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Examples of the Type of Questions we Get Asked – And Our Answers | Tax Tip of the Week | No. 139 March 28, 2012

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

Questions & Answers

As we explained a few months ago (TTW#116) we will occasionally print questions our clients ask as our Tax Tip of the Week article.  Here are a few that we have come across so far this tax filing season:

Q:  “I am the executor of my father’s estate.  I am going to sell his house in order to make distributions to the beneficiaries.  My realtor tells me I need to spend $9,000 on painting and carpeting to make it marketable.  Is that $9,000 deductible?”

A:  No.  Expenses incurred for selling property of the estate are deductible only if the sale is necessary to pay the debts of the decedent, or to pay any administration expenses or taxes. Outlays to improve the property are not deductible.   Only expenses that are intended to preserve the property could be considered as estate expenses.

Q:  “As I told you last year, I expected my employer to transfer me to a temporary job site for an 18 month assignment.  However, we got the job completed in nine months.  You told me last year that only temporary assignments expected to last less than 12 months have deductible meals, travel and lodging costs.  Since the job lasted only nine months can I now deduct them?”

A:  Sorry, no.  According to Rev. Rul. 93-86 when employment away from home is realistically expected to last for more than one year, the employment will be treated as indefinite (not temporary) regardless of whether it actually exceeds one year.  In your case, the IRS will not consider you to have been away from home and therefore cannot deduct travel expenses.

Q:  “As you know, I am confined to a wheelchair.  This past year I had to travel on business and used a companion to help me with carrying luggage, getting in and out of taxis, etc.  Are these medical expense deductions or work related expense deductions?”

A:  It depends.  If you use the services of a companion while at home then they are medical expenses subject to the 7.5% AGI floor.  If the services of a companion are only required while away on business or to help you to be able to work, they are deducted as a miscellaneous itemized expense not subject to the 2% AGI floor.

Q:  “I took $5,000 out of my Roth IRA.  You know I am under age 59.5.  How much will I need to pay in taxes?”

A:  It depends on your cost basis.  If you have contributed, for example, $6,000 into your Roth account over the years then none of the distribution is taxable—nor is it subject to the 10% premature distribution penalty.  On the other hand, if you only contributed $4,000 into your Roth account then $1,000 would be subject to tax as well as the 10% penalty.  You only pay taxes on Roth accounts (in your case) when the distribution exceeds your cost basis (the amount you contributed).

Answers to tax questions are rarely simple.  Give us a call and we will help you figure out the answers to your 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

Tax Tip of the Week Video Series:

http://youtu.be/BlhqUiVEsJo

…until next week.

 

 

Some Tips are Worth Repeating – A Reminder From Last Year | Tax Tip of the Week | No. 138 March 21, 2012

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

How Are You Going to File Your Taxes?

If you were legally married on 12/31/11, the IRS considers you married for the entire year of 2011.

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.  It is a particularly beneficial filing status 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: 

– Child care credit, 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 each 

– 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

Tax Tip of the Week Video Series:

http://youtu.be/BlhqUiVEsJo

…until next week.

 

Some Things You Need to Know About Social Security…. | Tax Tip of the Week | No. 137 March 14, 2012

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

Social Security Choices

Are you or someone you know, getting close to drawing Social Security?  Do you think the only choices available are whether to start drawing at age 62, full retirement age (FRA), or later? You may have more options than you think… and those choices may not be presented to you unless you ask. Calculations are made based on your FRA and then reductions or credits are applied. 

Begin at age 62 or before FRA: The calculation is based on your own benefits records with a reduction for each month younger than FRA.  (Click here to determine your FRA.) These reductions are permanent and benefits can be reduced or eliminated if your earned income exceeds the limit set for that year, and is adjusted for the year in which you reach FRA.  For 2012 the limit is $14,640.  A widow(er) can start drawing at age 60, or age 50 if disabled, or any age if you have a child-in-care (under 16 or disabled adult child of the worker).  Income limits apply to these categories also. 

Start at FRA: The benefit can be calculated on your own records, or based on a current or ex-spouse’s (if not currently married) benefit at their FRA.  You’ll receive the higher of the benefits, not both. If collecting on spouse’s records, you will have to wait to collect until that person files, even if they don’t start collecting, unless they are deceased.  The benefits are 50% if spouse/ex-spouse is alive and 100% for a widow (er). You must have been married for at least 9 months for a widow(er) and 10 years for a divorced spouse.  If the spouse has delayed retirement credits, those credits are passed on. 

After FRA: For each month after you reach FRA up to the month prior to turning age 70, delayed retirement credits can be added to your monthly benefit amount.  The rate is currently 8% per year and passes on to spouse for their benefits.  The credits stop accruing after the death of the owner. 

Other options:  

Claim & Suspend– file for your benefits at FRA but suspend receiving them. This starts your Medicare Part A.  At any point you can start your benefits and receive them back to the filing date, even if more than 6 months.  No delayed credits are received for your benefits under this method if you go back to original filing dates. 

Restricted Application– to maximize social security and survivor benefits for a married couple with comparable incomes, where one spouse wants to retire and the other wants to continue working past FRA. The retiring spouse files and claims their benefit, enabling the working spouse to collect a spousal benefit.  The working spouse continues to earn delayed retirement credits up to age 70, where they claim their increased benefits. 

Other benefits:  Other benefits may be available including widow(er), surviving spouse or child, and lump sum death benefits. 

Before you sign up for your benefits make sure you have checked out all of your options.  Your choice can mean $100,000’s of dollars difference in your pocket for your lifetime. 

No one knows what the future holds for Social Security recipients—-but these are the rules for now.  

Please give us a call if you have any questions or would like guidance on your benefits. 

This week’s author-Linda Johannes, CPA 

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

Tax Tip of the Week Video Series:

http://youtu.be/BlhqUiVEsJo

…until next week.

 

Revised Rules for Reporting Sales of Capital Assets | Tax Tip of the Week | No. 136 March 7, 2012

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

New Form and Rules for 2011

When you sell stocks, mutual funds or other capital assets you will still report the gains or losses on Form Schedule D when you prepare your 2011 tax return.  But this year you must first show the sales activity on a new form—Form 8949 

This new form is where you show:  description of property, date acquired, date sold, sales price and cost basis.  Of particular note, however, you must also check a box indicating if the long- term or short-term cost basis is (A) reported to the IRS on Form 1099-B, (B) cost basis is not reported on Form 1099-B, or (C) when you cannot check Box A or B (when proceeds are not reported on a Form 1099-B). 

A separate Form 8949 should be completed, grouping all transactions by type (Box A, Box B or Box C) and also by short-term or long-term trades. 

The summary information from Form 8949 then flows to the revised Form Schedule D

This new form was created as a result of the new cost basis reporting requirements for brokers.  The new Form 8949 will help the IRS  better compare your reporting with the brokers, Form 1099-B statements.  It also opens an easy audit target when you show asset sales where the cost basis is not reported on a Form 1099-B.  Be prepared to substantiate cost basis calculations if you mark boxes B or C on Form 8949. 

Check with your broker to determine if they have their basis.  If not, take steps to determine the basis and update their records. 

We will let you know about other tax law changes in the coming weeks. 

Let us know 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

Tax Tip of the Week Video Series:

http://youtu.be/BlhqUiVEsJo

…until next week.