Your Tax Question - 080

Dear John,  When we were talking the other day about some of the things that are changing with the tax code, you had mentioned something about the Medical Expenses going away.  When does this happen?  Thanks, Hank
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Hi Hank,


No, the medical deduction is not going away, it is just being increased from 7.5% of your AGI to 10% of your AGI.  This is a deduction which is taken on your Schedule A deductions if your qualifying medical expenses presently exceed 7.5% of your Adjusted Gross Income but beginning in 2012 this deduction will not be allowed until your AGI reaches 10%.  In other words you have to spend more on medical expenses to be allowed this deduction.  So it is only going away for those who usually spend a little more than 7.5% to a little less than 10% of their AGI.  


Hope this clarifies things for you.


Thanks,
John


PS.  One of the things that is new this year for 2011 is the allowed medical expenses for breast pumps and lactation expenses.  It's about time in my opinion since sexual reassignment surgery has been allowed for years.

Your Tax Question - 079

Dear John, How much do I have to earn before I have to file a tax return.  I am a single college student who works at a restaurant, and I live with my parents.  Thanks, Jim T.
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Hi Jim,


Basically if you earn more than $3,650 you are required to file a tax return.  There are nuances in the code (there is always nuances in the code) but that is the general income requirement.  You can refer to IRS Publication 501 to help you further or you may email me and I can help - it's kinda what I do.  http://www.irs.gov/publications/p501/ar02.html#en_US_2010_publink1000220708


Thank you,
John

Your Tax Question - 078

Dear John, I was wondering if there is an age limit for claiming my child on my taxes.  Thank you, Jennifer
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Hi Jennifer,


Yes, Your child must be under age 19 (or under age 24 if a full-time student).  However, you may still be able to claim your child as a dependent relative as long as he/she meets some other IRS criteria as well.


Thanks,
John


PS.  Shoot me an email and I will be happy to help you with the Dependent Exemption tests.

Your Tax Question - 077

Dear John, My son just moved out on his own last year and he assured me that he had "everything covered" where his taxes were concerned.  Now, he found out that his friend who was "helping him out" actually boogered up a few other buddie's taxes.  Now he wants to check his out but he can't seem to find them.  Does the IRS keep copies and can we get them if they do?  Thanks, Melvin
---
Hi Melvin,


Don't fret this situation too much - yours would not be the first son who had inadvertently misplaced his tax files.  Think of it this way, he'll be more apt to keep a hold of them going forward.


The IRS has 3 ways that you may get your tax records from them.  You can order a copy online, you can call them at 1-800-908-9946, or you can fill out form 4506-T to request a copy by mail.  I prefer the online method as sitting on the phone with the IRS is only slightly longer than doing things by snail-mail.  Whatever option you choose it should not be too difficult.


Good Luck,
John


PS.  If your son needs someone who is a little better than a buddy who is "doing him a favor" with his upcoming taxes suggest that he email me.

Your Tax Question - 076

Dear John, I received a letter from the IRS that tells me that I owe them a decent amount of money that I don't have.  Can I set up a payment plan with them?  Thank you, Joan
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Hi Joan,


My question is "Are you sure that the IRS is correct - that you owe them what they say you owe them?"  Unless you know for sure you should not just take their word for it, you should check with your tax person to verify the IRS figures.


If, however, you are sure of their numbers then you should consider taking out a small loan to pay the IRS off in full (it is usually beneficial to you to be rid of them all together).  If you cannot do this then you might be able to get more time to pay (if you can pay in full).  I say all of this to now say "Yes" to your initial question - you may request a payment option.  This is done by filing out a Form 9465 and submitting it to the IRS where they will determine if you are granted the payment option, or not, with-in 30 days.


If you need help with any of this please send me an email and I'll get it all figured out for you.


Regards,
John

Your Tax Question - 075

Dear John, I am considering starting a small business - what do you think?  Seriously, James
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Hi James, 


That is seriously a vague question.  While there is a thousand ways to go with that I will just say that I heartily approve.  The way that you set up your business needs to be considered because it will determine what rules you will have to follow while doing business and filing your taxes.  The more complicated the business the more you will need to follow the advice of an accountant, CPA, and or attorney.  Other than that, there is a lot of consideration so get ready to roll your sleeves up and have fun.


Best of luck,
John   

PS.  Please send me an email if you want to buy an hour or two of consultation. 

Your Tax Question - 074

Dear John,  It is approaching October already and I am not sure that I have had enough money taken out of my checks to cover taxes.  I am not concerned about getting money back but I never like to pay.  How can I decide if I have had enough taken out?  Thanks, Julia

---

Hi Julia,

Many people usually have this exact question so the friendly folks at the IRS have developed a nice interactive calculator for helping you to figure this out.  (Be sure to have your latest pay-stub and last year's tax info handy)

If you need more help with this please contact me.

Thanks,

John

dullc2005@gmail.com

Your Tax Question - 073

Dear John, What is the current deduction that I can take for miles that I drive? Larry

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Hi Larry,

The Standard Mileage Rate varies from purpose to purpose. Business purposes, Medical & Moving purposes, and Charitable purposes. For 2011 there are two sets of deductions to be considered. From 1/1/11-6/30/11 the rates are $.51, $.19, & $.14 respectfully. Then as of 7/1/11-12/31/11 the rates change to $.555, $.235, & $.14 respectfully.

For information about deducting mileage on your vehicle for business or moving you should refer to IRS:

Topic 510 - Business Use of Car or

Topic 455 - Moving Expenses

I hope this helps you.

Thanks,

John

Your Tax Question - 072

Dear John, I received a 1099-G from the state. Why do I need to claim this amount on my taxes, isn’t that a double taxation event. Thanks, Gloria
---
Hi Gloria,

Thanks for the question. The 1099-G from the state reports the amount of money that you had returned from the state last year. When you itemize your taxes on Schedule A of your Federal 1040 you are reducing your AGI (the taxable amount of income) by what was withheld from your income by the state income tax. When you do your state taxes after your federal and you have some of your income tax returned to you then you need to claim that returned amount on your following year’s taxes. If they did not do it this way you would have to correct your federal taxes right then but for convenience sake Congress has not gone this route. Instead, think of it as a FREE 1 year mini-loan from the federal government.

Thanks,
John

Your Tax Question - 071

In case you were wondering...

It is 4 am Eastern Standard Time on April 1. There are only 17 days left until taxes are due and I still have clients that have not gotten me their paperwork. Yes, we can, in a pinch, file for an extension but I am that irritating guy who in college got term papers written and handed in 2 months early. Now, I have the words of the White Rabbit echoing in my head - "Oh dear, I'm late, I'm late."

Anyway, this is just a friendly reminder to any of you who still need to have your taxes prepared that you have until the 18th of the month to get them filed.

John

Your Tax Question - 070

Dear John, What is the difference between tax-avoidance and tax-evasion? Sincerely, Hal
---
Hi Hal,

Tax-avoidance is the legal use of the tax law to work your taxes to your best advantage while tax-evasion is doing things illegally that is not specifically allowed by the tax law to your own advantage.

An example of a legal tax-avoidance tactic is when a business bills a customer. If a cash method business does work for a person in December 2010 but does not bill that person until January 2011 to avoid getting the payment in 2010’s tax year. Then that is a legal method of avoiding paying taxes (for 2010 at least). However, if that same business just does not report the payment and pockets the cash – that is evading the taxes and that is illegal.

I hope that helps,
John

Your Tax Question - 069

Dear John, in 2010 I sold my home and bought a new one. I understand that I have to consider any profit on the house that I sold but I’ve been told that there are other tax considerations in the information found in the closing statements. Is this true? And if so, what do I need to know? Thank you, Jerry
---
Hi Jerry,

Well the sale of one home and the purchase of another each have to be considered on their own but merge together in the itemized deductions of the Form 1040 Schedule A.

