Federal Taxes

With the possible exception of accountants, nobody likes taxes. But, most of us recognize
that our taxes are necessary to keep the country running, and pay for necessities like
national security, infrastructure, education, food and drug safety, Social Security,
Medicare, and so on. As an individual, you're responsible for paying taxes on any income
that you earn. In most cases, your employer will deduct taxes from your paychecks, so
you're not likely to owe much income tax at the end of the year. The important thing is to
file a return on time, and to pay the taxes you owe by the deadline. If you can't, the IRS
does offer payment plans, though it will charge you interest.

Congress writes the Internal Revenue Code (IRC), also called the tax code. The tax code
directs the collection of taxes, the enforcement of the tax rules, and the issuance of tax
refunds, rebates, and credits. The Internal Revenue Service (IRS) is the government
agency within the U.S. Department of Treasury charged with carrying out these
functions. The IRS interprets tax provisions through IRS regulations, which provide
guidance on the application of tax law. Because not every tax code has a regulation, the
IRS also uses revenue rulings, revenue procedures, and letter rulings to offer guidance.
Although the IRS can offer its own interpretation of the tax code, when a dispute arises it
is the role of the federal court system (including Federal Tax Court – an Article 1 court)
to interpret the tax code and to decide how Congress intended its application.

The federal government receives most of its revenue for the federal budget through
income taxes. The collection of income taxes occurs throughout the year by withholdings
from a person's paychecks and through payment of business and self-employment taxes.
At the end of the year, every person with income must file a tax return to determine
whether the government collected enough taxes through withholding and/or incremental
payments or whether the government owes a person a refund for paying too much tax.

There are two types of income subject to taxation: earned income and unearned income.
Earned income includes: Salary, Wages, Tips, Commissions, Bonuses, Unemployment
benefits, Sick pay, and Some noncash fringe benefits. Taxable unearned income includes:
Interest, Dividends, Profit from the sale of assets, Business and farm income, Rents,
Royalties, Gambling winnings, Alimony.

1
The government allows the deduction of some types of expenses from a person's gross
income (all income from whatever source) 1 to arrive at their adjusted gross income. 2
Employees can exclude some income from taxation by using a standard deduction
amount determined by the government or by itemizing certain types of expenses on
schedule A. Allowable itemized expenses include mortgage interest, state and local taxes,
charitable contributions, and medical expenses. It is also possible to reduce taxable
income by contributing to a retirement account like a 401(k) or an IRA.

You may have heard that the 2017 Tax Cuts and Jobs Act (TCJA) which is effective the
2018 tax year, doubled the Schedule A standard deduction. Yes, the standard deduction
has roughly doubled for all filers, but the valuable personal exemption previously
available has been eliminated. For example, a single filer would have been entitled to a
$6,500 standard deduction and a $4,150 personal exemption in 2017, for a total of
$10,650 in income exclusions. Under the new tax plan, they will get a $12,000 standard
deduction. Is it better? Yes. But it's not really "doubled."

The TCJA potentially impacted musicians directly when it eliminated (until 2026) the
deduction for unreimbursed employee business expenses. These are expenditures you
have for your job that are both ordinary and reasonable and not reimbursed by your
employer. Through 2017, the IRS allowed a deduction of qualified unreimbursed
business expenses that exceed 2 percent of your adjusted gross income (on schedule A).
These are expenses such as: home office, union dues, and tools or equipment needed for
your job (historically valuable deductions for musicians). Notice that this applies to
employees, so it is still possible to deduct such expenses against business and self-
employed income (on schedule C). Note: Schedule A is for employees and schedule C is
for a business you operated or a profession you practiced as a sole proprietor (self-
employment).

In addition to deductions (which reduce your adjusted gross income) some taxpayers are
eligible for tax credits. A tax credit is subtracted from the amount of tax that you owe. A
well-known credit is the earned income tax credit (EITC), which is for low income
families. Another one is the Child Tax Credit (CTC). In light of the elimination of the
personal exemption in 2018, the TCJA doubles the CTC to help families with children.
The TCJA also creates a new non-child dependent credit.

1
26 U.S.C. 61
2
26 U.S.C. § 62

2
The income tax system in the US is considered a progressive tax system, where the tax
rate increases as the taxable amount increases. The term "progressive" refers to the way
the tax rate progresses from low to high. As you earn more, the tax percentage increases.

2018 Income Tax Brackets

Rate Individuals Married Filing Jointly

10% Up to $9,525 Up to $19,050
12% $9,526 to $38,700 $19,051 to $77,400
22% 38,701 to $82,500 $77,401 to $165,000
24% $82,501 to $157,500 $165,001 to $315,000
32% $157,501 to $200,000 $315,001 to $400,000
35% $200,001 to $500,000 $400,001 to $600,000
37% over $500,000 over $600,000
From: Forbes (Dec. 17, 2017)

Notice that everyone pays the same as you move up the chart. So, even if an individual
has $900,000 in earned income, that person pays 10% on the first 9,525, and so forth up
the chart. (High income folks are subject to additional accounting rules and taxes such as
the Alternative Minimum Tax, but that goes way beyond our class)

“Progressive” can also be used in the political sense to mean more liberal or forward
thinking. Liberals generally argue that taxes should be imposed in an attempt to shift
taxes of people with a lower ability to pay, to those with a higher ability-to-pay. Many
also believe that those with higher incomes generally benefit from government services in
a greater proportional amount than those with lower incomes, which should be reflected
in tax percentages.

The opposite of a progressive tax is a regressive tax, where the relative tax rate or burden
decreases as an individual's ability to pay increases. Flat tax systems are generally
considered a regressive form of taxation because such a system does not take into account
either one’s ability to pay, or one’s relative use of social benefit. (Remember that social
benefits include much more than social welfare programs. National defense, roads and
infrastructure, courts, fire and law enforcement are all examples of social programs that
need to be paid for on a societal level)

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Business and taxes
Not just individual people pay taxes. A businesses as separate legal entity is also subject
to taxation unless it is tax exempt, or because it is a pass-through entity.

One of the main reasons to incorporate or to form an LLC is to separate your personal
assets from your business. However, when it comes to incorporating or forming an LLC,
most small businesses tend to focus on one thing… taxes.

If you decide you’re ready to incorporate your business, it’s natural to wonder what
business structure will give you the best results tax-wise. Is there a way to pay less self-
employment taxes? Will you be stuck with too much paperwork? What about “double
taxation”?

