ATOT's Second Annual Tax Time Thread!

[CPA]

Originally posted by: Nuriko

Originally posted by: Zebo

2) This is the final year of the SUV Business Use Tax loophole. For vehicles purchased this year and over 6000 pounds gross weight, this is the last year you can expense, as business Section 179 expense, the total cost (up to $100K) of the vehicle. the weight and percentage business use is key, but it is a great way of reducing your Schedule C business income if you did it.

Loophole? You make it sound so sisnister lol.

Anyway is'nt the new limit 8800GVW?

Actually, from my understanding, this isn't the last year; I think 2009 will be the last year. However, as of Octobter 22, 2004, the max. 179 deduction for SUVs weighing 6k-14k lbs gvw is 25k (you can still claim up to the full 102k for trucks and other equipment). If you bought and put into service (it has to be at least 50% used for business and that percentage is prorated against the total cost of the suv the SUV) before that day, you can claim up to the full 102k, as well as bonus depreciation.

Example: if you bought a hummer for 60k and only use it 60% for business, then you could immediately take 36k 179 depreciation, if it was bought before 10/22/04. However, the 179 depreciation starts to phase out if you bought over 410k of qualifying property (one example is tangible personal property such as machines, equipment, furniture).

It is the last year as it relates to the amount that you can deduct. I should have made it more clear.

 

[Pacfanweb]

Originally posted by: CPA

Originally posted by: Pacfanweb

Originally posted by: CPA

Originally posted by: Pacfanweb
Okay, I bought a business in 2004. It is a sole proprietorship.
Can I deduct the price I paid for the business?

It depends on how you will handle asset depreciation. When you purchased the business, you bought assets (equipment, vehicles, goodwill, covenants not to compete, etc.). Those assets need to be depreciated or amortized. OR you can take them as Section 179 expenses.

It's kind of difficult to give a yes/no, black/white answer on this because you actually have choices on to take as expense or depreciate. And if you depreciate, what method to use. You will really need to read the instructions for Schedule C and then play with the numbers to see what best fits your tax situation.

Actually, there were no assets bought in this purchase. (okay, a stamp and a stapler)
Basically, it's a service business, mobile and I work out of my car. I paid the guy I bought it from, but there weren't really any assets. I paid for the name, basically, and I guess essentially for him to sign a non-compete agreement and walk away. And a specified period of training.

Then I bought my own materials and went to work.
I have papers we signed and receipts for the money I paid him for the business. That help any?

The you purchased goodwill and a covenant not to compete, but of which will have to be amortized.

That sucks. I didn't get to amortize the money I paid.

 

[CPA]

Originally posted by: Pacfanweb

Originally posted by: CPA

Originally posted by: Pacfanweb

Originally posted by: CPA

Originally posted by: Pacfanweb
Okay, I bought a business in 2004. It is a sole proprietorship.
Can I deduct the price I paid for the business?

It depends on how you will handle asset depreciation. When you purchased the business, you bought assets (equipment, vehicles, goodwill, covenants not to compete, etc.). Those assets need to be depreciated or amortized. OR you can take them as Section 179 expenses.

It's kind of difficult to give a yes/no, black/white answer on this because you actually have choices on to take as expense or depreciate. And if you depreciate, what method to use. You will really need to read the instructions for Schedule C and then play with the numbers to see what best fits your tax situation.

Actually, there were no assets bought in this purchase. (okay, a stamp and a stapler)
Basically, it's a service business, mobile and I work out of my car. I paid the guy I bought it from, but there weren't really any assets. I paid for the name, basically, and I guess essentially for him to sign a non-compete agreement and walk away. And a specified period of training.

Then I bought my own materials and went to work.
I have papers we signed and receipts for the money I paid him for the business. That help any?

The you purchased goodwill and a covenant not to compete, but of which will have to be amortized.

That sucks. I didn't get to amortize the money I paid.

