Mereja

Author: MainStreet

  • Tax Tips: What to Do If You’re Late

    It has finally arrived — April 15 — Tax Day.

    Today is the deadline for filing your 2009 federal and state income tax returns. The envelopes must be postmarked by midnight tonight.

    If you have not yet prepared your 2009 return, for whatever reason, all is not lost. You can file a Form 4868 to request an automatic six-month extension until Oct. 15. The Form 4868 also must be postmarked by midnight tonight. In many cases a federal Form 4868 will also extend your state return. You can download a Form 4868 at the IRS Web site.

    The extension is for time to file and not time to pay. If you think you will owe your Uncle Sam you should send a payment with the extension. You will be charged interest, and a small penalty, from April 15 until you file your return and pay the tax on any balance due.

    But what if you don’t have the money to pay your taxes? I cannot stress this enough — it is very important that you get your returns, or your extension requests, in the mail today — even if you cannot pay all, or any, of the tax due.

    The IRS penalty for paying late is .5% of the tax due per month, or part thereof, but the penalty for filing late is 5% per month — 10 times as much.

    — Robert D. Flach

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  • Tax Tips: Extra Credits for Education

    The above-the-line deduction for tuition and fees, one of the famous “extenders” that Congress has to reinstate every other year, is available for taxpayers whose income is too high to be able to claim a Lifetime Learning Credit.

    If your AGI is $65,000 or less — or $130,000 or less on a joint return — you can claim a deduction of up to $4,000. For AGIs of between $65,001 and $80,000, or $131,001 and $160,000, the deduction is $2,000.

    There is no phase out of the deduction. If you are filing a joint return and your AGI is $159,995, you can claim the $2,000. But if you have just $6 more you get nothing.

    Since this is a deduction, the tax benefit depends on your bracket. Those claiming a $4,000 deduction will save $1,000 if they are in the 25% tax bracket.

    But the savings is not limited to the actual deduction. Since it is above the line and reduces your AGI, it may increase the tax benefit from a variety of other deductions, exclusions and credits that are phased-out based on the level of income.

    The deduction is available for tuition and fees required for enrollment or attendance at an accredited college, university, vocational school or other post-secondary institution. It is available for all undergraduate and graduate levels of education. There is no degree or workload requirement.

    The deduction limits are per return, not per student. And qualified expenses.

    — Robert D. Flach

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  • Tax Tips: Keep Your Lucky Winnings

    Did you hit the raffle, score big at the casinos or win a car from your church raffle last year? If you did, you received a Form W-2G reporting your winnings — and so did the IRS.

    Gambling winnings are taxable — reported on Line 21 of Form 1040. All is not lost. You can deduct your gambling losses, up to the extent of the winnings, but only if you itemize on Schedule A. If you report $5,000 in winnings, you can deduct $5,000 in losses as a miscellaneous expense. Gambling losses are deductible in full, and are not subject to the 2% of AGI limitation.

    Losses from any type of wagering transaction can be deducted against winnings. If you win at the slots, your deduction is not limited to losses from slot machine play. You can deduct losses from the lottery, 50-50s, bingo, casino table games, charity raffles, horse racing, keno, etc., up to the amount of your total winnings. Keep your losing lottery, raffle and racetrack tickets for the year, and keep track of slot activity by using a player’s card. But make sure the losing racetrack tickets in your collection don’t have footprints on them.

    Winnings from a “no purchase necessary” sweepstakes or contest are not gambling winnings. If you win the Publishers’ Clearing House Sweepstakes or a trip to Club Med as the 10th caller to a radio station, you must report the winnings as income, but cannot deduct gambling losses against this income.

    — Robert D. Flach

    Consumerist has teamed up with MainStreet.com to bring you tax tips every day between now and April 15th. This frees up Tax Cat to do more important things — like trying to claim hairball meds and catnip as business expenses.

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  • Tax Tips: The American Opportunity Credit

    The menu of education-related tax benefits has always been a varied one, with a wide selection of deductions, credits and exclusions, each with its own set of rules and phase-outs. This year a new item has been added — the American Opportunity Credit.

    The AOC is an expansion of the Hope Credit. A college student who, at the beginning of the tax year, has not yet completed the first four years of post-secondary education (determined not by calendar year, but by the student’s status of freshman, sophmore, etc.), can get a credit of up to $2,500, of which $1,000 may be refundable.

