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ThatBootsGuy's Tax Knowledge and Assistance

#1

For those unaware, I am a tax professional.

I am not:

  • an investment advisor or the like
  • a lawyer

And I don’t deal with:

  • C-corps
  • S-corps
  • Partnerships
  • Foreign tax

With that out of the way, I have years of experience with personal income tax returns (US form 1040 and the like) and help run a company that sees over 1200 clients a year, of which I do about half.

The reason I’m making this thread is the amount of misinformation surrounding personal income tax is absolutely staggering, with this past year in particular being by far the most egregious thanks to the horrible news coverage.

This thread exists so I can answer questions and give advice in regards to US personal income tax, it’s not to discuss income tax on a meta level (no “tax is theft” please).

Also, legal reasons force me to put a disclaimer here along the lines of:

  • This advice and knowledge is not to be taken as gospel and is based on the law as I understand it at the time a post is made, laws change constantly. Income tax law is not easy and requires having access to a lot of highly personal information in order to give the most accurate assessments, which for obvious reasons isn’t a good idea to be posting in such a public forum.
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#2

say you have 3k in stocks and plan to sell it, how much to keep for taxes?

or do I need more info

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#3

As a Reason subscriber, I am contractually obligated to say “taxation is theft”

Now that I have done my legal oblation, I have a question.


If say I have a hobby that could bring in about $100-$300 a month, would it be worth to do a sole proprietorship or wait until it reaches a higher amount? Specifically, would a sole proprietorship give me more options to write things off on tax’s, or is it not worth the hassle.

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#4

When you sell stocks it depends on short or long term.

If it’s a short term sale (stock held less than 1 year) then you pay the tax on any gain at your regular income tax rate. If it’s a long term, then it gets reduced by your short term to figure your “net captial gain” which is then taxed at 0 if you’re in the 10% or 12% bracket and 15% for basically anyone else.

Because of the amount of the stocks, even with no basis you may not have to worry about it depending on what you got for a refund this year (obviously that is assuming there aren’t huge changes in your tax situation year to year).

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#5

So, you’re dealing with roughly $3600 annually in income.

You could try to spin it as a business, but you need to prove a few things first:

  1. You have to carry it in a businesslike manner (i.e. complete accounting records)
  2. You need to put in enough time and effort to try and turn a profit
  3. Whether you depend on the income (this isn’t to say you need to rely solely on it, but you need to have some amount of dependency for it like maintaining a lifestyle)
  4. Whether your losses are due to circumstances beyond your control (basic startup costs, market forces, etc.)

And a handful more. The general rule is you need to turn a profit every 3/5 years (not including basic startup period).

The reason one would opt for a sole proprietorship vs a hobby is so they can show a loss on their taxes. With a hobby you can only claim expenses up to the amount of your earnings. By showing a loss you lower your taxable income by the amount of your loss. So for instance, if you made 50k at your job, but showed a loss of 10k on your business, you’d end up with 40k taxable before any other deductions and adjustments are applied.

Personally I wouldn’t bother with trying to go with a sole proprietorship because the amount is pretty minuscule in the grand scheme of things and may increase the likelihood of an audit. Also, depending on your state and what industry your side gig is in you may have to file sales tax, get certain insurances, etc.

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#6

since '96 lol

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#7

I’ve been wanting more things like this, financials, planning, life ‘stuff’ that can help people here.

So just a thanks (i’m not in the US so no good for me :smiley: )

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#8

I think now would be a good time to formulate a “tax strategy” for next year.
My daughter starts college next year, any tips for maximizing my tax benefit?

Edit
Also any geneal advice that may apply for students which may halp forum wide. Never went to coledge myself but allot of people here are students.

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#9

So, once she starts college she will receive a 1098-T in her name. That paper will most likely go with your return.

The rules surrounding dependents once they get to college age are somewhat confusing so hopefully I can help explain things in a way most can understand.

  1. They need to live with you more than half the year (Living on campus counts as living with you as it’s a temporary absence from the home)
  2. They need to be in school more than 5 months
  3. They need to be under age 24 at the end of the year
  4. They CANNOT claim themselves on their own tax return, HOWEVER, they can (or may need to depending on their circumstances) file a return. This is just like anyone else filing a tax return, just they don’t claim themselves on there because they are a dependent of another.

So, if they are indeed your dependent pursuant to the above list you now potentially have access to one of 2 credits or 1 adjustment.

Let’s look at the credits first (since they’re what you’ll most likely want).

The first of the credits is the American Opportunity Credit (AOTC). This is the big one. It is worth up to $2,500 of which $1,500 is refundable (a credit that can be taken even with no tax liability). It can only be claimed for 4 years so you want to save this one until they are in school full time. It is based off of “qualified expenses” which for the purposes of this credit include things that need to be paid to the institution in order for the student to be a student (i.e. tuition, fees, etc) in addition to books. This does not include things like food or room and board.

The other credit which is available is called the Lifetime Learning Credit (LLC). This is slightly smaller at only $2000 and is entirely non-refundable (you can only claim the amount up to your tax liability). It is also figured a bit differently than the AOTC in that it is a straight 20% credit. This means, if you have 10k of qualified expenses (the max allowable for the credit) you may be eligible for the full $2,000, where under the AOTC it would reach the max credit amount at a lower qualified expense amount. The other way in which this credit differs significantly from the AOTC is they do not allow books to be included in the qualified expenses. You can, however, claim this credit an unlimited number of times.

The adjustment that is available is the tuition and fees deduction. This also has a max dollar amount on it and only lowers your taxable income by up to that amount. I don’t have the book in front of me so I can’t say for certain what those amounts are, but I’ve never done a return with one on there because the LLC is just so much better than this one in basically every situation.

With these credits there are income phaseouts, so if you make over a certain amount your max credit decreases down to zero.

As far as what to use when figuring the qualified expenses you should get a copy of your dependent student’s college account record showing the tuition, fees, books (if claiming the AOTC), along with the scholarships and grants that are taken. Those scholarships and grants reduce the amount of qualified expenses that can be claimed so if you end up with more of those than expenses then you are SOL. Loans don’t affect the calculation at all.

Now what I sometimes do for my clients is figure what the child would’ve received if they did claim themselves to see what they would’ve gotten, then the parents will give them what the child would’ve gotten and everyone comes out ahead because the benefit is much greater on their return than the child’s. Which could be something to think about.

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#10

Thank you so much!

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#11

What about students themselves? Are they any pro tips for students on their tax’s?

Also for a more fringe case, if a student is getting more in tuition assistance than their tuition cost, is that taxed as income?

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#12

Students are pretty much SOL. As a dependent, you don’t have access to pretty much any credits or adjustments, which is why a bunch of my clients split the benefit on their return with their kid.

Nope. That is entirely tax free. It just means they (or their parents if they’re a dependent) can’t claim any of the college credits.

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#13

Am too old to be one, would I have options then?

I ask cuz I had $100 over and the H&R block lady was freaking out saying I needed to justify it. It was werid

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#14

If you’re too old then you just file it as a parent would. You claim all the credits and whatnot that goes along with it.

Granted, if one’s income is below $4,150 iirc (it changes every year) you can still qualify as a dependent regardless of age if you qualify as a dependent under the other rules.

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#15

Darn, was hoping I was missing something and could get more back haha

I always make more than 6k a year. Can’t eat or have fun without that.

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