Q. Two questions: First, I am thinking of purchasing a used truck. How much depreciation can I take? Secondly, I have heard talk about estate laws changing in 18 months. What is the deal?
A. Regarding the truck…Does the truck weigh over 6,000 pounds? The weight of the truck makes a difference on the depreciation.
The the estate tax question is a tough one. The problem is, if the current rules are not extended, we go back to the rules 10 or so years ago, and there will be estate tax due on anything over $1 million. Currently, that number is $5 million per husband and wife and what the first to die does not use, flows over to the survivor. In essence, a couple has $10 million to work with.
Most experts feel that there is no way that the government will allow the estate tax floor to fall back to the $1 million level, but who knows. The problem is that to balance the 10-year budget, they work the estimated estate taxes in based on the lower level.
Tuesday, August 9, 2011
FIVE TIPS IF YOU CHANGED YOUR NAME DUE TO MARRIAGE OR DIVORCE
If you changed your name as a result of a recent marriage or divorce, you’ll want to take the necessary steps to ensure the name on your tax return matches the name registered with the Social Security Administration. A mismatch between the name shown on your tax return and the SSA records can cause problems in the processing of your return and may even delay your refund. Here are five tips from the IRS for taxpayers who have had a name change.
1. If you took your spouse’s last name or if both spouses hyphenate their last names, you may run into complications if you don’t notify the SSA. When newlyweds file a tax return using their new last names, IRS computers can’t match the new name with their Social Security Number.
2. If you were recently divorced and changed back to your previous last name, you’ll also need to notify the SSA of this name change.
3. Informing the SSA of a name change is easy; you’ll just need to file a Form SS-5, Application for a Social Security Card at your local SSA office and provide a recently issued document as proof of your legal name change.
4. Form SS-5 is available on SSA’s website at http://www.socialsecurity.gov/, by calling 800-772-1213 or at local offices. Your new card will have the same number as your previous card, but will show your new name.
5. If you adopted your spouse’s children after getting married, you’ll want to make sure the children have an SSN. Taxpayers must provide an SSN for each dependent claimed on a tax return. For adopted children without SSNs, the parents can apply for an Adoption Taxpayer Identification Number – or ATIN – by filing Form W-7A, Application for Taxpayer Identification Number for Pending U.S. Adoptions with the IRS. The ATIN is a temporary number used in place of an SSN on the tax return. Form W-7A is available on the IRS website at http://www.irs.gov/, or by calling 800-TAX-FORM (800-829-3676).
1. If you took your spouse’s last name or if both spouses hyphenate their last names, you may run into complications if you don’t notify the SSA. When newlyweds file a tax return using their new last names, IRS computers can’t match the new name with their Social Security Number.
2. If you were recently divorced and changed back to your previous last name, you’ll also need to notify the SSA of this name change.
3. Informing the SSA of a name change is easy; you’ll just need to file a Form SS-5, Application for a Social Security Card at your local SSA office and provide a recently issued document as proof of your legal name change.
4. Form SS-5 is available on SSA’s website at http://www.socialsecurity.gov/, by calling 800-772-1213 or at local offices. Your new card will have the same number as your previous card, but will show your new name.
5. If you adopted your spouse’s children after getting married, you’ll want to make sure the children have an SSN. Taxpayers must provide an SSN for each dependent claimed on a tax return. For adopted children without SSNs, the parents can apply for an Adoption Taxpayer Identification Number – or ATIN – by filing Form W-7A, Application for Taxpayer Identification Number for Pending U.S. Adoptions with the IRS. The ATIN is a temporary number used in place of an SSN on the tax return. Form W-7A is available on the IRS website at http://www.irs.gov/, or by calling 800-TAX-FORM (800-829-3676).
Sunday, August 7, 2011
CELEBRITY TAX PROBLEM OF THE WEEK
Singer R. Kelly Faces IRS Tax Lien
The Internal Revenue Service has reportedly filed a tax lien against singer, R. Kelly for $837,442.59. The IRS filed the tax lien against the Grammy-winning R&B singer-songwriter in January 2010, according to the Detroit News. Last month, however, the IRS lifted an earlier tax lien for $1,036,858.
The singer, whose full name is Robert Sylvester Kelly, is also facing a $2.9 million foreclosure lawsuit against his mansion outside Chicago, according to Crain’s. He allegedly has not made mortgage payments since June of last year. Kelly has had many hit songs including, "I Believe I Can Fly," for which he won three Grammy Awards in 1998. He has also produced and remixed songs for a number of artists, including the Isley Brothers, Luther Vandross and Vanessa Williams. However, he has also faced arrests and lawsuits for disorderly conduct, sex with underage girls, assault and other incidents.
