Category: Taxes

Posted on by Jan Roberg

Tax Issues for Families of Children With Special Needs

Families of special needs children have tax issues that they may take advantage of.

 

 

I volunteer with an organization called The Arya Foundation  We help provide adaptive equipment for children with special needs.  Because of that, I had the opportunity to speak with a group of parents about tax issues for families of children with special needs.  I’ve written about tax issues and special needs before but with the new tax laws, and given some of the questions I was asked, I decided it was time to write about it again.

 

ABLE Accounts

First – let’s talk about ABLE accounts.  ABLE stands for the Achieving a Better Life Experience Act which was passed in 2014.  ABLE accounts are not tax deductible on your federal tax return.  But,iIn some states, like here in Missouri, they are deductible on your state tax return.  Contributions to the ABLE account can be made by anyone, mother, father, grandparent, even the beneficiary!  But the contributions are limited to $15,000.  ($14,000 in 2017.)  Now here in Missouri, you can only take a MO tax deduction for up to $8,000 or $16,000 for a married couple.

 

Wait!  You say.  You can only contribute $15,000 – how do you take a $16,000 tax deduction?  Good question!  Technically, each parent may contribute up to $15,000, so if you contribute over $8,000 you want to split the donation between the spouses.

 

What about grandma?  Does she get a deduction for contributing to the ABLE account?  In Missouri, only the account holder may claim the deduction, so that would be the person with the ABLE account, or the parent or legal guardian of the child.  That means, unless grandma is the guardian, she won’t be able to claim a deduction on her contributions to the account.

 

There’s a whole lot of good that goes with Missouri ABLE accounts, but there is one big disadvantage:  if your child dies, money in the ABLE account may be used to pay back the Missouri HealthNet program.  So if you have received HealthNet program benefits – you could forfeit the ABLE account funds in the event of your child’s death.  It’s a good idea to talk to a financial advisor about all of your investment options for your special needs child.  An ABLE is a wonderful tool, but it’s not the only option available in your tool box.

 

Child and Dependent Care Credit

Congress left the Child and Dependent Care Credit in tact.  Basically, you can receive a tax credit for money you paid for child care expenses for a non-disabled child up to age 13, or for any age disabled child or spouse.  The credit worth up to $1,050 for one child or up to $2,100 for two children.  (This is based on child care expenses of up to $3,000 per child.)

 

A similar benefit is a child care FSA which allows you to exempt up to $5,000 from your taxable income for child care.  You can’t claim a child tax credit on money that was placed in your FSA, but if you have two children and spent over $5,000 then you claim the Child Care credit on the excess over the $5,000 (up to the $6,000 mark.)

 

Using 529 Plan Funds for K-12 Education

This is great news for special needs families.  If you need to send you child to a special school, or need to hire a special tutor – now you can use 529 plan funds to cover those expenses – up to $10,000 a year.  And in Missouri, you can pretty much churn your deposit and turn around and spend it without penalty, taking advantage of that Missouri tax deduction  (Up to $8,000 per spouse.)

 

What About Transferring 529 Plan Money to the ABLE Account?  

Yes!  Now you can transfer money from a 529 account to the ABLE account.  Now the contribution limit of $15,000 still applies, so you could not transfer more than $15,000 in any given year.    But, if you are concerned about Missouri taking the ABLE money in the event of your child’s death, you could fund the 529 account, taking advantage of the tax deduction, and move the money to the ABLE as necessary.

 

Savers Tax Credit for ABLE Account Holders

This is new, and pretty cool.  Let’s say your special needs child is working and funding his or her own ABLE account.  (As opposed to an ABLE account funded by parents.)  Your child could qualify for the Retirement Savers Credit.  (Subject to Retirement Savers Credit rules.)

 

 

Increased Child Tax Credit

While we are losing the exemptions that we used to claim for children, the child tax credit is going up to $2,000 from $1,000.  And the phase out is increasing to $400,000 for married couples and $200,000 for single parents which will allow more families to claim the credit.  The child tax credit is limited to families with children that are under age 17.

 

New Threshold for Medical Expense Deduction set at 7.5%

This is one of the few tax provisions that is retroactive to 2017.  Originally, the threshold was set at 10% of adjusted gross income, but it was moved down to 7.5%.  What that means is that a family making $50,000 used to have to spend over $5,000 on medical expenses in order to qualify for a deduction.  With the new threshold, that same family would be able to claim a deduction on any expenses over $3,750.  Of course, with the new, higher standard deduction it will be more difficult to be able to claim medical expenses.

 

For a full list of expenses that you may be able to deduct, check out IRS Publication 502.

 

 

 

Posted on by Jan Roberg

How To Pay Your Taxes Online

Sometimes it seems like I should just wrap my tax payment up with a box.

 

The best thing about paying taxes on-line is that you get a confirmation that you actually paid the tax.  (It’s also especially helpful when you’re waiting until the last minute and didn’t get your check in the mail on time!)

 

If you’re paying the IRS use IRS Direct Pay.  Direct pay has no extra fees.  You make the payment directly from your bank account.  Here’s the link:  IRS Direct Pay

It’s going to ask the reason for your payment.  For most people, it’s going to be “Tax Return or Notice”.  But, if you’re reading this and you haven’t filed yet, it’s also the place to go to file an extension.  I’m talking about paying your federal taxes, so in the next section where it says “Apply payment to” you’re going to pick “1040, 1040A, 1040EZ”.

The next block is for the tax period.  You’re going to pick the year.  So, if you’re paying your current tax bill, that’s your 2017 taxes.  Click on 2017 and hit “continue.”

 

The next page is the verification page.  This is where they want to prove it’s really you.  They want your name and social security number and the address you used on your tax return last year!  Note the last year part!  If you’ve moved, the IRS doesn’t know that yet.

 

And here’s something else helpful.  If you are married, and your spouse’s name is listed first on the tax return – use his/her name and his/her social security number when you pay that bill.  The IRS systems aren’t that sophisticated.  If you use the “spouse” social instead of the “taxpayer” social, your account might not get credited properly.

 

After the IRS identifies you, then you proceed with the payment screens.  It’s actually pretty easy from there.

 

 

If you want to pay with a credit card instead, you can go to 1040paytax.com

But remember, using your credit or debit card has fees.  The higher your tax bill, the higher the fees.  So if you can pay the full balance due with your bank account, that’s going to save you some money.

 

If you are trying to pay your Missouri taxes, you may use the Missouri Department of Revenue JetPay site. The catch is – if I give you the link to Jet Pay, it times out.  So, I’m going to give you a link to the Missouri Department of Revenue site – from there, on the right hand side of the page you’ll see where it says “Popular Online Services”.  In that box is a link to Jet Pay.  So you’ll click on that.   Here’s a link to Missouri Department of Revenue

Click on:  “I would like to Process a Payment”.

 

 

The City of St Louis does not currently accept online payments, but if you want to you pay call and make the payment by credit card over the phone.  There is a 2.45% service fee for that though.  The City of St Louis line for business returns is (314) 622-4248.

 

 

If you owe Illinois taxes, go to  My Tax Illinois

You will click on “Make an Individual Income Tax Payment” and you’ll follow the prompts from there.  (If you get a white page that says click here to start over, do that and it should take you right there.  The web address is mytax.illinois.gov in case you have trouble getting there.)

 

 

 

 

 

 

Posted on by Jan Roberg

Five Things to Know about Taking Your RMD

When you retire, the government makes you take money out of your IRA, it's called Required Minimum Distributions RMDs.

We all want to have enough money to retire with. We also have to remember about paying tax on that money as well.

 

An RMD is a Required Minimum Distribution.  That’s the money that you’ve saved up in an IRA or a 401(k) for all these years.  Remember how you got a tax deduction for saving that money?  Well, that was only temporary and the time will come when the IRS wants their tax money back!  Here’s what you need to know!

