This is part 2. Click Part 1 to read the beginning.
Following Becky's call on Saturday's Moneytalk, a CPA named Huge called in to Correct Bob's tax advice to Becky.
Hugh: "Hi Bob. First time caller - been listening to you for a long time. I'm a CPA here in Omaha. With regard to your babysitter, the code......(Brinker interrupts: "Not my babysitter, the caller was a babysitter.").....well, Code Section 102, which excludes gifts from income, does not exclude gifts in the employment arena unless you can show that the payments were made for other than the employment situation."
Brinker: "Yeah, but Hugh, go back to the caller, the caller is working for somebody that is not treating her as an employee in any way, shape or form."
Hugh: "If it's for services, for services rendered, it doesn't matter whether the other person reports it or what they do with it. If it's for services rendered, the funds coming to you, then it is income for income tax purposes."
Editor Comment (EC): After some back and forth between Bob and Hugh
Brinker (raising his voice as though a very exasperated): "Well, I agree with you 100%, and I agree with everything you're saying 100%. But what I'm saying is as long as the person hiring the babysitter is not going to file all those forms, then it places the person receiving the money in a pretty ridiculous position because what she would have to do - let's stay with your thought of the letter of the law. What she technically should be doing here, Hugh, is turning in her employer for violating the law. (Hugh: "Absolutely.") Yeah, she's not going - I mean, I mean, you can tell her to do that, but she's not going to do that - she wants the $10,400 dollars. And this is probably somebody who wants a friend." (Hugh unsuccessfully tries to talk in background.) So I mean practically speaking, you know - we can talk about the letter of the law - and I'm in agreement with you 100% and I think the woman should be filing all those documents and I think the woman should be filing it as income. But we both know that the chances of that happening are about as good the Tampa Bay Devil Rays playing in the World Series. It's not going to happen!!!
Hugh: "One of the risks that the employer runs is what if the person becomes injured while in their employ and then they file suit under Workmen's Comp? I mean that...."
Brinker: "And that's very possible while you are babysitting because it's very, very easy, when you babysitting, as we both know to get injured. I mean at least a black eye."
1-800-xxx-xxxx...... Bill's with us in Novato"
- Read the full "Call with Hugh the CPA transcript"
On Easter Sunday, the next day, Bob corrected himself but "recharacterized" his discussion with Becky. In essence, Bob said he agreed with what Hugh the accountant told him. Bob tried to make a point that it would get Becky's "friend" in trouble if Becky reported the income. It reminded me of my teenage years when some "friends" wanted me to go to the mall and steal things with them. I elected to stay home that day and am proud of this decision, 35 years later. My mother used to say to me while pointing to the Golden Gate Bridge "if your friends jump off, are you going to jump with them?"
- Read the full "Bob's Sunday 'recharacterization' transcript"
Editor Comment (EC): Tax laws are complex but you are responsible for paying taxes on all income, no matter how you got the income. A "gift" in return for services rendered is not a gift. The IRS calls it a "tip" and requires workers to report all tips.
DISCLAIMER: Answers & my words are general in nature, are not meant as specific investment or tax advice, and do not necessarily represent the opinion of anyone but Kirk. Individuals should consult with their own advisors for specific investment and tax advice.
Kirk Lindstrom - With my writing, I hope to help you too reach AND MAINTAIN critical mass where your investments earn enough money that you don't have to ...
