DALLAS CPA

Back Door Roth IRA contribution

noreply@blogger.com (taxxcpa) — Sun, 01 Apr 2012 11:58:00 +0000

If you want to contribute to a Roth IRA, but your income is above the phase-out, there is a workaround.

Due to too much income Roth contributions are phased out. But you may qualify (earned income, etc.) to make traditional contributions. With no more phase-outs for CONVERSIONS, you can first contribute to a traditional IRA, then convert to a Roth immediately. If there are no other traditional contributions over the years, you won't have to worry about earnings, ratios of with-vs-without basis, etc.

Back door Roth.

Taxes on K-1 Forms

noreply@blogger.com (taxxcpa) — Fri, 02 Mar 2012 12:46:00 +0000

Taxes for Investments in Partnerships, LLCs, LPs

Even if you invest in these kinds of entities in an IRA there could be unexpected tax implications.

You will receive a K-1 form for tax purposes—not a 1099-DIV since income from non-corporate entities are not considered dividends.

ROYALTY INCOME (Code T): Your K-1 will have a multitude of codes. Some of the income may be from royalties. If so, there will be a CODE T for depletion. You will probably be able to take a 15% depletion allowance, but it will not be shown on the K-1. Line 17 of the Partnership or LLC return is for depletion BUT it specifically states NOT for Oil and Gas depletion. When I prepare a return for a Partnership or LLC, I provide an attachments for the company to give K-1 recipients with the following message:

“If an LLC member uses percentage depletion, he must apply the 65%-of-taxable-income limit using ALL of his taxable income.”

In the event the investor has a very low taxable income, this would be relevant.

UNRELATED BUSINESS TAXABLE INCOME (Code V): If you have over $ 1000 in UBTI, you must file a Form 990 and pay tax on it, even if it is an IRA investment. After I invested in several Master Limited Partnerships, I became concerned with the possibility of over $ 1000 such income, and transferred one of them out of my IRA to limit the income to less than $ 1000. However, when I got my K-1s the amounts in Code V, in every case, were small negative amounts. Nevertheless, the possibility of UBTI could arise with some such MLPs. Your broker may prepare the Form 990 for you or you may have to prepare it yourself. I have no experience since I’ve never had this come up, so anyone having this situation would need to investigate further.

Retain and back up tax records

noreply@blogger.com (taxxcpa) — Tue, 28 Feb 2012 00:08:00 +0000

BACKING UP YOUR TAX RECORDS

Records supporting your tax return should be retained for four years after the end of the tax year (i.e. three years after the due date which is normally April 15 of the following year). If you file later with or without obtaining an extension, you need to keep them for three years after you file.

One way is to store all of your receipts and other data in a box or file cabinet. I used to do that, but it takes up too much space, so now I scan all documents into a document file I set up for each year. I bought a Fujitsu ScanSnap S-510 Scanner. It can scan several pages which is a lot more convenient than scanning one page at a time on a flat bed scanner. There are better, more expensive scanners, but the one I bought does the job for me.

In addition to tax documents, I also use it to scan and keep a lot of other documents unrelated to my tax return or tax returns of my clients.

There is still a risk involved. What if your computer crashes. For years I had no crashes, but one day I read about Carbonite and other off-site backup services and decided to install Carbonite just in case. A year or so later, my computer DID crash. The backup took a long time, but it worked with one problem: I had several sets of accounting records and all were restored. However, for one company, I was unable to establish a new vendor code. I waited until the end of the year and re-established the company with a new name in order to be able to create new vendor codes

In order to avoid such a situation again, I bought an external hard disk which is connected to my computer with a UBS cord. Every so often I COPY (not backup) the company files to the external hard disk. Although it is not backed up daily, like the Carbonite backup, it would be helpful if the Carbonite restoration was corrupted. I also periodically copy other important files and programs to the external hard disk.

I would recommend that anyone who has important records on a computer, at a minimum, use an external hard disk which is a very low-cost item. Carbonite costs a little more, but if you pay three years in advance, the cost-per-year is not too high and is well worth it.

RIsk in E-Mailing tax documents

noreply@blogger.com (taxxcpa) — Wed, 22 Feb 2012 13:12:00 +0000

There is a risk of a hacker intercepting your e-mails. This risk is more significant if you are transmitting material such as tax documents which show your social security number and possibly other things like your bank account number. If you send the information by US mail, there is a risk that someone other than the addressee will get it.

