Amusing tax cases: Bodybuilder’s claim

9 Jan

I know you can be tired of all the serious subjects related to taxes so today I would like write about one of the very funny tax cases.

Corey L. Wheir was a professional bodybuilder.  His income came from posing, seminars, publication of his poses, and training bodybuilders. Wheir reported the income and expenses of his bodybuilding activity as a trade or business on Schedules C of his Federal income tax returns.

IRS disallowed deductions of his expenses for supplements. Included in the disallowed deductions labeled as “Supplements” were the costs of buffalo meat, vitamin shake drinks for energy and body enhancing effects, and various skin or body applications to enhance Wheir’s physical appearance as a competitive bodybuilder.

The Court held that petitioner’s expenses for buffalo meat and shake drinks were inherently personal thus not deductible. Nevertheless, the cost of the products that were applied to the body to enhance his appearance was allowed as a deduction.

The amusing part of this case is that Mr. Wheir consumed 3 pounds of buffalo meat daily, year round. His lunch bag must have looked quite impressive! He testified that if he consumed beef, which is less expensive than buffalo, he would have had to consume 6 pounds of beef per day to have the same effects. Clearly, consuming over 1,000 pounds of buffalo in a year is not a personal pleasure, yet the Court did not consider it a valid expense.

On the other hand, the products used to enhance Wheir’s appearance were determined to be fully deductible. These products included professional posing oil that was applied “prior to pumping up backstage for optimum effects”, another product applied to the body 5 minutes before a workout, still another product – massaged over the body several hours before a posing to provide a suntan brown color or a deep tan to the body.

Credit image

Advertisements

Payroll Tax Cut Debate

7 Jan

What is exactly the payroll tax cut?

A tax cut is a reduction in taxes. The payroll tax cut for individuals was originally passed at the end of 2010 to help enhance the economy. Since the recovery has been very slow, many politicians were in favor of extending the tax cut by another year. Many economists worry that the tax cut expiration can negatively affect already struggling economy.

How does it affect you?

The payroll tax cut reduced the amount that you, as an employee, had to pay toward Social Security. The standard withholding rate of 6.2% of your first $106,800 in wages was reduced to 4.2%. In 2012, the taxable wage base increased to $110,100.
To put it simply, under the current tax cuts, for every $1,000 you earn, $42 is withheld and $20 stays in your pocket.

The reduced 4.2% Social Security tax rate will remain in effect at least through February If the tax cut is not extended afterwards, you will pay ‘the extra’ 2 percentage points of your income which can add up to $2,200. If the tax cut is extended, you won’t see any difference in your tax liability in 2012.

On the other hand the payroll tax funds Social Security program. The reduction in the withholding rate transferred $105 billion out of Social Security. This tax holiday will reduce the solvency of Social Security solvency by 13 years!

Most experts believe we should trim Social Security benefits or raise taxes that fund the program. Currently we’re cutting those taxes. Originally, the tax cut was supposed to be effective for just one year, but now we are considering the indefinite extension.

Image credit

10 Things Everyone Should Know About Individual Income Taxes

6 Jan

1. In 1787, the Federal government was authorized by The United States Constitution to lay and collect taxes, but required that portion of tax revenues be given to the states. Several states adopted income taxes in 1837. The first Federal income tax was adopted as part of the Revenue Act of 1861.

2. Why do we need taxes? Government collects taxes so it can pay for the things we need: roads, schools, hospitals, fire department, police, the military, national parks, etc.

3. Congress and the President of the United States are responsible for writing and for approving the tax laws. The Internal Revenue Service is responsible for enforcing the tax law, for collecting taxes, for processing tax returns, and for issuing tax refunds.

4. Everyone pays taxes based on his/her income including wages, salaries, interest, dividends, investments, pensions, etc

5. Most states have individual income tax with the exception of Texas, Florida, Nevada, Washington, Wyoming South Dakota and Alaska.

6. Even if you are an U.S. emigrant and live abroad, you still must file an US Income Tax Return each year on your worldwide income.

7. Your tax rate changes depending on how much money you make in a given year. The higher is your income, the higher are your tax rates. Federal tax rates in 2011 varied from 10% to 35%.

8. Your tax liability can be reduced by taking advantage of various tax benefits. Government encourages some behaviors by using taxes as incentives. For example education tax breaks are used to promote postsecondary education.

9. Most of the time, income taxes are deducted out of your paycheck. If you paid more that you actually owed, you will receive a refund. If you paid less than you were supposed to, you have until April 15th of the following year to pay the difference.

10. In 2011, 46% of tax filers will not owe any federal income tax, according to estimates by the nonpartisan Tax Policy Center. Some in that group will even get additional money from the government because they qualify for refundable tax breaks!

%d bloggers like this: