10th Annual Tax Thread - 2012

[EagleKeeper]

1) Sales Tax Question:

(I live in TN, no state income tax so I will be taking this deduction)

I understand the baseline formula used to calculate the assumed amount of sales tax. My question revolves around the major purchase section you can add to this baseline. I built a house this year and understand that I can count sales tax paid on materials used in the construction of this house as part of this deduction.

So here is my question. What is included? I assume the obvious items like brick, stone, lumber, etc. What about windows? Doors? Paint? What about the little things like portable toilets I paid for to sit on the site for works to use? Can I include appliances, hot water heater, A/C unit cost, etc?

Basically I'm just trying to figure out if I can go through all of my invoices, total up all of the sales tax paid, and call it all one big number under type: "Building Materials"? I don't want to overreach but at the same time I want to maximize.

Intention is that he tax for any one item purchase that is over $500 can be used to append to the sale tax table.

If your receipt shows 5 items at $100 each; no joy
Appliance is the cost for an individual appliance w over $500 can be used.
Appliance that is $1000 and another that is $499 - only the $1000 is allowed.

The rules do not specifically state tha $500; however this is the number that is used for examples in guidelines published by the IRS and other financial entities.

Because lumber is sold per piece; unless you purchased a pre-made wall or truss, you are out of lock.

I expect that you did not purchase the toilets; you rented them.

2) Energy Credits

The new home has upgraded efficient windows as well as upgraded insulation throughout. Can I take advantage of energy efficiency credits on new home construction or is that only available for improvements to your existing home? What about in relation to appliances, hot water heater, A/C unit, etc?

Energy credits are for upgrades to existing home only

 

[EagleKeeper]

Question for my wifely income:

(Note, this is potentially more for next year's purposes, but I'm asking this now as it has some bearing on near-term decisions)

She recently started a job delivering newspapers for the local city/town weekly rag. She gets paid a flat rate per week, direct deposit, which is cool and all. Until I started thinking about it... to the point where I asked her whether she filled out a W4, which she said no, she didn't fill out anything tax or withholding related.

All of a sudden a huge red flag went up in my head - not that this place isn't legit, because it is. It's the weekly town newspaper, been in business for a long while. But the red flag that went up was "OMG, did my wife just sign up to be an independent contractor?" I'm pretty sure that no Social Security or Unemployment, nor State or Federal income taxes are being withheld from her pay since they told her "You get paid $x per week" and that's exactly what gets deposited into the bank account. Unless they manage to calculate up backwards or something, but then again, like I said, she didn't fill out a W4 or any employment paperwork either.

At what point do I need to worry about this complicating the tax-scape? It's okay money if it's straight incoming, but if we have to deal with quarterlies, setting aside money to pay taxes, etc., then this job becomes throwaway in a hurry unless there's something I'm missing.

She has become an independent contractor.

It depends on the amount of income as to paying quarterly will have a greate impact.

It would be best to send in Uncle 1/4 of the sum of payments received for that quarter.

On the flip side; she needs to track any related expenditures very closely.
Phone usage related to the position
Vehicle use - Family and employment
Insurance/Maintenance on the vehicle.
Age of vehicle/cost of vehicle when acquired
Fuel usage
If anything is stored at your residence before/after delivery

she needs to do the above in a spreadsheet EVERYTIME she does anything related to the job.

She is on the hook for normal income tax based on the bracket plus 15% of self employment tax.
That bit can be lowered by proper documentation and using the Schedule C.

 

[SunnyD]

She has become an independent contractor.

It depends on the amount of income as to paying quarterly will have a greate impact.

It would be best to send in Uncle 1/4 of the sum of payments received for that quarter.

On the flip side; she needs to track any related expenditures very closely.
Phone usage related to the position
Vehicle use - Family and employment
Insurance/Maintenance on the vehicle.
Age of vehicle/cost of vehicle when acquired
Fuel usage
If anything is stored at your residence before/after delivery

she needs to do the above in a spreadsheet EVERYTIME she does anything related to the job.

She is on the hook for normal income tax based on the bracket plus 15% of self employment tax.
That bit can be lowered by proper documentation and using the Schedule C.

Thanks. As much as I'd like to say this helps things positively in an economic sense, it helps in that she will be calling them shortly and informing them she will not be continuing with the position.

While the deductions and such might make a decent offset come tax-time, the 25% quarterly, the additional 15% self-employment tax along with the immediate expenditures necessary to make the job work cut the net paycheck to something around worthless in terms of what its short term effect was intended to be.

As much as I'd love to be able to write off buying a new car right now... I don't think I could get much of a write-off for something used one day a week for "business purposes" that way. *sigh*

Thanks a ton for the info EagleKeeper. I owe you a beer!