When I transmit a tax return I send it as a pdf file created by PDF Factory, which you can buy for under $ 50. Instead of printing a paper copy of the return I use PDF factory as the printer. PDF Factory enables me to use a security code, so I use the social security number of the recipient. That way the only way a hacker is likely to get into the e-mail is if he already knows your social security number. The PDF factory also enables me to use a master password which enables me to open the documents without using the recipient’s social security number. I never tell anyone what that password is.

If, for example, you are e-mailing tax data to your CPA, you should consider buying PDF Factory or a similar program. In addition to protecting sensitive material, it is also very useful for other things. I have it as my primary “printer,” so I always print things as a pdf. If I accidentally print a 20-page document by mistake, I don’t waste 20 sheets of paper. I just look at the PDF and delete it. If I really want to print a paper copy, I just select “print” within the document, and then I can select any printer I want to use. It defaults to the printer I normally use. Any time you send a document, it is much more readable if you send it as a PDF file rather than a JPG file. A lot of people have scanners that only create JPG files. When I get JPG files with documents, I finally found a way to convert them to PDFs before I print them as paper copies. Before I discovered how to do that, I had a lot of trouble with information I received in JPG format.

Of course there is no absolutely safe way to transmit your documents. To eliminate the risk of interception, you would need to hand-deliver any information that could be used for identify theft. A lot of my clients live 20 or more miles from me, so hand-delivery is inconvenient and also expensive as the price of gasoline rises.

One other option would be to fax the information. That is safe unless you accidentally send it to the wrong fax number. I sometimes get faxes intended for other people who have a fax number one digit different than mine.

Installment sale of real estate

noreply@blogger.com (taxxcpa) — Sat, 18 Feb 2012 11:22:00 +0000

There are a few things to consider if you make an installment sale of a former home.
If you have no mortgage, you may want to owner-finance the sale. If you still owe on a mortgage, you can still owner-finance it with a "contract for sale" or "land contract." The advantages are that you can avoid brokerage fees and a lot of other expenses and you can collect both principal and interest over 20 or 30 years.   Also, if any part of the sale is taxable, you can spread the taxable gain over the life of the mortgage rather than paying it all in the year of the sale. You will probably need to pay an attorney to prepare the documents.

I had a home I later sold. I had taken some depreciation deductions for a home office while I lived there. Later, I rented the house and took depreciation on the entire house.   While it was rented, I paid off the mortgage I owed, then sold it to the tenant who had been renting it and gave him a warranty deed.

I sold it late in the year, so the taxable percent of the principal he paid was fairly small. I had sold it for a little more than it had cost me, and my cost basis was further reduced by the depreciation I'd taken.   When I prepared my tax return, I somehow ignored Section 121 which exempts the gain on the sale of a home that you had lived in for at least two of the last five years preceding the sale.   It made very little difference on the first year but in future years, it would become increasingly important.

So I filed an amended return to set the record straight. I got a small refund--not enough to justify filing the amended return for the sake of the refund. However it would make a lot of difference over the years as more and more of the payment would become taxable as he reduced the balance of the mortgage.

The only part of the principal that I had to pay tax on is the percentage attributable to the depreciation I had taken for the home office and for the period rented. By spreading it over the life of the mortgage, it will be fairly small each year since the total depreciation was not a high percentage of the cost of the house.

If I had not reported it on the installment basis, the tax on the gain would have been significant in the year of the sale. In some cases a large gain could exceed the total amount collected on the installment sale especially if the sale took place in December.

TAX CREDITS-Too many of them

noreply@blogger.com (taxxcpa) — Wed, 07 Dec 2011 11:01:00 +0000

The real reason taxes are complicated is not due to the calculation of the
tax once the taxable income is determined. The real problem is with all the
deductions and credits. Many of these deductions and credits are designed
to encourage things presumed beneficial to society. But now there are so
many of these deductions and credits that it has led to a tax code that is
overly complicated.

TAX CREDITS may encourage something useful, but is it right for someone who
produces something beneficial to the environment and, by doing so, makes
several million dollars, to pay little or no tax due to his qualifying for a
lot of tax credits?

Obviously anyone should be able to deduct the cost of operating his business
rather than be taxed on his gross receipts, but a business that makes a high
profit net of all expenses should not escape tax by taking a lot of tax
credits.

