9th Annual Tax Thread - 2011

[sactoking]

are we getting the $400 bonus again this year? making work pay i think it was called, can't remember at the moment

That credit was replaced by the payroll tax break for 2011.

 

[CPA]

Crap, already EK? You didn't give me a head's up

 

[CPA]

I own a small business and use a regular tax filer/book keeper to do my taxes. Should I be using a 'real accountant' with a CPA? I end up paying quite a bit in taxes each year, though I don't have a lot of write offs.

Have you tried doing it yourself? If you are a sole proprietor, you only need to fill out a schedule C in addition to your normal schedules. You could probably save some money and do it yourself.

 

[boomerang]

I contracted with a company in Minnesota to do installation of a somewhat extensive security system. Installation labor in Minnesota is taxable. The work was performed in Michigan by a Michigan company. Labor in Michigan is not taxable.

Am I required to pay tax on that labor? I have been billed by the Minnesota company for it. Billed in totality for both materials and labor. I would like to know if I can dispute the labor portion.

Yes, I know it's not an income tax related question but it is a tax question.

 

[EagleKeeper]

I contracted with a company in Minnesota to do installation of a somewhat extensive security system. Installation labor in Minnesota is taxable. The work was performed in Michigan by a Michigan company. Labor in Michigan is not taxable.

Am I required to pay tax on that labor? I have been billed by the Minnesota company for it. Billed in totality for both materials and labor. I would like to know if I can dispute the labor portion.

Yes, I know it's not an income tax related question but it is a tax question.

Taxes would be paid based on the location of the service performed

 

[CPA]

Taxes would be paid based on the location of the service performed

Yeah, most likely the company doesn't want to fill out a sales and use tax form for Michigan, so they just bill you as if you were in Minnesota. I would just scratch out the labor tax and pay. let them deal with the difference. If they complain, tell them labor is not taxable in Michigan. Also, change the materials tax rate to the appropriate Michigan rate.

Minnesota Fact Sheet #110

 

[GT1999]

I recently signed into my company's stock program with fidelity, which I guess doesn't take affect until January of next year. It's company stock @ a 15% discount. How will this affect my taxes, do I have to do anything different this or next year?

 

[EagleKeeper]

I recently signed into my company's stock program with fidelity, which I guess doesn't take affect until January of next year. It's company stock @ a 15% discount. How will this affect my taxes, do I have to do anything different this or next year?

Keep track of the amounts and the price of the stock when granted. After that, you only have to worry when you sell. Also keep track of dividends paid as stock. Again date, amount and current price of a share.

 

[KK]

My father in law passed away this past october. He had a little farm that he would claim on his taxes and by looking at last years tax returns he claimed about 10k loss running it. After he passed, we sold the cows and are going to rent out the land. The mother in law is still living but has first stages of alzhemiers, how would we need to approach this situation. Do we have to claim the sale of the cows if we don't put anything regarding the farm on the return, leaving just their pension and interest income. The sale of the cows would be more than the operating expenses of the farm.


Also for our taxes, our second house we started renting out in June to a friend, do we need to claim that? If so, what can we offset the rental income with?

 

[EagleKeeper]

My father in law passed away this past october. He had a little farm that he would claim on his taxes and by looking at last years tax returns he claimed about 10k loss running it. After he passed, we sold the cows and are going to rent out the land. The mother in law is still living but has first stages of alzhemiers, how would we need to approach this situation. Do we have to claim the sale of the cows if we don't put anything regarding the farm on the return, leaving just their pension and interest income. The sale of the cows would be more than the operating expenses of the farm.


Also for our taxes, our second house we started renting out in June to a friend, do we need to claim that? If so, what can we offset the rental income with?

I would expect that the interest in the farm to transfer to the wife as an inheritance at market value.
She would file the return the same way including the profit from the sale of the cows.

Second home falls under the Schedule E - property rental.
You declare rental income.
You offset that by expenses that you incur for the property, including taxes, interest, insurance, maintenance and depreciation. Plus vehicle/travel costs related to the property. If you have a third party management, those fees are deductible.

Cell phone as long as used at least once a month for the property, you can deduct the cell phone as an expense for that month. Tracking information about the property; computer expense/depreciation; etc.

If you provide the mower/snowblower/watering equipment; those become an expense writeoff for the first year used.

If the utilities are provided as part of the lease; those are writtten off.

Look at every expense you have; if it is directly or indirectly related to the property; Schedule E has line items for most everything associated; and you also have a couple of catch all categories.

 

[Gothgar]

I live in the UK. Does that mean I win?

yes

 

[KK]

I would expect that the interest in the farm to transfer to the wife as an inheritance at market value.
She would file the return the same way including the profit from the sale of the cows.