Maybe I am not being clear enough. Let's use an example:

You paid the guy $10K for his business. No physical assets, maybe just his client sheet and an agreement that he not compete within 5 years in your area. The covenant is worth, say, $3k and the rest is considered goodwill - $7K. While these are not physical, they are still assets, which will be amortized for tax purposes. Goodwill is amortized over 15 years and the covenant is amortized over the life of the agreement, which, in this case is 5 years. You bought the business in July, so 7000/15*6/12 = $233 and 3000/5*6/12 = $300. You can deduct from schedule C Business Income $533 for the current year.

Hope this clarifies things.

 

[abc]

Originally posted by: EagleKeeper

Originally posted by: Rogue Is my cable modem bill tax deductible if I am an IT worker by trade? I've heard a lot on that too, but want to know the truth.

1) If your employer requires you to work from home, then it automatically is.
2) If you use the cable modem with respect to improving/maintaining your knowledge (similar to continuing education) it is.
3) If you use it for surfing and neffing, no.

For options #1 & 2, the use of the modem should be pro-rated with respect to #3.

The cost of the actual modem, modem access and/or surcharges to your cable/DSL phone bill should then be prorated according to usage and entered in the misc item cat on the Form 2106/schedule A.

As noted in other posts in this thread it is not as good as it looks.
The expenses exceeding 2% of Gross income has to be met along with the requirement of itemization using Schedule A.

really, IT folks can try to expense off their annual broadband bills? then their PCs as well... and cell phone bills if used over the year to communicate job matters... such as off hr phone support, or emergency contact to come in on the weekend kind of thing?

Same thing with job search, resume paper, broadband feed, suits, ties, travel expenses to the interview?

 

[abc]

Originally posted by: EagleKeeper


Head of Household Status - IRS FAQ

Head of Household
You may be able to file as head of household if you meet all the following requirements.

You are unmarried or ?considered unmarried? on the last day of the year.

You paid more than half the cost of keeping up a home for the year.

A ?qualifying person? lived with you in the home for more than half the year (except for temporary absences, such as school). However, your dependent parent does not have to live with you. See Special rule for parent, later, under Qualifying Person. A foster child must live with you all year. Also, see Table 4, later.

eagle, my sibling and I paid all the mortgage in 2004 equally between us. our names or on the mortage. we have 2 retired parents... note that utilities are paid by them not me or sibling. We paid for food and everything else (but have no receipts)

should either my sibling or I be able to claim head of household?

 

[abc]

i renovated a floor in my house to make it RENTABLE. i'm taking about more than painting and cleaning. It probably cost me 30k, i lost track as the bills piled up for supplies and labor.

Can I use thes as expense against rental income, and carry over to future tax years?

(Just like sale of stock at a loss can be carried over to future years to help offset taxable income.)

 

[Nuriko]

Originally posted by: abc

eagle, my sibling and I paid all the mortgage in 2004 equally between us. our names or on the mortage. we have 2 retired parents... note that utilities are paid by them not me or sibling. We paid for food and everything else (but have no receipts)

should either my sibling or I be able to claim head of household?

ABC~ could you provide some more info. So do your parents live with you and your sibling; or are you two paying their mortgage and non utility expenses? As well as who had gross income of more than $3100? (tax-exempt income, such as certain ss payments, is not included in gross income)

 

[abc]

hi. my sibling and i are paying the mortgage (it's our mortgage equally) and the folks are living with us and we are paying what I said we are paying, correct.

who had more tax exempt income between me , the sibling, and the parents? the parents, by far since my sibling and I don't collect any. Do either parents collect more than 3100k, I'm not totally sure at this moment.

 

[EagleKeeper]

Originally posted by: abc
hi. my sibling and i are paying the mortgage (it's our mortgage equally) and the folks are living with us and we are paying what I said we are paying, correct.

who had more tax exempt income between me , the sibling, and the parents? the parents, by far since my sibling and I don't collect any. Do either parents collect more than 3100k, I'm not totally sure at this moment.

