Sunday, June 27, 2010

Sticking With It

Most people read a mystery for the intrigue, to find out who did it and to figure things out as they go. It certainly doesn’t hurt if the mystery is masterfully written, with an elegance of expression, and is entertaining. In any case, readers don’t want the answers to a mystery all up front or there’s little reason to keep reading.

People enjoy art for similar reasons. The art they afford for themselves is acquired to enjoy its subtleties over the long haul. If finding out whether your expression activity can be less taxing isn’t mystery enough for you, doesn’t have adequate subtlety, and the knack of the telling isn’t captivating enough for you, please don’t stick with me. You’ll possibly be disappointed if you read on under those circumstances. Also, if you’re experienced in the business of expression, already making scads of money and are well established and skilled, maybe this advice isn’t for you either. (However, maybe you’ll enjoy comparing what you’ve done with what I suggest and pick up some pointers, too.) In any event, if you decide not to read it, maybe you know somebody on the cusp of great things that could benefit from it. Please pass it along.

On the other hand, after you’ve read all the postings, considered all the facts and circumstances and the applicable law in your situation, you’ll be able to figure things out. You’ll know that a lot of hard work is involved in any business of expression and it’ll make you a better manager and, perhaps, a better artisan. I’m telling you honestly, it’ll require patience and work, maybe both in the extreme. And if you don’t have the patience for it and aren’t committed to it, you possibly don’t have what it takes to succeed as a craftsman of expression anyway. Maybe this would be a waste of your time.

Saturday, June 26, 2010

Suck It Up

Perhaps you’re already saying about my last posting, “Walt, you’re rambling; it’s a simple question. Just give it to me straight, it can’t be that hard—can Doug go to Vietnam and deduct it? If you can’t answer that simple question right now, why should I even listen to you?”

Okay, that’s fair; I’ll give you an answer. Yes, he can. How’s that? Is that what you wanted to hear?

But the answer could also be “no” or “maybe.” You see, it depends. It’s as simple as that, and as difficult. Federal income taxes are complicated. If you think otherwise, you are naïve. Don’t be.

The answers that I intend to address here involving federal taxation focus on “expression activities,” whether your expression is made as a journalist, a painter, a book designer, woodworker, fiction writer, poet, or any other way you may express or intend to express yourself. They are based upon the premise that all of the facts and circumstances and applicable law have to be considered. I hear you groan. Suck it up.

This won't be some watered-down exposition intended to skim the surface, leaving you in the lurch if your tax benefits are challenged by the IRS. It won’t leave you scratching your head wondering what to do if a revenue agent or auditor alleges that you owe thousands of dollars more in taxes, interest, and perhaps even penalties. And it isn’t for anyone dabbling in an expression activity, sticking a toe in to see if the water is frigid or not. It’s for those who take the plunge. So be prepared.

Friday, June 18, 2010

Don’t be naïve like the anxious taxpayer who was visited by a revenue agent. The agent completed her audit and presented a proposal for a lot more taxes. It seems the taxpayer had claimed costs of a vacation trip for his entire family to Hawaii, arguing that he needed to personally experience snorkeling in order to achieve realism in his television drama Nowhere to Be Found. The agent evangelized as she watched the taxpayer’s eyes and mouth widen as he reviewed her proposal for more taxes and penalties. “You know, Mr. Taxpayer, it’s a great privilege to live and work in the USA,” she said. “Citizens have an obligation to pay their fair share. And we really expect you to pay with a smile.”

“Thank God,” said the taxpayer with a guffaw. “I thought you’d want cash.”

This blog will try to give you answers, the statistics, the possibilities, the strategies. Not only that, but I hope it will entertain you too, relieve your worry, and banish your anxiety by teaching you the best strategies for managing your freelancing business as you express yourself—making the process literally less taxing. Sit back and relax when the IRS calls. Change the IRS acronym from Internal Revenue Service (or as many taxpayers call it, the Infernal Revenue Service) to: I’m Really Sorry, IRS . . . but I don’t owe those taxes.