 

Number 1:  Required Minimum Distributions (RMDs) start at age 70 and 1/2.  If you turn 70 on June 30th, you need to take an RMD distribution that same year.  If you turn 70 on July 1st, you can wait until next the year.

 

Number 2:  If you screw up and miss the December 31st deadline the first year, you still have until April 1st of the next year to get it done.  That’s only good for the first year though.  The downside to taking your distribution on April 1st  is – you still have to take your second distribution by December 31 of that year.  That means you’ll be hit with two years of  RMD income on your tax return instead of just one.

 

Number 3:  If you don’t take your RMD, the penalty is 50% of what you should have taken out in the first place.  Fifty Percent!  Let’s say you have $500,000 saved up in your IRA.  The first year RMD on that account should be $18,248.*  If you didn’t take your RMD, the tax penalty would be $9,124.  That’s not a typo.  You’d pay over nine thousand dollars as a penalty for not taking your RMD.    Ouch!  As as you can see, it’s really important to make sure you take your RMDs!  (Sounds kind of like a vitamin, doesn’t it?)

 

Number 4:  People often ask me if they can take more out of their accounts than the RMD.  The answer is yes you can!  It’s your money, you may take as much of it out as your want, you just have to pay the tax on it.  The RMD is just the minimum that you’re required to take.

 

Number 5:  But if you do take out more than the RMD, you can’t apply that amount to the RMD that you need to take out next year.  For example:  let’s say that instead of taking out $18,248 like we did in that earlier example, you took out $30,000.   Your RMD calculation for the next year would be $17,736.  You’d still have to take the whole $17,736, you couldn’t apply the extra $11,752 that you took the year before to only take $5,984.

 

So if you’re nearing 70 and 1/2, be sure to consult your financial advisor to make sure that you are receiving your Required Minimum Distributions on time to avoid a penalty.

 

*Using the Uniform Lifetime Table for RMD distributions, the distribution period for someone who is 70 years old is 27.4.  To compute the RMD on $500,000 take $500,000 divided by 27.4 = $18,248.

 

**Using the Uniform Lifetime Table for RMD distributions for someone who is 71 years old with $470,000 remaining in their IRA you’d take $470,000 divided by 26.5 to get $17,736.

 

 

Posted on by Jan Roberg

2017 Year End Tax Planning – Last Minute Tax Tips

Although the House passed a tax bill, it still has to pass the Senate and be signed by the President in order for it to become law.

Although the House passed a tax bill, it still has to pass the Senate and be signed by the President in order for it to become law.

 

Wow, it’s hard to believe that 2017 is almost over!  The House has passed a new tax plan and the Senate is working on passing a different one.  I hate giving tax advice on tax proposals that haven’t been signed into law yet.  A bill has to pass the House, and the Senate, and be signed by the President before it’s actually a law.  If you need a refresher on just how that happens check this out:  School House Rock – I’m Just a Bill

 

So while there’s no guarantee that there will be a new tax law, if the current House proposal were to pass– many people could lose the ability to itemize their deductions in the future.

 

If you currently itemize your deductions, these tips are for you.  The idea is that you move as many of your normal deductions onto your 2017 tax return as possible.  This is a pretty normal strategy for people even when there is no threat of a tax law change.  Save on taxes now over saving on taxes later.  People do it all the time.  But with the potential for losing out on these deductions completely, it becomes a little more urgent.

 

The Deductions You Want to Push Forward:

 

State and Local Income Taxes.  If you already make estimated tax payments, you might have noticed that your 4th quarter payment isn’t due until January 15th of 2018.  But if you pay on January 15th – although the payment will apply to your 2017 state taxes, you won’t get to deduct it on your federal taxes until 2018.  But state income taxes might not be deductible in 2018!  So here’s a little trick:  move that payment up to December 31 or earlier – then you can deduct it on your 2017 taxes instead.  If Congress eliminates that state and local income tax deduction you still got your deduction.  If they don’t eliminate it – you just got it early.