Here are some of the forms to be filed for some of these many credits:

Schedule R-credit for the elderly and disabled, Form 1116 Foreign tax
credit, Form 4136 Fuel tax credit, Form 3468, Investment tax credit, Form
3800 General Business Credit, Form 5405 First time home buyer credit, Form
5695 Residential energy credit, Form 5884 Work Opportunity Credit,
Form5884-B, New Hire Retention Credit, Form 6478 Alcohol Fuel Credit, Form
6765 Research Activities credit, Form 8396, Mortgage Interest Credit, Form
8582CR, Passive Activity Credit Limits, Form 8609 Low Income Housing Credit
Allocation, Form 8801 Credit for Prior year Alternate Minimum Tax, 8812
Additional Child Tax Credit/Combat Pay, Form 8820 Orphan Drug Credit, Form
8826 Disabled Access Credit, Form 8834, Qualified Electric Vehicle Credit,
Form 8835 Renewable Electricity Production Credit, Form 8839 Qualified
Adoption Expense, Form 8844 Empowerment Zone Credit, Form 8845 Indian
Employment Credit, Form 8907 Nonconventional Fuel Production credit, Form
8808, Energy Efficient Home Credit, Form 8809 Energy efficient Appliance
Credit, Form 8810 Alternate Motor Vehicle Credit, Form 8811 Alternate Fuel
Vehicle Refueling Property Credit, Form 8912 Credit to Holders of Tax
Credit Bonds, Form 8936 Qualified Plug-in Electric Drive Motor Vehicle
Credit, Form 8941 Small Employer Health Insurance Credit.

There is nothing particularly bad about any single one of these credits.
The bad thing is that there are just too many of them. It would be better
to eliminate them all rather than to continue having all of them. The
benefits derived from those getting these credits are offset by the
necessity to either tax non-recipients more in order to grant these credits
or the necessity for the government to go deeper into debt or print more
money and reduce the purchasing power of the dollar.

AGGRESSIVE TAX RETURN APPROACH

noreply@blogger.com (taxxcpa) — Sun, 04 Dec 2011 11:06:00 +0000

Would you rather be safe than sorry? Or are you willing to take an aggressive approach to reduce your taxes?
My policy is to let my client make the decision after I've explained the possibility of IRS challenging the aggressive approach.
There is one big risk that you need to avoid if you take an aggressive approach. If you try to sneak it in just hoping it may slip through, it can cost a lot more than if you lay your cards on the table instead of trying to sneak it through.
When taking an aggressive position, you should always include FORM 8275, Disclosure Statement, explaining what you have done and the Revenue Ruling or other basis for your position.

Of course, you should never take an aggressive approach unless there is something to support your position as reasonable even if is not accepted by the IRS or tax court.

Rental and later sale of former home

noreply@blogger.com (taxxcpa) — Mon, 05 Sep 2011 21:54:00 +0000

If you have lived in a home for two of the last five years you can exclude all or part of any profit under §121.
The two years do not have to be the most recent two years.
Your profit, if any, is the sales price minus the cost after reducing the cost for any depreciation taken.
If you rented the house or used part of it as a home office the depreciation taken would reduce your cost for purposes of calculating profit.

Suppose you paid $ 200,000 for the house and took $ 10,000 depreciation so your basis would be $ 190,000. If you sold it for $ 220,000 Your profit would be $220,000 - $ 190,000 or $ 30,000.

However, due to §121 you would only have to pay tax on the $10,000 depreciation you had taken.

If you carry the mortgage on the sale, you could report it on the installment basis you would stretch out the tax on the profit over the life of the mortgage and only report 10,000/220,000 or 4.545% of the principal collected each year. By carrying the mortgage yourself, you would, of course, be collecting interest which would be fully taxable.

NOTE: The exclusion is not unlimited. A single taxpayer is limited to a $250,000 exclusion and if married filing jointly the exclusion is limited to $ 500,000.

Investing for dividends

noreply@blogger.com (taxxcpa) — Sat, 03 Sep 2011 22:04:00 +0000

Before you invest in a high-dividend stock consider whether the dividend is sustanable.
If the dividend per share is a very high percent of the earnings per share, it may be cut.
Some stocks pay dividends that exceed their earnings which cannot continue unless earnings improve.
Also, look at earnings growth. Are earnings per share increasing or decreasing?

