It is Christmas! While the happiness that comes with the holiday is enjoyed by most of us, the IRS continues to do their job undeterred by the season and its traditions. We will now take a look at the situation involving the income tax audit of one Kris Kringle, also known as Santa Claus.
Santa employs many elves at the North Pole place of business where the toys are made for all the good girls and boys. With all those elves, Santa must make sure the proper employment forms are on file. Significant penalties could be assessed against Santa if his files don’t include the I-9 immigration form for the foreign elves. The New Hire form must be filed with the applicable states so they may track down any elves that are behind on their school loans or little elf support. Don’t forget the W-4 form must be completed for each elf on the payroll to assure the proper amount of withholding is taken from their toy making pay.
To deliver the toys to all the good girls and boys, Santa and his reindeer travel thousands of miles over the Christmas holidays. If he fails to adequately document his mileage, rooftop parking and tolls, he could lose valuable deductions and result in a significantly higher tax bill this year.
Santa is paid for the toys he delivers to stores. The toys he leaves at the houses for all the girls and boys are free! This calls into question the profit motive for the entire operation. How could Santa possibly expect to make a profit when he gives away such a high percentage of the products the elves make? Santa needs to document his business model in order for his toy making and delivery business not to be deemed a hobby and therefore any losses are not deductible.
What about all those elves? Do they qualify as Santa’s dependents? Each elf must complete a form outlining their sources of income and support outside of their North Pole toy making income. Santa must also track where each elf sleeps every night in order to establish custody. Without this key piece of information, he loses the right to claim many of the elves as dependents. This could result in a significant assessment to Santa and cause old Saint Nick to not be so jolly.
If Santa needs a good CPA, he can find one in Jefferson, Maryland.