 

But you don’t have to be an estimated tax payer to make this work for you.  If you know that you normally owe state income taxes, but you don’t normally make estimated payments, you can still make a 4th quarter estimated tax payment this year.  Pay in advance!  Let’s say you normally owe Missouri $200 at tax time.  It hasn’t been enough for you to bother with estimated tax payments.  That doesn’t mean you’re not allowed to do it!  If you know you;re going to owe, go ahead and make a 4th quarter estimated tax payment before the year is over so you don’t lose the deduction.

 

The same goes for your City taxes.  My office is in the St Louis area, many of my clients have to pay City of St Louis earnings tax.  Most wage earners just have the tax withheld from their paychecks and there is no balance due at the end.  But some people do have to pay that tax every year!  St Louis will let you pay in advance!  If you expect to owe, this is a good year to give the city her money early.

 

Charitable Donations.  Charitable donations are still going to be deductible under the new tax law, but with the loss of the state income tax deduction and the doubling of the standard deduction, many people will be claiming the standard deduction instead of itemizing in the future.  If you think you’ll be moving to the standard deduction, you might want to bump up your charitable giving this year instead of next year.

 

For example:  one of the charities I like, I donate to them with a monthly debit to my checking account.  For me, it’s easier to give a little every month rather than one lump sum.  But – it might make sense for me to give a lump sum before the year ends instead, that way I can claim the deduction in 2017 since I might not be able to claim it in 2018.

 

Mortgage Interest Payment.  Once again, if your house cost less than $500,000, you should still be able to deduct your mortgage interest payment under the new tax law.  But, like with the charitable donations, you might not be itemizing with the increased standard deduction.  It may make sense for you to make your January 2018 mortgage payment early so that you can claim it on your 2017 tax return.

 

Employee Business Expenses.  This is one of those deductions that appears to be on the chopping block.  If you have a job where you claim employee business expenses, you may wish to stock up on your office supplies and pre-pay some of your subscriptions and licensing fees if you can.

 

As I said before, I don’t know for certain what the final tax legislation will be.  If the current proposal passes, these tips will help you save some deductions that you would lose next year.  If nothing happens, the worst  is that you took your deductions in 2017 instead of 2018, and that’s not such a bad thing.

 

Posted on by Jan Roberg

How To Compute Your Tithe

Compute your tithe using your 1040 tax return

 

Every year at tax time, I have clients who want me to help them compute their tithe so they can plan their charitable giving for the upcoming year.  You would think that computing your tithe would be fairly easy – it’s just 10% of your income.  But sometimes, computing your income for tithe purposes isn’t as easy as it seems.

 

Before I begin, let me do the quick and easy calculations first.  For some people, your tithe is based on your take home pay.  If your paycheck says $200 – then boom, take $200 times 10% and you get $20 for your tithe.  It’s a pretty easy tithe calculation.

 

For some people, they want to compute their tithe on their before tax dollars.  It’s a little trickier.  You’ll actually need to see your pay stub and look at your gross income before taxes and other deductions.  So maybe the gross pay is actually $250 on the paycheck – so the tithe would be $25.  ($250 times .10)  The key here is that you have to find your gross pay on the stub first.

 

But if you’re retired or have investment income, then computing your tithe can be a little more difficult.  Those are the people who usually ask me to figure it out for them. This is what I’ve come up with while working with some of my clients who base their tithe on their entire income.

 

First, we start with the tax return.  I’ve put a sample return below so that you can follow along.

 

Compute your tithe using your 1040 tax from.

Here’s a sample federal tax return that we’ll use to determine total income for computing someone’s tithe.

 

Start with line 22 – that shows the total income.  In this example, we’re looking at $29,223.  But $29,233 isn’t really all of this person’s income.

Look at line 8b – you see that she has $1300 of non-taxable interest income.  So if we want to compute how much she really makes, we need to add that back in.