It’s wise to consult with a tax advisor or accountant on the particulars of your situation,
but here are a few things to know about business structures and taxes…

The Sole Proprietor

Sole proprietors report their business income on their own personal tax returns (Schedule
C). They also need to pay self-employment tax on any profit (Schedule SE).

Let’s say you’re a freelance graphic designer that’s operating as a sole proprietor in the
U.S. If you earn $56,000 in profit with the business, you’ll need to pay taxes on the profit
at your individual tax rate, in addition to paying self-employment taxes.

The Bottom Line: The sole proprietorship is the simplest business structure and offers the
lowest amount of legal formalities. However, it does not separate your personal finances
from your business and does not offer any liability protection. Additionally, in some
cases, sole proprietors end up paying more in taxes due to self-employment taxes. And
anecdotally, sole proprietorships have some of the highest audit rates with the IRS.

The C Corporation
A C Corporation is considered a separate business entity and files its own tax returns.
Therefore, as a C Corporation owner, you’ll need to file both a personal tax return and a
business tax return.

Let’s say you own a small digital media agency and formed a C Corporation for it. Your
Corporation will first be taxed on its profits in its corporate tax return. Then, if you want

4
to take that money home, you’ll need to distribute it to yourself (or any other
shareholders) in the form of a dividend. These dividends will be taxed on your personal
tax return at the qualifying dividend rate. This is what’s known as “Double Taxation” and
can be pretty hefty for the small business.

The Bottom Line: As you can see, double taxation can be a problem for a small business
that is profitable and where the owner wants to put the profit in his or her wallet.
However, the C Corporation can offer more flexibility and tax benefits in certain
circumstances. For example, it can be a good structure if you want to invest the business’
profit to grow the business. Talk to your tax advisor before forming a C Corporation to
make sure it’s the right entity for you. (C Corps are generally not used for small business
incorporation. Normally, C Corps are very large corporations - think General Motors)

The S Corporation
Small businesses often opt for the S Corporation in order to avoid double taxation. An S
Corporation does not file its own taxes. Rather, company profits are “passed through”
and reported on the personal income tax return of the shareholders.

S Corporation owners are taxed on the company profits based on the percentage of shares
they own (for example, if you own 50% of an S Corporation, you’ll be taxed on 50% of
the profits). If S Corporation owners actively work in the business, the business must pay
them a reasonable wage for whatever job they do.

If you elect S Corporation Status for your corporation, your business itself will pay no
income tax. If you work in the business, you need to pay yourself a reasonable wage for
your job and these wages are subject to your personal income tax rate. Then if you decide
to distribute the rest of the profits to yourself as a dividend, these will be taxed at the
qualifying dividend rate.

The Bottom Line: The S Corporation avoids the problem of double taxation, but still
demands all the legal formalities of a Corporation. It can be beneficial for many small
businesses, but there are some restrictions for who can form an S Corporation. An S Corp
cannot have more than 100 shareholders. All S Corp shareholders must be individuals
(not LLCs or partnerships) and legal residents of the United States.

5
The LLC
The Limited Liability Company (LLC) offers flexibility when it comes to federal tax
treatment. The IRS allows the LLC to be taxed as a corporation (double taxation) or
partnership (pass through), depending on what the LLC members choose.

A singe member LLC that doesn’t choose to be taxed as a C Corp., will be considered a
disregarded entity by the IRS and it will be taxed like a sole proprietor.

The Bottom Line: The LLC can be a good choice for small business owners who want
liability protection, without all the procedural formality associated with a Corporation.
An LLC gives you flexibility in terms of taxation – but after forming an LLC don’t forget
that you need to decide how your business should be taxed.

In summary
There’s no single “right” business structure for every small business. What’s right for you
will ultimately depend on your specific business needs, circumstances, and future plans.
Discuss your particular situation with a trusted tax advisor or accountant in order to
decide what business structure will give the best tax treatment for both you and your
business. Additionally, refer to the article on page 26 regarding pass-through taxation and
the TCJA.

Tax LLCs Case study

When you buy an expensive item of personal property like a top-grade motorhome or
RV, the sales tax can be enormous. For example, if you live in Louisiana, which has a 9%
sales tax, and purchase a $350,000 motorhome, you’d have to pay over $31,000 in sales
taxes. This was the situation faced by a Louisiana taxpayer. However, instead of paying
all that sales tax in Louisiana, this taxpayer decided to form a limited liability company
(LLC) in Montana, which has no sales taxes. He had the LLC purchase the motorhome in
its name and registered it in Montana. He paid no Louisiana sales tax at all. In fact, all he
paid was a $174 fee to register the motorhome in Montana.

Did this scheme work? Well, sort of. The Louisiana Department of Revenue found out
about the purchase and claimed that the buyer personally owed the state over $30,000 in
sales taxes, and tacked on an additional $16,000 in fines and penalties. The Louisiana
taxpayer fought the tax assessment all the way through the Louisiana Supreme Court,
where he was ultimately victorious. The court held that he had formed a valid LLC under
Montana law. The fact that it was formed solely to avoid sales tax on a motorhome

6
purchase did not make the LLC invalid under Montana’s LLC law, according to the
court. (sounds like a “choice of law” question) Additionally, since he kept the
motorhome garaged in Mississippi, not Louisiana, no state use tax was due (the use tax
would have been in the same amount as the sales tax). (Thomas v. Bridges, 2013-C-1855
(Sup.Ct. LA May 7, 2014).) Of course, fighting his case through the courts probably cost
this taxpayer more than $31,000; so, it must be viewed as something of a Pyrrhic victory.
Moreover, other Louisianans should think twice before following in his footsteps. First of
all, the Louisiana Supreme Court practically begged the Legislature to change state law to
make the scheme illegal; something it may very well do. Second, the state Department of
Revenue didn’t do a very good job prosecuting its case.

The Montana LLC scheme used by the Louisiana taxpayer has been around for years and
continues to be promoted by Montana-based lawyers. It can only work with LLCs formed
in Montana because Montana is the only state which imposes no sales tax on the purchase
of vehicles by its residents, including resident LLCs.

If you form a Montana LLC and have it purchase and take title to a motorhome or RV,
you won’t owe any sales tax in Montana. But this doesn’t mean you won’t owe such tax
(or an equivalent amount of use tax) in your home state. The Montana lawyers who form
these LLCs—at a cost of around $1,000--admit as much in the small print on their
websites.