In all propability, only one sibling can claim the parent as dependant.

If you can show that the parent meets the dependency requirements, then you are Ok. You should claim both parents.
The general guidelines are that you need to be providing more than 50% percent of the living expenses.
Food, lodging, utilities, medial, etc. The amount of income of the parent may come into play.

Your best bet is to look at the guidelines and determine, exactly, if they can apply.

Another sibling will not be able to split a dependency; that is the purpose of the 51%.
If desired, you can alternate year by year as needed. Splitting up the parent may generate a red flag.

Therefore my recomendations is that if the parents can be classified as a dependant, only one sibling should claim both the parents.

 

[EagleKeeper]

Originally posted by: abc

Originally posted by: EagleKeeper

Originally posted by: Rogue Is my cable modem bill tax deductible if I am an IT worker by trade? I've heard a lot on that too, but want to know the truth.

1) If your employer requires you to work from home, then it automatically is.
2) If you use the cable modem with respect to improving/maintaining your knowledge (similar to continuing education) it is.
3) If you use it for surfing and neffing, no.

For options #1 & 2, the use of the modem should be pro-rated with respect to #3.

The cost of the actual modem, modem access and/or surcharges to your cable/DSL phone bill should then be prorated according to usage and entered in the misc item cat on the Form 2106/schedule A.

As noted in other posts in this thread it is not as good as it looks.
The expenses exceeding 2% of Gross income has to be met along with the requirement of itemization using Schedule A.

really, IT folks can try to expense off their annual broadband bills? then their PCs as well... and cell phone bills if used over the year to communicate job matters... such as off hr phone support, or emergency contact to come in on the weekend kind of thing?

Same thing with job search, resume paper, broadband feed, suits, ties, travel expenses to the interview?

Clothing will not fly if it can be used outside the job.

All these other items can be used on the Form 2106/Schedule A if you have W2 income.

Those with 1099 income can take it directly against the 1099 income on the Schedule C.

Main thing is that the items itemized must be proportionaly charged and reasonible.

Example:
Cell phone usage with a $100/month plan (say 1000 min) will not work if you only are called on the phone 50 minutes a month.

If the company requires off hour access, it is another story, but you had better have documentation to back it up or if you wish to use a large proportionality ratio.

 

[EagleKeeper]

Originally posted by: abc
i renovated a floor in my house to make it RENTABLE. i'm taking about more than painting and cleaning. It probably cost me 30k, i lost track as the bills piled up for supplies and labor.

Can I use thes as expense against rental income, and carry over to future tax years?

(Just like sale of stock at a loss can be carried over to future years to help offset taxable income.)

Yes, however, if you do not show rental income in 04 or 05, Uncle may get upset with you.

IF you are going to deduct those epxenses, you will need to somehow track down receipts to justify, especially if you show no rental income for 04.

Tax S/W will handle this part nicely for you.
You can take the square footage percentage or just a floor percentage and use that for all expenses related to the house as well as 100% of the expenses for the actual rental unit.

And the Tax S/W could be used as an expenses against the rental income.

 

[abc]

eagle, what do you mean by the showing of rental income... do you mean I must show NET rental income? I hope you dont... I incurred about 30k in renovations, and only STARTED renting it the last two months of the year...

In such case, if I can use the 30k to offset the measly 2 months of rental income, my net rental income is ZERO....


Leading also, to my second question... can I carry over the 28k in renovation cost to future tax years until it's all used up?


What other creative but legal things can I expense off as used to elicit renters/get the place ready to be rentable...

the phone bills talking to realtors?
the ads in papers advertising a apt?
the truck rented to haul the renovation supplies?
fuel costs?
the truck purchased for renovation jobs?
supplies themselves?

 

[ElFenix]

Originally posted by: abc
eagle, what do you mean by the showing of rental income... do you mean I must show NET rental income? I hope you dont... I incurred about 30k in renovations, and only STARTED renting it the last two months of the year...

