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Tax Tip of the Week | No. 466 | Gambling – Taxes Behind the Curtain June 27, 2018

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Tax Tip of the Week | June 27, 2018 | No. 466 | Gambling – Taxes Behind the Curtain

For federal income tax purposes, most people are aware that their gambling winnings may be offset dollar for dollar by their gambling losses. And, most people know their gambling losses may not exceed their gambling winnings. And, a few people even know that in order to deduct any gambling losses you must be able to itemize your deductions on your federal income tax return. So, if you are unable to itemize, your gambling losses are of no tax value – nada. Since the new law makes itemizing deductions even more difficult, fewer people will now be deducting their gambling losses.

Now that we have discussed the federal income tax effect of gambling, let’s switch it up and discuss Ohio, School District and your city income taxes (assuming you live in a taxable city and a taxable School District with an income tax). How do you offset your gambling income by your gambling losses in these other taxing entities? The answer is REALLY easy – YOU DON’T! Ohio, School Districts and any cities tax only your gambling winnings. No credit is allowed for your losses.

Example:  You decide to visit a casino and you get lucky and win $5,000 on your favorite slot machine on a small wager of $10. The casino operators will issue you a Form W-2G for the $5,000. And, usually at a minimum, withhold state and city income tax (if applicable). Okay, out of your $5,000 winnings, you now have about $4,700 after your $10 bet. Life is good! You are on a roll and you keep on betting. But the tides have turned and by the end of the day your winnings are all gone. Oh well! Other than an over-priced lunch at the casino, it has been a cheap day. You would have spent even more at the movies. WRONG!

Assuming you can not itemize and you live in a taxable city and School District, as many do. Your $5,000 of winnings, of which you have none left, may cost you depending upon your bracket, 40% of the $5,000, or $2,000 in tax. Yup, $2,000 for the money you no longer have. A movie would have been far cheaper! No wonder the State likes gambling. Unlike you, they can’t lose.

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We may be reached in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our website.

This week’s author – Mark Bradstreet, CPA

–until next week.

Tax Tip of the Week | No. 465 | IRS Penalties – DON’T PAY Just Out of Frustration June 20, 2018

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Tax Tip of the Week | June 20, 2018 | No. 465 | IRS Penalties – DON’T PAY Just Out of Frustration

Is it a big-time hassle to deal with the IRS in any fashion? That is a big Y E S! In fact, it has never been more difficult. Maybe that is the IRS’s fault and perhaps it is the inevitable result of their budget being slashed. Regardless, attempting to communicate with them can make you crazy!

To give you some idea of the amount of civil penalties (via notices) assessed; in 2016, the IRS assessed 39.6 million taxpayers and abated 5.2 million of these. Considering the number of taxpayers in the USA, thusly, you have a relatively high chance of receiving a tax notice.

It is not uncommon for IRS notices to show balances due in the tens of thousands of dollars and to be very threatening. If you receive IRS correspondence – try not to overreact. Many people upon receiving IRS tax correspondence have a tendency to simply write them a check; they assume the IRS is always right. In fact, more than half of their notices are incorrect and only computer generated. Writing them a check without any further research probably makes sense if the IRS only wants a few bucks. Aside, from a few bucks being due, a quick telephone call to the IRS by your tax professional (not that the call hold time is quick) may be all that is necessary. Other times, a one-page letter to the IRS may be all that is needed to save the day and have the tax, interest and/or penalty abated. Other times, three or four letters, over an extended period of time, may be needed to receive a “yea” or “nay” to your request from the IRS. To avoid digging a deeper hole I would prefer that you do not call or correspond with the IRS on your own. A power of attorney is needed for your tax professional to have meaningful conversations and correspondence with the IRS.

One of the methods available for abatement includes the use of “administrative relief” under the “first-time penalty abatement policy.” The name “first time” is a misnomer, it doesn’t mean first time ever, just means you have been “clean” in the last three years… and yes, they do verify that.

Many other methods are available for potential abatement. But, remember, if your notice demands big dollars – get help.

Credit to… Tom Herman, Wall Street Journal “It May Pay to Fight IRS Penalties,” Monday, March 26, 2018

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We may be reached in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our website.

This week’s author – Mark Bradstreet, CPA

–until next week.

 

Tax Tip of the Week | No. 464 | Ohio’s Commercial Activity Tax (CAT) – General Information June 13, 2018

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Tax Tip of the Week | June 13, 2018 | No. 464 | Ohio’s Commercial Activity Tax (CAT) – General Information

The commercial activity tax (CAT) was enacted in Ohio House Bill 66 and first applied to taxable gross receipts received on and after July 1, 2005. The CAT is a successor tax to Ohio’s general business property and corporate franchise taxes, both of which were phased out. The CAT is an annual privilege tax measured by gross receipts on business activities in Ohio. This tax applies to all types of businesses: e.g., retailers, service providers (such as lawyers, accountants, and doctors), manufacturers, and other types of businesses including rentals. The CAT also applies whether the business is located in Ohio or is located outside of Ohio if the taxpayer has enough business contacts with this state. The CAT applies to all entities regardless of form, (e.g., sole proprietorships, partnerships, LLCs, and all types of corporations). A person with taxable gross receipts of more than $150,000 per calendar year is subject to this tax.