In most states, an LLC created solely for the purpose of avoiding sales tax will be viewed
as a sham, and the state will assess sales taxes on the LLC’s owners personally. (See
substance over form, below) Even if you can avoid your state’s sales taxes, you’ll be
subject to an equal amount of use tax if you use the vehicle in your home state for more
than a very limited amount of time. In many states, you’ll avoid use tax only if you don’t
use the vehicle in your state of residence for a full year after you buy it. Others require
that you don’t use the vehicle in your state for more than 90 consecutive days.

The states are well aware of the Montana LLC scheme and many are actively trying to
get the people who use it to pay state sales or use taxes. For example, the California
Highway Patrol has a special website that people can use to report vehicles with Montana
or other out-of-state plates. Other states reportedly have their inspectors who check out
RV repair facilities look for vehicles with Montana plates. Some revenue-hungry states
also check RV storage facilities for vehicles with such plates.

7
Even if you don’t get caught by your home state and avoid paying sales or use tax,
forming a Montana LLC to own a motorhome can present special problems. For example,
many financial institutions won't finance an RV or motorhome titled in an LLC’s name,
especially a Montana LLC. Also, many insurers won't insure such a vehicle. Thus, you’ll
probably be better off in the long-run paying the all the tax you owe in your home state.

•••
Income
The term income is defined nowhere in Title 26 of the US Code, which is the law that
relates to the "income" tax. For federal income tax purposes income was defined by the
U.S. Supreme Court,3 which stated that income is an:
[1] undeniable accessions to wealth,
[2] clearly realized,
[3] over which the taxpayers have complete dominion.

Accessions to wealth
An accession to wealth is just about any time you get a benefit that can be quantified
monetarily, but it need not be in the form of money. For instance, if a trumpet player
plays a wedding for the daughter of a tax accountant in exchange for the accountant's tax
help, the fair market cost of hiring a trumpet player for the wedding is an accession to
wealth for the accountant and the fair market cost of the tax accountant’s help is an
accession to wealth for the trumpet player. Such accessions to wealth are called receipts
in kind—goods or services received in exchange for goods or services. Receipts in kind
are considered income, and their value for tax purposes is the fair market value of the
goods or services at the time of transfer.

"Windfalls," such as prizes and free samples, are accessions to wealth, there does not
need to be any consideration involved. Even an unanticipated windfall is considered
income. For instance, if a taxpayer finds money hidden inside a piano, that money
becomes income to them.4 Non-monetary windfall or prizes are taxed at their fair market
value.

Loans are usually not considered to be income because they are not true accessions to
wealth. While they provide a tangible asset to the recipient, they offset this asset with an
equivalent liability. However, a "loan" that is not offset by an obligation to repay is

3
Commissioner v. Glenshaw Glass Co., 348 U.S. 426.
4
Cesarini v. U.S., 428 F.2d 812 (6th Cir. 1970).

8
considered income to the recipient. Moreover, if a third party pays off a taxpayer's debt,
the taxpayer receives income to the extent their debt was reduced.5

Realized
Realized income is the income that you've actually earned and received. Wages and
salary income that you earn is included in realized income, as are interest and dividend
payments. Rental income is realized when received (not just owed).

If a stock you own rises in value, then you have an economic gain, which is sometimes
called a paper gain. However, that doesn't become realized income until you sell the
stock. Because of this distinction, long-term investing is a powerful way to defer taxation,
as you control when you sell, and therefore, when your gains will be subject to tax.

Complete dominion
Complete dominion in this context refers to control. To have dominion, one must have
control of or the use of the income. This brings up another concept that is critical when
talking about money. Money is considered fungible. Money is money, there is no
particular value to a particular piece of money beyond its monetary value. (obviously,
this does not refer to a collector of valuable coins or bills)

So, in the example above when the employer pays the tax for the employee, you may
wonder how the employee has control over that money where the employer actually paid
it. Consider that since his debt is relieved, the money otherwise needed for the debt is
now available to the employee (i.e., under the control of the employee), and because
money is fungible, it doesn’t matter which money is which. In the case of receipts in
kind, the taxpayer is choosing the benefit with the service (like having a trumpet player
play for a wedding), so is in control of the accession to wealth.

Fair market value

Fair market value (FMV) is the price at which the property would change hands between
a willing buyer and a willing seller, neither being under any compulsion to buy or to sell
and both having reasonable knowledge of relevant facts.6

5
Old Colony Trust Co. v. Commr., 279 U.S. 716 (1929) (employer paying taxes on employee's
behalf).
6
U. S. v. Cartwright, 411 U. S. 546, (1973) (quoting from U.S. Treasury regulations relating to
Federal estate taxes, at 26 C.F.R. sec. 20.2031-1(b)).

9
From IRS Publication 561:
Determining the value of donated property would be a simple matter if you could
rely only on fixed formulas, rules, or methods. Usually it is not that simple. Using
such formulas, etc., seldom results in an acceptable determination of FMV. There
is no single formula that always applies when determining the value of property.

This is not to say that a valuation is only guesswork. You must consider all the
facts and circumstances connected with the property, such as its desirability, use,
and scarcity.

For example, donated furniture should not be evaluated at some fixed rate such as
15% of the cost of new replacement furniture. When the furniture is contributed, it
may be out of style or in poor condition, therefore having little or no market value.
On the other hand, it may be an antique, the value of which could not be
determined by using any formula.

Generally, property acquired by gift, bequest, devise or inheritance not income. But, a
gift must proceed from a “detached and disinterested generosity, out of affection, respect
charity or like impulses” on the part of the donor.7 This is an area where bright lines will
not generally be found. After all, when is anyone “detached and disinterested” when
giving a gift? (why would anyone give a gift if detached and disinterested?) Any
accession to wealth from employer is assumed not to be a gift, and would require
substantial proof otherwise. On the flip side, Familial transfers are generally assumed to
be donative.

IRS: Topic 431 - Canceled Debt – Is It Taxable or Not?

https://www.irs.gov/taxtopics/tc431.html
If you borrow money and are legally obligated to repay a fixed or determinable
amount at a future date, you have a debt. You may be personally liable for a debt
or may own a property that's subject to a debt.

If your debt is forgiven or discharged for less than the full amount you owe, the
debt is considered canceled in the amount that you don't have to pay. The law
provides several exceptions, however, in which the amount you don't have to pay
isn't canceled debt. These exceptions will be discussed later. Cancellation of a debt
may occur if the creditor can't collect, or gives up on collecting, the amount you're

7
Commissioner v. Duberstein, 363 U.S. 278 (1960).

10
 obligated to pay. If you own property subject to a debt, cancellation of the debt
also may occur because of a foreclosure, a repossession, a voluntary transfer of the
property to the lender, abandonment of the property, or a mortgage modification.