A good way to begin your search is to google "dividend aristocrats" and "dogs of the dow"
Then check for earnings growth.

REFUND ANTICIPATION LOANS

noreply@blogger.com (taxxcpa) — Wed, 11 Aug 2010 16:09:00 +0000

Many of the "Tax Shacks" offer high-interest Refund Anticipation Loans (RALs) sometimes called Rapid Refunds. The people who obtain these loans are usually low-income people who are so impatient to receive their money that they will pay almost anything to get it a few days sooner.

If someone wants to pay an enormous amount of interest to obtain a loan, that's their business, but having the IRS aid and abet such a rip-off is where I take exception. Apparently, the IRS has begun to realize the error of its ways and will no longer provide the banks which provide these loans a "debt indicator" so if the refund is denied by the IRS the bank would be left holding the bag.

One other feature of these loans were that the bank deducted the tax preparer's fee as well as their fees from the refund. Since some people could not otherwise pay a tax preparer, the IRS is now considering allowing the tax preparation fee to go direct to the preparer and the balance to the taxpayer. This would eliminate one other justification for RALs.

The only remaining incentive for anyone to take the RAL would be to get the money as soon as the return was prepared rather than waiting for a few more days. After waiting 365 days for the refund, some people just can't wait another ten days! So RALs may not entirely disappear but the banks will have to take a much bigger risk without the debt indicator, so this will greatly decrease this sort of fleecing the poor.

Investment advice

noreply@blogger.com (taxxcpa) — Mon, 29 Mar 2010 01:30:00 +0000

Normally I avoid discussing any advice regarding buying or selling of stocks, but I felt this is important enough to share and warn you since this explosive situation might prove to be yet another ENRON. Please review any holdings you might have in the following stocks:

American Can
Interstate Water
National Gas Company
Northern Tissue Company

Due to uncertain market conditions, I advise you to sit tight on your American Can, hold your Water, and let go of your Gas. You may be interested to know that Northern Tissue touched a new bottom today, and millions were wiped clean. It's a tough market out there. Be careful!

LLC vs LLP

noreply@blogger.com (taxxcpa) — Thu, 11 Mar 2010 21:51:00 +0000

Recently I spent a lot of unnecessary research time before I received the K-1 from an LLP partner. I had assumed that it was an LLC which opened the door to possibly reducing the impact of self-employment tax. If you are an employee the most you pay is 7.65% of your salary, but the employer pays the matching half, so the total could be 15.3% altogether.
If you are self-employed or a partner you pay both halves--social security of 12.4% up to the maximum amount taxed and medicare of 2.9% on 100% even if you are above the SS max.

If my client had been an LLC member, the self-employment tax might have been limited to an equivalent of a reasonable salary. My client's salary the year before had been about $35,000 less than his partnership share of profits, so that might have saved a little. It could also have been contended that a "reasonable" salary could have been less than the previous salary.

Unfortunately the K-1 was for an LLP (Limited Liability PARTNERSHIP) and the K-1 clearly stated that it was all subject to self-employment tax. The only redeeming feature was that "unreimbursed partnership expense" was fully deductible--for income tax, but not for self-employment tax). As an employee, an employee's unreimbursed business expense is only deductible to the extent that it exceeds 2% of Adjusted Gross Income.

Tax credits and social engineering

noreply@blogger.com (taxxcpa) — Fri, 19 Feb 2010 17:34:00 +0000

There are an ever-growing number of tax credits. People who get those credits like them, but people who don't get them have to pay more tax in order to provide the credits to the recipients. It's a clear-cut case of robbing Peter to pay Paul. You can always count on Paul's support for these benefits. Everyone has heard of the "Peter principle" but not everyone is familiar with the "Paul principle" but you can rest assured that your congressman is well-versed on the vote-getting benefits of giving Paul these breaks.

The credits along with a lot of other deductions and rules are social engineering efforts to encourage or discourage certain behavior. Mortgage interest deductions encourage home ownership. To encourage it even more, those no-income-verification loans with no down payment created a lot of new homeowners, but it also lead to the recession we are still experiencing.

In my opinion the government should concern itself with making taxation fair and uncomplicated and avoid social engineering as part of the tax code. Ideally the government would operate the way a prudent individual would. In good times, take in more than you spend an save for a rainy day. Then if there is a recession, the government could step in to tide us over until the economy improved--without deficit spending and without mortgaging the future of our grandchildren for our debts.