    The credit is 100% of the first $2,000 of qualified expenses and 25% of the next $2,000. In order to get the maximum credit you must have at least $4,000 in qualified expenses. As with the original Hope credit, the $2,500 maximum is per student and not per return. So if you have two kids in college at the same time you can get up to $5,000 from Uncle Sam.

    In addition to tuition and fees you can also include required course materials, such as books, supplies and equipment, in the expenses available for the credit.

    The phase-out range for the AOC is “modified” Adjusted Gross Income of between $80,000 and $90,000 for single taxpayers and $160,000 and $180,000 for joint filers. Many taxpayers who were denied tax benefits for their kids’ college costs in the past will be able to realize some savings on the 2009 Form 1040.

    — Robert D. Flach

    Consumerist has teamed up with MainStreet.com to bring you tax tips every day between now and April 15th. This frees up Tax Cat to do more important things — like trying to claim hairball meds and catnip as business expenses.

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  • Tax Tips: State and Local Taxes

    Here at the Daily Deduction, we spend a lot of time thinking about federal taxes, but chances are high that the state tax man took a bite out of your budget this year too.

    Fortunately, you can bite back on your Form 1040 with the state and local tax deduction.

    Which taxes are deductible? The big three are income tax, sales tax and real property tax. By adding them to your list of itemized deductions, you can make April 15 a little less, um, taxing.

    If you decide to deduct your taxes, you must choose between the income tax and the sales tax. Of course, you’ll want to claim the largest one. How do you figure them out? To calculate your income tax deduction, find out how much state and local tax your employer withheld from your salary. Then, add any taxes that you paid during 2008 for prior years. For instance, if your employer withheld $5,000, and the state tax agency sent you a bill for $200 because you underpaid your state taxes last year, you can deduct a total of $5,200 on your federal return this year.

    To calculate the sales tax deduction, you can either add up the sales tax from all of your receipts, or you can use the table found in the instructions to Schedule A (pdf) to estimate an amount. The table is based on your income; a bigger income means a bigger deduction.

    If you live in a state that has no income tax, like Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming (New Hampshire and Tennessee limit their state income taxes to dividend and interest income), the choice is easy – you’ll definitely claim the sales tax deduction.

    Unlike income and sales taxes, real property tax is always deductible, even if you claim one of the other two taxes. In order to claim the deduction, you must own the property that generates the tax, and you must not use it for a business. In addition, the tax must be determined with reference to your property’s value, and the money raised by the tax must be used for the good of the whole community. This means that the bill for installation of new gas lights in your neighbor’s gated community is not deductible but the county assessment that you paid to support the local schools is.

    One last thing: If you receive a refund from your state, county or city next year for taxes that you deduct this year, make sure that you include the refund in your 2009 federal income.

    You can’t hide from the hometown tax man, but at least you can pass along some of the cost by deducting your state and local income, sales and property taxes.

    — David Perry

    Consumerist has teamed up with MainStreet.com to bring you tax tips every day between now and April 15th. This frees up Tax Cat to do more important things — like trying to claim hairball meds and catnip as business expenses.

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  • Tax Tips: Deducting Your Home Computer

    Yesterday I told you that computers and peripherals are “listed property” that require special recordkeeping and depreciation if used for business.

    The IRS, in Publication 529, tells us that you can only deduct a computer as an employee if it is (a) for the convenience of your employer, and (b) required as a condition of your employment. You cannot deduct a computer if its business use is merely for your own convenience.

    If you occasionally bring work home and use your home computer to write reports or do research you cannot claim a deduction. But if the nature of your work requires that you have a laptop to take with you to clients for presentations, write-ups, etc., and your employer does not provide you with one, then you may be entitled to a deduction.

    And you can only deduct that portion of the cost of purchasing and maintaining the computer equipment that applies to actual business use.

    As I mentioned yesterday, you should keep a log to document business use of a required home computer. For example, a daily computer log entry could indicate:

    • One hour of reading and answering business e-mails.
    • One hour of word processing for business correspondence to Client A and Client C.
    • Two hours of word processing business proposal for Client E.
    • One hour of Internet research on topic C for business project A.
    • ½ hour reading and answering personal e-mails.

    Total Daily Useage = 5½ hours.