In general, if you have cancellation of debt income because your debt is canceled,
forgiven, or discharged for less than the amount you must pay, the amount of the
canceled debt is taxable and you must report the canceled debt on your tax return
for the year the cancellation occurs. The canceled debt isn't taxable, however, if
the law specifically allows you to exclude it from gross income. These specific
exclusions will be discussed later.

After a debt is canceled, the creditor may send you a Form 1099-C (PDF),
Cancellation of Debt, showing the amount of cancellation of debt and the date of
cancellation, among other things.
•••
In general, you must report any taxable amount of a canceled debt as ordinary
income from the cancellation of debt…
•••
Caution: If property secured your debt and the creditor takes that property in full
or partial satisfaction of your debt, you're treated as having sold that property for
the amount of the canceled debt and may have a taxable gain or loss…
•••
EXCEPTIONS to Cancellation of Debt Income:
• Amounts canceled as gifts, bequests, devises, or inheritances
• Certain qualified student loans canceled under the loan provisions that the loans
would be canceled if you work for a certain period of time in certain professions
for a broad class of employers
•••
Two important rules
The business purpose doctrine and the doctrine of substance over form, come from an
important landmark tax case in 1935. 8 Here, the Supreme Court held that where a
transaction has no substantial business purpose other than the avoidance or reduction of
Federal tax it will not be considered for a legitimate business purpose and that the tax law
will disregard the transaction. They also held with the doctrine of substance over form
that, for Federal tax purposes, a taxpayer is bound by the economic substance of a
transaction where the economic substance varies from its legal form. Basically, this

8
Gregory v. Helvering, 293 U.S. 465 (1935).

11
means that the IRS will look beyond how you structure a transaction or what you call
something. Lawyers and accountants refer to this as the duck rule. (if it looks like a duck,
walks like a duck, and quacks like a duck; it’s a duck!)

Debt
There are two types of debts: recourse and nonrecourse. A recourse debt holds the
borrower personally liable. All other debt is considered nonrecourse, but generally is
given with some type of collateral, meaning something that can be sold to fulfill the debt
if you are unable to pay. (Like a house, car or violin) In general, recourse debt (loans)
allows lenders to collect what is owed for the debt even after they've taken collateral.
Lenders have the right to garnish wages or levy accounts in order to collect what is owed.

A nonrecourse debt (loan) does not allow the lender to pursue anything other than the
collateral. For example, if a borrower defaults on a nonrecourse home loan, the bank can
only foreclose on the home. The bank generally cannot take further legal action to collect
the money owed on the debt. Whether a debt is recourse or nonrecourse may vary from
state to state, depending on state law.

Equity is the context of taxes is the amount of ownership interest in something. In the
case of a house, your equity would be the difference between the fair market value of
property minus any outstanding mortgage. In the case of business, it is your percentage of
ownership (usually stock, or a partnership percentage) relative to the valuation of the
company.

Cost basis is the original value of an asset for tax purposes, usually the purchase price.
But this can sometimes get complicated, because it also must be adjusted for stock splits,
dividends and return of capital distributions. Cost basis is used to determine the capital
gain, which is equal to the difference between the asset's cost basis and the sale price of
an asset. Long Term Capital Gain income (assets held for more than 12 months) is
currently taxed at a lower rate than ordinary income, but the appropriateness and extent
of this treatment is the subject of an on-going debate. The TCJA had little effect on
capital gain treatment.

If you inherit property, your basis is its fair market value at date of decedent’s death.
If on the other hand, you are given property, generally your basis will be the donee’s
basis. (This can get complicated if the property has gone down in value)

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Home Office Deduction (from the IRS)
If you use part of your home for business, you may be able to deduct expenses for
the business use of your home. The home office deduction is available for
homeowners and renters, and applies to all types of homes.

Simplified Option
For taxable years starting on, or after, January 1, 2013 (filed beginning in 2014),
you now have a simpler option for computing the business use of your home (IRS
Revenue Procedure 2013-13, January 15, 2013). The standard method has some
calculation, allocation, and substantiation requirements that are complex and
burdensome for small business owners. This new simplified option can
significantly reduce recordkeeping burden by allowing a qualified taxpayer to
multiply a prescribed rate by the allowable square footage of the office in lieu of
determining actual expenses.

Regular Method
Taxpayers using the regular method (required for tax years 2012 and prior),
instead of the optional method, must determine the actual expenses of their home
office. These expenses may include mortgage interest, insurance, utilities, repairs,
and depreciation. Generally, when using the regular method, deductions for a
home office are based on the percentage of your home devoted to business use. So,
if you use a whole room or part of a room for conducting your business, you need
to figure out the percentage of your home devoted to your business activities.

Requirements to Claim the Deduction

Regardless of the method chosen, there are two basic requirements for your home
to qualify as a deduction:

1. Regular and Exclusive Use.

You must regularly use part of your home exclusively for conducting business.
For example, if you use an extra room to run your business, you can take a home
office deduction for that extra room.

2. Principal Place of Your Business.

You must show that you use your home as your principal place of business. If you
conduct business at a location outside of your home, but also use your home
substantially and regularly to conduct business, you may qualify for a home office

13
 deduction. For example, if you have in-person meetings with patients, clients, or
customers in your home in the normal course of your business, even though you
also carry on business at another location, you can deduct your expenses for the
part of your home used exclusively and regularly for business. You can deduct
expenses for a separate free-standing structure, such as a studio, garage, or barn, if
you use it exclusively and regularly for your business. The structure does not have
to be your principal place of business or the only place where you meet patients,
clients, or customers.

Generally, deductions for a home office are based on the percentage of your home
devoted to business use. So, if you use a whole room or part of a room for
conducting your business, you need to figure out the percentage of your home
devoted to your business activities.

Additional tests for employee use.

(With the TCJA, the home office deduction is no longer available for employees)
•••
The IRS doesn't offer a clear definition of regular use -- only that you must use a part of
your home for business on a continuing basis, not just for occasional or incidental
business. You can probably meet this test by working a couple of days a week from
home, or a few hours each day.

Exclusive use means that you use a portion of your home only for business. If you use a
room of your home for your business and for personal purposes, you don't meet the
exclusive use test. However, you can set aside a portion of a larger room to be used only
for business, as long as your personal activities don't stray into it.

Home Office case study

KATIA V. POPOV; PETER POPOV, Petitioners-Appellants,

v.
COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.

UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

Argued and Submitted March 5, 2001

April 17, 2001

14
Peter Popov, Beverly Hills, California, for the petitioners-appellants.
Janet A. Bradley, Tax Division, Department of Justice, Washington, D.C., for the
respondent-appellee.

Appeal from the United States Tax Court. Tax Court No. 24453-96
Before: James R. Browning, Melvin Brunetti, and Michael Daly Hawkins, Circuit
Judges.

HAWKINS, Circuit Judge:

•••
9
Facts and Procedural Background

Katia Popov is a professional violinist who performs regularly with the Los Angeles
Chamber Orchestra and the Long Beach Symphony. She also contracts with various
studios to record music for the motion picture industry. In 1993, she worked for twenty-
four such contractors and recorded in thirty-eight different locations. These recording
sessions required that Popov be able to read scores quickly. The musicians did not
receive the sheet music in advance of the recording sessions; instead, they were presented
with their parts when they arrived at the studio, and recording would begin shortly
thereafter. None of Popov's twenty-six employers provided her with a place to practice.

Popov lived with her husband Peter, an attorney, and their four-year-old daughter Irina, in
a one-bedroom apartment in Los Angeles, California. The apartment's living room served
as Popov's home office. The only furniture in the living room consisted of shelves with
recording equipment, a small table, a bureau for storing sheet music, and a chair. Popov
used this area to practice the violin and to make recordings, which she used for practice
purposes and as demonstration tapes for orchestras. No one slept in the living room, and
the Popovs' daughter was not allowed to play there. Popov spent four to five hours a day
practicing in the living room.

In their 1993 tax returns, the Popovs claimed a home office deduction for the living room
and deducted forty percent of their annual rent and twenty percent of their annual
electricity bill. The Internal Revenue Service ("the Service") disallowed these deductions,
and the Popovs filed a petition for redetermination in the Tax Court.
9
The Service does not dispute the Tax Court's factual findings, from which we draw our factual
summary.

15
 The Tax Court concluded that the Popovs were not entitled to a home office deduction.
Although "practicing at home was a very important component to [Popov's] success as a
musician," the court found that her living room was not her "principal place of business."
In the court's view, her principal places of business were the studios and concert halls
where she recorded and performed, because it was her performances in these places that
earned her income.

The Popovs filed this timely appeal.10 We have jurisdiction under 26 U.S.C. 7482.
Analysis

The Internal Revenue Code allows a deduction for a home office that is exclusively used
as "the principal place of business for any trade or business of the taxpayer. " 26 U.S.C.
280A(c)(1)(A). The Code does not define the phrase "principal place of business."

The Soliman Tests

Our inquiry is governed by Commissioner v. Soliman, 506 U.S. 168, 121 L. Ed. 2d 634,
113 S. Ct. 701 (1993), the Supreme Court's most recent treatment of the home office
deduction. In Soliman, the taxpayer was an anesthesiologist who spent thirty to thirty-five
hours per week with patients at three different hospitals. None of the hospitals provided
Soliman with an office, so he used a spare bedroom for contacting patients and surgeons,
maintaining billing records and patient logs, preparing for treatments, and reading
medical journals.

The Supreme Court denied Soliman a deduction for his home office, holding that the
"statute does not allow for a deduction whenever a home office may be characterized as
legitimate." … Instead, courts must determine whether the home office is the taxpayer's
principal place of business. Although the Court could not "develop an objective formula
that yields a clear answer in every case," the Court stressed two primary considerations:
"the relative importance of the activities performed at each business location and the time
spent at each place." … We address each in turn.
Relative Importance

10
The Popovs also challenge the Tax Court's denial of their deductions for long-distance phone
calls, meal expenses, and clothing. We find no merit in these claims. The Popovs did not
adequately establish the business purpose of the phone calls or the meal expenses. See Welch v.
Helvering, … The Tax Court did not err in finding that most of Katia Popov's concert attire was
adaptable to general usage as ordinary clothing. See Pevsner v. Comm'r, …

16
The importance of daily practice to Popov's profession cannot be denied. Regular practice
is essential to playing a musical instrument at a high level of ability, and it is this level of
commitment that distinguishes the professional from the amateur. 11 Without daily
practice, Popov would be unable to perform in professional orchestras. She would also be
unequipped for the peculiar demands of studio recording: The ability to read and perform
scores on sight requires an acute musical intelligence that must be constantly developed
and honed. In short, Popov's four to five hours of daily practice lay at the very heart of
her career as a professional violinist.

Of course, the concert halls and recording studios are also important to Popov's
profession. Without them, she would have no place in which to perform. Audiences and
motion picture companies are unlikely to flock to her one-bedroom apartment. In
Soliman, the Supreme Court stated that, although "no one test is determinative in every
case," "the point where goods and services are delivered must be given great weight in
determining the place where the most important functions are performed." … The Service
places great weight on this statement, contending that Popov's performances should be
analogized to the "service "of delivering anesthesia that was at issue in Soliman; these
"services" are delivered in concert halls and studios, not in her apartment.

We agree with Popov that musical performance is not so easily captured under a "goods
and services" rubric. The German poet Heinrich Heine observed that music stands"
halfway between thought and phenomenon, between spirit and matter, a sort of nebulous
mediator, like and unlike each of the things it mediates -- spirit that requires
manifestation in time, and matter that can do without space."12 Heinrich Heine, Letters on
the French Stage (1837), … Or as Harry Ellis Dickson of the Boston Symphony
Orchestra explained more concretely:
“A musician's life is different from that of most people. We don't go to an office
every day, or to a factory, or to a bank. We go to an empty hall. We don't deal in
anything tangible, nor do we produce anything except sounds. We saw away, or
blow, or pound for a few hours and then we go home. It is a strange way to make a
living!” Harry Ellis Dickson, Gentlemen, More Dolce Please (1969), quoted in
Drucker v. Comm'r, …

11
One who doubts this might consult George Bernard Shaw's famous observation that "hell is
full of musical amateurs." George Bernard Shaw, Man and Superman act 3 (1903).
12
Although not, perhaps, without practice space.

17
It is possible, of course, to wrench musical performance into a "delivery of services"
framework, but we see little value in such a wooden and unblinking application of the tax
laws. Soliman itself recognized that in this area of law "variations are inevitable in case-
by-case determinations." …We believe this to be such a case. We simply do not find the
"delivery of services" framework to be helpful in analyzing this particular problem.
Taken to extremes, the Service's argument would seem to generate odd results in a
variety of other areas as well. We doubt, for example, that an appellate advocate's
primary place of business is the podium from which he delivers his oral argument, or that
a professor's primary place of business is the classroom, rather than the office in which he
prepares his lectures.

