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When the IRS insists that you include an email address on returns, they are perpetuating these fraudulent activities. They tell you they will never contact you via email, insist on receiving your email address and then act shocked that people think it's reasonable the IRS would contact them via email about tax matters.

WASHINGTON — The Internal Revenue Service, state tax agencies and tax industry today warned tax professionals of a new scam email that impersonates the IRS and attempts to steal Electronic Filing Identification Numbers (EFINs). The Security Summit partners said the latest scheme, arriving just before the start of the nation's tax season, should serve as another reminder that tax professionals remain prime targets for identity thieves. These thieves try to steal client data and tax preparers' identities that will allow them to file fraudulent tax returns for refunds. https://www.irs.gov/newsroom/irs-summit-partners-issue-urgent-efin-scam-alert-to-tax-professionals

Facts and circumstances. There are a lot of people who sell this stuff to get their own supplies at the discounted "wholesale" price. Then they sell some to friends and family, and once they take expenses into account, it's a loss for the year. There are a lot of people who go into it with a profit motive and take a few years to learn why everyone decries MLM schemes, and then give up as having had an expensive lesson. If she treats it as a hobby, then yes Sch C, back it out, then put the income on "the line formerly known as Line 21." Then she pays ordinary income tax on hobby income, because the expenses indeed go on Sch A except they don't usually have any effect with the new, higher, standard deduction. If she thinks it's a business that will at some point earn her a profit, then put it on Sch C and take the expenses and losses - and be prepared to demonstrate profit motive if the losses continue. I have one business client that has losses every year, and has been audited for that. I successfully defended the position - the statute says there must be a profit motive, and actions taken towards becoming profitable. The statute does not state the person needs to be competent! My client has a definite profit motive, and is merely incompetent at running a business. The agent I dealt with accepted my proofs, and accepted the "incompetence" defense with a bit of chagrin - but he accepted it. The years have borne it out; every year his overall losses are lower and I expected that 2020 would (finally!) show a profit, before the world went mad.

I they can NOT be claimed by someone else as a dependent in 2020, then they claim their own RRC. If they CAN be claimed as a dependent in 2020, then they do NOT qualify for the RRC.

There are scam letters out there trying to get people's bank info.

I am wondering if you actually saw the letter, or he just told you what it said over the phone. My GUESS is that he did not get one or both of the stimulus payments from the IRS for last year because his account numbers was incorrect. If that is the case, the 2020 tax return is the place that is reconciled and he would file to get the recovery rebate credit now, which would result in a refund and the bank information being transmitted with the return when you electronically file. I would put in the correct amount of his social security, and any interest income he has because I don't think you can transmit a return that has NO income whatsoever. You may need to put a $1 entry in somewhere, I am not sure. I have not actually had to file one for the recovery rebate credit yet.

I received my first batch of federal accepted e-files yesterday evening and a few more came in this morning. Looks like they opened up early, at least for Drake! I love Drake!

@PossiI think what Abby is saying is correct. For a hobby that is selling an item, the "Gross Sales Price Less the Cost of Goods Sold" is taxable. This goes back to the basic premise of tax law that only the accession to wealth is taxed. The expenses not related to the Gross Income follow the rules you posted above. This 2019 article from a CPA firm says it better than I can. "If you sell goods as part of your hobby, cost-of-goods-sold is deductible, subject to the gross income limitation. The TCJA suspended miscellaneous itemized deductions until 2026, removing the ability to deduct hobby activity expenses, other than cost of goods sold." To get to the proper reporting of the taxable income, and to reflect the full amount of the 1099NEC on the return, you would follow the procedure Abby outlined above, putting the full amount of the 1099NEC on the other income line and then backing out the COGS on the same line. Tom Modesto, CA

#goshimisseverybody

If you just want this to go away, while making sure the IRS has the right bank info, here's what I'd have the client do. 1. Make a $1 estimated payment using Direct Pay. 2. File a 1040-SR and claim that $1 refund with direct deposit. 3. Change the official account with the SSA, too, before the bank stops doing the "courtesy" of forwarding the funds to the right account. It will be over faster, and hurt FAR less, than being on "ignore" with the IRS for hours on end (with that gawdawful muzak in your ear) only to be told to do something similar.

Hobby expenses must be deducted on the Sch A. That is what I always thought, and it's in that link you sent: Deductions for hobby activities are claimed as itemized deductions on Schedule A (Form 1040). These deductions must be taken in the following order and only to the extent stated in each of three categories: Deductions that a taxpayer may take for personal as well as business activities, such as home mortgage interest and taxes, may be taken in full. Deductions that don’t result in an adjustment to basis, such as advertising, insurance premiums and wages, may be taken next, to the extent gross income for the activity is more than the deductions from the first category. Business deductions that reduce the basis of property, such as depreciation and amortization, are taken last, but only to the extent gross income for the activity is more than the deductions taken in the first two categories.

It's like Avon or Mary Kay

2020 rules, so if they are not a dependent in 2020, the get the full amounts of both, if income is low enough, regardless of what their parents already got for them.

That's exactly correct.

But that causes SE tax on a hobby.

Ok, I figure it out, you need to input zero on line 16 and 19 on the recovery rebate worksheet if in 2019 they were a dependent, and not in 2020.

Has your family that is attending/hosting quarantined? Have you? Are any or all of you vaccinated? Is your family the kind that WILL wear masks, stay six feet apart, wash hands, not shout or sing, etc.? Are you close enough to Pittsburgh that you won't have to use a public restroom on your way? Close enough that you don't have to stay overnight? Do you know and trust whoever is handling the food? Is the venue large enough that you can move every 15 minutes to mix and mingle and not hang around one person too long? Will the event/some of the event take place outdoors? If you're asking, you probably shouldn't go!! (I haven't visited my granddaughters in PA since last Christmas.) Stay safe.

The bank account info can be changed at ssa.gov; or the form can be filled out and taken to the nearest SS office.

Look at the Social Security card and just use the first part of the last name or a shortened first name, since the IRS does not care about first names.

Well, that seems to be the heart of the matter, but the only way to give the irs new bank info would be to make an estimated payment for 2020 (using direct pay) and then file for a refund. And this is just for future stimulus payments, so it should be worthwhile.

She only has a choice if she filed the election to be treated as an s-corporation. If she hasn't made the election then she would file on schedule C. Not sure about IL but KY does require an additional form (and fee - LLET Tax) to filed for the LLC.

I've already transmitted a couple less complicated 1040's. Fingers crossed.

We are holding off on the 1065s and 1120s, possibly for a couple of weeks. These forms seem to get updated all season long, but the big issues usually get corrected earlier than the later updates (where some insignificant entry doesn't carry to where it's supposed to and only affects one in a million entities). With all the changes to the changes that occurred this year, I doubt the IRS caught everything so we'll give them time. We probably won't efile individuals and 1041s until Monday or Tuesday, just so the ACKs will come back quickly, which probably won't happen with the onslaught on opening day.

Danger, Will Robinson!

I have also struggled with this form. With Drake they have a way to input each household member the same way the Federal did when the penalty was charged. Even so you have to go thru all the hoops and end the end the client's I have that was affected by it, had low enough income it wasn't assessed. I still had to go thru the motions. Not really liking California this year!