Saturday, August 6, 2011
ADOPTING A CHILD AND WHAT TO EXPECT TAX-WISE
Q: What are the tax benefits and expenses when adopting a child?
A: There are two tax benefits available to offset the expenses of adopting a child. For 2011, you may be able to claim a refundable credit against their federal tax for up to $13,360 ($13,170 for 2010) of “qualified adoption expenses” (see below) for each adopted child. The credit is reduced (phased out) if your income exceeds certain limits (see discussion below).
Qualified adoption expenses. To qualify for the credit or the exclusion, the expenses must be “qualified adoption expenses.” These are the reasonable and necessary adoption fees, court costs, attorney fees, traveling expenses (including amounts spent for meals and lodging) while away from home, and other expenses directly related to the legal adoption of an “eligible child” (defined below).
Qualified adoption expenses don't include expenses connected with the adoption of a child of a taxpayer's spouse, expenses of carrying out a surrogate parenting arrangement, expenses that violate state or federal law, or expenses paid using funds received from a federal, state, or local program. Expenses that are reimbursed by an employer don't qualify for the credit, but benefits provided by an employer under an adoption assistance program may qualify for the exclusion.
Expenses in connection with an unsuccessful attempt to adopt an eligible child before successfully finalizing the adoption of another child can qualify. Expenses connected with a foreign adoption (i.e., one in which the child isn't a U.S. citizen or resident) qualify only if the child is actually adopted.
Taxpayers who adopt a child with special needs will be deemed to have qualified adoption expenses in the tax year in which the adoption becomes final in an amount sufficient to bring their total aggregate expenses for the adoption up to $13,360 for 2011 ($13,170 for 2010). They can take the adoption credit or exclude employer-provided adoption assistance up to that amount, whether or not they had $13,360 for 2011 ($13,170 for 2010) of actual expenses.
Eligible child. An “eligible child” is a child under the age of 18 at the time the qualified adoption expense is paid. A child who turned 18 during the year is an eligible child for the part of the year he or she is under age 18. A person who is physically or mentally incapable of caring for his or her self is also eligible, regardless of age.
Special needs child. This refers to a child who the state has determined cannot or should not be returned to his parents and who can't be reasonably placed with adoptive parents without assistance because of a specific factor or condition, e.g., ethnic background, age, membership in a minority group, medical condition, or handicap. Only a child who is a citizen or resident of the U.S. can qualify as having special needs.
When to claim the credit or take the exclusion. If the qualifying expenses are paid before the year the adoption becomes final, the credit is claimed for the year after the one in which the expenses are paid. If the expenses are paid in the year the adoption becomes final or in a later year, the credit is claimed for the year in which the expenses are paid. For example, say $3,000 was paid in 2009, $2,000 in 2010, and $4,000 in 2011, when the adoption becomes final. The taxpayer claims a $3,000 credit in 2010 (for the 2009 expenses). The $2,000 of 2010 expenses and the $4,000 of 2011 expenses are combined to be claimed in 2011. In the case of a foreign adoption, the credit may not be taken until the year in which the adoption becomes final.
Adoption credit is refundable. The adoption credit is a refundable credit. So, if the sum of your refundable credits (including any adoption credit) exceeds your tax liability, the excess amount is an overpayment that can be refunded to you.
Phase out for high-income taxpayers. The credit allowable for 2011 is phased out for taxpayers with adjusted gross income (AGI) over $185,210 and is eliminated when AGI reaches $225,210. (For 2010, the phase-out begins at $182,520 and is completed at $222,520.) The 2011 credit is reduced by a percentage equal to the excess of AGI over $185,210 divided by $40,000. (For 2010, the credit is reduced by a percentage equal to the excess of AGI over $182,520 divided by $40,000). For example, say taxpayers who could otherwise claim a $2,000 credit have an AGI of $195,210 in 2011. Their $195,210 AGI minus $185,210 equals $10,000, and $10,000 divided by $40,000 is 25%. Accordingly, the taxpayers “lose” 25% of their credit ($2,000 times 25% is $500) and can only claim a credit of $1,500. (Special rules for determining AGI apply in some cases.) The phase out rules for high-AGI taxpayers apply for the exclusion as well.