We therefore conclude that the "relative importance" test yields no definitive answer in
this case, and we accordingly turn to the second prong of the Soliman inquiry.

Amount of Time

Under Soliman, "the decision maker should ... compare the amount of time spent at home
with the time spent at other places where business activities occur."…"This factor
assumes particular significance when," as in this case, "comparison of the importance of
the functions performed at various places yields no definitive answer to the principal
place of business inquiry. " … In Soliman, the taxpayer spent significantly more time in
the hospitals than he did in his home office. In this case, Popov spent significantly more
time practicing the violin at home than she did performing or recording.13

13
The Service argues that the evidence is unclear as to "how much time Mrs. Popov spent
practicing at home as opposed to the time she spent performing outside of the home." It is true
that the evidence is not perfectly clear and that the Tax Court made no specific comparative
findings. However, the Tax Court found that she practiced four to five hours a day in her
apartment. If we read this finding in the light most generous to the Service and assume that she
only practiced four hours a day 300 days a year, Popov would still have practiced 1200 hours in
a year. She testified that she performed with two orchestras for a total of 120-140 hours. If she
spent a similar amount of time recording, she would still be spending about five hours practicing
for every hour of performance or recording. The only plausible reading of the evidence is that
Popov spent substantially more time practicing than she did performing or recording.

18
This second factor tips the balance in the Popovs' favor. They are accordingly entitled to
a home office deduction for Katia Popov's practice space, because it was exclusively used
as her principal place of business.

Drucker

The result we reach in this case harmonizes with that of the Second Circuit in Drucker v.
Comm'r, 715 F.2d 67 (2d Cir. 1983). Drucker involved concert musicians employed by
the Metropolitan Opera Association, which did not provide its musicians with practice
facilities. Each musician instead devoted a portion of his or her apartment exclusively to
musical study and practice, and spent approximately thirty hours a week practicing. …
The musicians sought to deduct a portion of the rent and electricity allocable to the
practice area. The Service denied the deduction. The Tax Court agreed with the Service,
holding that off-premises practice was not a requirement of the musicians' jobs and that
the musicians' principal place of business was Lincoln Center.

The Second Circuit reversed. The court first rejected as clearly erroneous the Tax Court's
conclusion that practice was not a "requirement or condition of employment. " … The
court then concluded that the musicians' principal place of business was their home
practice studios, finding that this was "the rare situation in which an employee's principal
place of business is not that of his employer." … Both "in time and in importance, home
practice was the 'focal point' of the appellant musicians' employment-related
activities."… Accordingly, the musicians were entitled to a deduction for home office
expenses. The facts in this case are even more compelling. In Drucker, the musicians had
only one employer; here Popov worked for twenty-six different employers and recorded
in thirty-eight different locations.

We are unpersuaded by the Service's contention that Drucker is no longer good law. The
Service has not directed us to any decision that has ever called Drucker into question. The
Supreme Court cited Drucker twice in Soliman, but never suggested that it was
overruling Drucker's result. ... Although the particular "focal point test" employed by the
Second Circuit may no longer be valid, we are unwilling to conclude that the Supreme
Court sub silentio overruled a long-standing precedent of the Second Circuit. "Uniformity
of decision among the circuits is vitally important on issues concerning the administration
of tax laws. Thus, the tax decisions of other circuits should be followed unless they are
demonstrably erroneous or there appear cogent reasons for rejecting them." Unger v.
Comm'r, … (quoting Keasler v. United States, …)).

19
Conclusion

For the foregoing reasons, the Tax Court's denial of the Popovs' home office deduction is
reversed.
•••
Charitable contributions
Charitable contributions can take many forms and are outlined in section 170 of the IRC.
In the case of a donation of tangible items, the donor must receive a receipt from the
donee for the item, but it is the responsibility of the donor to assign a FMV to the
donation. (Donees should stay away from the assignment of a value… not your gig, and
can only get you in trouble!) When the deduction is large because the donated item is
valuable, it may be in the best interest of the donor to pay for a professional appraisal.
The rules governing the donation of tangible items can get complicated and even arcane.
(in section 170 there are multiple references to “taxidermy property” and even a section
on: “Expenses paid by certain whaling captains in support of Native Alaskan subsistence
whaling.”) As a general rule the valuation of tangible property for tax purposes is the
FMV at the time of the transfer.14

In-kind donation of services is a more complicated issue. It seems logical that if you are a
skilled worker like a doctor or musician, and you are donating services within your area
of expertise for the benefit of a charitable organization, that the FMV of those services
should be deductible. In fact, your time is not deductible. You may be able to deduct the
expenses related to donating your time (parking, mileage, etc.), but your professional
services are not. Imagine the free-for-all of deductions that would be created by allowing
anyone claiming to have a skill or profession that has a FMV, using their time as a tax
deduction. How would the IRS or a charitable organization adequately judge the shams
from the truly donative?

For the same reason, tangible items that have increased in value because of your skill or
artistry are deductible only to the amount (basis) of the actual cost of the item. The IRS
calls this a self-created asset.

14
United States v. Cartwright, 411 U. S. 546

20
Can I Deduct My Art When I Contribute it?

From: Freelance Taxation.com

Susan Lee, EA, CFP

It is widely believed in the art world that you can take the fair market value of the art that
you create as a deduction on your taxes. This idea is often repeated by groups who want
artists to contribute their art to them for various reasons including auctions. This belief,
unfortunately, is incorrect.

There is a distinction to be made between the people who create the art (or manuscript)
and people who have bought the art. If they satisfy certain conditions, the people who
bought the art are entitled to deduct the fair market value of the art. The people who
create the art are only entitled to deduct the cost of the materials that went into the work.
But artists (and writers and photographers) deduct the cost of all their supplies in the year
they incur them. Thus, the net effect of this is that the contribution that can be deducted
by an artist for the gift of a work of art is zero.

How did this come to be? Perhaps this story is apocryphal but my understanding is that
when Richard Nixon received a contribution value of more than one million dollars for
the contribution of his manuscripts to a library, Congress changed the rules so that people
who created the work could only take the cost of materials (which as we’ve seen is fairly
meaning-less). There have been bills in Congress to change this rule back but as of now
they have not been passed.

Some people think that if they give their work to someone else, that second person will
be able to take the full deduction. This belief also is not correct. What something costs is
called basis. Basis doesn’t change because someone gifts something. Further this holds
true in a divorce. The divorced spouse cannot take a fair market value contribution of a
work just as the original creator cannot take one.

Thus, am I really saying that the person who pays $1000 for a work that becomes worth
$500,000 can possibly then take $500,000 worth of deductions if they give it to an art
museum who will accept it? And that if the artist who created this work were to
contribute it, she or he would get no deduction? Yes.

21
Cryptocurrency
Bitcoin had its coming-out party in 2017. With all the excitement and opportunities
around cryptocurrency, it might be easy to forget about crypto taxation. Almost every
bitcoin or other "altcoin" transaction — mining, spending, trading, exchanging, air drops,
etc. — will likely be a taxable event for U.S. tax purposes. The IRS treats cryptocurrency
as property and is therefore subject to capital gains taxes. As a general rule,
cryptocurrency held for more than a year is subject to the long-term capital gain rate (a
lower rate), less than a year is taxed at the short -term rate (as ordinary income to the
taxpayer – generally a higher rate).

Some examples:
• Exchanging one token for another — for example, using Ethereum to purchase
an altcoin — creates a taxable event. The token is treated as being sold, thus
generating capital gains or losses.
• Receiving payments in crypto in exchange for products or services or as salary is
treated as ordinary income at the fair market value of the coin at the time of
receipt.
• Spending crypto is a tax event and may generate capital gains or losses, which
can be short-term or long-term. For example, say you bought one coin for $100. If
that coin was then worth $200 and you bought a $200 gift card, there is a $100
taxable gain. Depending on the holding period, it could be a short- or long-term
capital gain subject to different rates.
• Converting a cryptocurrency to U.S. dollars or another currency at a gain is a
taxable event, as it is treated as being sold, thus generating capital gains.
• Air drops are considered ordinary income on the day of the air drop. That value
will become the basis of the coin. When it's sold, exchanged, etc., there will be a
capital gain.
• Mining coins is considered ordinary income equal to the fair market value of the
coin the day it was successfully mined.
• Initial coin offerings do not fall under the IRS's tax-free treatment for raising
capital. Thus, they produce ordinary income to individuals and businesses alike.

22
Should you have a loan-out company for your work in entertainment?

Posted on January 12, 2015

by Gordon Firemark
https://firemark.com/2015/01/12/should-you-have-a-loan-out-company-for-your-work-in-
entertainment/

I’m frequently called upon by clients to form a so-called “Loan-Out company” for them.
Just as frequently, they don't really understand the purpose of Loan-Out, how it will
operate, or even whether it's actually a good idea, given their circumstances. What
follows is a brief explanation. But as always, it's important to consult with your tax and
legal advisers before embarking on any legal strategy for your career or business.

What is a Loan-Out company?

A loan-out company is a legal business entity established for the purpose of providing the
personal services of its owner/employee to third parties. Loan-out companies can take
many different forms such as LLC, an S-Corporation or a C-Corporation. The loan-out
company “lends” it's employee's services by making contracts with the end-users of those
services… often producers, production companies, record labels, etc.

Why a Loan-Out?
A loan out company can confer a number of advantages on its owner. Most significant
among these are:

Asset Protection. Because the company is a separate legal entity, it's property is not
available to repay creditors of its owners, say, in the case of liability arising from things
such as car accidents or breaches of contracts made outside the loan-out's purview.

Fiscal Year Tax Planning. By selecting a fiscal year, the company can sometimes realize
a major first-year tax savings. A carefully considered fiscal year strategy can also help
stabilize the distribution of income and expenses.

Lower Corporate Tax Rates. While individuals pay taxes on a tiered, or progressive basis,
with tax rates increasing to higher percentages for higher earners, corporations are taxed
at a flat rate which is often lower than the rate for an individual earning the same gross
income.

23
Qualified Pension and Profit Sharing plans. A properly organized company has a number
of deductions available to it that individuals are not permitted to take on their personal
tax returns. So, loan-out companies are useful in retirement planning. Also, since many
entertainment ventures don't result in income for several years following the performance
of services, profit-sharing plans can be used to stabilize finances.

Medical Reimbursement and other employee benefit plans. Individuals who pay for their
own health plans cannot realize the same deductions and savings as companies paying for
employee benefits. A loan-out company can deduct the costs of reimbursing employees
for medical expenses under a properly constructed medical reimbursement plan.

Is a Loan-Out company right for me?

For most successful industry folks, a Loan-Out is worth considering. the primary factor in
this, of course, is income. My discussions with accountants and other tax advisers suggest
that if you are earning less than $75,000 annually, a loan-out company probably isn't
worthwhile. But will probably be worthwhile if your earnings are between $75,000 and
$100,000, and for earnings above $100,000, the benefits are almost a certainty.
Beyond income, though, it's important to consider other possible downsides to the loan-
out strategy. These include:

Annual operating expenses. A loan-out company has to maintain its status by making
annual filings and tax payments to the state in which it is formed, and possibly to other
states where it conducts operations. (for example, a Delaware corporation whose owner is
an actor with homes in New York and California, where she renders substantially all of
her services will be required to “qualify” in those states as well) (It should be noted that
an individual in the same circumstance would likely still be responsible for taxes in each
state where substantial earnings occur).

Double taxation. First, the Company must pay taxes on its net earnings, and then, the
employee/owner pays taxes on whatever wages and bonuses the company has paid it.

IRS may disregard the entity. The IRS strongly disfavors the use of loan-out companies
as a tax avoidance device. So, unless the company is properly established, and
documented, the owner may find the government taking the position that the company is
a ‘sham'. This can lead to…

24
IRS may reallocate income. If the IRS deems it necessary to prevent tax avoidance, it has
the authority to reallocate income to taxpayers sharing common ownership and control.
Thus, the owner of a company may be taxed at the higher personal rate if things are not
handled correctly. Mostly, this occurs when the company is formed after the signing of
the contracts for the artist's services. Thus, it is important that the company be established
in advance, whenever possible. Or, contracts should be renegotiated once the company
exists.

How do I get a Loan-Out?

Forming a loan-out company isn't materially different from forming any corporation or
limited liability company. After an initial filing with the state government, the company
must prepare its operating documents (Bylaws, Operating Agreement, Minutes, etc.),
issue shares or interests, obtain a Tax ID number, and comply with other state filing
requirements.

