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
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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
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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
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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