Child's taxpayer identification number required for credit or exclusion. The IRS can disallow the credit and the exclusion if a valid taxpayer identification number (TIN) for the child if not included on the return.
Adopted child may qualify for dependency deduction, other tax benefits. Your legally adopted child will qualify as your dependent if the other dependency tests are met, e.g., you provide more than half of the child's support. Even if the adoption isn't yet final, the child will be your dependent if he or she was placed with you for legal adoption by an authorized placement agency and was a member of your household for at least part of the year. Special requirements apply to adoptions of foreign children who aren't U.S. citizens or residents. Once the child is your dependent, you will qualify for the dependency deduction and for other tax benefits, such as the child tax credit.
I can help you to make sure that you get the full benefit of the substantial tax savings available to adoptive parents.
Larry Kopsa, CPA
A: There are two tax benefits available to offset the expenses of adopting a child. For 2011, you may be able to claim a refundable credit against their federal tax for up to $13,360 ($13,170 for 2010) of “qualified adoption expenses” (see below) for each adopted child. The credit is reduced (phased out) if your income exceeds certain limits (see discussion below).
Qualified adoption expenses. To qualify for the credit or the exclusion, the expenses must be “qualified adoption expenses.” These are the reasonable and necessary adoption fees, court costs, attorney fees, traveling expenses (including amounts spent for meals and lodging) while away from home, and other expenses directly related to the legal adoption of an “eligible child” (defined below).
Qualified adoption expenses don't include expenses connected with the adoption of a child of a taxpayer's spouse, expenses of carrying out a surrogate parenting arrangement, expenses that violate state or federal law, or expenses paid using funds received from a federal, state, or local program. Expenses that are reimbursed by an employer don't qualify for the credit, but benefits provided by an employer under an adoption assistance program may qualify for the exclusion.
Expenses in connection with an unsuccessful attempt to adopt an eligible child before successfully finalizing the adoption of another child can qualify. Expenses connected with a foreign adoption (i.e., one in which the child isn't a U.S. citizen or resident) qualify only if the child is actually adopted.
Taxpayers who adopt a child with special needs will be deemed to have qualified adoption expenses in the tax year in which the adoption becomes final in an amount sufficient to bring their total aggregate expenses for the adoption up to $13,360 for 2011 ($13,170 for 2010). They can take the adoption credit or exclude employer-provided adoption assistance up to that amount, whether or not they had $13,360 for 2011 ($13,170 for 2010) of actual expenses.
Eligible child. An “eligible child” is a child under the age of 18 at the time the qualified adoption expense is paid. A child who turned 18 during the year is an eligible child for the part of the year he or she is under age 18. A person who is physically or mentally incapable of caring for his or her self is also eligible, regardless of age.
Special needs child. This refers to a child who the state has determined cannot or should not be returned to his parents and who can't be reasonably placed with adoptive parents without assistance because of a specific factor or condition, e.g., ethnic background, age, membership in a minority group, medical condition, or handicap. Only a child who is a citizen or resident of the U.S. can qualify as having special needs.
When to claim the credit or take the exclusion. If the qualifying expenses are paid before the year the adoption becomes final, the credit is claimed for the year after the one in which the expenses are paid. If the expenses are paid in the year the adoption becomes final or in a later year, the credit is claimed for the year in which the expenses are paid. For example, say $3,000 was paid in 2009, $2,000 in 2010, and $4,000 in 2011, when the adoption becomes final. The taxpayer claims a $3,000 credit in 2010 (for the 2009 expenses). The $2,000 of 2010 expenses and the $4,000 of 2011 expenses are combined to be claimed in 2011. In the case of a foreign adoption, the credit may not be taken until the year in which the adoption becomes final.
Adoption credit is refundable. The adoption credit is a refundable credit. So, if the sum of your refundable credits (including any adoption credit) exceeds your tax liability, the excess amount is an overpayment that can be refunded to you.
Phase out for high-income taxpayers. The credit allowable for 2011 is phased out for taxpayers with adjusted gross income (AGI) over $185,210 and is eliminated when AGI reaches $225,210. (For 2010, the phase-out begins at $182,520 and is completed at $222,520.) The 2011 credit is reduced by a percentage equal to the excess of AGI over $185,210 divided by $40,000. (For 2010, the credit is reduced by a percentage equal to the excess of AGI over $182,520 divided by $40,000). For example, say taxpayers who could otherwise claim a $2,000 credit have an AGI of $195,210 in 2011. Their $195,210 AGI minus $185,210 equals $10,000, and $10,000 divided by $40,000 is 25%. Accordingly, the taxpayers “lose” 25% of their credit ($2,000 times 25% is $500) and can only claim a credit of $1,500. (Special rules for determining AGI apply in some cases.) The phase out rules for high-AGI taxpayers apply for the exclusion as well.
