I believe your post is a little half baked in regards to taxes.Cory and Dakota said:Yep, any money coming in during an event like this would be ordinary income for the person that accepts the money, in my opinion. If the owner took the money and then gave half to the pro as payment, it would be taxable to both of them. If he gave it as a gift to the pro, it would only be taxable for the amount over the gift limit. (I think it is $10,000 right now but not sure on that.)
To lower your taxes, try to argue that it is a long term capital gain since you have trained your dog for years to earn this money! Tax rates on LTG's are much lower. Most likey, The IRS would not share this view. LTG however. Your CPA might find a way to do it however.
Cory
Math on SRS winnings
G
I was just checking in to the SRS site and was wondering that if you won $30K cash and $25K value in trailer, wouldn't the taxes on that basically wipe out the cash? Don't get me wrong, I'd love to win it. I just thought the tax bracket on winnings is around 50%....
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I believe your post is a little half baked in regards to taxes.Cory and Dakota said:
I've never done any professional accounting, and have only been taking some CPE recently, so I've developed a little interest in taxes. I figured you might want an opinion if someone actually thought something was half baked.Cory and Dakota said:Please provide your opinion if mine is flawed. I am not a personal tax specialist by any means. My practice is strategic corporate tax avoidance and compliance.
Part of what I thought might have been half baked, is the recognition of SRS winnings as capital gains. It seems far fetched to me but I really don't know. I suspect the winner gets something like a 1099 or the equivalent at the end of the year stating what sort of income it is.
The other part that I am a little more sure about is the taxation of gifts. A gift is not taxable to a recipient regardless of the amount. If the amount is over the annual limit, it is legally supposed to reduce the lifetime estate tax exemption amount, and tax is only required to be paid after the exemption amount is used up. If it is paid at all, it is estate tax and not income tax.
There is a good chance I've got things wrong. It takes a lot of effort to figure things out, and remember things from the self study CPE I have been taking. Thanks for posting.
When someone gives a gift it has to qualify as a gift. I believe words have to be included that say nothing is expected in return. It is kinda far fetched to think that someone would be giving their pro a large sum of money without expecting something in return. Basically, it wouldn't stand up so it is far fetched.Cory and Dakota said:As I put in my prior post, it would be extremely agressive to try the LTG route and does not fit the real intent of a LTG. It was a somewhat sarcastic remark that since you put years of work into the dog, then the gain should be treated as a LTG. The IRS would not share this view since you didn't directly invest money and were expecting the gain later.
A gift to an individual is definitely a taxable situation. If you gave your pro the money as a gift, you have to pay his tax on the money as well for over the limit. Now you are paying tax twice on some of the winnings. (The limit has been increased since I took the CPA exam to $12,000 per year. It used to be $10,000)
Here is the Gift Tax blurb from the IRS website.
"IRS Tax Tip 2007-39
If you gave any one person gifts in 2006 that valued at more than $12,000, you must report the total gifts to the Internal Revenue Service and may have to pay tax on the gifts.
The person who receives your gift does not have to report the gift to the IRS or pay gift or income tax on its value.
Gifts include money and property, including the use of property without expecting to receive something of equal value in return. If you sell something at less than its value or make an interest-free or reduced-interest loan, you may be making a gift."
A gift over $12,000 in one year is not necessarily a taxable transaction, and from the way I understand it, a lot of the time it isn't. Say for instance I gave someone $62,000. That is $50,000 over the anual limit to one person. My lifetime annual estate tax exemption would be reduced by $50,000. I would not have to pay any tax on it because that is how it works. There is still plenty of exemption left, and my estate when I die may not be over the exemption amount. The exemption amount is getting as high as $2,000,000 and at one point soon will be limitless until the tax law changes. Lets say the $62,000 was not earned income, but a gift from someone else. It is hypothetical, but in that case I nor the recipient would ever pay taxes on the money.
The taxes they are talking about on the IRS page is estate tax, not income tax.
It is no big deal, it took me a long time to understand it that way and could still be wrong about it but I doubt it. I have rehashed it and second guessed and quized people on it quite a bit.
If an owner has a qualified dog related business, the winnings are income. Any money he gives his pro is an expense to the owner's business. The money the pro would receives would be income to the pro's business.bayou beagle said:All of this is based on how the owners and trainers account for their business. Most trainers probably active with LLC or other and owners may have an active business or hobby activity.Cory and Dakota said:DL-
You think if a Pro wins a prestigous event, a gift would be out of the ordinary? I would not think it would be far fetched at all. In fact, I would bet a number of pros that have won nationals for a client have recieved fairly large gifts. I have been given gifts by my clients before (although nothing to trigger a taxable event!) so I would not think a gift from an owner to a pro would would be out of place.
Secondly, gifts over $12,000 are definitely a taxable event. You must file a tax return annually on gifts over $12,000. Whether you owe taxes on that money depends on the situation and what exculsions might apply. A taxable event does not mean that taxes are actually owed. Taxable event means the event must be reported. You are correct that you might not owe taxes until you meet the lifetime threshold.
If you want to read a quick guide that gives some great examples, here is a link: http://www.irs.gov/pub/irs-pdf/p950.pdf
The post above is talking about gift and estate taxes. Last time I checked businesses don't have estates when they die. It is a different situation, so I totally agree.
Actually I think whoever receives the prize money is probally spelled out in a previous contract. There is no telling how often someone gives another person a gift and it is surely underreported to a certain degree, but to say someone is going to give another person a gift to save on taxes is half baked in my opinion. I know I keep saying half baked, but I'm trying to keep my tone light. This is just a message board. I hope that I've explained why I thought your post was a little crazy.Cory and Dakota said:DL-
You think if a Pro wins a prestigous event, a gift would be out of the ordinary? I would not think it would be far fetched at all. In fact, I would bet a number of pros that have won nationals for a client have recieved fairly large gifts. I have been given gifts by my clients before (although nothing to trigger a taxable event!) so I would not think a gift from an owner to a pro would would be out of place.
Secondly, gifts over $12,000 are definitely a taxable event. You must file a tax return annually on gifts over $12,000. Whether you owe taxes on that money depends on the situation and what exculsions might apply. A taxable event does not mean that taxes are actually owed. Taxable event means the event must be reported. You are correct that you might not owe taxes until you meet the lifetime threshold.
If you want to read a quick guide that gives some great examples, here is a link: http://www.irs.gov/pub/irs-pdf/p950.pdf
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