. Right?
What am I missing here?
PS-When I first saw that she's bartered her way up from a bobby pin to an $80,000 house, I thought, and she is from San Francisco, where the heck did she find a house in California for $80k???. Then I saw the house is in Tennessee. OK. Then I saw the photo of the house. Sort of a shack with a sagging roof. But I suppose livable for someone who's never owned a house. I applaud her intention to basically gift the house to some needy person for a bobby pin. Perhaps the solution for her then could be to start a gofundme campaign to help her pay the income taxes?
The other thought would be: no good deed goes unpunished.
those are good questions and I am glad you asked. Uncle Sugar defines as a business any activity in which a reasonable person would engage with the expectation of a profit. Doesn't have to result in a profit, and there are safeharbor rules about that, but it's possible to have a business that never makes money yet meets that definition. Donald Trump has owned several. But no one could argue that trading back down from something to nothing meets that definition. So that makes it a hobby. Hobby losses are not deductible even though hobby gains are taxable. But you got the main message. Shut up. I know a guy who was an IRS agent who sat next to a guy on an airplane. They got to talking. The other guy, without knowing anything about whom he was talking to, began to wax eloquent about how he beat the IRS out of thousands. My friend expressed interest. He did not make notes, that would have been too obvious, but he had a great memory and he got the guy's business card who told him give him a call if he wanted more info. My friend never told him his name, beyond first name maybe, or what he did for a living. My friend got back home, went to the office, typed up a memo with contact info and sent it to the office nearest to where the guy lived. Followed up later and learned they guy never had any idea how the IRS knew to dig where they dug. Another one. A friend of mine in church said he put all his kids through college with unreported income from a side job. Said it's been so long ago he could talk about it because the statute of limitations had run out, right? Nope, I said. There is no statute of limitations for filing fraudulent tax retuns. That rocked him back a little, but then he said "well, they'd have to prove it!" And I said "That won't be a problem if you admit it up front." So he got the message. |
|
Odysseus
Legend
Trump = Disaster
Posts: 41,112
|
Post by Odysseus on Jan 14, 2022 0:11:42 GMT
Wow, that's fairly incredible. What I don't quite understand, is, if she trades back down to a bobby pin, then she'd have zerio gains, right?
And if these are really non deductible hobby gains/losses, then would a work around be to create a business around the bobby pin bartering, so everything can be reported as income and losses?
The other thing, which you hint at, is to keep one's mouth shut about any private bartering/deals, gains or losses. Right?
What am I missing here?
PS-When I first saw that she's bartered her way up from a bobby pin to an $80,000 house, I thought, and she is from San Francisco, where the heck did she find a house in California for $80k???. Then I saw the house is in Tennessee. OK. Then I saw the photo of the house. Sort of a shack with a sagging roof. But I suppose livable for someone who's never owned a house. I applaud her intention to basically gift the house to some needy person for a bobby pin. Perhaps the solution for her then could be to start a gofundme campaign to help her pay the income taxes?
The other thought would be: no good deed goes unpunished.
those are good questions and I am glad you asked. Uncle Sugar defines as a business any activity in which a reasonable person would engage with the expectation of a profit. Doesn't have to result in a profit, and there are safeharbor rules about that, but it's possible to have a business that never makes money yet meets that definition. Donald Trump has owned several. But no one could argue that trading back down from something to nothing meets that definition. So that makes it a hobby. Hobby losses are not deductible even though hobby gains are taxable. But you got the main message. Shut up. I know a guy who was an IRS agent who sat next to a guy on an airplane. They got to talking. The other guy, without knowing anything about whom he was talking to, began to wax eloquent about how he beat the IRS out of thousands. My friend expressed interest. He did not make notes, that would have been too obvious, but he had a great memory and he got the guy's business card who told him give him a call if he wanted more info. My friend never told him his name, beyond first name maybe, or what he did for a living. My friend got back home, went to the office, typed up a memo with contact info and sent it to the office nearest to where the guy lived. Followed up later and learned they guy never had any idea how the IRS knew to dig where they dug. Another one. A friend of mine in church said he put all his kids through college with unreported income from a side job. Said it's been so long ago he could talk about it because the statute of limitations had run out, right? Nope, I said. There is no statute of limitations for filing fraudulent tax retuns. That rocked him back a little, but then he said "well, they'd have to prove it!" And I said "That won't be a problem if you admit it up front." So he got the message.
Isn't the IRS one way the Feds managed to stick some fairly notorious criminals in prison?
I had a friend whose mother had a low level job (receptionist/typist) for the IRS. She had a nervous disposition, as I recall. Well, I remember him saying that she mentioned that it was a difficult job because of the way people would walk in smiling for a meeting, and then leave grimly, some crying. My friend's mom wound up having a nervous breakdown, and I heard that her boss admitted he'd lost another worker under similar circumstances. From all that I got the distinct impression that it's never a good idea to try to fuck with the IRS.
|
|
|
|
Post by elmerfudd on Jan 14, 2022 1:31:50 GMT
Yes to the first sentence and yes to the last sentence. Al Capone is an example of the first sentence, and prisons are home for many examples of the last sentence.
