Examples of the Type of Questions we Get Asked - And Our Answers | Tax Tip of the Week | No. 139
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 TTWTax Tip of the Week Video Series:http://youtu.be/BlhqUiVEsJo...until next week.