Now look at line 20a –  the full amount of her social security income is $23,580.  If you look at line 20b, you’ll see that only $6,252 of it was taxed.  So the difference also needs to get added back into the income.  $23,580 minus $6,252 is $17,328.

 

So, in this example, you’re going to take the total income from line 22, plus the non-taxable interest from line 8a, plus the difference between the taxable and total social security income on line 20 to figure your total income for computing your tithe.  It looks like this:

 

line 22   +    line 8a +    (line 20a – line 20b)   = actual total income

$29,233   +   $1,300 +           $17,328            =      $47,861

So if you take the $47,861 times 10 percent, you get a tithe of $4,786.  That’s a whole lot more than if you just used your total income figure from line 22.

 

FAQS

What about lines 15 and 16 – the IRA and pension distributions?  That depends.  If you have a portion of your pension distribution that isn’t taxable – (like you have with social security)  you would add the difference in the same way you added the difference in with your social security.  But if you merely did a non-taxable rollover, then you shouldn’t include that as income for the purposes of your tithe because you’re just moving your retirement funds around.

 

What about line 9b, qualified dividends?  What should we do with them?  Nothing.  Qualified dividends are included in the number on line 9a so you’ve already counted them.  You don’t need to add them again.

 

What you choose to donate and how you choose to donate is between you and God.  This is just a guideline based upon some of my client’s preferences on how they determine their tithing.  You may wish to consult with your own church leaders for guidance.  There is no IRS rule about tithing amounts, although your tithe may be a deduction on your federal income tax.

 

 

Posted on by Jan Roberg

Deducting Your RV as a Second Home

 

You may be able to deduct your RV interest on your tax return.

Traveling the country in your RV may be a little more affordable if you can take advantage of the tax break for the mortgage interest.

 

If you own a Recreational Vehicle for your own personal use, you might be able to deduct the interest you pay on your tax return!

 

The IRS allows you to deduct mortgage interest on two homes as long as the loan amounts do not exceed $1.1 million dollars.  That’s $1.1 million on the two homes combined, not $1.1 million per home.

 

You may be wondering, “Does my RV really qualify as a second home?”  According to the IRS, a second home must have a sleeping area, a bathroom and kitchen facilities to be considered a “home.”  So if your RV has all three, then your loan interest is deductible as mortgage interest on your tax return.

 

Besides deducting your RV interest on your tax return, you may be wondering if there are any other tax advantages to owning an RV.  The answer is:  maybe!

 

If you live in an area that charges personal property taxes on vehicles, like they do here in Missouri, you can also deduct those taxes on your Schedule A as well.

 

You might even deduct expenses when you use your RV for business purposes.  If that’s the case, I’ve got a whole blog post about that.  See  Can I Claim My RV as a Business Expense?  for more information there.

 

But let’s say you don’t use your RV for business, but you wouldn’t mind making a little extra cash on the side.  This is my favorite tax trick for RV owners:  You can rent your RV out for 14 days or less and not pay tax on that income!

 

I know, that sounds outrageous, right?  Let me explain:  If you own rental property, you normally would report your income and expenses on that property and it would be subject to all of the regular tax treatment for rental property.   There are tons of rules about what you can and can’t claim as a landlord and I’m not going into that here.  But if you’re looking for guidance on that there’s information in IRS Publication 527.

 

But – if you rent out your personal dwelling unit (which, that’s what we’re claiming your RV is) for 14 days or less, the IRS does not treat that as a rental property and they don’t tax that income!

 

How awesome is that?  When do you ever see that income is not taxable?  I’m also taking this from IRS Publication 527.  I know it sounds crazy, so I’m going to put the line from the IRS publication right here:

Your are allowed to rent your home for 14 days or less without paying tax on that income.

 

So, you can rent your RV to someone for 14 days or less, you can still take a deduction for your mortgage interest, and you don’t have to pay any tax on the money you make renting it!.  How sweet is that?

 

RVs can be pretty expensive, but it’s nice to know there are some tax breaks out there for RV owners.