 

[Fingolfin269]

Intention is that he tax for any one item purchase that is over $500 can be used to append to the sale tax table.

If your receipt shows 5 items at $100 each; no joy
Appliance is the cost for an individual appliance w over $500 can be used.
Appliance that is $1000 and another that is $499 - only the $1000 is allowed.

Ouch, this is definitely one I'm getting conflicting information on. Seems like they left a lot of gray area here or I'm just missing something. Even the Turbo Tax calculator doesn't catch it if I put a 'major home purchase as $100 with 9.75 in tax'.

How about this instead. Obviously this is an abormal year for me in terms of sales tax so if I can't claim all of the materials as 'big' items due to a $500 limit (where is this defined by the way?) how about I do this instead...

Forego the standard calculation. Just use all of the receipts I can get my hands on from the construction of the home plus anything else I can find and itemize that way. It would still come out well ahead of the amount calculated by the standard formula.

Is this an ok alternative?

 

[edro]

My wife's employer had her down for claiming 3. (no idea why)
I claim 0. We make about the same amount of money.
We have no kids. Turbo Tax is saying we owe $3000.

Does that seem right? ...based on exemptions claimed.

 

[TurtleCrusher]

My wife's employer had her down for claiming 3. (no idea why)
I claim 0. We make about the same amount of money.
We have no kids. Turbo Tax is saying we owe $3000.

Does that seem right? ...based on exemptions claimed.

If you can have her job find the form where she filled out what level of exemptions she claimed, an if she wrote anything other than 3 on the final box, I believe your employer can be held liable for the tax liability.

While working at Target in management, this happened with an employee and target paid her taxes. This also happened to a manager at a private security firm that I worked for, and the company (IPC Security) also paid his tax liabilities.

It's just something to think about.

 

[edro]

It's all on online... through ADP.

With no dependents, I thought:
Claiming 0: You will roughly get $3800 return
Claiming 1: Basically a wash; you should roughly not owe anything or get anything back.
Claiming 2: You will roughly owe $3800
Claiming 3: You will roughly owe $7400

This is a gross over simplification, but I thought it was a rough guide for federal taxes.

It actually works out for our example because I claimed 0 and she claimed 3, which averages out to a $3800 bill... which is close to what we owe.

 

[EagleKeeper]

Ouch, this is definitely one I'm getting conflicting information on. Seems like they left a lot of gray area here or I'm just missing something. Even the Turbo Tax calculator doesn't catch it if I put a 'major home purchase as $100 with 9.75 in tax'.

How about this instead. Obviously this is an abormal year for me in terms of sales tax so if I can't claim all of the materials as 'big' items due to a $500 limit (where is this defined by the way?) how about I do this instead...

Forego the standard calculation. Just use all of the receipts I can get my hands on from the construction of the home plus anything else I can find and itemize that way. It would still come out well ahead of the amount calculated by the standard formula.

Is this an ok alternative?

Yes, you can add up any receipt with sales tax that you can find, borrow or beg. Do not recommend stealing

Rmember that you probably have 1/5 of income spent that you may not have collected receipts on

 

[Fingolfin269]

Thanks for the help!

 

[dank69]

Federal tax withholding already accounts for her withholding.

If you use Tax s/w in the summary, it will tell you what your rate was.

either way, you are getting a good approximation to work from.

Okay, 1 more question. I just realized she is withholding at the single rate instead of married. How much difference will changing it to married make?

 

[Hmongkeysauce]

Question: I bought a house in 2012. There was a MIP paid in my closing costs as well as 6 months worth of property taxes. (1)Can I deduct the full MIP amount? (2)Can I deduct the prepaid 6 months worth of property taxes and if so, were they already included in the 1098 form I received from my bank? Thank you.

 

[EagleKeeper]

Okay, 1 more question. I just realized she is withholding at the single rate instead of married. How much difference will changing it to married make?

3800 * your tax rate

 

[EagleKeeper]

Question: I bought a house in 2012. There was a MIP paid in my closing costs as well as 6 months worth of property taxes.
(1)Can I deduct the full MIP amount? Yes
(2)Can I deduct the prepaid 6 months worth of property taxes Yesand if so, were they already included in the 1098 form I received from my bank? Thank you.

It makes no matter where they are identified; however, DO NOT double dip.

 

[fuzzybabybunny]

Guh, I need some help.

I own a photography business. I used to live in California. My business mailing address is in California. I have a single member LLC. 2012 I traveled to Honolulu and stayed there for 5 months in an effort to build up my real estate photography business there (failed). Which of my expenses are deductible?

Then I traveled in China for 4 months and shot thousands of photos to sell on photography stock sites. Which of these expenses are deductible? Note that everything in China is paid by cash and there are no receipts. Hostels, meals, trains, entrance fees, etc.