Wednesday, June 16, 2010

What Does It All Mean?

Such questions as were posed in yesterday's posting characterized the cases of myriad taxpayers who appeared before me during my career as what was once stiltedly called an “appellate conferee.” That title gave way to the simpler “appeals officer.” But what didn’t grow simpler during my career was the Internal Revenue Code. It has grown thicker in every conceivable dimension.

Well, while you’re thinking about Doug’s chances, think about this. On March 3, 2005, Peter Jennings wrapped up the night’s newscast by saying, “Finally here this evening, one very large tax bill. The government says it has never seen anything like it before. Walter Anderson, a multimillionaire businessman, appeared in a Washington, D.C. court today, accused of failing to pay more than $200 million in taxes. The government alleges that Mr. Anderson used several elaborate schemes to hide his considerable income. It's a lot of money.” Anyway, that’s $200,000,000 smackers of taxes, indeed a lot of money. Any normal person would ask himself: with government going after the likes of Walter Anderson and getting that large a return on their investment in resources, why would IRS operatives even care if Doug deducts the measly costs of his trip to Vietnam to get pictures depicting oversized loads on motorcycles?

On August 29, 2005, the IRS reported that the accounting firm KPMG LLP (KPMG) had admitted to criminal wrongdoing and agreed to pay $456 million in fines, restitution, and penalties as part of an agreement to defer prosecution of the firm. In addition to the agreement, nine individuals—including six former KPMG partners and the former deputy chairman of the firm—were headed for criminal prosecution in relation to the multibillion-dollar criminal tax fraud conspiracy. The fraud per the IRS and Justice Department related to the design, marketing, and implementation of fraudulent tax shelters.

Again, does it make any sense to worry about the IRS devoting resources to Doug’s crummy little Vietnam trip? Even if—shame on him—he takes his family with him and deducts their costs, too? Why should the IRS care about Doug when it can get the kind of return they have on KPMG? Or the return they possibly got on KPMG’s clients, who claimed billions of dollars in tax benefits from the fraudulent tax schemes and all owed the tax back plus interest and penalties? We’re talking about billions of dollars. What’s the risk to little old Doug of the IRS throwing its resources after him for deducting one lousy trip to Vietnam? Not much? A lot? Somewhere in the middle? And if the IRS does go after Doug, what’s the risk to him that the IRS will prevail? How much will it cost Doug? Does he risk serving jail time? And what about monetary fines or penalties? Is he at risk? What about his reputation? He is, after all, an aspiring author on the possible precipice of great things. Could the publicity help him?

All good questions. Many things for Doug to think about, to learn, to consider and ponder before he puts the costs of that trip on his profit-and-loss statement on a Schedule C and attaches it to his Form 1040, exposing it to the potential ravages of a dreaded IRS agent or auditor. And maybe, just maybe, those answers and many, many more important ones like them, both for Doug and for you, are just as important as finding a perfect simile or eliminating an unnecessary gerund, finishing the last chapter of your novel, entering that disquieting contrapposto or portrait in an art contest, or acquiring an agent to sell your work or a gallery to display your sculptures.

What does it mean to carry on the freelancing of expression in a businesslike manner? How does a person maintain a complete and accurate set of books? How important is it to consult advisors and have expertise? How much time and effort does a person need to expend in the actual conduct of freelancing? Does anybody care? Questions. Many pertinent and probing questions for every freelancer of expression.

Tuesday, June 15, 2010

Ben Franklin said, “In this world nothing can be said to be certain, except death and taxes.” The point is, you won’t live forever and you won’t escape taxation. It’s as simple as that. However, you might as well have some fun trying to escape all the taxes you can. I can help you do it.

Some writers find a way to exploit death in their writing before facing the Grim Reaper themselves. In this book I will provide freelancers of expression (writers and artisans) a way to do the same with respect to taxes. I am an expert in the field of taxation. (Note that I didn’t say tax law. If you need an expert in law, see an attorney.)