In addition to the above “normal” entity formation tasks, the company must enter into a
properly constructed employment agreement with its principal.
From this point on, prospective employers will hire not the individual, but the company,
which will “lend” the individual's services to the hiring party. In most instances, the
hiring party will require that the individual also enter into an “inducement” agreement,
essentially guaranteeing performance and disclaiming any separate rights or claims
against the employer.

What does it cost to create a Loan-Out?

The cost of forming a loan-out corporation will vary from state to state, depending mostly
upon the particular state's filing fees.

In California, the cost of forming an entity are roughly $200 plus attorney's fees. This
cost covers filing fees, messengers and copying, and similar incidental expenses.

Additionally, there may be initial-year minimum state taxes ($800 in California), and
other small filing fees due within a few months after the company is established.
Is there a Loan-Out company in your future?

Successful people in the entertainment industry often furnish their personal services
through loan-out companies. The effective use of a properly structured loan-out can
provide substantial tax and other benefits, but without proper planning and

25
administration, tax and business problems can outweigh the potential advantages. So, it's
obviously important to consult with your tax advisor and an experienced entertainment
lawyer.

Note: The previous article was written before passage of the TCJA. It appears in the next
article, that the tax implications of a Loan-out appear to be favorable to Singles making
less than $157,500 or joint filers making less than $315,000 who are not employees. This
is as you will see a very complicated area. Always talk with an expert if you feel that such
an arrangement may be right for you.

Navigating The TCJA’s Pass-Through Deduction

By Howard Gleckman
February 1, 2018
From: http://www.taxpolicycenter.org/taxvox/navigating-tcjas-pass-through-deduction-0
The web site of The Tax Policy Center (Urban Institute and Brookings Institution)

The Tax Cuts and Jobs Act (TCJA) creates a new tax deduction of up to 20 percent of
income from partnerships, sole proprietorships, and other pass-through businesses. But
the size of the deduction varies, depending on the nature of the business activity and the
total income of its owner. It may also depend on how much the business pays its
employees and how much property it owns. It is…not simple.

To start, the TCJA divides pass-through businesses into two classes: Those that provide
certain personal services, such as law firms, medical practices, consulting firms, and
professional athletes; and all other businesses.

Then, it divides the business owners into three groups:

Singles making less than $157,500 or joint filers making less than $315,000 in total
taxable income may take the full 20 percent deduction on their pass-through income. For
them, it does not matter if their business is a personal service firm or something else.

Singles making more than $207,500 or couples making more than $415,000 are subject to
different rules. They are allowed no deduction at all if their pass-through business is a
personal service firm. If they own any other pass-through business, they may still get a
deduction, but it will be limited (and perhaps even eliminated) based on the amount of
wages their business pays and the property it owns.

26
Those with incomes between these thresholds are only eligible for a partial tax benefit. It
is available no matter the nature of their business, but the amount of business income
eligible for the deduction phases out for personal service firms. (For more details on
calculating the phase-out and the associated limits, see this report.)

How does the limitation work? First, the taxpayer calculates Qualified Business Income
(QBI). This is, generally, the business’s net income. Joint filers making less than
$315,000 in total taxable income can deduct 20 percent of their QBI, but life gets much
more complicated for business owners who make more than that.
If they own a personal service business (called a specified service business), the amount
of their QBI is phased-out on a pro rata basis until it disappears once their total taxable
income hits $415,000. At that point, these business owners lose the benefit of the 20
percent deduction.

In addition, for all pass-through businesses, whether they are a personal service firm or
not, the deduction may be limited based on a complicated two-part formula. The
deduction is partially limited by the greater of either 50 percent of the wages the business
pays its employees or 25 percent of wages plus 2.5 percent of the basis of the business’
qualified property. Business owners compare those calculations to 20 percent of their
QBI. They may deduct only the smaller amount. (This limit phases in over the same
taxable income range: between $315,000 and $415,000 for joint filers.)

Keeping those rules in mind, here are three sets of examples. Each shows both a personal
service business and a business not subject to those special personal service rules. The
examples show joint filers in each of the three income groups. To simplify matters just a
bit, our examples only use the wage test and not the wage-and-capital test.

Assume that business income in each group is $75,000 and business wages are $20,000.
The only thing that varies in each example is total taxable income. This table
summarizes how each group fares.

27
Let’s start with a couple whose taxable income is $150,000, with half coming from a sole
proprietorship. Imagine a husband who is a self-employed plumber and a wife who is an
employee at a firm. In that case, they could deduct the full 20 percent of the plumber’s
$75,000 in business income, or $15,000).

Now, imagine this couple has the same $75,000 in pass-through income, but their total
income is $400,000. That puts them squarely in the phase-out range where they lose some
of their deduction. However, the amount of the deduction will vary substantially — from
$1,612 to $10,750 -- depending on the nature of their business.

Finally, imagine the couple has total income of $575,000. Let’s say one spouse is a high-
paid employee who makes $500,000 and the other is a part-time financial adviser (a
personal service business owner) who makes $75,000. Because their total income
exceeds the $415,000 limit, they are not eligible for the 20 percent pass-through
deduction.

Now assume, instead, that the second spouse owns a small woodworking shop (not a
personal service business), makes the same $75,000, and pays an assistant $20,000. In
this case, the allowable deduction is $10,000.

The TCJA’s 20 percent pass-through deduction is extremely generous—for those

business owners eligible to receive it. However, the law’s complex phase-outs may limit
the benefit for some businesses and encourage their owners to find ways to game the
system. Clearly, this provision does not simplify the Tax Code.

28
 Tax Terms

Tax Code (IRC)

Earned income

Unearned income

Gross income

Adjusted gross income

Standard deduction

Itemizing

Personal exemption

Unreimbursed employee business expenses

Tax credits

A progressive tax system

A regressive tax system

Pass-through entity

Self-employment tax

income taxes and the Sole Proprietor

income taxes and the C Corporation

income taxes and the S Corporation

income taxes and the Limited Liability Company (LLC)

disregarded entity

29
Income (for income tax)
Accessions to wealth

Realized income

Complete dominion

Fungible

Fair market value (FMV)

Gift (donee, income tax)

business purpose doctrine

doctrine of substance over form

recourse debt

nonrecourse debt

Equity

Cost basis

Capital gain

Home Office Deduction - 2 rules:

Regular and Exclusive use
Principal Place of Business

Charitable contribution to a 501(c) 3) of tangible items

An in-kind donation to a 501(c) 3) of services

Charitable contribution 502(c) 3) of “self-created” assets

Cryptocurrency taxation

Loan-out company

30