Second home falls under the Schedule E - property rental.
You declare rental income.
You offset that by expenses that you incur for the property, including taxes, interest, insurance, maintenance and depreciation. Plus vehicle/travel costs related to the property. If you have a third party management, those fees are deductible.

Cell phone as long as used at least once a month for the property, you can deduct the cell phone as an expense for that month. Tracking information about the property; computer expense/depreciation; etc.

If you provide the mower/snowblower/watering equipment; those become an expense writeoff for the first year used.

If the utilities are provided as part of the lease; those are writtten off.

Look at every expense you have; if it is directly or indirectly related to the property; Schedule E has line items for most everything associated; and you also have a couple of catch all categories.

Thanks for the reply.
Couple more questions here. First on our house we are renting out, we gave the friend/tenant a decent deal on the fist six months at 300/month and after that 600, so in total the income for the year was 2400. taxes were around 1k, insurance around 750, and interest around 4k. so based on just those 3 expenses we could claim a net loss of 3k+? Also if thats correct, I'm assuming we can't double deduct the interest.

On to the In-law, his will put the property in her name, but she has renounced the will so the property will eventually go to my wife once the will is all worked out. I wouldn't think that'd change anything regarding the farm this year, the problem with putting anything regarding the farm down on the taxes is I don't know how good of records he kept this year with regards to expenses. If we just kept the farm off their taxes this year, is that doable?

 

[CPA]

Thanks for the reply.
Couple more questions here. First on our house we are renting out, we gave the friend/tenant a decent deal on the fist six months at 300/month and after that 600, so in total the income for the year was 2400. taxes were around 1k, insurance around 750, and interest around 4k. so based on just those 3 expenses we could claim a net loss of 3k+? Also if thats correct, I'm assuming we can't double deduct the interest.

On to the In-law, his will put the property in her name, but she has renounced the will so the property will eventually go to my wife once the will is all worked out. I wouldn't think that'd change anything regarding the farm this year, the problem with putting anything regarding the farm down on the taxes is I don't know how good of records he kept this year with regards to expenses. If we just kept the farm off their taxes this year, is that doable?

Regarding the property rental: If you rent out the house full time, you do NOT claim your interest as a Schedule A Itemized Deduction. Instead, you use interest, maintenance, taxes, depreciation, etc. as an expense against the rental income. Rental income and expense is reportable on Schedule E.

Note: Make sure to include depreciation in your expense. It's a non-cash expense that can make you have a tax loss even though you had a cash gain. That's a good thing. Based on your situation, your loss is probably much bigger than $3K because of depreciation. Homes are depreciable over 27.5 years. So, if your house is worth 275,000 (don't include land, that's not depreciable), you have another $10,000 in expense against your income.

Rental income is called passive income. Usually you can only deduct passive losses against passive income. However, there is a $25,000 exemption that allows you to use passive losses against non-passive income, like wages, IF you were materially involved in the property (like advertise to rent it out, do the maintenance and upkeep, etc). There is phaseout of this exemption if you make over $100,000. There are also some At-Risk rules you need to look into. Check out IRS Publication 925.

Check out Publication 925 for more info on passive income.

 

[DaWhim]

I live in the UK. Does that mean I win?

if winning mean paying more taxes, then yea, i think you win.

lived in london for a year, things were just more expensive and tax were more (also depends on your income level) + lesser income for the similar job in the US

 

[KK]

Regarding the property rental: If you rent out the house full time, you do NOT claim your interest as a Schedule A Itemized Deduction. Instead, you use interest, maintenance, taxes, depreciation, etc. as an expense against the rental income. Rental income and expense is reportable on Schedule E.

Note: Make sure to include depreciation in your expense. It's a non-cash expense that can make you have a tax loss even though you had a cash gain. That's a good thing. Based on your situation, your loss is probably much bigger than $3K because of depreciation. Homes are depreciable over 27.5 years. So, if your house is worth 275,000 (don't include land, that's not depreciable), you have another $10,000 in expense against your income.

Rental income is called passive income. Usually you can only deduct passive losses against passive income. However, there is a $25,000 exemption that allows you to use passive losses against non-passive income, like wages, IF you were materially involved in the property (like advertise to rent it out, do the maintenance and upkeep, etc). There is phaseout of this exemption if you make over $100,000. There are also some At-Risk rules you need to look into. Check out IRS Publication 925.

Check out Publication 925 for more info on passive income.