In 2013 I went back to California, but I'm still traveling around. I live out of my car. Uhhh... any deductions there? Every day I pay money to use the common area of a hostel to conduct my business.

 

[EagleKeeper]

Guh, I need some help.

I own a photography business. I used to live in California. My business mailing address is in California. I have a single member LLC. 2012 I traveled to Honolulu and stayed there for 5 months in an effort to build up my real estate photography business there (failed). Which of my expenses are deductible?

Then I traveled in China for 4 months and shot thousands of photos to sell on photography stock sites. Which of these expenses are deductible? Note that everything in China is paid by cash and there are no receipts. Hostels, meals, trains, entrance fees, etc.

In 2013 I went back to California, but I'm still traveling around. I live out of my car. Uhhh... any deductions there? Every day I pay money to use the common area of a hostel to conduct my business.

If you have a receipt, you are covered. For Hi and elsewhere. If business is in CA, the lodging and 50% meals elsewhere are deductible.

Lack of receipts for China, you will have to estimate and possibly find some evidence of location/costs if you want to claim those expenses and defend them.
Plane ticket at minimum will have a receipt.

Where you sleep is not deductible. (Home base - if you do not have one; the IRS will treat you as a transient and deduct all travel expenses)

Your vehicle when used for work becomes a deductible expense. Either mileage or actual (depreciation, insurance, maintenance, fuel) You have a choice.

Make sure not to co-mingle expenses between 2012 and 2013

 

[fuzzybabybunny]

If you have a receipt, you are covered. For Hi and elsewhere. If business is in CA, the lodging and 50% meals elsewhere are deductible.

Lack of receipts for China, you will have to estimate and possibly find some evidence of location/costs if you want to claim those expenses and defend them.
Plane ticket at minimum will have a receipt.
Where you sleep is not deductible.

Your vehicle when used for work becomes a deductible expense. Either mileage or actual (depreciation, insurance, maintenance, fuel) You have a choice.

Make sire not to comingle expenses between 2012 and 2013

Why is it that lodging during my business travels is not deductible?

http://www.calcpa.org/Content/consumers/ask/ask0206.aspx

"WHAT IS THE REASON FOR MY TRAVEL AWAY FROM HOME?
If you answered “primarily for business,” there’s a good chance you may deduct those travel expenses that are ordinary and necessary. Deductible travel expenses include the cost of air, train, or bus fare between your home and business destination, as well as the cost of local transportation once you arrive there. You may also deduct 100 percent of lodging, telephone, dry cleaning, and other expenses related to conducting business, and 50 percent of the cost of your meals."

 

[EagleKeeper]

Travel for business expenses and lodging away from home is deductible.

However, note that you have to have a home
Where you sleep is not deductible. (Home base - if you do not have one; the IRS will treat you as a transient and deduct all travel expenses)

 

[yelo333]

In 2012, I owned a home that I attempted (but failed) to sell during 2012. During 7 months of the year, the potential buyers signed a pre-occupancy agreement and moved in while attempting to secure financing. (Very Bad Idea, in hindsight) They paid the full cost of the mortgage -- principal+interest. Then it fell through and they moved out w/in 30 days of the financing falling through. They lived in the house for 7 months.

This is my first time dealing with any sort of rental situation. How do I handle this? Treat the incoming money as rental income & deduct interest expenses? Is there any other special handling given it was part of a sales agreement? Do I also claim depreciation expense somehow, or is that not possible or not worth the hassle?

(The house has thankfully been sold this year!)

 

[fuzzybabybunny]

Travel for business expenses and lodging away from home is deductible.

However, note that you have to have a home
Where you sleep is not deductible. (Home base - if you do not have one; the IRS will treat you as a transient and deduct all travel expenses)

OK, I'm a bit confused now.

I don't have a home.
I don't rent.
I have a business mailing address registered with the IRS that I get mail sent to.

So when I travel, are none of my travel expenses deductible then?

 

[TurtleCrusher]

Laymen speaking here, but isn't it the *honor* system on that one? If he had ANY solid residence and can prove he was living in a residential address at one time in the year, would it count as working away from "home"?

 

[EagleKeeper]

Travel for business expenses and lodging away from home is deductible.

However, note that you have to have a home
Where you sleep is not deductible. (Home base - if you do not have one; the IRS will treat you as a transient and deduct all travel expenses)

OK, I'm a bit confused now.

I don't have a home.
I don't rent.
I have a business mailing address registered with the IRS that I get mail sent to.

So when I travel, are none of my travel expenses deductible then?

Laymen speaking here, but isn't it the *honor* system on that one? If he had ANY solid residence and can prove he was living in a residential address at one time in the year, would it count as working away from "home"?