The profit from the home you sold needs to be realized against the amount that you had invested in that property (basis) plus closing costs. If you profited $250,000 ($500,000 married filing jointly) then you will need to report this sale to the IRS and pay the tax due. Plus, lines 510 & 511 on your HUD-1 are deductible amounts to you as well as line 901 if it is on the seller’s column.

As the buyer, so long as this is your main home and your loan was secured by the home itself then HUD-1 lines 106, 107, 801, 802, and line 901 (if in the buyer’s column) are deductions to you. The calculations necessary for these are quite cumbersome and you will likely need the aid of an accountant and tax-preparer. (Luckily I am both and know how to handle these adjustments huh?) Don’t worry, the extra costs are well worth the returned money to you.

Please let me know if I may help.

Best wishes,
John

Your Tax Question - 068

Dear John, Hey! Where’s my money!?!? When you efiled my taxes and you told me that it would take about 8 days for it to turnaround. Well, it’s been 8 days, where’s my money? Love, Mom PS. I’m serving pot roast on Friday night.
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Hi Mom,

The IRS was telling everyone that due to the delay of not accepting efiled taxes until the 14th of February, there was a bit of a jam up and that delays were to be expected. While I don’t expect this delay to be significant it may still cause some filers to have to wait a day or two longer for their returns. I’m sorry for your hardship.

See you Friday,
John

Your Tax Question - 067

Dear John, I just found out that my tax accountant will not be doing my corporate taxes for this year. Since they are due on the 15^th of March do you think that there would be enough time for you to prepare my taxes? Thanks, Jo-Jo
---
Hi Jo-Jo,

Yes, there will be plenty of time to prepare your taxes. If we find that there is a problem and we need more time then we simply have to file form 1138 or 7004 and remit any payments that we expect to have to pay for an automatic 6 month extension of time. Don’t fret about it, I’ll take care of everything.

Thank you much,
John

Your Tax Question - 066

Dear John, I am trying to get me medical expenses together because I think I have enough of them this year (along with other things) to itemize this year. Can you please tell me what the conditions for claiming medical expenses are? Thanks, Jon
---
Hi Jon,

Well, let me express that I am sorry that you had so many medical expenses this year – the medical deduction never really makes up for it the hardships so often involved with the medical problems does it?

There are a number of things that you need to keep in mind about the itemized medical deductions on your Schedule--A. First, in order to have enough to claim, your medical expenses must be more than your AGI. So, for instance, if your AGI is $100,000 then you will have to have had $7,501 dollars in med expenses to begin taking this deduction.

Your expenses are only those expenses made during the year and reduced by any amounts reimbursed to either yourself or directly to the care provider.

You may include qualified medical expenses for:

• yourself


• your spouse


• a person you claim as a dependent under a multiple support agreement
  
  • If either parent claims a child as a dependent under the rules for divorced or separated parents, each parent may deduct the medical expenses he or she actually pays for the child.
  
  
• someone who would have qualified as your dependent except that the person didn't meet the gross income or joint return test.

Deductions are allowed for expenses paid to prevent or alleviate physical or mental defects or illnesses.

Medical care expenses include payments for the diagnosis, cure, mitigation, treatment, or prevention of disease, or treatment affecting any structure or function of the body. The cost of drugs is deductible only for drugs that require a prescription except for insulin.

Transportation costs that are primary and essential to medical care that qualify as medical expenses are deductible as well. And remember that any distributions from your Health Savings Accounts (HSA) and withdrawals from Flexible Spending Arrangements (FSA) are tax free if you paid qualified medical expenses.

I know it can be a bit confusing at times so if you should need any help figuring it out, please know that I am always accepting new clients.

