Tax Tips

Type

Description

Detail

Business

1099 Rules

A new 1099 rule requires 1099's for payments to lawyers, payments to incorporated law firms as well as damage awards that are paid to lawyers for eventual distribution to winners of lawsuits. This change is an attempt to help the IRS find plaintiffs who don't reports damages that are taxable i.e. payments for age bias, etc.

Personal

401k & 403b

Maximum 1999 payin remains at $10,000.

Business

Automobile Expenses

Automobile Expenses are deductible as transportation expenses if incurred in connection with trade or business or by an employee in connection with employment duties to the extent not reimbursed by the employer. The taxpayer can keep records of the actual operating costs of the automobile (gasoline, repairs, maintenance, insurance, & depreciation) or use the standard mileage rate authorized by the IRS. Parking, tolls, and state & local taxes can be deducted in addition to the standard mileage rate.

Personal

Capital Gains

A zero rate applies to most long-term capital gain and dividend income that would otherwise be taxed at the regular 15% and/or the regular 10% rate.Short Term capital gains are taxed at your regular rate. You need to take this into consideration when selling stocks and property.

Personal

Charity

A charitable deduction CAN NOT exceed 30% of your adjusted Gross Income. Any excess is carried over for up to a 5-year period.

Personal

Charity

Appraisals are needed for any charitable donation of property worth more than $5,000 and $10,000 for stock of closely held stocks.

Personal

Charity - Autos Given to Charity

If you donate your automobile to charity, then the car has to be valued at its Fair Market Value (FMV). This must come from a car guidebook such as the National Automobile Dealer's Association Used Car Guide or the Kelly Blue Book. The IRS has indicated that the FMV of an auto is determined on a case by case basis. For over $500, the donee on Form 1098-C provides a written acknowledgement. The donorís charitable deduction can not exceed the gross proceeds from the charityís sale proceeds unless certain exceptions apply.

Personal

Children under 17 Tax Credit

$1,000 per child tax credit for qualifying children under 17. In 2000, the credit is $500 per qualifying child. The credits phase out for married with adjusted gross incomes over $110,000 and single parents over $75,000. At $134,000 AGI, a couple with 3 young kids gets no tax credits.

Personal

Educational IRA

Taxpayers can contribute up to $2,000 to an Educational IRA for the purposes of providing funds for qualified higher education on behalf of an individual under the age of 18. This $500 contribution can be made in addition to the maximum contribution to other Ira's that the taxpayer may own. The contribution can be made by any person regardless whether that person has compensation. Contributions to an Educational IRA cannot exceed $2,000 per individual regardless of how many individuals contribute to the IRA on behalf of the individual. The $2,000 limit phases out ratably between $95,000 and $110,000 ($190K and $220K for joint filers)

Personal

Electronic Filing

An IRS goal is to have at least 80% of all tax and information returns filed electronically by the year 2007. The Secretary of the Treasury will be eliminating barriers, providing incentives, and using competitive market forces to increase the electronic filing rate while maintaining the 40-day turnaround time for paper returns.

Personal

Exemption

You get NO DEDUCTION for anyone with income over $3,500 ($3,500 is the amount of the year's personal exemption amount) UNLESS dependent is your spouse, a child under 19, or a student child under 24.

Business

Family Owned Business - Exclusion from Estate Taxes

New 2033A provisions of the tax code provide a higher exclusion from estate taxes for a family-owned business. The exclusion is the lessor of: the adjusted value of the business or a total of $1,300,000 reduced by the exclusion amount for the estate tax. The Taxpayer Relief Act of 1997 provides the following exclusion amounts: 1998 $625,000; 1999 $650,000; 2000 & 2001 $675,000; 2002 & 2003 $700,000; 2004 $850,000; 2005 $950,000, and 2006 & after $1,000,000.

Business

Fuel Tax Credit

Gasoline Taxes on fuel used in business in an off-road vehicle are eligible for the fuel credit using Form 4136 for taxes paid on fuel.

Personal

Gifts

Gifts of $13,000 a year (in 2009) can be given free of gift tax every year to as many donees as you can afford. The amount doubles if you spouse joins in, even when all the cash or property being given belongs only to one of you. Unless the gift is to charity there is NO INCOME TAX deduction - just Estate and Gift Tax savings.

Personal

Gifts

Giving securities that have capital losses (worth less than you paid for them) should be avoided. Rather sell them, deduct the loss on your tax return, and give the cash to the donee. Donations to charities of long term securities worth more than you paid would be beneficial to all. You get to write off as a donation the full value of the assets, avoid paying taxes on the appreciation, and the charity gets the full value.

Personal

Health Benefits -A domestic partner DOES NOT generate tax-free health benefits

Employer benefit plans can provide tax-free benefits only to employees, their spouses and dependents. The IRS says that an unmarried domestic partner of an employee is NOT a spouse and that these benefits are taxable to the employee who earns them to the extent that their market value exceeds what the employee contributes toward their costs. Tax can be avoided IF the domestic partner qualifies as a dependent. (Letter ruling 9850011).

Business

Home Office Deduction

A home office must be used exclusively and regularly for business. You have to satisfy one of two tests to claim the deductions. They are 1. Must regularly meet there with clients. or 2. The Home Office is your principle place of business. Starting in 1999, a home office can be used for managerial or administrative reasons.

