5. March 2010 by admin.

Question:   Are the amounts a taxpayer receives from a “reverse mortgage” taxable?  Deductible?

Answer:   NO to both.  Interest on a reverse mortgage loan added monthly to the outstanding loan balance as it accrues is neither taxable in a cash method lender’s gross income nor deductible by a cash method borrower at the time it is added.

• The primary purpose of a reverse mortgage loan is to enable elderly persons with limited incomes to remain in their homes.
• Repayment of the loan is due when the principal amount has been fully paid to the borrower (they receive monthly allotments),
• The residence that secures the loan is sold,
• The borrower dies, or the borrower ceases to use the home as the borrower’s principal residence

Posted in Income Tax | 1 Comment »

3. March 2010 by admin.

Are Work Clothes a Deduction? 

Generally yes if they are work clothes or uniforms if required and NOT suitable for everyday use.  That deduction would include the cost and upkeep if both requirements are met.

If I purchase a nice suit for business, it is not a deduction as it has alternate use.

If I am a professional clown (no comments please), then the clown suit with the big shoes, etc. would be a deduction.  Yes, It has alternate use but I probably would not use it to go to the mall.

Nor is it enough that you do not, in fact wear your work clothes away from work. The clothing must not be suitable for taking the place of your regular clothing.  www.USATaxHelp.com

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12. February 2010 by admin.

According to Publication 17, “A scholarship received by a child who is a full-time student is not taken into account in determining whether or not the child provided more than half of his or her own support.”  

Posted in Income Tax | 1 Comment »

7. February 2010 by admin.

2009 Standard Mileage rates for the use of a car (includes Pickups, Vans and Panel Trucks):

• 55 cents per mile for business miles driven (decreases to 50 cents per mile in 2010)
• 24.0 cents per mile driven for medical or moving purposes (decreases to 16.5 in 2010)
• 14 cents per mile driven in service of charitable organizations (same in 2010)

Runzheimer International conducts an annual study of fixed and variable expenses to operate a vehicle.  Please note the Business Mileage Deduction may not be used if a vehicle has been depreciated using MACRS or depreciated using  §179.

Posted in International Taxation, Sub S Corporations, LLC's, Income Tax | No Comments »

5. February 2010 by admin.

That depends on the AMOUNT of income AND the TYPE of income.  Filing is not required if all of your income is from W2 Wages, Interest, Dividends and Other Miscellaneous Inocme (excluding Social Security) AND if the total income is less than the Standard Deduction plus personal exemptions.

2009 example:A Single person’s standard deduction is $5,700.  Add a personal exemption of $3,650.  Total $9,350.  That means on the first $9,350 of income there is no Income Tax liability and NO filing requirement.  If the taxpayer is 65 or older, or blind add another $1,400 to the standard deduction for a total of $10,750.

But it’s not really that simple.  Let’s assume this single person’s only source of income was $1,000 of self employment income.  The Income Tax is zero BUT the return must be filed due to Self Employment Tax liability on Self Employment Income of $400 or greater!

Suppose the person’s self employment income is $200 and that’s all.  Sounds like no filing requirement.  The self employment income bottom line may be only $200, but let’s say the business of the self employed person generated $1,000,000 in sales with enough expenses to generate only a $200 profit. 

YES, there is a filing requirement!  Think about it.. a million dollars passing through a self employed person’s hand should be accounted for.  

Posted in Income Tax, General | No Comments »

5. February 2010 by admin.

Cost Segregation is a VERY BENEFICIAL tax angle used by real estate owners to ACCELERATE DEPRECIATION deductions.

In the past it was primarily used by large accounting firms and larger clients.  The ability for smaller building owners to utilize these techniques is now becoming popular.

It takes an engineering study and an accounting firm that understands the issues.

Generally here is how it works…..

An engineering study is completed to identify components in a buiding that can be depreciated over 5, 7 and 15 years instead of 39 years for commercial property and 27.5 for residential property.

We then prepare what is called an ACCOUNTING CHANGE and the prior year(s) of lower depreciation are now adjusted in one year!

This is alot of paperwork but it is often worth it.  You are welcome to contact us if you have questions www.USATaxHelp.com

Posted in International Taxation, Sub S Corporations, LLC's, Income Tax | 1 Comment »

4. February 2010 by admin.

No.  They are considered cosmetic.  But what if they are implanted in conjunction with a deductible procedure?

Tax Court Case O’Donnabhain (2010), 134 TC No. 4 The Tax Court has held that an individual could deduct as a medical care expense under Code Sec. 213 amounts paid for hormone therapy and sex reassignment surgery that were incurred in connection with a condition known as gender identity disorder, which the Tax Court found to be a disease. However, it found that breast augmentation surgery that the individual also had in connection with the disorder was cosmetic surgery and amounts paid for it were not deductible under Code Sec. 213(d)(9).

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26. January 2010 by admin.

This credit is available in 2009 and 2010.  According to IRS instructions, taxpayers who received the $250 economic stimulus payment in 2009 (Social Security recipients, SSI, railroad retirement and Veteran’s Disability or Pension benefits) must reduce the Form 1040 credit by this amount.

The math is simple BUT we forsee a few problems.  Since the check is probably directly deposited, many taxpayers are going to say “don’t know if I received it”.  YUP, that’s what they will say.  Then the question is, how do we know for sure when preparing a return (and trying to avoid preparer penalties)……

IRS instructions say if you “if you do not know” you should personally contact the Social Security or the paying agency.  IRS nor Social Security has any electronic link to obtain this information (we had a link for the Economic Stimulus Rebate in 2009 for 2008).

Here is a link to more specific information on the IRS website Making Work Pay Questions and Answers: Economic Recovery Payments

Posted in Income Tax | 1 Comment »

26. January 2010 by admin.

Depending on your AGI (Adjusted Gross Income - that is the bottom line of the first page of your personal Form 1040), you may be eligible for a $400 credit ($800 if married filing joint). 

For 2009, if your filing status is Single, Head of Household or Married filing separate, the phase out of the credit begins at $75,000 and ends at $95,000.  That means if you made less than $75k, you get the whole $400.  If you made $95k, you get none.

If your filing status if Married Filing Joint, the phase out begins at $150k and ends at $190k.

We do not know at this time whether the AGI restrictions will be exactly the same for 2010.

You MAY have already received up to $250 of the credit if you are a recipient of Social Security, SSI, railroad retirement, Veteran’s disability compensation or pension benefits.

Posted in Income Tax | 1 Comment »

26. January 2010 by admin.

Until you know you are going to stick with it (no offense, many clients try stuff and change their mind), I would not consider the extra paperwork involved with having the NEW LLC taxed as a corporation.  You can find more information on our website for Sub S Corporations www.USATaxHelp.com and also the why you really want at least an LLC as a business entity.

 If you know for sure you are continuing, then the “S” corp election for the LLC is usually an excellent decision.  Seriously, read the two handouts on our main website for “S” Corps and LLC’s at www.USATaxHelp.com

Posted in Sub S Corporations, LLC's, Income Tax, General | No Comments »