Kids under 16 and SE tax

[taxea]

Nice catch on the Retirement Savers Credit.

Just wondering, you seasonal tax preparers do pay SE, don't you?

aren't most seasonal tax preparers hired as employees? that way if they are smart they qualify for unemployment after the season.

[FEDUKE404]

Tax preparers filing for unemployment benefits

aren't most seasonal tax preparers hired as employees? that way if they are smart they qualify for unemployment after the season.

It's comments like these that bother me, especially due to the current lack of funds for those many folks nationwide who are truly unemployed.

So I guess by the same logic a man who sells Christmas trees from late November through December should also file for unemployment starting in January???

Or perhaps also the snow ski instructor who gets "laid off" around late March when the snow cover is gone???

Heck, we could even add in the professional float builders who stay busy in New York and Pasadena just prior to the end of the calendar year, but then are "unemployed" for quite some time excluding a possible business relocation to New Orleans for Mardi Gras???

FE

[Gretel]

It's comments like these that bother me, especially due to the current lack of funds for those many folks nationwide who are truly unemployed.
FE

I sympathize with you, FE. I never like it if systems are abused. On the other hand this is what "naturally" happens to any system in place to help people. We are all only human and I hardly know anyone who doesn't feel needy one way or the other.

Coming back to unemployment. I thought you have to work a minimum time before you even qualify for UE. Is this not true?

[gkaiseril]

It's comments like these that bother me, especially due to the current lack of funds for those many folks nationwide who are truly unemployed.

So I guess by the same logic a man who sells Christmas trees from late November through December should also file for unemployment starting in January???

Or perhaps also the snow ski instructor who gets "laid off" around late March when the snow cover is gone???

Heck, we could even add in the professional float builders who stay busy in New York and Pasadena just prior to the end of the calendar year, but then are "unemployed" for quite some time excluding a possible business relocation to New Orleans for Mardi Gras???

FE

I believe most Christmas tree lot operators are independent contractors and not employees and as such are not generally entitled to unemployment.But most states have a requirement for having earned wages in at least 2 quarters to qualify for unemployment benefits. Further an owner employee is not entitled to unemployment even though he/she may be paying FUTA and SUTA on his/her wages.

As for seasonal tax preparers who are employees. These people may have gone to work because they were unemployed from another job and have stopped receiving unemployment benefits and taken on a job that will have FUTA and SUTA taxed wages. And the unemployment benefits that these workers will receive will be reduced from the full maximum amount because of their earnings history. There are also adjustments for part time work wile unemployed. Also there maybe retired individuals working as tax preparers and whose employers have to pay FUTA and SUTA taxes for these individuals even though they will not collect any benefits. And then there are those who work as a taxperparer as a second job in addition to a full time job and upon whose wages the taxes are being paid and who will not be claiming benefits after the tax season ends.

And who says these seasonal tax preparers are not also looking for employment while preparing taxes?

There are many jobs that are done on a seasonal basis. Should those who are in these jobs also be excluded from unemployment since they only work seasonally?

[Bees Knees]

I agree with AZ tax. See also TC Memo 2009-228 pg 6. Court held that 2 months is not enough to be in a trade or business.

Way out of context.

That court ruling was whether or not the person could deduct business expenses under Section 162.

The SE tax issue is whether income is subject to SE tax under Section 1402.

Two completely different code sections and two completely different issues.

The court case noted:

Petitioner argues that during 2003 she carried on a trade or
business, i.e., she worked as a contract attorney providing legal
services to other attorneys, and that she paid certain expenses
in connection with this alleged trade or business. Respondent
argues petitioner was not engaged in a trade or business because
she admittedly had no clients and reported no income related to
the activity during 2003.

2 months may have been considered, but the real issue was she had no income from the activity. That basically opens you up to all kinds of IRS scrutiny when audited. Had she earned income during those two months, there is no question her expenses would have been deductible under Section 162.

That is completely different than the issue of whether or not net income should be subject to SE tax under Section 1402.

[Gretel]

2 months may have been considered, but the real issue was she had no income from the activity. That basically opens you up to all kinds of IRS scrutiny when audited. Had she earned income during those two months, there is no question her expenses would have been deductible under Section 162.

Thank you, Bees. I see that there is a difference between the issues and that the true issue are the expenses. But why in world is there even mention of the 2 months period if that doesn't have any bearing on the issue?

[taxea]

I have never said that the rules are fair or not out-dated. All I have said is that until the rules are changed we do not have the authority to interpret (sic) them in a way we would like them to be but, rather, to follow them as they are.
I know that you don't appreciate my postings and like you say, to each his own but I will not knowingly put my clients in a position of being set up for possible IRS scrutiny by doing what I think should be done rather than what the IRS says we should do.

[Bees Knees]

Thank you, Bees. I see that there is a difference between the issues and that the true issue are the expenses. But why in world is there even mention of the 2 months period if that doesn't have any bearing on the issue?

To build the case for the fact that the taxpayer was not in business and therefore not allowed to deduct expenses. 2 months in itself is not enough to make the case for non-business status. Combine it with other factors, such as not having any clients and not making any money, and poof, you are not in business.

I will acknowledge that there are court cases and IRS rulings that say a temporary activity may not be a business. IRS instructions for Schedule C say:

An activity qualifies as a business if your primary purpose for engaging in the activity is for income or profit and you are involved in the activity with continuity and regularity. For example, a sporadic activity or a hobby does not qualify as a business.

The problem is, the code does not define what continuity and regularity means. It is left up to the interpretation of the IRS, the courts, and us, to decide. I tend to error on the side of, if you made a profit, it’s a business. If you did not, well then we better look at hobby loss rules to see whether we can deduct expenses in excess of income.

I’ve seen discussions on this issue before, and in almost every case, the argument making the case for no SE tax usually centers on court cases that dealt with denying deductions in excess of income. In general, most of the court cases on the subject deal with activities where the taxpayer did not make any money, yet tried to deduct their expenses. Those are the cases where the court looks at the activity and says, no it was not a business because of this and that, therefore you can’t deduct your expenses. It is rare to find one where the issue is whether or not the taxpayer is subject to SE tax, and I don’t think there is enough case law out there to argue that an activity that lasts only 2 months is not subject to SE tax. If the guy gets a 1099-MISC, the IRS is automatically going to argue SE tax, regardless of how long the job lasted.

It is similar to the issue of reasonable compensation. If we are talking about a C corporation, the IRS argues you paid too much wage to the shareholder. If we are talking about an S corporation, the IRS argues you did not pay enough wage to the shareholder. Same set of facts, yet two different positions taken by IRS. It is the same for SE tax verses deducting business losses. If you are trying to deduct expenses in excess of income, IRS says, no you are not a business…you only did it for 2 months. If you are trying to argue it is not subject to SE tax, IRS says, yes it is…you made a profit.

Nobody said taxes are consistent or fair.

[Gretel]

Thank you so very much, Bees.