In such case, if I can use the 30k to offset the measly 2 months of rental income, my net rental income is ZERO....

no taxes for you. rental income just means rents collected, iirc.

Leading also, to my second question... can I carry over the 28k in renovation cost to future tax years until it's all used up?

technically, since it is a repair, it isn't a capital investment so you couldn't carry it over. you could try to do it as a capital investment but then you'd be depreciating it over a really long period of time (decades, iirc). depending on how much rent you collected this could be a bad idea (due to the time value of money).

What other creative but legal things can I expense off as used to elicit renters/get the place ready to be rentable...

the phone bills talking to realtors?
the ads in papers advertising a apt?
the truck rented to haul the renovation supplies?
fuel costs?
the truck purchased for renovation jobs?
supplies themselves?

the truck is a capital asset, so should be depreciated. the stuff for the renovation would be included in whatever you classify the renovation as. as i stated earlier, a renovation that is a repair (to make the place rentable) is an expense, while a renovation that is an enhancement is a capital expenditure and can't be expensed. the advertising is a cost of doing a rental business and should be expensed.

but then again, i'm not a tax professional, and i'm not a lawyer (so i'm not dispensing legal advice because the bar would get mad).

 

[kmac1914]

This past year, I was hired(maybe contracted is a better word) to create a website for an organization that i am a part of. I bought a laptop primarily for this purpose; would this be deductible?

 

[EagleKeeper]

Originally posted by: kmac1914
This past year, I was hired(maybe contracted is a better word) to create a website for an organization that i am a part of. I bought a laptop primarily for this purpose; would this be deductible?

If you were paid for the work:

a) 1099 - The laptop coiuld be written off completely via Schedule C and possibly Section 179.
b) W2 - The laptop would have to be expensed off using the Form 2106/Schedule A.

See above posts regarding the headaches/benifits of the 2106 deductions.

 

[EagleKeeper]

Originally posted by: abc
eagle, what do you mean by the showing of rental income... do you mean I must show NET rental income? I hope you dont... I incurred about 30k in renovations, and only STARTED renting it the last two months of the year...

In such case, if I can use the 30k to offset the measly 2 months of rental income, my net rental income is ZERO....


Leading also, to my second question... can I carry over the 28k in renovation cost to future tax years until it's all used up?


What other creative but legal things can I expense off as used to elicit renters/get the place ready to be rentable...

the phone bills talking to realtors?
the ads in papers advertising a apt?
the truck rented to haul the renovation supplies?
fuel costs?
the truck purchased for renovation jobs?
supplies themselves?

One can have more expenses than rental income for the first year. You are a prime example.
You will be able to write-off $25K of rental expense(loss) against your regular income. Any more will be rolled over to the next year.

On your Schedule E, you will show the total rental income as income and then show the expenses incurred.

However, I do not know if you can take less than the $25K to make the tax benifit stretch.

General repairs are expenses aginst the year they were done.
Capital improvements are depreciated proportiionaly. The IRS and/or Tax S/W will handle this for you.

With the exception of the purchased truck and fuel costs, everything listed should be treated as an expense.

The truck, as ElFenix stated, will be depreciated.
You will have to decide if you wish to use the mileage or expenses option for Fuel/maintainence/insurance/ etc with respect to the truck.

Oncce you start, you can not change the option on the vehicle.

Again Tax S/W should be able to walk you through the calculations. You just will hve to collect all the information needed up front.

 

[techfuzz]

I have a couple questions I can't seem to find answers for or I am getting conflicted answers to.

1. My fiance has been living with me since the later half of 2003. She does not have a job or any income. I vaguely remember reading last year when I was doing my taxes that she had to be living with me for the entire year before claiming her as a dependent. Is that true, can I now claim her as a dependent for 2004? Does this have anything to do with the Head of Household filing status?