Posted on by Jan Roberg

Taxation of Egg Donors

Egg donors can expect to pay self-employment tax on the money they earn from their donations.

Egg donors are generally between the ages of 20 and 30, non-smokers with a normal height to weight ratio.

 

Egg donors typically receive between $5,000 and $10,000 for an egg donation.  And while you may feel that you are being compensated for pain and suffering, or that you are doing a charitable deed, the IRS treats that pay as self employment income.

 

How do they figure that?  Well, for one thing, there’s the 2015 Tax Court case of Perez v. Commissioner of Internal Revenue.  In that case, the court ruled that the money paid to Perez was indeed taxable income.

 

Now the Perez case really only argues whether the money is taxable or not.  It doesn’t actually argue the merits of whether it constitutes self-employment income,  but much of the language of the case implies that providing eggs and being compensated for it is a service business.

 

So, if you’re thinking about becoming an egg donor, you need to look at the tax consequences before you put your body through that painful process.  Let’s say you’re a first time donor and the fee you should receive is $5,000. Now suppose you’ve got a job already and you’re in the 15% tax bracket.  This extra $5,000 will be taxed as self employment income meaning that the 15.3% self employment tax on that income, plus the 15% regular tax on that income.  The self employment income is really taxed at 30.3% to you.  (And of course, it’s higher if you’re in a higher tax bracket.)

 

So if you’re getting paid $5,000 for the egg donation, then you’re coming out of the deal with just $3,485.  Here’s how the math works on that:

$5,000 times 30.15% tax rate equals $1,515 in taxes

$5,000 minus $1,515 in taxes  equals $3,485 to keep

The point here is that you’re not getting that $5,000 free and clear.  You’re actually earning less than $3,485 if you add state income taxes to the equation.

 

So what about the argument that you’re not providing a service, that you’re really selling body parts?  Okay, I have to admit here that I have a hard time with that argument.  I guess I’m a little old-fashioned.  (Excuse me, I can hear my daughter reading this and yelling, “A little old fashioned?  How about stone age!”)  But perhaps more importantly, it is still illegal to sell body parts in the United States.

 

But let’s take this argument to the extreme anyway.  What if you could sell body parts?  How would you value them? I think, I would use the example of livestock.  That’s as close as I can come to the body part argument.  If you buy an adult cow for $1,000 and later sell it for $2,000, you would pay a capital gains tax on the $1,000 profit from the sale of that cow.

 

But, if that cow gave birth to a calf while you owned her, and then you sold that calf for $500 – that $500 would be taxed as ordinary income.  It would be the sale of inventory that you didn’t pay for so the full $500 would be taxed as ordinary income.   And, since selling cattle would be your business – well then you would pay self employment tax on that calf that you sold.   I think that egg donation is more like selling the calf–you’re not buying the eggs to re-sell, you’re “manufacturing” then.  (You see how I find this a very uncomfortable argument?)

 

So whether you doing the egg donation as a “service business” or a “sale of property” business – you are still going to be subject to self employment tax on that income.  As you make your decision, take into account the taxes you’ll be required to pay and whether or not you’re being compensated fairly for your efforts.

 

 

 

 

 

 

Posted on by Jan Roberg

3 Numbers That Can Get You Audited!

Some numbers can cause the IRS to audit your tax return.

Certain numbers on your tax return can cause the IRS to be more interested in you than you might like.

 

 

Can just one number cause you to be audited by the IRS?  Probably not.  But there are some numbers that are just plain old suspicious, and once your return gets flagged for review, a suspicious number can move you from the “review” pile to “audit” pile.

 

Now, you can ask an IRS auditor why you’re being audited, and she’ll tell you it was just a random audit.  And that’s usually a lie.  Random audits account for a very small percentage of the actual audits.  Usually, something makes the computer kick out your return for review – like unreported income.  And that usually generates a simple IRS letter, “Hey, we noticed you missed something here….yada, yada, yada, please send us some more information.”   That’s called a correspondence audit and they’re usually no big deal.  The IRS sends you a letter, you send them a letter back with some explanation.

