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May 30, 2010

IRS wants share of on Ebay and Craigslist businesses

Filed under: Taxes — Barry @ 8:58 pm

In 2009, $60 billion worth of items were sold on eBay (thank you Meg Whitman).  This means that many sellers earned extra money; their activities should have caused them to earn taxable income. The Washington Post has reported that beginning in 2011, a new law will require “the gross amount of payment card (credit card) and third-party network (PayPal) transactions to be reported annually to participating merchants and the IRS.”

Additionally, for 2011 tax returns, taxpayers who sell more than $20,000 worth of goods annually, and have more than 200 electronic transactions will receive a new IRS form, known as 1099-K, for reporting the proceeds. These new tax rules should not be an issue for people who sell just a few small items online for less than they paid for them; the IRS notes that taxpayers generally do not have to report income from auctions that resemble a garage or yard sale. However, if your small “online garage sale” turns into a business with recurring sales and purchases of items for resale, it may be considered an online auction business.

Remember, sales that result in gains are generally taxable transactions, “regardless of whether the taxpayer is conducting a business,” says Gil Charney, principal tax researcher at The Tax Institute at H&R Block. “The real reason behind the law is simple: Research shows taxpayers do a much better job of reporting taxable income when they know the IRS is receiving information about their transactions.”

The best advice that can be given is to KEEP GOOD RECORDS… records income, of cost of merchandise or services sold and of business expenses.   If you have a gain report it and if you have a loss… report that too.  You will generally report this income on Schedule C of your form 1040.

May 25, 2010

Priviledge between you, your CPA and your Attorney and the IRS

Filed under: Taxes — Barry @ 7:14 am

Many people believe that EVERYTHING THEY TELL an attorney is priviledged; that they can say anything and the lawyer may not and will not repeat it.    (No we are not priests in the confessional).   Often much of the communications between a client and their attorney is privildged… often it is not.  The question is very complex and you need to get clarification as to what is and is not and what maybe is not priviledged.

In a recent appeal to the United State Supreme Court, the Supreme Court  declined to hear the appeal of Textron ( a maker of private jets).  The company had appealed a ruling by the First Circuit Court in the case (see Textron Case Endangers Tax Workpaper Protection). The IRS had requested tax accrual workpapers from the corporate jet manufacturer, including a spreadsheet compiled by its attorneys showing potential items of contention with the IRS and its chances of winning them. The company asserted a work product privilege and won two rulings against the IRS, including by a three-judge panel at the First Circuit Court. But when the full “en banc” court heard the appeal, it ruled in the IRS’s favor. The Supreme Court let that decision stand on Monday. See, Supreme Court denies Textron Tax Workpaper Appeal.

Now most clients are not Textron (oh that they should be), but this has implications for everyone.

When it comes to you and your CPA, or you and your Tax attorney, you need to be very clear on what is and is not, and what may and may not be priviledged.  Telling your Tax attorney that you murdered your mother… priviledged.  Telling your Tax attorney that you also stole $3M from dear dead mom… probably not priviledged.  Working on tax avoidance strategies… maybe privileged.

Know the boundaries of what is and is not covered by privilege.

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