Researching Tax Questions

noreply@blogger.com (taxxcpa) — Sun, 14 Feb 2010 18:46:00 +0000

Sometimes readers of this blog have questions regarding items discussed in the blog. Obviously this blog cannot cover the waterfront, so it won't answer all questions related to a subject discussed. In that case, you would need to do further research. A lot of your questions may be answered by looking at IRS publications which are available at www.irs.gov. Also, if you are near a large public library, you could take a look at the CCH publications.

If you need professional assistance, there are CPAs and other tax professionals available almost anywhere you may live. If you need personal assistance, CPAs, including myself, charge for their services. Unfortunately the tax laws are so complicated that the majority of the population has to pay someone to prepare their returns.

In the past, I've had people e-mail me with questions and I've sometimes responded, and some people have continued with a whole series of questions which I just don't have the time to research and respond. If someone submits a question of general interest, I will try to cover it in a future blog, but I may not address all such questions.

UPTOWN DALLAS: IRS e-mail FRAUD

noreply@blogger.com (taxxcpa) — Sun, 14 Feb 2010 01:48:00 +0000

UPTOWN DALLAS: IRS e-mail FRAUD

TAX CREDITS

noreply@blogger.com (taxxcpa) — Sun, 14 Feb 2010 01:16:00 +0000

Tax Credits are usually better than tax deductions because a dollar's worth of credit can reduce your tax a dollar, instead of just a dollar multiplied by your tax rate. Some credits are "refundable" which means that if you owe no tax or less tax than the credit, you can get a refund.
A non-refundable credit will reduce your tax to zero, but will not get you a refund. So if your tax was $ 1000 and you had a $ 2000 credit, you would get a $ 1000 refund if the credit was refundable, but if it were non-refundable, it would only wipe out the $1000 tax due.

Some credits and the forms you need to file to support the credit are:
Schedule R, Credit for the elderly
Form 1116- Foreign tax credit
Form 4136 -Fuel tax credit
form 3468- Investment tax credit
Form 5405- First-time homebuyer credit
Form 8396- Mortgage Interest Credit
Form 8834- Qualified Electric Vehicle Credit
Form 8863- Education Credit
Form 8880- Retirement Saving Credit
Forms 8908 and 8909 - Efficient Energy Credits
Schedule - EIC Earned Income Credit
Schedule - M Making Work Pay Credit

Required IRA withdrawal

noreply@blogger.com (taxxcpa) — Thu, 11 Feb 2010 17:00:00 +0000

It is easy to get confused with the Required Minimum withdrawal rules. If you are age 75 12-31-2009, it would seem that you would use your account balance as of that date and also use your age (75) as of that date.

However, here is what the Tax Book says:
Required minimum distribution calculation. The RMD for
each year equals the IRA account balance as of December 31 of
the preceding year, divided by the applicable distribution period,
or life expectancy, for the taxpayer’s age in the current tax year.

RENTAL and other Unallowed passive losses

noreply@blogger.com (taxxcpa) — Thu, 11 Feb 2010 11:37:00 +0000

As a rule for many taxpayers, you can deduct up to $ 25,000 in rental losses. However if your "modified" adjusted gross income is $ 150,000 or more you get nothing. If your MAGI is less than $ 150,000, you will get all or part of the $25,000 maximum deduction. I won't go into the difference between MAGI and regular AGI. That's a whole 'nother story.

Here are some examples:

EXAMPLE # 1: Your MAGI is $ 140,000. $150,000 - $ 140,000 = $ 10,000. You can take half of the $ 10,000, not to exceed your actual loss. So if you lost $4000, you could take it all. If you lost $ 6000, you could only take $ 1000 and carry the loss forward to next year's tax return.

EXAMPLE # 2: Your MAGI is 90,000. $ 150,000-$90000 = $60,000. Half is $30,000, but you can't take more than the $ 25,000 maximum. You can carry forward any loss in excess of $ 25,000. If the loss is $25000 or less, then you can take it all in the year of the loss.

If you sell the property in some future year, you can then take all of the losses you carried forward in the year of the sale. So if you always made over $ 150,000 and had losses every year, then you would finally get a big deduction in the year of the sale.

