Restrictions on deductions for artists eased, but substantial limits remain

Article Abstract:

Capitalization rules have been eased for professional artists, although significant restrictions on tax deductions remain in place. To claim deductions, artists must show that their intention was to make a profit. Profit intent is generally proven by the financial status of artists and the expertise of artists and their advisers. The expectation of anticipated profits need not be reasonable. Congress has enacted Section 183 to allow presumption that a taxpayer has engaged in an activity to make a profit. Presumption of a profit motive is based on gross income derived from activity in three of five consecutive tax years prior to the period ending in the year a deduction is claimed. There are three categories of deductions: items deducted regardless of activity; expenses deductible if the activity is engaged in for profit; and expenses affecting the adjusted basis of property used in the activity. Congress has exempted most artists' activities from capitalization requirements as to qualified creative expenses.

Artists

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Excess plan assets can pay retiree benefits

Article Abstract:

The Revenue Reconciliation Act of 1990 added Section 420 to the Internal Revenue Code, which allows employers to transfer excess funds from defined benefit pension plans to retiree health benefit plans. Section 420 can be applied to transfers done in the taxable years after 1990 and before 1996. Many pension plans have become fully funded and have built up excess assets, causing employers to terminate the plans to recover the excess assets. However, such actions incur a 20% excise tax on recovered excess pension plan assets and create ordinary income for the employers. Employers are finding that transfers of excess assets to retiree health plans benefit them more than recovery of the assets.

Defined benefit plans, Retirement benefits

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