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What is Taxable and What is Nontaxable? | Tax Tip of the Week | No. 81 February 23, 2011

Posted by bradstreetblogger in : Tax Tip, Taxes, Uncategorized , 1 comment so far

Did you receive a gift in 2010?  Win a prize? Receive an award?  Receive an inheritance?  This week we will take a look to see if Uncle Sam is going to join in your celebration.

Gifts: Monetary gifts you receive from a family member, for example, are not taxable to the recipient.  The person making the gift can give up to $13,000/year without needing to file a gift tax return.  Any amounts given over $13,000 would then reduce their lifetime gift exclusion.  For 2010, the lifetime exclusion was $1 million.  For 2011, the exclusion is $5 million.

Nontaxable Gifts: If, for example, your employer gave you a fruit basket, hams, turkeys, wine, flowers, etc. these are considered de minimis fringe benefits and are not taxable.

Taxable Gifts: If, however, your employer gave you a gift certificate this is considered “cash in hand” and would be treated as wages subject to FIT, FITW, FICA and FUTA.  In other words, a ham is tax-free.  A gift certificate for a ham is taxable.

Parties and Lunches: The cost of occasional parties is fully deductible to the business (and not subject to the 50% limit on business meals) and nontaxable to the employees and their families.  These are considered de minimis fringe benefits if given infrequently for the purpose of promoting employee goodwill, contentment or efficiency.

Prizes: If you win a cash prize or a new car from the church’s raffle, it will be considered taxable income.  The church, in this example, should issue you a 1099-MISC and you should show it as “Other Income” on your tax return not subject to Self-Employment taxes.

Lottery: Lottery winnings are considered to be taxable gambling winnings and should be listed as such on your tax return.   You can then deduct substantiated gambling losses as an itemized deduction to the extent of the gambling income.
Note:  More and more Ohio cities have passed laws making lottery and/or gambling winnings taxable income at the city level.  There is no way to deduct gambling losses on a city return.

Inheritance: A thorough discussion of inheritances and estates goes beyond the scope of this tax tip.  However, here are a few general guidelines:  life insurance settlements when you are the beneficiary are nontaxable.  Property received from the estate is generally not taxable.  Any liquidations of cash from the decedents’ savings accounts, CDs, etc. you receive are not taxable.

Any inheritance you receive that would have been taxable to the decedent will generally be taxable to you.  This would include interest income, dividend income and distributions from IRAs.

As always, give us a call if you have any questions.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW

…until next week.

Filing Status | Tax Tip of the Week | No. 80 February 16, 2011

Posted by bradstreetblogger in : Tax Tip, Taxes, Uncategorized , add a comment

Some tips are worth repeating—-a reminder from last year:

If you were legally married on 12/31/10, the IRS considers you married for the entire year of 2010.

You now must decide if you are going to file as Married Filing Jointly (MFJ) or Married Filing Separately (MFS).  Note, however, if you file MFJ it is an irrevocable election—you cannot go back and amend a MFJ return to a MFS return.

The primary reason to file MFS is to pay less tax.  This is particularly beneficial to save on the amount of Ohio taxes paid.  Another reason to file separately is to avoid joint liability.  Each spouse who signs a joint return is responsible for the accuracy and tax liability on the return.

Many times, for example, in a second marriage situation we see couples who have a desire to maintain separate financial responsibilities.  While this is understandable, it could lead to paying several thousand dollars in additional taxes.  If you file MFS, you will lose the following:

– Credits for child care, education credits, adoption credits and EIC
– Student loan interest deduction, tuition and fees deduction, savings bond interest deduction
– If one spouse itemizes, or takes the standard deduction, the other spouse must do the same.  (That is, one cannot itemize and the other take the standard deduction.)
– A greater percentage of your Social Security benefits may be taxable
– Your ability to contribute to traditional or Roth IRA will be greatly limited
– Capital losses will be limited to a maximum of $1,500
– Passive losses will be limited

Before filing your return you need to look at both MFJ and MFS to see which lowers your tax burden the greatest.

As always, give us a call if you have any questions.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW

…until next week.

Depreciation Options for Small Business Owners | Tax Tip of the Week | No. 79 February 9, 2011

Posted by bradstreetblogger in : Section 168, Tax Tip, Taxes, Uncategorized , 1 comment so far

There were a lot of last minute changes made in the tax code regarding how you can deduct capital assets you purchased.  Rather than depreciating business property over several years, these optional methods allow you to expense certain property in the year placed in service.

Section 179

This optional method of accelerating depreciation allowances has been in the tax code for years.  However, the limits have changed many times.  Here are the current rules:

Section 168

This is sometimes called “Bonus Depreciation” and is relatively new.  It can be used in conjunction with a Section 179 election or in lieu of a Section 179 election.  The latest rules are:

Confused?  This is only the summary—we can’t wait to tell you all the details!  You will definitely want to call us if contemplating these deductions.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW

…until next week.

Tax Filing Deadline Extended This Year | Tax Tip of the Week | No. 78 February 3, 2011

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IRS Press Release – April 18th Deadline

The Internal Revenue Service recently issued a press release stating that for the 2011 tax filing season, taxpayers have until April 18th to file their tax returns. The IRS reminded taxpayers impacted by recent tax law changes that using e-file is the best way to ensure accurate tax returns and get faster refunds.

Taxpayers will have until Monday, April 18th to file their 2010 tax returns and pay any tax due because Emancipation Day, a holiday observed in the District of Columbia, falls this year on Friday, April 15th. By law, District of Columbia holidays impact tax deadlines in the same way that federal holidays do; therefore, all taxpayers will have three extra days to file this year. Taxpayers requesting an extension will have until Oct. 17th to file their 2010 tax returns.

Give us a call if you have any questions.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW

…until next week.