BOSTON ( TheStreet) -- IRS agents must be big fans of Oprah Winfrey. Over the years, the talk show queen has certainly done her part to push her fans into their arms.Every time the soon-to-be-moving-on host surprises her studio audience with a new car or trip to Australia, the taxman at the Treasury Department gets his due.
|Oprah giveth -- cars, trips to Australia and televisions -- and the taxman taketh away. After an early fumble on this front, though, the beloved talk show host made she sure waved goodbye to her own tax money instead of putting the obligation on her fans.|
Even the underworld is expected to pay taxes on their ill-gotten gain. There are federal and state penalties for failing to report income from gambling (legal or otherwise), fraud and drug deals. Form 1040, Line 21, and Schedule A, Line 28, of federal tax return forms are used to account for any unique gains or losses that might otherwise not be itemized elsewhere. Were you the architect of a billion-dollar Ponzi scheme? Embezzled hundreds a month from accounts receivable? Well, the IRS expects you to 'fess up to the added income (and if you choose not to, don't forget that it was tax evasion charges that brought down Al Capone). Drug dealers are required to itemize profits from their illicit enterprise for federal income statements. Many states also require a levy in various ways. The rationale for drug taxes dates back to 1937, where a federal crackdown on marijuana led Congress to pass an act requiring that dealers had to pay a tax that, in turn, netted them a stamp to be affixed to all sales. Failure to do so meant property and assets could be seized as part of tax collection efforts. Over the years, though the feds abandoned the strategy, about two dozen states have deployed a similar tactic.
That song you plunked out on a piano back in college finally caught the ear of an up-and-coming singer who wants to include it on her next album. Rather than selling it as a one-shot deal, you may want to strike an arrangement in which it is bundled with other songs. The Tax Reconciliation Act of 2005 included a piece of legislation called the "Songwriters Capital Gains Tax Equity Act" envisioned by the Nashville Songwriters Association International to benefit American songwriters who sell a song catalog. Previously, when songwriters sold a "catalog" they paid ordinary income taxes and self-employment taxes that could amount to more than 40% of their income from the sale. The tax change makes them eligible for a flat 15% capital gains rate if they sell the royalty stream on a group of songs. Give and take
A happy birthday may not lead to a happy tax day. If an person gets a gift in excess of $13,000 (or $26,000, if the gift is shared between joint filers), they are on the hook for a tax bill. They can either pay taxes on the amount above this limit or apply it against their lifetime gift tax exemption -- $5 million as of this year. Also as of this year, the tax on gifts ranges from 18% on applicable gifts below $10,000 to 35% on gifts of $5.5 million. "As a single filer, if you gave your niece a car valued at $20,000 last year, you need to decide if you want to pay taxes on the $7,000 in excess of the allowable gift tax or have that amount applied to your lifetime gift tax exemption," says Mark Luscombe, principal federal tax analyst, for CCH Group, a Wolters Kluwer business and provider of tax information and services. "Your niece owes no taxes on receiving the gift. However, if she sells it a few years from now, she owes taxes on any gain on the sale amount."
If you got compensation after the BP oil spill in the Gulf of Mexico, you may need to pay taxes on it. Payments received from BP ( BP), the Gulf Coast Claim Fund or the Vessels of Opportunity Program for lost business income, wages or profits are taxable, and either a 1099 or a W-2 form will be issued. A Congressional effort to exempt this compensation failed last year. The taxman giveth
Sometimes an unexpected windfall can come courtesy of the IRS itself. Steber says that earlier this month, since he is chief compliance officer, a flagged return was sent to his attention. The problem: The return seemed far too high. The filers were a retired couple who had recently adopted their four grandchildren. The father had abandoned them and the mother was dealing with her own issues in rehab. "It seemed like a pretty simple return," Steber says. "But in the new tax changes that happened last year, there were some very favorable adoption rules put in place. By adopting a "family unit," the grandparents were classified as a "special-needs adoption," a designation that comes with a $13,00 credit per child. They also qualified for the Earned Income Credit and other child-related deductions. "They ended up getting a refund of about $62,000 when they had very low to moderate income," Steber says. "They almost had a heart attack. That was about four times their total income for the year, all refundable, all valid and coming to those good people." -- Written by Joe Mont in Boston. >To contact the writer of this article, click here: Joe Mont. >To follow the writer on Twitter, go to http://twitter.com/josephmont. >To submit a news tip, send an email to: firstname.lastname@example.org.