Thanks,
John

Your Tax Question - 065

Dear John, Do you know why the advanced earned income credit was appealed? Thanks, Janice
---
Hi Janice,

No, I am sorry, I do not know why the AEITC was repealed – just that it was. Here’s what it says on the IRS’EITC webpage from 1/4/2011.

The Education Jobs and Medicaid Assistance Act of 2010 signed into law August 10, 2010 repealed the Advance EITC. It will not be available to workers after December 31, 2010.

Individuals who received Advance EITC during any tax year must file a tax return to report the payments even if they owe no tax or will not get a refund.

Advance EITC, also known as AEITC, allowed certain workers to receive EITC in installments throughout the year, instead of a lump sum during the following filing season. To qualify for Advance EITC, an individual must have had at least one qualifying child. The amount of Advance EITC was limited to 60 percent of the maximum credit payable for a worker with one qualifying child.

I am sorry if you were one of the people who were depending on that advance for your livelihood. I know that it is a hardship on many.

Regards,
John

Your Tax Question - 064

Dear John, I have friends who adopted a child this year from Russia. Isn’t there a tax deduction for adoption? Thanks, Kelly
---
Hi Kelly,

I would advise your friends to consult the agency that helped her arrange her adoption for specifics to their case. But to answer your question: Yes, there is a tax deduction for adopting.

Congress gives you a refundable $12,150 per adopted child tax credit. This means that should your tax liability be $5000 and you spent $12,150 in qualified expenses then the US Government will give you $7,150 back. But this is only the deal for this year and next year. Beginning in 2012, the credit reverts to just $5,000 and it is not refundable.

Thanks,
John

Your Tax Question - 063

Dear John, Is there really a tax deduction for my child's day care? Thanks, Wilma

---

Hi Wilma,

There is not a deduction but a Child and Dependent Care Credit. (Credits are always better than deductions).

Here are the details.

1. The care must have been provided for one or more qualifying persons. A qualifying person is your dependent child age 12 or younger when the care was provided. Additionally, your spouse and certain other individuals who are physically or mentally incapable of self-care may also be qualifying persons. You must identify each qualifying person on your tax return.

2. The care must have been provided so you – and your spouse if you are married filing jointly – could work or look for work.

3. You – and your spouse if you are married filing jointly – must have earned income from wages, salaries, tips, other taxable employee compensation or net earnings from self-employment. One spouse may be considered as having earned income if they were a full-time student or they were physically or mentally unable to care for themselves.

4. The payments for care cannot be paid to your spouse, to someone you can claim as your dependent on your return, or to your child who will not be age 19 or older by the end of the year even if he or she is not your dependent. You must identify the care provider(s) on your tax return.

5. Your filing status must be single, married filing jointly, head of household or qualifying widow(er) with a dependent child.

6. The qualifying person must have lived with you for more than half of the year.

7. The credit can be up to 35 percent of your qualifying expenses, depending upon your adjusted gross income.For 2009, you may use up to $3,000 of expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals to figure the credit.

8. The qualifying expenses must be reduced by the amount of any dependent care benefits provided by your employer that you deduct or exclude from your income.

9. If you pay someone to come to your home and care for your dependent or spouse, you may be a household employer. If you are a household employer, you may have to withhold and pay social security and Medicare tax and pay federal unemployment tax.

There's a lot of little details but it is worth wading through them if you had care expenses. Please let me know if I can help.

Thanks,

John

Your Tax Question - 062

Dear John, Will I qualify for the EIC this year? Thanks, Frank

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Hi Frank,

Um, usually I require a little more information but I'll tell you what I know.

Here are the 2010 tax year income limits, maximum EITC amount and the EITC-related tax law changes. You can also access the information for:

2010 Tax Year

Earned Income and adjusted gross income (AGI) must each be less than:

• $43,352 ($48,362 married filing jointly) with three or more qualifying children
• $40,363 ($45,373 married filing jointly) with two qualifying children
• $35,535 ($40,545 married filing jointly) with one qualifying child
• $13,460 ($18,470 married filing jointly) with no qualifying children

Tax Year 2010 maximum credit:

• $5,666 with three or more qualifying children
• $5,036 with two qualifying children
• $3,050 with one qualifying child
• $457 with no qualifying children

Investment income must be $3,100 or less for the year.