Personal

Home Office Deduction

For an employee to claim a home office deduction, his employer MUST be for the EMPLOYER'S CONVENIENCE and be required as a condition of employment.

Personal

HOPE Tax Credit

Tax credit available only for students the first 2 years after high school. It is 100% of the first $1,200 and 50% of the next $1,200 PER student for tuition (NOT BOOKS, ROOM, OR BOARD). NOTE - This credit CAN NOT be taken IF a taxpayer elects to claim the LIFETIME LEARNING CREDIT.

Personal

Interest on some Education Loans

Up to $2,500 of interest is deductible. Deduction is for non-itemizers as well as itemizers. The deduction declines for couples with AGI of $120,000 to $150,000, singles $60,000 to $75,000. Lenders must file 1099's with IRS. A person who is claimed as a dependent on anotherís return CAN NOT claim the education interest deduction. And can only be claimed by a person legally obligated to make the interest payments.

Both

Interest - Imputed

The IRS can assess imputed interest on loans even though no money changed hands. To avoid this, make sure that the loans carry an appropriate market interest rate and that interest payments are made when due. For long-term rates the interest rate is the applicable federal rate in effect on the date the loan is made. For demand loans the rate is the applicable federal short-term rate in effect on each day the loan is outstanding.

Personal

IRS - Interest

The IRS now can waive interest charges on unpaid taxes attributable to unreasonable IRS delays while the cases are being processed.

Personal

IRS & Credit Cards

IRS accepts credit cards for making payments.

Personal

Lifetime Learning Credit

A tax credit of 20% of up to the first $10,000 of cost. The maximum credit is $2,000 per year, even if more than one student has qualifying tuition. Students CANNOT claim this credit if their parents take the exemption for them. NOR can parents waive exemption so child can get a tax credit.

Both

Like Kind Exchanges

No gain or loss is recognized on the exchange of property held for productive use in trade, business, or investment IF such property is exchanged solely for "like-kind" property. The basis of the new property acquired is adjusted down to reflect any gain that would have been recognized. If any money ("boot") changes hands, then there may be some tax liability.

Business

Mileage Rate

2008 standard mileage rate 1st half 50.5 cents last half rate 58.5 cents. Charitable driving at 14 cent per mile, and medical & employee moving remain at 19 cents per mile.

Personal

Remarriage - Pensions & IRA's

Most states have laws that require spouses who will not inherit their spouse's entire pension and retirement account to waive their rights to that in writing. Many couples do not ask for the written waiver leading to unintended results. For example, a divorced husband names his children from his first marriage as beneficiaries of his retirement accounts. When he remarries, he makes no changes to those accounts. When he dies, his new wife, not his children, inherits the money in his retirement accounts. Moral - review beneficiary designations along with your will upon remarriage to make sure that they still reflect your wishes. ALSO - Prenuptial agreements where a share of the pension is waived may not be binding since it was agreed to before the marriage.

Business

Self Employed - Medical Insurance

100% can be deducted.

Personal

Social Security

VOLUNTARY tax withholding of 7%, 15%, 28%, or 31% on Social Security Benefits using IRS Form W-4V will be allowed. This will eliminate a taxpayer's need to submit Quarterly Tax Estimates.

Personal

Social Security - Beneficiary's earnings

Amount one can earn without losing benefits:

Under 65 $10,800 (lose $1 for every $2 earned above it)

65 to 69 $17,000 (lose $1 for every $3 earned above it)

70 & above - No limitation

Business

Social Security - Employing your children

If you are an unincorporated (Schedule C) business and you employ your children who are under 18, then neither you (as employer) or them are subject to FICA taxes on the wages you pay them. Their income will be subject to income taxes and deductible to you as salaries or wages.

Personal

Social Security - Wage Base

The base for calculating Social Security payroll withholding $106,800 at a 6.2% rate remains the same. The Medicare rate of 1.45% applies to all compensation.

Personal

Social Security Numbers

You will notice that the IRS no longer includes your Social Security Number on your tax form label.

Personal

Stock Sales

If your broker holds your securities that you purchased at different prices and dates, then you must tell him which shares you are going to sell. If you don't the shares then the ones that were purchased first will be considered the ones sold. This can result in different capital gains or losses than you intended.

Personal

Timing

Bills paid by telephone or at bank on 12/31 are deductible in the year your account is debited. If that is the next business day, then they are next year's deductions.

Personal

Timing

Bills paid by bank credit card on 12/31 are deductible in the current year even though you pay the credit card's bill the following year.

Business

Travel Expenses - use of Per Diems

For employee travel away from home an Employer may elect to pay its employees a Per Diem for lodging, meals, and incidental expenses rather than requiring actual receipts. The deduction is the LESSOR of the Per Diem Allowance or the Federal Per Diem Rate for the locality of travel for that day or part of the day. An employee who is "related" (close relative or a more than 10% shareholder of a corporate employer) may be asked by IRS to substantiate his expense accounts even though he has accounted to his employer.

 

 

 

CALL (216) 486-1040.

 

 

 

Last Updated 04/24/2001 by Gary Gudaitis