Child's taxpayer identification number required for credit or exclusion. The IRS can disallow the credit and the exclusion if a valid taxpayer identification number (TIN) for the child if not included on the return.
Adopted child may qualify for dependency deduction, other tax benefits. Your legally adopted child will qualify as your dependent if the other dependency tests are met, e.g., you provide more than half of the child's support. Even if the adoption isn't yet final, the child will be your dependent if he or she was placed with you for legal adoption by an authorized placement agency and was a member of your household for at least part of the year. Special requirements apply to adoptions of foreign children who aren't U.S. citizens or residents. Once the child is your dependent, you will qualify for the dependency deduction and for other tax benefits, such as the child tax credit.
I can help you to make sure that you get the full benefit of the substantial tax savings available to adoptive parents.
Larry Kopsa, CPA
Thursday, August 4, 2011
A DUMB LAWSUIT
And Here’s the Kicker~ On her way home from having dinner and drinks, Melanie from Chicago got angry with her husband and tried to kick him. Instead, she crashed through the window of a beauty salon, suffering several deep cuts. So naturally, she sued the salon. Part of her argument: The store’s plate glass window, which fronts a sidewalk, “frequently traveled by intoxicated pedestrians,” should have been stronger.
Source: wbbm780.com(Chicago)
Wednesday, August 3, 2011
BUSINESS TRIP DEDUCTIONS
Q. I am headed out of town for work. Can I deduct my trip?? Thanks for your help. ~ Amber
A. The actual costs of travel (e.g., plane fare, cab to airport, etc.) are deductible for out-of-town business trips. You are also allowed to deduct the cost of meals and lodging. Your meals are deductible even if they are “personal,” i.e., not connected with business, although, as with all deductible meals, only 50% of the cost is allowed (80% for long-haul truckers, certain airline, train and bus employees, and certain merchant mariners). Additionally, no deduction is allowed for meal or lodging expenses that are “lavish or extravagant,” a term that has been interpreted to mean “unreasonable.”
Personal entertainment costs on the trip aren't deductible, but business-related costs such as for dry-cleaning, phone calls, and computer rentals are.
Some allocations may be required if the trip is a combined business/pleasure trip, for example, if you fly to a location for five days of business meetings and stay on for an additional period of vacation. Only the cost of meals, lodging, etc., for the business days are deductible—not for the personal vacation days.
On the other hand, with respect to the cost of the travel itself (plane fare, etc.), if the trip is “primarily” business, the travel cost can be deducted in its entirety and no allocation is required. Conversely, if the trip is primarily personal, none of the travel costs are deductible. An important factor in determining if the trip is primarily business or personal is the amount of time spent on each, although this isn't the sole factor.
If the trip doesn't involve the actual conduct of business, but is for the purpose of attending a convention, seminar, etc., IRS checks the nature of the meetings carefully to make sure they are not vacations in disguise. Be careful to save all material helpful in establishing the business or professional nature of this travel.
The rules on deducting the costs for your spouse if she accompanies you on a business trip are very restrictive. No deduction is allowed unless she's an employee of yours or your company and her travel is also for a business purpose.
Finally, note that personal expenses you incur at home as a result of taking the trip aren't deductible. For example, the cost of boarding a pet while you're away isn't deductible.
A. The actual costs of travel (e.g., plane fare, cab to airport, etc.) are deductible for out-of-town business trips. You are also allowed to deduct the cost of meals and lodging. Your meals are deductible even if they are “personal,” i.e., not connected with business, although, as with all deductible meals, only 50% of the cost is allowed (80% for long-haul truckers, certain airline, train and bus employees, and certain merchant mariners). Additionally, no deduction is allowed for meal or lodging expenses that are “lavish or extravagant,” a term that has been interpreted to mean “unreasonable.”
Personal entertainment costs on the trip aren't deductible, but business-related costs such as for dry-cleaning, phone calls, and computer rentals are.
Some allocations may be required if the trip is a combined business/pleasure trip, for example, if you fly to a location for five days of business meetings and stay on for an additional period of vacation. Only the cost of meals, lodging, etc., for the business days are deductible—not for the personal vacation days.