 

But if the computer kicks out your return and the reviewer sees a couple of anomalies, well, then you’ll more likely to be asked for a personal appearance.   Let’s face it, you don’t want to make a personal appearance at the IRS office.  You don’t even want to have a correspondence audit for that matter.

 

So what are the three nasty numbers?

 

The first one is $5,000.  I often see this number for “non-cash charitable contributions”.  $5,000 is the value you can donate without having a written appraisal.  It goes on form 8283 which feeds to your Schedule A for itemized deductions.  Here’s the thing – if you are claiming that you donated $5,000 worth of items to a charity, you’d better be able to substantiate it – even if you didn’t have an appraisal.  First, you need to keep those receipts from Goodwill or Salvation Army.  Also, you want to maintain a list of everything you donated.  On that list you also want to write down what the item was worth at the time you donated it, and what you paid for it in the first place.  Here’s a clue:  if you bought a sofa for $1,000 and kept it in your house for 10 years – sitting on it, sleeping on it, letting the dog puke on it, etc.,   before donating it to charity– it’s not worth $5,000 now.  Just being honest with you here.

 

Another nasty number is $10,000.  For some reason, people who lie on their taxes like to lie with this number.  I once had a woman call me because she was being audited.  She was distraught because she had received a letter from the IRS about her charitable donation.  I told her it was no problem, all she had to do was mail a copy of the donation receipt to the IRS.  She said, “You don’t understand the problem, I don’t have a receipt!”  I asked her how much the donation was for, she said, “$10,000.”  I asked her who the donation was to, she said, “My college.”   So I told her, “That’s not a problem!  If your donated $10,000 to your college they will gladly you send you a copy of your receipt.”  She told me, “You don’t understand the problem, I didn’t give no money to my college!”  I now understood the problem completely and told her to write the IRS a check, I couldn’t help her.

 

Here’s the thing.  Sadly, liars like to use the number 10,000.  So if you have a real deduction that is for $10,000 – you really want to make sure that you’ve got your receipt.

 

My last nasty number is 20,000 – usually this is the number of miles claimed as a business expense.  The average male driver puts 16,550 on his car per year, female drivers average 10,142 – and that’s total miles.  So if you’re claiming 20,000 business miles it looks a little suspicious.  Especially if you claim 20,000 miles even.  Seriously?  You drove 20,000 miles even?  A round number like that is a lot suspicious.  You should always have a mileage log to back up your auto expense deduction.  You can get a blank copy here:  mileage log.

 

Are you noticing a pattern here?  Round numbers get extra scrutiny.  It’s okay if you have deductions that are round numbers, but make sure you can back them up with receipts or logs.

Posted on by Jan Roberg

Itemized Deductions 2017

Claiming itemized deductions in 2016

The House and Senate Tax Plans call for eliminating many current tax deductions like state and local income taxes.

 

Is 2017 your last chance to itemize your deductions?  It’s possible.  The House and the Senate both have tax plans out and they both look like many things that we currently itemize will be on the chopping block for 2018.

 

That’s not all bad, the trade-off will be a larger standard deduction and for many people, lower tax brackets.  This is not law yet, but it is looking likely something will pass.

 

Normally, I don’t like to do tax planning based upon speculation.  But here’s my opinion–you know that you may claim itemized deductions for 2017.  You don’t know if you can claim them for 2018.   It seems to me, that it makes sense to stack as many of your deductible expenses on your 2017 return as you can so you won’t lose them if the law changes.

 

So what’s at stake here?  Currently, the new tax proposals would eliminate the deductions for medical expenses, state and local income taxes, real estate taxes, and employee business expenses.  (The current plan keeps the charitable donation and the mortgage interest deduction.)

 

So what does that mean?  How would you “stack” your deduction?  Let’s use state and local income taxes for an example.  If you make estimated tax payments, your fourth quarter payment isn’t due until January 15th.  That payment gets applied to your 2017 state tax return as tax paid, but if you pay the estimated payment on January 15th, you can’t claim it as a deduction on your federal return until you file your 2018 tax return.   By making your estimated tax payment by December 31st, you move that deduction up to your 2017 federal 1040 return.