2. In January 2004, I went back to college to finish my BS in CS. I am a part-time student (6-7 hours per semester). I took out both types of Stafford Federal Loans (un and subsidized). I paid some approx. $250 in student loan interest during 2004. I also work full-time and my company reimburses me for 2/3's of my tuition (only tuition, but not any of the other required tuition fees that get tacked on). I am totally confused about what is deductible and how to deduct it beyond the $250 I paid in student loan interest. I've read about these Lifetime Learning Credits, but I'm confused if I'm eligible for it or not and what expenses I've incurred can be included.

Help? TIA

techfuzz

 

[CPA]

Originally posted by: techfuzz
I have a couple questions I can't seem to find answers for or I am getting conflicted answers to.

1. My fiance has been living with me since the later half of 2003. She does not have a job or any income. I vaguely remember reading last year when I was doing my taxes that she had to be living with me for the entire year before claiming her as a dependent. Is that true, can I now claim her as a dependent for 2004? Does this have anything to do with the Head of Household filing status?

2. In January 2004, I went back to college to finish my BS in CS. I am a part-time student (6-7 hours per semester). I took out both types of Stafford Federal Loans (un and subsidized). I paid some approx. $250 in student loan interest during 2004. I also work full-time and my company reimburses me for 2/3's of my tuition (only tuition, but not any of the other required tuition fees that get tacked on). I am totally confused about what is deductible and how to deduct it beyond the $250 I paid in student loan interest. I've read about these Lifetime Learning Credits, but I'm confused if I'm eligible for it or not and what expenses I've incurred can be included.

Help? TIA

techfuzz

1) Yes, you can claim her (if and only if your state legally recognizes the co-habitation. You will need to review your state's law on joint tenancy), but you cannot claim Head of Household because she does not meet the Qualifying Person test. You would file Single. Best bet is to call the IRS and tell them the state you live and see what they say.

2) you can claim the interest expense(it is an adjustment to income - line 26 on the 1040) and, depending on your AGI, you can deduct up to $4K of tuition fees on line 27. The better bet on your education costs (not including the interest expense), though, is to take either the Hope or Lifetime Learning Credit since they reduce your actual tax, not your taxable income. Both work similarly, but have different income thresholds and caps. Also, once you choose one, you cannot change, IIRC.

 

[MattCo]

Question:

My wife recently got a protion of the profit from the sale of a house that she shared with her ex-husband (via a 3 year court battle). We intend to use this money towards a new home. Do we have to pay taxes on the money from the profit gained on the house's value rising since we are rolling it into a new house? Since this was a court decision, does that affect the way we record it?

-MC

 

[techfuzz]

Originally posted by: CPA
1) Yes, you can claim her (if and only if your state legally recognizes the co-habitation. You will need to review your state's law on joint tenancy), but you cannot claim Head of Household because she does not meet the Qualifying Person test. You would file Single. Best bet is to call the IRS and tell them the state you live and see what they say.

When you say recognize the co-habitation, do you mean commonlaw marriage? If so I guess I'm out of luck on that one because Georgia does not recognize commonlaw marriages any more (circa 1997).

Originally posted by: CPA
2) you can claim the interest expense(it is an adjustment to income - line 26 on the 1040) and, depending on your AGI, you can deduct up to $4K of tuition fees on line 27. The better bet on your education costs (not including the interest expense), though, is to take either the Hope or Lifetime Learning Credit since they reduce your actual tax, not your taxable income. Both work similarly, but have different income thresholds and caps. Also, once you choose one, you cannot change, IIRC.

Where did you get the $4K in tuition fees that I can deduct? According to the IRS website, since I'm not in my first or second year of school, I don't believe I qualify for the HOPE credit which leaves the LLC option only, correct? What I think you're saying is I probably can either take the $4K in tuition fees or the LLC option, but not both?

techfuzz

 

[EagleKeeper]

Originally posted by: MattCo
Question:

My wife recently got a protion of the profit from the sale of a house that she shared with her ex-husband (via a 3 year court battle). We intend to use this money towards a new home. Do we have to pay taxes on the money from the profit gained on the house's value rising since we are rolling it into a new house? Since this was a court decision, does that affect the way we record it?