Let me know if I understand all that correctly with the depreciation. Next year, rental income will be 7200. tax, interest, insurance won't quite cover 100% of the income. Using the 27.5 year depreciation on a 100k house is around 3600 a year which in addition to the tax, interest, and insurance will cover alittle more than the 7200. Say the difference is alittle over 2k loss, thats were the passive stuff comes in place. Say we were not materially involved, I eat the loss and it's basically a break even situation. If thats the case do I even need to mention this renting stuff on my taxes?

 

[EagleKeeper]

You can take the 3K loss against your personal taxable income

Your best bet is to when you do your taxes; make a file with the house as a schedule E and then one without the house as a schedule E. However, you still have to report the rent as income taxable for SS also if you do not use the Schedule E.

File which ever return has the best results

 

[shira]

Most people who have unspent money in their health care flexible spending accounts (FSAs) already know that there are many things they can purchase before the end of the year (prescription eyeglasses, bandages, thermometers, etc) that qualify for FSA use. But something that's already mentioned in the OP, but which is very easy to overlook, is vehicle mileage for medical, dental, or vision care purposes. That's 19 cents a mile reimbursable for miles traveled from January 1 through June 30 and 23.5 cents a mile reimbursable for miles traveled from July 1 through December 31. So if you drive to the office of your doctor or dentist or optician and then back home, that mileage is reimbursable. The standard cited by the IRS as to whether the mileage qualifies is that "the mileage must be primarily for, and essential to, obtaining medical care." Note that fares, tolls, and parking fees associated with obtaining medical/dental/vision care are also reimbursable.

If you have a very fuel inefficient automobile, you can - if you wish - claim reimbursement for the actual cost of the gasoline (and oil) used for the miles traveled. You CANNOT include other costs related to vehicle use if you decide to use this approach.

To claim the mileage reimbursement, you should fill our an itemized list with dates and mileage. And you should probably also provide a Google maps screen shot justifying the mileage.

 

[EagleKeeper]

Per statement above, you have to itemized. The medical expenses must also meet the 7% adjusted gross income overhead.

 

[SSSnail]

Quick question regarding charitable deductions - what's the maximum allowed for things like used clothes and such?

 

[EagleKeeper]

Quick question regarding charitable deductions - what's the maximum allowed for things like used clothes and such?

There is no maximum.

There is a limit of $500 before you are required to itemize items.

You are expect to keep records and use the fair value for items donated.
You also are required to use the Schedule A / 1040 and can NOT take the standard deduction.

 

[Munky]

What part of stock trades is taxable? My understanding is that only capital gains are taxable, ie. if you buy for $2000 and sell for $3000, then the taxable part is the $1000 difference. Or do taxes apply to the gross amount you sold it for, ie. the $3000?

 

[EagleKeeper]

Actual gain.

(Sales price - base price) - expenses/fees

 

[mwtgg]

You can take the 3K loss against your personal taxable income

Your best bet is to when you do your taxes; make a file with the house as a schedule E and then one without the house as a schedule E. However, you still have to report the rent as income taxable for SS also if you do not use the Schedule E.

Why would he prepare both tax returns? He should file his return with the Schedule E if he engaged in a rental activity, regardless if he can claim the passive loss in the current year. Besides, even if he can't, they'll accumulate until he has passive income or until he disposes of the property, in which case he could claim the suspended passive losses.

Also, not sure why you'd report the rent as income subject to SE taxes. He said assume he's not materially participating.

 

[EagleKeeper]

The option of preparing two returns is so he can compare the results; not to file two returns.

The rent income has to be reported.

Schedule C as business income (subjected to SS tax) - no offsetting expenses
Schedule E as rental income (?SS tax?) - offsetting expenses
1040 misc income (subjected to SS Tax) - no offsetting expenses

As to the accumulation of passive losses - I am unsure on how that will work. If not identified as a loss each year; I do not think the IRS will allow him to accumulate them.

Someone else can chip in on this issue.

 

[mwtgg]

The option of preparing two returns is so he can compare the results; not to file two returns.

The rent income has to be reported.

Schedule C as business income (subjected to SS tax) - no offsetting expenses
Schedule E as rental income (?SS tax?) - offsetting expenses
1040 misc income (subjected to SS Tax) - no offsetting expenses

As to the accumulation of passive losses - I am unsure on how that will work. If not identified as a loss each year; I do not think the IRS will allow him to accumulate them.

Someone else can chip in on this issue.

I'm not contesting that the income has to be reported, I'm merely disputing that he has multiple options. Assuming he's not a real estate professional, it would go on Schedule E. Since he's mostly likely selecting tenants and settings terms and what not, he's actively participating (differently from materially participating). This would enable him to deduct up to $25,000 in losses each year assuming his MAGI is below $150,000. Otherwise, these losses will accumulate on Form 8582 til he has either passive income or disposes of the property.