The 2010 Tax Act extended the previous EIC extensions through 2012. And remember, this credit is a refundable credit that returns any amount below $0 to you.

While I am not sure of your specific situation Frank, you should be able to assess it for yourself with the information that I have provided.

And remember, should you want some help with this - I would love to prepare your taxes. ;-)

John

Your Tax Question - 061

Dear John, So is it true that this is the final year for the $1000 per child tax deduction? I was really like this little reduction from the taxes that I pay each year. Please let me know. Sincerely, Angela
---
Hi Angela,

The child tax credit was due to expire after 2010 but it has been extended for two years. The child tax credit allows parents to reduce their federal tax bill by up to $1,000 for each qualifying child under age 17.

Also, the expansion of the Earned Income Tax Credit included in the economic stimulus package will continue for two more years as well. But I will leave that for another post.

Thanks,

John

PS. As of now, there are only 76 more days until tax day. If you could use a tax preparer I happen to know this really cool guy that does this sort of thing.

Your Tax Question - 060

Dear John, I see that you are marketing yourself to single moms. Really, if you seriously want to help single moms you should do their taxes for FREE. This just sounds like a crafty way to get business because you don't really care about single moms. You poser! T

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Hi T,

My first thought was just to ignore this question but I thought better of it. I suspect that if you have these thoughts of me then other people may have them too. So I will address it.

1. No, I am not marketing myself to single moms, I am marketing myself to everyone but I am intentionally promoting my services to single moms.

2. Yes, I am trying to gain business for only a fool goes into business to not desire business.

3. As for your accusation about me "not really caring about single moms"? The reality is that I cannot afford to do taxes for FREE as I have a considerable amount of money invested for this tax season (considerable for my budget that is). The software I purchased only allows me to do 50 returns for the year with which to try to regain my investment - if I give those 50 returns away for free then I won't be able to offer tax services again next year. However, since you have come to the aid of single moms and apparently care, I will be very happy to send them to your FREE tax services. Please let us know where that is. (I'm sorry, was that last part snide and sarcastic? Hmmm, my wife says I need to work on that.)

John

PS. What is a "Poser" anyway?

Your Tax Question - 059

ATTN: MY COMPUTER SYSTEM IS UP AND RUNNING - LET"S GET THIS TAX YEAR MOVING!

Dear John, I've heard that there is a wait on doing taxes this year. Is this true? Thx, Shirley

---

Hi Shirley,

If you

1. itemize your deductions

2. claim the teacher out of pocket expense

3. or claim the higher education credits

the IRS has said that you are to wait until February 14 to file your taxes with them. The reason for the delay is that Congress did not get their stuff wrapped up until December 17th so the IRS was forced to change these systems until after that time.

Thank you,

John

Your Tax Question – 058

Dear John, I have recently gained employment that grants me a fairly large salary. I have heard of a thing called the “Pease” limitation of deductions for high wage earners. At which point in my income will this Pease limitation affect me? Thanks, Evelyn
---
Hi Evelyn,

Congrats on the new job!

For high wage earners the Pease limitation was adopted by Congress to decrease the amount of the income deductions of higher wage earners. It was a 3% reduction on an amount over a specified AGI.

In 2001 the Pease limitation was scheduled to be phased out over time until in 2010 it was eliminated completely. It was set to be reinstated for 2011 but the 2010 Tax Relief Act that was adopted by Congress on December 17^th, 2010 eliminated it all together for another 2 years – until December 31, 2012.

So I say all this to inform you that the Peace limitation on deductions will not affect you until your 2013 taxes. We’ll see what happens then.