SEVERAL RENTALS CHANGE THINGS SOMEWHAT:
If you have several properties and sell one of them, you only get the unallowed loss attributable to that one property in the year of the sale. Unallowed losses are allocated among all properties each year. If you have four properties and lose $ 20000 on three of them and make a profit of $ 4000 on one of them, you could offset the $ 4000 gain so it would not be taxed, but would reduce your loss carry-forward to $ 16,000.
Later you sell one of the properties. You would have needed to allocate the $ 20,000 to the three properties. Assume $6000 for one, $5000 for another and $9000 for the other one.
The unallowed loss would be split proportionately 16/20 (or 80%) X 5000 for the first one, etc.
So if you sold the one with the $9000 loss you would have $7200 carried forward and deductible in the year of the sale.

If you have losses and gains every year with multiple properties, you will need to keep a running total of any unallowed losses on a property-by-property basis. Some years you may have some gains which absorb part of the prior losses. This means that there is a very good chance of a miscalculation.

You probably should find a CPA to do all this for you. Those of us who do a number of tax returns have tax software programs that do all of these calculations and determine the carryforward amounts on a cumulative basis. For us, the allocations and MAGI calculation is no problem since the computer knows how to do it. What is important is to know how to feed the figures into the computer to get the right results and create the proper forms. My computer program automatically creates the Form 8582, Passive Activity Loss Limitations, which must be filed with Form 1040 if you have unallowed losses of this type.

NOTE: There are other types of passive losses besides rental losses. For example if you are a passive investor in a partnership or S-corporation that has losses, they are passive and cannot always be taken. Once I had a client with losses in about 20 partnerships and S-Corporations that were carried forward until one year he had a big profit and was able to offset a lot of the profit with the losses that were carried over from the prior years.

PARTNERSHIP ACCOUNTING

noreply@blogger.com (taxxcpa) — Thu, 11 Feb 2010 03:50:00 +0000

Here is an interesting partnership situation.
Two people own 50% of the partnership, and get 50% of gross income, but pay a different share of the expenses. One guy pays 60% of the expenses and the other guy pays 40%. This calls for a little "creative accounting."
Here is one way to handle it:
Do everything as if expenses were shared equally (using 50% ownership for each).
Then give the one who was allocated too little expense a 'guaranteed payment' to make it come out correctly.
For example: Gross income = $100,000
Partner A's expense = 20000 and his share of gross is $50000) net due is $ 30000
Partner B's expense = 30000--also has $50000 share of gross net due is 20000
Each 50% partner would normally get a K-1 showing $25,000
To correct this give A a guaranteed payment for the difference (30000-20000)= 10000
So now the $100,000 has been reduced to 90,000 to spit equally
Subtract $ 50000 expenses from the $ 90000
Split the remaining $ 40000 equally. ($ 20000 each
Add the Guaranteed payment to A's share giving him $ 30000 which is the same as if he had only been allocated $ 20000 of expense.
Partner B would get $ 20000 and no guaranteed payment.

Home Office deduction

noreply@blogger.com (taxxcpa) — Tue, 09 Feb 2010 16:57:00 +0000

Several years ago I decided to leave the office I had been renting and start working from my home.
There were advantages and disadvantages.
On the plus side, I saved the rent, used an office space available in my home and was able to deduct a portion of my mortgage interest, real estate tax, utilities and other home expenses as a business expense. The deduction is based on square feet used; e.g. if you use 400 sq feet of a 4000 sq ft home for an office, 10% of all relevant expenses are deductible. You can also take a deduction for depreciation of 10% of the home cost or other basis (excluding land value). Another big advantage is that I save car expense and I don't have to hang around an office when I'm not busy--I can watch TV unless something comes up.
The main disadvantage is that I don't get as many new clients, since I live in a residential area and I can't hang out a sign.
It's a pretty good trade-off.

To deduct the home office you must use it exclusively as a business office. Having a TV in the office could disqualify it on the grounds that it is not exclusively used for business.

Gambling winnings and Losses

noreply@blogger.com (taxxcpa) — Mon, 08 Feb 2010 22:39:00 +0000

Generally when you have gambling winnings you must report all winnings on page one of your tax return, then deduct your losses, not to exceed your gains, as an itemized deduction.

If you could just report the net winnings on page 1, it would reduce your adjusted gross income on page one of Form 1040 which is usually better than deducting it on page two as an itemized deduction--especially if you would be better off using the standard deduction if you didn't have the gambling loss deduction.