    — Robert D. Flach

    Consumerist has teamed up with MainStreet.com to bring you tax tips every day between now and April 15th. This frees up Tax Cat to do more important things — like trying to claim hairball meds and catnip as business expenses.

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  • Tax Tips: Go Green, Save Green

    The new energy credit for 2009 and 2010 is available on these items purchased for your primary personal residence only:

    • Energy-efficient windows
    • Skylights
    • Central air conditioners
    • Electric heat pumps
    • Water heaters
    • Exterior doors
    • Insulation
    • Natural gas, propane or oil furnaces
    • Natural gas, propane or oil hot water boilers
    • Biomass fuel stove
    • Main air circulating fans
    • Pigmented metal and reflective asphalt roofs

    If your home is used partly for business, such as with a home office or a two-family building with one half rented, you must allocate the cost of qualifying property between personal and business use. Only the personal portion will qualify for the credit.

    If you purchased an item that qualifies for the credit you should have received a “manufacturer’s certification” from the vendor. If you are not sure if an item you purchased qualifies you can go to the Energy Star Web site.

    A client of mine recently encountered a question about the enrgy credit and installation costs. You can include in the amount available for the credit “expenditures for labor costs properly allocable to the onsite preparation, assembly, or original installation of the property” for qualifying heating, ventilation and air conditioning systems, biomass stoves and water heaters.

    Installation costs are not included in the amount available for the credit for windows, doors, installation or roofs. The credit for these items is limited to 30% of the cost of materials only, up to the $1,500 maximum.
    — Robert D. Flach

    Consumerist has teamed up with MainStreet.com to bring you tax tips every day between now and April 15th. This frees up Tax Cat to do more important things — like trying to claim hairball meds and catnip as business expenses.

    Looking for more deductions? You’ll find tons at MainStreet.com.

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  • Tax Tips: Commuting Isn’t Deductible

    You can’t claim a business travel deduction for commuting — driving from home to your place of business, or your first business stop of the day, and from your place of business, or your last business stop of the day, back home.

    You can deduct travel between different job locations. You go from home to your office, from your office to Clients A, B and C, back to the office and then home. You can deduct the miles from when you leave your office to go to Client A to when you return to the office from Client C. If you do not go back to the office before returning home you cannot deduct the miles from Client C to your home.

    If you make a stop at a vendor or client before going to your office in the morning then the vendor or client is your first business stop of the day. You can deduct the miles from that stop to the office. I am not talking about stopping at Dunkin Donuts on the way in to work to pick up coffee for the office.

    You can also deduct driving directly from one job to another in one day. John has a regular day job and works two nights a week at a store in the mall. He goes directly from his office to the store on the two nights. He does not go home

    — Robert D. Flach

    Consumerist has teamed up with MainStreet.com to bring you tax tips every day between now and April 15th. This frees up Tax Cat to do more important things — like trying to claim hairball meds and catnip as business expenses.

    Looking for more deductions? You’ll find tons at MainStreet.com.

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  • Tax Tips: Home Office Deductions

    Some employees don’t work in an office, store or other business location. A good example is commission salesmen for out-of-state companies — they work out of their homes. They may be able to claim their home office as a miscellaneous deduction on Schedule A.

    You can deduct a room, or part of a room, in your residence used as an office if it is:

    • used “regularly and exclusively” for your business needs,

    • your principal place of business or where you regularly meet or deal with patients, clients or customers in the normal course of your business, and

    • for your employer’s convenience.

    There must be a genuine business reason for the home office. Simply to make things easier for you and your boss is not sufficient reason to support a home office deduction.

    If you have a legitimate home office you can deduct the portion of all the appropriate expenses of maintaining your home — real estate taxes, mortgage interest (acquisition debt only), homeowners insurance, water and sewer, gas and electric, heating oil and depreciation if you own the home (or rent and utilities if you are a tenant) — that applies to the area of the office. You would divide the square footage of the office area by the total square footage of the residence. Or if your apartment had five rooms and one was used exclusively as a home office you could claim one-fifth of the rent and utilities.

    — Robert D. Flasch

    Consumerist has teamed up with MainStreet.com to bring you tax tips every day between now and April 15th. This frees up Tax Cat to do more important things — like trying to claim hairball meds and catnip as business expenses.

    Looking for more deductions? You’ll find tons at MainStreet.com.

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