On the other hand, with respect to the cost of the travel itself (plane fare, etc.), if the trip is “primarily” business, the travel cost can be deducted in its entirety and no allocation is required. Conversely, if the trip is primarily personal, none of the travel costs are deductible. An important factor in determining if the trip is primarily business or personal is the amount of time spent on each, although this isn't the sole factor.
If the trip doesn't involve the actual conduct of business, but is for the purpose of attending a convention, seminar, etc., IRS checks the nature of the meetings carefully to make sure they are not vacations in disguise. Be careful to save all material helpful in establishing the business or professional nature of this travel.
The rules on deducting the costs for your spouse if she accompanies you on a business trip are very restrictive. No deduction is allowed unless she's an employee of yours or your company and her travel is also for a business purpose.
Finally, note that personal expenses you incur at home as a result of taking the trip aren't deductible. For example, the cost of boarding a pet while you're away isn't deductible.
Have fun on your trip!
Tuesday, August 2, 2011
RETURNING JETER'S BIG HIT: NO GOOD DEED GOES UNTAXED (PERHAPS)
From the New York Times.
Here is the fan’s fantasy: You go to the ballpark and under a picture-perfect sky not only do the Yankees win, but in recognition of your exemplary behavior, the team also showers you with free season tickets, signed merchandise and a personal audience with the Yankee-est of Yankees, Derek Jeter. The team president hands you his card, with his e-mail address. And here is the reality: The taxman may own a piece of your windfall. And not in tickets, either. He takes only cash.
For Christian Lopez, the 23-year-old fan who came up with Jeter’s 3,000th hit at Yankee Stadium on Saturday, the ramifications of his gift from above are as American as baseball, hot dogs and taxes.
“There’s different ways the I.R.S. could try to characterize a ball caught by a fan in the stands,” said Andrew D. Appleby, a tax associate at the Sutherland Asbill & Brennan law firm in New York who has written about the tax implications of souvenir baseballs. “But when the Yankees give him all those things, it’s much more clear-cut that he owes taxes on what they give him.”
Mr. Lopez, of Highland Mills, N.Y., was seated with his father, Raul, in the left field stands when Jeter drove a 3-2 curveball over the wall. The ball bounced off Raul Lopez’s hands and rolled to the floor, where his son, a former defensive tackle in college, pounced on it. The blast made Jeter only the 28th player to have 3,000 hits, and the first to do so as a Yankee.
Stadium security guards, who had been prepared for the event, whisked Mr. Lopez and his father to the office of the team president, Randy Levine, where officials asked his intentions, according to a team spokeswoman. “He goes, ‘What do you want?’ ” Mr. Lopez said Monday at a Verizon store in Middletown, N.Y., where he works in customer service. “I was like, ‘How about a couple signed balls, some jerseys and bats.’ He said, ‘O.K., I can definitely do that.’ ”
In lieu of such price-setting, the Yankees gave Mr. Lopez four Champions Suite tickets for their remaining home games and any postseason games, along with three bats, three balls and two jerseys, all signed by Jeter. For Sunday’s game the team gave him four front-row Legends seats, which sell for up to $1,358.90 each.
“Pretty clearly he’s going to have to report as income the value of all the stuff he got for the ball,” Professor Caron said. So break out your pencils. On SportsMemorabilia.com, an auction site, baseballs signed by Jeter were being sold for up to $600, jerseys for close to $1,000 and bats for $900.
The tickets to the 32 remaining home games (after Sunday) have a combined face value of $44,800 to $73,600, according to the team’s Web site. The tickets could be worth a lot more if the Yankees play deep into October. Steven Bandini, a tax partner at the accounting firm Zapken & Loeb, said that if the items were valued modestly at $50,000, they would probably carry a tax burden of about $14,000.
“The legal question of whether it is a gift or prize is whether the transferor is giving the property out of detached and disinterested generosity,” Professor Graetz said. “It’s hard for me, not being a Yankee fan, to think of the Yankees as being in the business of exercising generosity to others, but there’s a reasonable case to be made that these were given out of generosity.”
Mr. Lopez said if he had to pay taxes, he hoped he could borrow from his parents rather than sell his memorabilia. He did, however, plan to give a bat and a jersey to his girlfriend, he said. “She’s the one who bought the tickets,” he said. “Jeter said I quote-unquote owe her a lot. I’m going to take his words as advice.”
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