I agree, that this is a very tricky situation.

I myself am a hired gun and travel to support different clients.

I was affected in '06/07 and am still fighting the battle with IRS

They claimed that because I had no permanent residence; I could not declare travel and living expenses. Yet I was able to get mail delivered to me without being forwarded.

Yet in IRS regulations under examples; is is called out that if you list a residence that is with family or you regularly get mail, it can be considered a place of residence.

Other example of the left hand not knowing what the right is doing.

By having a business address and then filing as a incorporated business vs a personal; it may make a difference.

So the thing is very subjective and up to the IRS initially to determine what is going on based on your filing status.

If fuzzy files as a C-corp business and pays himself wages; he should have no problems - separate tax returns

If he files as a personal taxpayer; he needs to try to have a listed residence in his name to strengthen his claim.

=======================================================

From my POV; all travel expenses should be deductible if reasonable and supported.
From the IRS POV as long as you have a home, the travel expenses away from home are deductible.

The definition of home is what comes into play here.
If his mailing address is more than just a mailbox #; he will be OK.

Some mail handling/forwarding places will have you an assigned street address (205-A James St) which will handle any courtesy look; It can be thought of as a sublet to CYA.

 

[EagleKeeper]

In 2012, I owned a home that I attempted (but failed) to sell during 2012. During 7 months of the year, the potential buyers signed a pre-occupancy agreement and moved in while attempting to secure financing. (Very Bad Idea, in hindsight) They paid the full cost of the mortgage -- principal+interest. Then it fell through and they moved out w/in 30 days of the financing falling through. They lived in the house for 7 months.

This is my first time dealing with any sort of rental situation. How do I handle this? Treat the incoming money as rental income & deduct interest expenses? Is there any other special handling given it was part of a sales agreement? Do I also claim depreciation expense somehow, or is that not possible or not worth the hassle?

(The house has thankfully been sold this year!)

Best to treat the house as a rental. When did the contract get signed. Considered it a rental from the month prior until sold.
It is better to not take the depreciation - it has to get recaptured when sold and it not worth the hassle.

While a rental; any expenses that you did to the property (directly or indirectly) can be expended off.

Maintenance costs
Vehicle usage related to the property becomes expenses.
Utility costs.
Phone costs proportional to related to the property.
Fees related to property, etc.

Mortgage payments, interest, taxes, insurance paid from start to real sale are written off using the Schedule E.

Income from the property would be what they actually paid you.

 

[Baked]

I have a traditional IRA account that I put money into annually. I didn't make any withdrawal from it in 2012. When I file taxes, do I still need a 1099-DIV from the investment company where I have my IRA account? Since I didn't make anymore money off the IRA account, I shouldn't be tax for it right?

TIA for the answer.

 

[fuzzybabybunny]

I agree, that this is a very tricky situation.

I myself am a hired gun and travel to support different clients.

I was affected in '06/07 and am still fighting the battle with IRS

They claimed that because I had no permanent residence; I could not declare travel and living expenses. Yet I was able to get mail delivered to me without being forwarded.

Yet in IRS regulations under examples; is is called out that if you list a residence that is with family or you regularly get mail, it can be considered a place of residence.

Other example of the left hand not knowing what the right is doing.

By having a business address and then filing as a incorporated business vs a personal; it may make a difference.

So the thing is very subjective and up to the IRS initially to determine what is going on based on your filing status.

If fuzzy files as a C-corp business and pays himself wages; he should have no problems - separate tax returns

If he files as a personal taxpayer; he needs to try to have a listed residence in his name to strengthen his claim.

=======================================================

From my POV; all travel expenses should be deductible if reasonable and supported.
From the IRS POV as long as you have a home, the travel expenses away from home are deductible.

The definition of home is what comes into play here.
If his mailing address is more than just a mailbox #; he will be OK.

Some mail handling/forwarding places will have you an assigned street address (205-A James St) which will handle any courtesy look; It can be thought of as a sublet to CYA.

EDIT: sorry, fixed

I think I still qualify as traveling:

http://www.smallbusinessnotes.com/small-business-resources/irs-publication-463-tax-home.html

To determine whether you are traveling away from home, you must first determine the location of your tax home.

Generally, your tax home is your regular place of business or post of duty, regardless of where you maintain your family home. It includes the entire city or general area in which your business or work is located.



My Tax Home or main place of business is *definitely* the Bay Area, CA. Thanks for the terminology though. I would have never found this if I didn't search for "IRS transient."

 

[todpod]

When I am doing the Taxes Taxact is asking for my wife's Business, she gets paid on a 1099. Do I just use her name, and then it asks for type of business (she buys gold and silver) and Activity codes not sure what to put here. Thanks