In Al Capone's case, they could not prove he made his money on illegal activities, though everybody knew it. But it was easy to prove he didn't pay income tax on it. And illegal income is taxable.
|
|
|
|
Post by elmerfudd on Jan 14, 2022 1:33:39 GMT
In the IRS's defense, though, in my 45 years of experience, which some years was not all that much but I had some in every one of those years, I only ever dealt with one unreasonable agent. And he was just having a bad day. Finally worked out. Remember "niceness begets niceness." It won't get you a pass on something big and clearly intentional, but you'd be amazed at what it will get you.
But if you're wrong AND bullheaded, you're generally toast.
|
|
Odysseus
Legend
Trump = Disaster
Posts: 41,112
|
Post by Odysseus on Jan 14, 2022 3:56:07 GMT
Death and taxes...
|
|
|
|
Post by elmerfudd on Jan 14, 2022 4:21:50 GMT
here's a funny with both......  |
|
Odysseus
Legend
Trump = Disaster
Posts: 41,112
|
Post by Odysseus on Jan 14, 2022 4:58:43 GMT
In the IRS's defense, though, in my 45 years of experience, which some years was not all that much but I had some in every one of those years, I only ever dealt with one unreasonable agent. And he was just having a bad day. Finally worked out. Remember "niceness begets niceness." It won't get you a pass on something big and clearly intentional, but you'd be amazed at what it will get you. But if you're wrong AND bullheaded, you're generally toast.
Well, I've found that's true of most encounters in life.
|
|
Deleted
Deleted Member
Posts: 0
|
Post by Deleted on Jan 14, 2022 20:52:08 GMT
Is that all you people talk about, taxes?
|
|
|
|
Post by elmerfudd on Jan 14, 2022 23:00:08 GMT
Is that all you people talk about, taxes? no, not even in this thread, but notice the title of the thread? |
|
Deleted
Deleted Member
Posts: 0
|
Post by Deleted on Jan 15, 2022 5:59:00 GMT
Is that all you people talk about, taxes? no, not even in this thread, but notice the title of the thread? My point exactly! This is the only thread in this section that gets any responses. |
|
Odysseus
Legend
Trump = Disaster
Posts: 41,112
|
Post by Odysseus on Jan 15, 2022 6:51:08 GMT
no, not even in this thread, but notice the title of the thread? My point exactly! This is the only thread in this section that gets any responses.
Well, is anyone stopping you from starting your own thread?
Might I suggest a name for it?
"DJV's Trash Thread" ?
|
|
Odysseus
Legend
Trump = Disaster
Posts: 41,112
|
Post by Odysseus on Jan 15, 2022 6:58:00 GMT
|
|
|
|
Post by elmerfudd on Jan 27, 2022 3:02:37 GMT
Link to the Dave Barry column that inspired this post: www.baltimoresun.com/news/bs-xpm-1992-08-30-1992243318-story.htmlThat form, SS-4, Request for an Employer Identification Number, does require a lot of information. It pays to have someone familiar with the consequences of answering it too truthfully help fill it out. It asks, for example, the date the entity was formed. This pact was entered into in 1988, so apparently that year was put on the form. Or maybe it was 1989 because that was as far back as the IRS went with their assessment, and there is no statute of limitations on failure to file a return. But the IRS will sometimes ignore their own rules and maybe they decided to just go back to 1989. The penalty assessments were based on the number of partners. Partnerships do not pay taxes, the partners do on their pro-rata shares of the partnership income. In this case there were ten equal partners, but partnerships frequently have very complicated agreements with respect to that. Each partner receives a form K-1 that shows his tax info on it. And they can get pretty hairy. This one would have been simple, though. The penalty for late filing a partnership return is a few hundred dollars per partner per month or part of month that it was late filed not to exceed twelve months currently. Back then it was likely a good bit less than that per partner but we’re talking ten partners. I searched for an update on this but found none. I am confident that all penalties were finally waived but not confident that the partners didn’t pay a hefty fee to the CPA who got them waived. But it was likely a good bit less than the penalties. So what should they have done? Had an agreement that said whoever bought the winning lottery ticket would be taxed on the full amount. He would give one-tenth of the gross winnings less one-tenth of the tax created on his return by virtue of such winnings to each of the other nine. This would require some calculations of tax with and without the lottery winnings to determine the tax created by the lottery winnings, but that’s not a hard calculation. If they won big, like hundreds of thousands or even millions, it might create other issues, possibly even with respect to gift tax. But if they had that much money at stake, they could hire a good accountant or lawyer to sort it out. But they should NOT have gotten that EIN. In defense of the IRS, they were just doing their job. But nowadays there is this option, too. www.irs.gov/forms-pubs/about-form-5754 |
|