Taxable Gross Receipts – Gross receipts subject to CAT include most business types of receipts. Some examples of receipts that are not subject to the CAT include interest, dividends, capital gains, wages and gifts. Receipts from sales to out-of-state purchasers are not subject to the CAT.

Registration – Taxpayers having over $150,000 in gross receipts from sales to customers in Ohio for the calendar year are required to file returns for the CAT. In order to file returns, a taxpayer must first register for the CAT with the Ohio Department of Taxation.

Annual and Quarterly Filers – Annual CAT taxpayers (those taxpayers with taxable gross receipts between $150,000 and $1 million in a calendar year) must pay an annual minimum tax. The annual minimum tax is due on May 10th of the current tax year.

Taxpayers with annual taxable gross receipts in excess of $1 million must file returns on a quarterly basis. Quarterly taxpayers pay a rate component for taxable gross receipts in excess of $1 million. The annual minimum tax is paid with the filing of the first quarter return, which is due on May 10th.

Consolidated Elected Taxpayer Groups and Combined Taxpayer Groups – A consolidated elected taxpayer group is a taxpayer that has elected to file as a group including all entities that have either 50 percent or more common ownership or 80 percent or more common ownership. A major benefit of making this election is that receipts received between members of the group may be excluded from the taxable gross receipts of the group. This election is binding for eight calendar quarters.

Annual Minimum Tax –   The annual minimum tax is calculated as follows:
•    $150 for taxpayers with taxable gross receipts of $1 million or less in the previous calendar year;
•    $800 for taxpayers with taxable gross receipts between $1 million and $2 million;
•    $2,100 for taxpayers with taxable gross receipts between $2 million and $4 million; or
•    $2,600 for taxpayers with more than $4 million in taxable gross receipts in the previous calendar year.

Tax Credits – Some credits that taxpayers can claim against the CAT include:
•    the nonrefundable jobs retention credit;
•    the nonrefundable credit for qualified research expenses, or, the nonrefundable credit for a borrower’s qualified research and development loan payments;
•    the refundable motion picture production credit;
•    the refundable jobs creation credit, or the refundable job retention credit;
•    the Ohio historic preservation tax credit (on a temporary basis).

Some Issues We’ve Seen – From the beginning of enactment, and even through the present, many taxpayers are simply unaware that the tax exists, or that they are subject to it. Another issue is that some taxpayers file CAT returns that include all gross receipts and not just those to Ohio customers. And some do not take advantage of credits that can be applied to the tax. Also, we have seen many cases where the taxpayer computes the tax, then goes online and makes the payment, but never files the return. And, it usually takes Ohio over a year to send out a notice for the unfiled return, and by then, they have sent the taxpayer to collections, and filed liens. And finally, we have noticed that audits in this area are on the rise.

As you can see, this simple tax is not always so simple.

Note: most of this information is available on the Ohio Department of Taxation’s website.

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We may be reached in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our website.

This week’s author – Norman S. Hicks, CPA

–until next week.

Tax Tip of the Week | No. 463 | Employing Youth June 6, 2018

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Tax Tip of the Week | June 6, 2018 | No. 463 | Employing Youth

Each June, millions of youth begin their search for a summer job. Before hiring any summertime help, it’s a good idea to be aware of the Federal and State laws governing youth in the workplace. The Fair Labor Standards Act (FLSA) youth employment provisions are designed to protect young workers by limiting the types of jobs and the number of hours they may work, based on the age of the minor. The following provisions apply to nonagricultural occupations:

18 Years of Age. Once a youth reaches 18, the Federal child labor provisions no longer apply to them – they can work any job for any number of hours.

16 & 17 Years of Age. Under the FLSA 16 and 17-year-olds may work on any day for any number of hours. However, individual states may limit the hours or the times of day that anyone under the age of 18 may work. Also, all youth under the age of 18 are prohibited from working any non-farm jobs deemed hazardous.

14 & 15 Years of Age. 14 and 15-year-olds may work:

•    Non-school hours;
•    3 hours on a school day;
•    18 hours in a school week;
•    8 hours on non-school day;
•    40 hours in a non-school week; and
•    Between 7 a.m. to 7 p.m. (except June 1-Labor Day when hours are extended to 9 p.m.)

Full Credit to…Padgett Business Services June 2018 SmallBiz Builder

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We may be reached in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our website.

This week’s author – Mark Bradstreet, CPA

–until next week.