- quote -

they should put the brain in jail.

Cheer$,
Harlan Lunsford, EA in LA
(who thought "shagnasty" was in the UK

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

- quote -

Preparing tax returns is the product of my intellect, so
maybe that should be non taxable. Brain surgery is the
product of a doctor's intellect, so maybe that should be non
taxable. Fraud is the product of an Enron executive's
intellect, so maybe.....???

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

"Dick Adams" <rdadams[at]smart.net> wrote:
- quote -

From a tax standpoint, the intellectual property groupings are
patents/trade secrets/know-how; trademarks; and copyrights

Deduction of Development Expenses:
Sec. 174 of the Internal Revenue Code permits a taxpayer to
deduct expenses which are paid or incurred during the
taxable year in connection with a trade or business
associated with the technology. The term "in connection
with" is deliberately less stringent to distance the
application of Sec. 174 from the requirement of having an
ongoing business concern, which was previously required in
order to deduct development expenses.

Capital Gains Treatment Upon Sale of the Technology
Sec. 1235 of the Internal Revenue Code allows a patent to
have long term capital gain treatment even to a professional
inventor, and regardless of holding period. With most
properties it is required that the owner hold the property
for a year in order to obtain capital gains treatment. With
patents, an invention made on one day can be sold the next
day and still receive capital gains treatment. The key to
capital gains treatment is to be a "holder" as defined in
the Internal Revenue Code. A holder can be the inventor, or
one who bought from the inventor, but not those who are
merely in privity with the inventor. A holder is defined as
one who obtains an interest in the technology before it is
actually reduced to practice. Investment partners and
investment co-owners who contribute capital can qualify as
holders so long as the contribution is made before actual
reduction to practice. Constructive reduction to practice
does not apply to the Internal Revenue Code definition. Reg
Sec. 1.1235-2(d)(3)

The right to deduct research

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

"Quicksilver" <me[at]davidmurray.us> wrote:

- quote -

Get help right now from a local CPA or EA. They can probably
save you more than you will have to pay them.

Wayne Brasch, CPA, M. S. Taxation

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

Quicksilver wrote:

- quote -

Not relevant.

- quote -

They have already changed your taxes if they are doing this.
Per your own admission, that change is CORRECT since you
chose not to report an amount that you should have.

Your taxes are "high" (50%) because there's more than one
type of tax that you skipped on: Income tax and
self-employment tax (effectively ~14.1% by itself). If your
income tax put you into a 36% bracket, then the IRS is
probably collecting the right amount. They get to add
interest and perhaps some penalties too.

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

"Quicksilver" <me[at]davidmurray.us> wrote:

- quote -

Gee, I love this concept. Now all I have to do is determine
what portion of my tax and accounting work is "intellectual
property" so I can exclude the income from my return.

Seriously, you are in over your head, and you are having
trouble acknowledging taxable income. I strongly suggest
that you find professional assistance with you tax problem
immediately. The IRS can change your life if you try to
play games with them.

--
Sincerely,
Joanne

If it's right for you, then it's right, . . . . . for you!!!

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

me[at]davidmurray.us (Quicksilver) writes:

- quote -

Where did you get the idea that income from the creation
of intellectual property is non-taxable?

On top of that, depending on the exact nature of the
work you did and your contract with your client, there's
a good chance that none of your income is royalty income
and that it is all plain old business income, subject to
the self-employment tax in addition to income tax.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

Quicksilver posted:

- quote -

Only one answer: _Get thee to a professional, immediately_.

Do not pass go. (And you certainly won't collect $200 --
but you may save thousands!)

Bill

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

- quote -

If your clients paid you $20K, that is self-employment
income to you. It is taxed at your marginal tax rate plus
an extra 15% to account for Social Security and Medicare.
(If you have already maxed out on Social Security at your
regular job(s) you won't have to pay the SS on this.) It is
also subject to state income tax.

- quote -

If you actually SOLD intellectual property (patents,
trademarks) to your client you have a more complicated
problem. However just because your design work is the
product of your intellect does not make it non-taxable.

- quote -

I would see a local EA or CPA.

--
Don EA in Upstate NY

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

- quote -

I'm assuming you forgot about this money by accident and did
not attempt to commit fraud.

- quote -

HAHAHAHA,,,, it is only not taxable if the only intellectual
thing you did with it was thinking about getting paid but
NOT getting paid. This is 100% taxable.

- quote -

Sorry, therefore 100% of your NET is taxable at YOUR tax
rate and then you have SE tax involved.

- quote -

1040X, Sch C and SE for starters and perhaps you may want to
retain a lawyer. I have seen them go for fraud for a lot
less money.

Helen, EA in PA
Member of The Tax Gang
President, PA Society of Enrolled Agents
1040EZ and 1040A tax prep at www.1040.com/1040pro

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

- quote -

Well let's see 15.3% for Self Employment Tax and 25% for
Federal is 40%. You are lucky that you did not get hit with
the "substantial underpayment penalty". With state taxes
and other penalties and interest the 50% sounds about right.

- quote -

I'm sorry but I must have missed that portion of the
Internal Revenue Code that exempts income taxes on the sale
of intellectual property. Now many localities exempt
intellectual property from local property taxes but that is
an apples and oranges issue.

- quote -

Are you in the 10-15% bracket? The taxable portion of this
amount would be taxable at your ordinary income tax rate.
My bet is that is more like 25%.

- quote -

Have you considered filing a schedule C and deducting your
legit business expenses. Certainly there are some. This
will reduce the tax. Because of where you're at in the
collection process (garnishment) I would highly suggest that
you get yourself and your records to a CPA or EA.

--
Regards,

Mark X Rigotti

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

"Quicksilver" <me[at]davidmurray.us> wrote

- quote -

I don't know why you thing that intellectual property isn't
taxable. But in any event.......

Your best bet would have been, to file a Schedule C and
claim the expenses you should have had in generating that
revenue. Things that come to mind would be supplies,
travel, phone, meals, and so on.

Those reduce your taxable profit and will hold up in an
audit (and expect one) much better than your "intellectual
property" line.

At this point you're WAY beyond the do-it-yourself stage, so
seek out the help of a CPA or EA in your area that can
assess the situation after seeing all your records and
notices.

--
Paul A. Thomas, CPA, PC
Athens, Georgia
taxman[at]negia.net

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

"Quicksilver" <me[at]davidmurray.us> wrote

- quote -

Sounds right.

- quote -

I'll grant you it was 100% intellectual property that you
sold for $20,000. That makes the $20,000 taxable.

- quote -

If they are already garnishing, you must have been hoping
those letters would stop on their own. Get yourself over
to an EA or a CPA. Run, don't walk.

Dick

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

I am a graphic designer, in the year 2000 I made 20k extra
in the year doing graphic design side work that I did not
report. The IRS is trying to tax me at a 50% rate of 20k.
They are basing this on form 1099 turned in by the clients.

My thinking - - - - - -
I feel that 50% of my work is intellectual property and not
taxable. Therefore 10k is production thus taxable at 10-15%
rate.

How can I ammend this they have already started garnishing
checks and withholding returns? Can you tell me what forms
(1040x,sch.E??) to fill out and how to approach this?

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->