After a meeting of my writing group, two members were describing their vacation experiences. Eric had gone to India, and Doug had visited Vietnam. Another member and I lingered, asking questions and listening to stories and descriptions of places that were so different from home and contrasted so strongly with the American way.

While reminiscing about Vietnam, Doug explained that in situations where Americans would use SUVs and trucks to transport goods, the Vietnamese use motorcycles. “They tote outrageous objects on a single motorcycle,” he said. “I saw such extraordinary examples that I decided I needed to collect snapshots or else people back home wouldn’t believe me.” Such pictures ostensibly included a man on a motorcycle with a full-size mattress, a family of five, a man with a big fat pig, and two men in tandem on separate motorcycles carrying a fifty-foot, five-inch-diameter metal pipe between them.

Kelley, the other listening colleague, piped up. “Sounds like material for a wonderful picture book.” She enlarged upon the notion and explained the potential process, her entire demeanor optimistic of Doug’s prospects.

Well, enthusiasm grew like zucchini in Doug’s face. I saw him envisioning possibilities. “I need to go back to Vietnam and get more pictures,” he said. “And I have some other ideas, too.” Then, as if struck by a thunderbolt, he turned to me. “And I’d be able to write off the trip on my taxes, wouldn’t I, Walt?”

Doug’s wife hails from Vietnam. Doug was looking for a good old subsidy from Uncle Sam, probably not recognizing that it would be borne on the backs of other taxpayers, like you and me. Doug knows that the wake of my occupational ship includes a thirty-five-year stint with the IRS, twenty-six years of which involved hearing disgruntled taxpayers appeal actions of the auditors and collectors, whom taxpayers always seem to characterize as ‘overzealous.’

“I suppose I couldn’t take my family and have it be deductible,” Doug said hurriedly. Or was this seeming statement a question? Or a plea? And so a dialogue began: him asking, me trying to answer.

Well, what do you think? Can Doug deduct the costs of his upcoming trip to Vietnam? Should he? If so, could he deduct his family’s expenses as well? What are the chances Doug could prevail if audited?

Monday, June 14, 2010

The Aspiring Writer or Artisan or Freelancer

Every month—more or less—aspiring writers escape. They flee marital and parental responsibilities, leaving kids, parents, spouses, significant others, and even debilitated relatives behind for a few hours, maybe even escaping work by taking leave, or excusing themselves from a social obligation. All of this they do in order to go to a nearby bookstore, a library, a community center, or someone’s home to meet with peers in writing leagues, critiquing groups, associations, and organizations . . . so driven because they enjoy conveying themselves in words. They want to share and refine their expression.

If you are one such writer, this blog might be for you. If not, it’s probably not, unless you’re an artisan equally devoted to your medium.

This blog is for writers and artisans of expression, the plodding, diligent, have-to-be writers and artists of every ilk: fiction or nonfiction, sculpting or painting, technical or escapism, poetry or journalism, photography or graphic design. Yet it’s not for writers and artisans now supporting themselves entirely through their writing or artistry.

Some who get out in this manner to such meetings or to a show or exhibit each month more or less are published, or their works are shown or represented, and, possibly, they are “known.” Some are earning their entire support or supplementing their major sources of income by writing or by selling their talent or artwork. However, most attending such types of meetings are wannabes: they want to be published, they want to be exhibited, they want to be paid, and they want to be successful. They want to profit.

Amongst the tens of thousands of these wannabes are thousands on the cusp of moving from wannabe to winner. Or perhaps they’ve been a winner and fallen off the podium but are back on the cusp of winning. This blog is written for those on the cusp. It will help teach them strategies to succeed and, in doing so, make their expression activities less taxing. It will show how to avoid an assessment from the IRS, claiming your activity is a hobby. It will show you how to mitigate mistakes in operations that may get you in trouble with the IRS.