RS Chief Counsel has issued guidance recently that DOES allow netting of gains and losses for a casual gambler using the slot machines. This netting is allowed apparently on a daily basis only.

If you go to the IRS website, search for AM 2008-011 and you can read the document. Taxpayers must keep records and I stress that this netting is only for a specific fact pattern.

Deductionf for Emloyee Business Expense

noreply@blogger.com (taxxcpa) — Sun, 07 Feb 2010 20:56:00 +0000

Employee Business Expenses

Unreimbursed employee business expenses are deductible to the extent that they—plus other “miscellaneous deductions” exceed 2% of your Adjusted Gross Income. For example, if you made $ 50,000 and your employee business expenses were $ 1200, you would have $1200-$1000=$200.

To that you could add other miscellaneous deductions such as tax preparation fees and Investment expenses such as IRA fees paid to the custodian (but not if the custodian deducts them from your IRA account).

Some employee business expenses include:

· Car expense (actual expense or standard mileage allowance) The standard mileage allowance for 2009 is 55¢ per mile.

· Hotels and motels when away from home overnight.

· Meals while away from home overnight.

· Education expense related to present occupation

· Job search fees.

· Occupational license fees

· Home office expenses (several rules apply)

· Professional dues, union dues

· Protective clothing, safety equipment, uniforms required for job

· Tools and supplies used in your work.

The biggest problem with these are the 2% of Adj Gross income by which they must be reduced.

They must be required by the job and a number of rules apply which must be followed in determining the amount to be deducted. You can obtain more information from IRS Publication 17 and other information available at www.irs.gov

IRS THEME SONG

noreply@blogger.com (taxxcpa) — Sun, 07 Feb 2010 19:15:00 +0000

Tax his cow, Tax his goat;
Tax his pants, Tax his coat;
Tax his crop, Tax his work;
Tax his ties, Tax his shirt;
Tax his chew, Tax his smoke
Teach him taxing is no joke.
Tax his tractor, Tax his mule;
Tell him, Taxing is the rule.
Tax his oil, Tax his gas
Tax his notes, Tax his cash
Tax him good and let him know,
That after taxes, he has no dough.
If he hollers, Tax him more;
Tax him till he's good and sore.
Tax his coffin, Tax his grave,
Tax his sod in which he's laid.
Put these words upon his tomb,
"Taxes drove him to his doom."
After he's gone, we won't relax.
We'll still collect inheritance tax.

Deductions you may overlook

noreply@blogger.com (taxxcpa) — Sun, 07 Feb 2010 11:16:00 +0000

If you take the standard deduction, you can't deduct your real estate taxes or your sales tax, right?
WRONG. Sometimes you can. If you pay real estate tax or buy a new car and pay sales tax you could get an increased standard deduction. To get this increase to your standard deduction, you will need to include a Schedule L with your return.

There are a couple of new tax forms that sound like an advertisement for L&M cigarettes--the Schedule L and the Schedule M. I've posted a previous blog about Schedule M.

You can see these forms at www.irs.gov.

Fly-by-night tax preparers

noreply@blogger.com (taxxcpa) — Thu, 04 Feb 2010 13:49:00 +0000

Although there are many unlicensed tax preparers who are competent, there are a lot of people with questionable abilities and ethics preparing returns. The IRS plans to implement a requirement that anyone who prepares more than 10 returns pass a test and register with the IRS.

This will provide a minimum level of confidence but even someone who has the ability to pass the CPA test or the EA test cannot be tested for honesty. As a CPA, I'm required to take courses in ethics on regular intervals. This may be of some benefit in resolving some grey areas, but even Al Capone could probably pass a test in ethics if he studied the right material--but that would not guarantee that he would behave in an ethical manner thereafter.

Here is a recent IRS comment:
The IRS has proposed a number of actions to increase oversight of federal tax return preparers, as outlined in the Return Preparer Review issued on Jan. 4.

The RFP lists a tentative introduction date for an on-line registration system of Sept. 1, 2010. Sept. 1, 2010, is the current target date for an on-line registration system. Final determination of an on-line registration system availability date will not be possible until multiple factors are considered including the evaluation of proposals submitted by vendors.

The IRS will maintain full oversight of the registration process and registered preparers.