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IRS Sex workers taxes

Tax Court Approves Vehicle Deductions for Side Gig

Do you client have a “side hustle” going on in addition to their full-time job? If you qualify, you may deduct certain expenses incurred by the self-employed business, including costs attributable to your vehicle.

The recent Tax Court case Gonzalez, TC Summary Opinion 2022-13, 7/18/22 found that it is indeed OK to deduct vehicle expenses related to a side-gig, as long as the filer follows strict rules.

Generally, expenses relating to use of a car, van, pickup or panel truck used for business are deductible. For example, if they drive their own passenger car to visit clients or customers, they may write off the portion of their vehicle’s costs that is attributable to business use, subject to some special limits. If they use their car 80 percent for business, they can deduct 80 percent of the costs.

The vehicle expenses are deductible under one of two methods:

1. Standard mileage rate: This is a flat rate adjusted by the IRS at least annually. For 2022, the deduction is 58.5 cents per business mile for the first half of the year and 62.5 cents for the second half. Also, they can add in business-related parking fees and tolls.

2. Actual expenses: Alternatively, they can deduct actual expenses based on the percentage of business use. This includes gas, oil, insurance, repairs, licenses, tires, etc., plus a generous depreciation allowance.

The actual expense method often provides a bigger deduction than the standard mileage rate. However, they must keep receipts, invoices and other documentation to show costs and establish the identity of the vehicle for which the expenses were incurred. For depreciation purposes, they must show the original cost of the vehicle and any improvements, as well as the date it was placed in service.

The IRS has issued detailed regulations covering the substantiation of vehicle expenses under the actual expense method. The best way to secure a deduction is to keep a contemporaneous log or comparable record of expenses and business use.

Facts of the new case: The taxpayer, a resident of California, had a full-time job at Stanford University. After moving to Palo Alto, she started a small clothing design business in Los Angeles.

During the year at issue, the taxpayer traveled to a patternmaker workshop in Los Angeles and Inglewood in southern California approximately every other weekend. She made the 800-mile round-trip by car. Although the taxpayer stayed with family and friends in the area during these trips, the primary purpose of the travel was business-related.

At trial, the taxpayer submitted a mileage log detailing the dates traveled, distances traveled and the purpose of each trip. She also submitted vehicle service receipts corroborating the miles driven. The taxpayer testified credibly as to the business nature of her trips.

End of the road: The Tax Court determined that the taxpayer has satisfied her burden of proof for substantiating vehicle expenses. Accordingly, it approved a deduction of more than $12,000 for vehicle expenses for the year at issue.

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Sex workers

Here are reasons people who don’t normally file should file a 2021 tax return

With tax filing season is just around the corner, this is a good time for those who don’t normally file to consider the benefits of filing a 2021 tax return. Filing can help them claim a refundable tax credit or get an income tax refund.
Here are some things taxpayers should consider when deciding whether to file a tax return:
Find out the general reasons to file
In most cases, income, filing status and age determine if a taxpayer must file a tax return. Other rules may apply if the taxpayer is self-employed or can be claimed as a dependent of someone else. There are other reasons when a taxpayer must file. The Interactive Tax Assistant can help someone determine if they the need to file a return.
Look at tax withheld or paid
Here are a few questions for taxpayers to ask themselves:
• Did the taxpayer’s employer withhold federal income tax from their pay?
• Did the taxpayer make estimated tax payments during the tax year?
• Did they overpay last year on their taxes and have it applied to their 2021 tax?
If the answer is yes to any of these questions, they could be due a refund. They must file a 2021 tax return to get their money.
Look into whether they can claim the earned income tax credit
A working taxpayer who earned $57,414 or less last year could receive the EITC as a tax refund. For the 2021 tax year, the tax return taxpayers file in 2022, the earned income credit ranges from $1,502 to $6,728 depending on their filing status and how many children they claim on their tax return. The law allows taxpayers to use either their 2020 income or 2021 income to calculate their EITC — taxpayers may choose whichever amount gives them a larger credit. They can check eligibility by using the EITC Assistant on IRS.gov. Taxpayers need to file a tax return to claim the EITC. By law, the IRS cannot issue refunds to taxpayers claiming EITC until mid-February.
Child tax credit or credit for other dependents
Taxpayers can claim the child tax credit if they have a qualifying child under the age of 17 and meet other qualifications. Other taxpayers may be eligible for the credit for other dependents. This includes people who have:
• Dependent children who are age 17 or older at the end of 2020
• Parents or other qualifying individuals they support
The Child-Related Tax Benefits page of IRS.gov can help people determine if they qualify for these two credits.
Education credits
There are two higher education credits that reduce the amount of tax someone owes on their tax return. One is the American opportunity tax credit and the other is the lifetime learning credit. The taxpayer, their spouse or their dependent must have been a student enrolled at least half time for one academic period to qualify. The taxpayer may qualify for one of these credits even if they don’t owe any taxes. Form 8863, Education Credits is used to claim the credit when filing the tax return.
Recovery rebate credit
Individuals who didn’t qualify for a third Economic Impact Payment or got less than the full amount, may be eligible to claim the 2021 recovery rebate credit based on their 2021 tax year information. If they’re eligible, they’ll need to file a 2021 tax return even if they don’t usually file a tax return. The credit will reduce any tax owed for 2021 or be included in the tax refund.

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