 

I live in St Louis and many of my clients have to pay City of St Louis income taxes.  Almost everybody pays those taxes in April, when they file their tax return and then we claim the deduction on the next year’s taxes.  But, you can actually make an estimated payment for the City of St Louis tax.  By paying the tax in advance, you can also move that deduction to 2017 instead of losing it next year.  Here’s a link to the City of St Louis Estimated Payment Voucher    There are other cities and localities with taxes that this would apply to as well.

 

So does it really make a difference?  Well yes it does!  Let’s say your estimated tax payment is $500 and you’re in the 25% tax bracket.  That would be a tax savings of $125.  Now before, it would have been save $125 now, or $125 later – but if the GOP plan gets passed, there is no $125 later.

 

Medical expenses are another potential item on the chopping block.  If you have enough medical expenses to itemize on your return, it might make sense to pay for any additional procedures, or buy your glasses, or refill prescriptions before the year ends.

 

If you claim employee business expenses (that includes job hunting costs) and you’re trying to decide if you should make a purchase now or later, it might be a good time to buy now so you can put it on your 2017 taxes.

 

And don’t forget to pay your real estate and personal property taxes before the end of the year if you want to claim them on this year’s taxes.  Remember, you can only claim the deduction in the year you actually paid the tax!

 

I’ve got one important caveat here:  if you have to pay the Alternative Minimum Tax (AMT) – moving up tax payments might not help you at all because with AMT you don’t get the use the state income tax deduction or the deduction for employee business expenses.  If you’re a high income earner, you might want to run the numbers to see if you’ll actually benefit from moving any tax deductions up or not.

 

So like I said, the current House and Senate tax bills are not law yet.  But given the political climate, it’s highly likely that it will pass and I’d hate to see you lose out on a deduction that you could easily be claiming.  But even if it the new tax bill doesn’t pass, you’re just getting the tax benefit now rather than later.

 

 

Posted on by Jan Roberg

Filing as a Surviving Spouse: Five Things You Need to Know

 

The death of a spouse can create tax confusion.

Losing a spouse is difficult enough. You don’t need your taxes to be overly complicated.

 

One of the worst things I have to do in my job is to help people whose husband or wife has died file their tax returns. There’s nothing I can say or do to make the situation any better. If you should find yourself in this situation, first, I am sorry for your loss. Here are my tips to help you get through the filing process.

 

One: You are still considered married for the full year that your spouse died. That means you may file as married filing jointly, even though your spouse has died. (Had you divorced instead of being widowed, you would be considered single. Different rules for different situations.)

 

Two: For most couples, married filing jointly is the best filing status to use in the year of death. But there may be situations where you will want to file as married filing separately. If you have any concerns about your spouse’s tax liabilities, you should consult with a tax professional just to be safe.

 

Three: When you are signing the MFJ return, you will sign your name on your line, and write “filing as surviving spouse” on your spouse’s signature line. If you are paper filing your return, you’ll want to write “Deceased” across the top of the tax form. If you are e-filing, you’ll complete the box that shows the date of death. I always put “deceased” in the occupation box.

 

Four: If you still have children at home, you may claim the Qualifying Widow(er) status for two more years after your spouse died. Normally, a single person with children at home would claim the head of household filing status.  Qualifying Widow(er) is a better tax rate so you want to use it if you can. You may not claim Qualifying Widow(er) if you do not have children at home. That’s a very common mistake. If you have no children remaining at home, then your filing status will become Single, not Qualifying Widow(er).

 

Five: If you get married again before the year ends (it does happen) you would file as Married Filing Jointly with your new spouse, and you would file a return for your deceased spouse as Married Filing Separately. (You could, if you choose to, file your own return as Married Filing Separately as well. Usually it is not the best filing status to claim.)