Five Tax Tips Too Good to Be True – And Why They're Not | Summary and Q&A

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April 13, 2021
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Bloomberg Law
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Five Tax Tips Too Good to Be True – And Why They're Not

TL;DR

Get accurate information about taxes and debunk common misconceptions to avoid costly mistakes.

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Key Insights

  • 👨‍💼 Merely creating an LLC does not make personal expenses deductible for your business.
  • 🧑‍🏭 The IRS determines the classification of independent contractor or employee based on certain factors.
  • 🧑‍⚕️ Undocumented workers often pay taxes but cannot file for a return due to invalid social security numbers.
  • ❓ Cryptocurrency transactions are taxable, and income must be reported to the IRS.
  • ✅ Most pandemic relief checks, like stimulus payments, are not subject to taxation.
  • 🚕 Understanding tax myths and seeking expert advice can help avoid costly mistakes.
  • 👨‍💼 It is essential to differentiate between personal and business expenses to ensure accurate tax reporting.

Transcript

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Questions & Answers

Q: Can I write off personal expenses by creating an LLC?

No, just creating an LLC doesn't make personal expenses deductible. Expenses must be tied to your trade or business and meet the criteria of being ordinary and necessary.

Q: Can my employer determine whether I'm an independent contractor or employee?

The IRS determines if you are an independent contractor or employee based on factors like control, work arrangements, and restrictions on competitive work.

Q: Do undocumented workers pay taxes?

Yes, many undocumented workers have taxes withheld from their paychecks. However, they may not be able to file for a return due to invalid social security numbers.

Q: Is cryptocurrency income taxable?

Yes, cryptocurrency income is taxable. Earnings from crypto transactions are considered income, and any capital gains upon disposal are also taxable.

Q: Are pandemic relief checks taxed?

Most pandemic relief checks, like stimulus checks, are not taxed. However, they may need to be reported on your tax return if you didn't receive the full amount.

Summary & Key Takeaways

  • Creating an LLC doesn't automatically make personal expenses deductible for your business.

  • The determination of being an independent contractor or employee depends on factors like control and work arrangements.

  • Undocumented workers often pay taxes but may not be able to file for a return due to invalid social security numbers.

  • Cryptocurrency transactions are taxable and cannot be hidden from the IRS.

  • Some pandemic relief money, like stimulus checks, is not taxed.

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