Enjoy,
John

Your Tax Question – 057

Dear John, Is it true that I need to wait until after February 15^th to do my taxes this year? Sincerely, Jules
---
Hi Jules,

Because congress did not get things wrapped up until mid-December of 2010, the IRS has been scrambling to get their systems changed. For that reason the IRS had informed preparers that beginning Feb. 14, the IRS will start processing both paper and e-filed returns claiming itemized deductions on Schedule A, the higher education tuition and fees deduction on Form 8917, and the educator expenses deduction. So Jules, if you are not one of these effected people you are free to submit your return at any time.

With that said, I also suggest that my clients wait until after February 15^th to do their taxes if they have any dealings with brokerage firms as these firms are not required to have 1099-INT’s to their clients until that time anyway.

I hope this helps,
John

Your Tax Question – 056

Dear John, I had a business trip to L.A. and while I was there I visited some friends and even did some sightseeing. My accountant told me that because I did these things that the trip is not deductible as a business expense. I don't really buy his answer, what do you think? Thanks, Pocko
---
Hi Pocko,

Well, I am going to guess that you have had a misunderstanding with your accountant or I don’t have all the facts. From what you have told me I would say that yes, the business portion of your trip is expendable. Here’s how it works.

First, what was the primary purpose of the trip – business or personal? If business then you may move ahead , if personal then you are out of luck.

Was the business purpose of the trip more or less than 50%? If more than 50% then you are allowed to expense but your personal lodging, meals, and incidentals are not allowed, if less than 50% then you do not have a business expense at all.

So let’s say, for instance, you had 2 days business & 1 day personal (66% business, 33% personal). Your flight to LAX is fully expensed but your lodging, meals, and incidental costs must be reduced by the personal amount (33%). Then, your meals have to be reduced by 50% as only 50% of business meals are allowed to be claimed by the IRS.

You see, I expect that there is a communication break-down between you and your accountant because I don’t know of any real accountant that does not know how to properly expense business items. However, should your accountant be someone who should have retired 35 years ago and you find yourself in need of a new accountant – please don’t hesitate to call on me.

Thanks,
John

Your Tax Question - 055

Alright, so this is not a question, rather it is just me passing on information that you may not know...

Did you know that the State of Michigan helps low income households with their heating bill? It's called the Michigan Home Heating Credit and depending on your income status, the number of exemptions that you claim, and the amount paid to heat your home last year, you may qualify for help. It is something that you need to keep in mind when you have your taxes prepared.

It just so happens that I know a pretty decent tax preparer who would love to help you with this. Email me and we can talk.

John

Your Tax Question - 054

Dear John, I have a neighbor who really has no money but still has to file a tax return. Can you help him? Thanks, Paul.

---

Hi Paul,

Well, I am not exactly sure where you are writing from I do know that there are volunteers centers to help people who cannot afford to have there taxes done. For instance, Macomb County, MI has a list of such sites in various communities. They also provide for assistance to elderly people who cannot get out to a tax office. Click here for the Macomb County list as of January 21, 2011.

Hope this helps,

John

Your Tax Question - 053

Dear John, I received a 1099 MISC from a company that I am an independent-distributor with. What should I do with this document for tax purposes. Thank you much, Darla
---
Hi Darla,

A 1099 informs you and the IRS that you were paid. You can simply claim this on your 1040 but any losses that are realized are limited to your revenues. In other words, your efforts are considered a hobby. If you are pursuing your distributorship with a profit making intent then you are officially a business and should be set up as such.

After that, the income that you will recognize will be subject to Self-Employment taxes (anything >$400.00) and will need to be dealt with. I don't know what sort of money you are realizing but remember that if your 1040 shows that you owe over $1000 in taxes you will be automatically put on quarterly tax payments. The reason this is important to note is because your business (distributorship) must pay an estimated quarterly payment on expected income or the IRS will fine you for not paying in a timely manner.

If you need help with this I work to to serve.

Thanks,
John