-MC

As long as you roll the proceeds into a new house, there is no problem on profit.
You also should have a $250K limit before you would even have to worry about declaring captial gains on a house sale.

 

[CPA]

Originally posted by: techfuzz

Originally posted by: CPA
1) Yes, you can claim her (if and only if your state legally recognizes the co-habitation. You will need to review your state's law on joint tenancy), but you cannot claim Head of Household because she does not meet the Qualifying Person test. You would file Single. Best bet is to call the IRS and tell them the state you live and see what they say.

When you say recognize the co-habitation, do you mean commonlaw marriage? If so I guess I'm out of luck on that one because Georgia does not recognize commonlaw marriages any more (circa 1997).

Originally posted by: CPA
2) you can claim the interest expense(it is an adjustment to income - line 26 on the 1040) and, depending on your AGI, you can deduct up to $4K of tuition fees on line 27. The better bet on your education costs (not including the interest expense), though, is to take either the Hope or Lifetime Learning Credit since they reduce your actual tax, not your taxable income. Both work similarly, but have different income thresholds and caps. Also, once you choose one, you cannot change, IIRC.

Where did you get the $4K in tuition fees that I can deduct? According to the IRS website, since I'm not in my first or second year of school, I don't believe I qualify for the HOPE credit which leaves the LLC option only, correct? What I think you're saying is I probably can either take the $4K in tuition fees or the LLC option, but not both?

techfuzz

$4k is the limit. sorry for the confusion. So you can take your fees as a deduction to AGI or take the LLC limited to $4k of current year expenses.

 

[abc]

Originally posted by: EagleKeeper

Originally posted by: abc
eagle, what do you mean by the showing of rental income... do you mean I must show NET rental income? I hope you dont... I incurred about 30k in renovations, and only STARTED renting it the last two months of the year...

In such case, if I can use the 30k to offset the measly 2 months of rental income, my net rental income is ZERO....


Leading also, to my second question... can I carry over the 28k in renovation cost to future tax years until it's all used up?


What other creative but legal things can I expense off as used to elicit renters/get the place ready to be rentable...

the phone bills talking to realtors?
the ads in papers advertising a apt?
the truck rented to haul the renovation supplies?
fuel costs?
the truck purchased for renovation jobs?
supplies themselves?

1One can have more expenses than rental income for the first year. You are a prime example.
You will be able to write-off $25K of rental expense(loss) against your regular income. Any more will be rolled over to the next year.

n your Schedule E, you will show the total rental income as income and then show the expenses incurred.

2However, I do not know if you can take less than the $25K to make the tax benifit stretch.

General repairs are expenses aginst the year they were done.
Capital improvements are depreciated proportiionaly. The IRS and/or Tax S/W will handle this for you.

With the exception of the purchased truck and fuel costs, everything listed should be treated as an expense.

thankyou, but i'm sorry that i am finding something that to me, is confusing...

at 1, you seem to say expenses cn be carried over to next year and on i guess, until exhausted.

at 2, you seem to say wecannot make the tax benefit stretch...

it couldnt be that in both cases you are talking about rental expenses?

 

[EagleKeeper]

Expenses can carry forward if there are more than $25K.

Less than $25K can not be carried forward.


Example Only:

You have $40K worth of expenses as a loss (ie expenses are more than income).

You have $35K of taxable income.
A $25K loss leaves you with [b/$10K[/b] taxable income.
You can then carry forward the $15K loss difference into next year which will be applied against your taxable income.


Example Only:

You have $40K worth of expenses as a loss.

You have $20K of taxable income.
A $25K loss leaves you with $0K taxable income. You can not have -$5K taxable income

Note that the loss is greater than your taxable income.

I do not know if you can only take a $20K loss vs the $25K loss.

The tax S/W should take care of this problem anyhow.

 

[pmoa]

i am going to make 72,000 this year as a contractor in MARYLAND. How do I compute my AGI?