1. DEALING in Cryptocurrencies
People are not reporting transactions with Bitcoin, Ethereum, or Litecoin. The general public may not be aware that they are reportable. They may also not know how to report the purchase, sales, or exchange of digital currencies. This is something new. Reporting gets technical, even for tax pros.
2. Claiming Stock Day-Trading Losses On Schedule C:
Gains and losses on stock trades by a dealer are reportable on Schedule C (higher tax rate plus self-employment tax); gains and losses by an investor are classified as capital gains and losses (lower tax rate).
3. Claiming Rental Losses As Real Estate Professionals:
Individuals with rental properties can receive advantageous tax treatment by claiming Real Estate Professional status. If you qualify, you can deduct more losses from your rental properties (passive) against unrelated income (active income from wages and business) – a significant tax benefit. However, you have to comply with strict rules. You need to spend a minimum of 750 hours a year (14 hours a week for 52 weeks) working on your rental properties. If renting property is not your full-time job, the IRS may do more digging to see if you meet the standards required of Real Estate Professionals.
4. Deducting Hobby Losses:
Deducting losses from your hobby is a no-no, especially if you do it for several years. The IRS can get suspicious. A business is supposed to make money. If you haven’t made money in at least three of the past five years, you might have a hobby. The IRS doesn’t allow hobby losses.
5. Running A Cash-Intensive Business:
Business owners who operate cash-intensive companies are automatically accorded higher audit risk. This includes restaurants, produce vendors, liquor stores, convenience stores, or gas stations who deal in cash. Other companies such as check cashing businesses, pawn shops, jewelry stores, parking garages, and salvage yards, also have significant cash dealings.
6. Not Reporting A Foreign Bank Account:
You may have forgotten to report foreign banks accounts that you may have been hiding from your spouse… I mean, the IRS.
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Victor Santos Sy graduated Cum Laude from UE with a BBA and from Indiana State University with an MBA. Vic worked with SyCip, Gorres, Velayo (SGV – Andersen Consulting) and Ernst & Young before establishing Sy Accountancy Corporation in Pasadena, California.
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He has 50 years of experience in defending taxpayers audited by the IRS, FTB, EDD, BOE and other governmental agencies. He is publishing a book on his expertise – “HOW TO AVOID OR SURVIVE IRS AUDITS.” Our readers may inquire about the book or email tax questions at [email protected].