Business Use of a Vehicle

Last week the RDTC – Tax Help Blog posted a new article in their deduction of the week series. The entry explains how to deduct expenses related to the business use of a vehicle. You can find a section of the article below, or click here for the full text.

Actual Expense Method

The first option for calculating your deduction is the actual expense method, where you calculate the exact cost of your business use. Expenses include depreciation, licenses, lease payments, gas, insurance, repairs, garage rent, etc. However, in order to calculate this deduction you will have to determine the exact percent of your car usage that was business related, which can very quickly become a huge headache. For more information on the actual expense method, check out IRS Publication 463.

Standard Mileage Rate Method

The second and less complicated way to calculate your deduction is called the standard mileage rate method. You deduct a certain value for every mile driven for business. In 2010 the standard mileage rate is $0.50 for every mile driven, plus all business related tolls and parking fees. This does mean you need to track every mile used for business. This can be done by keeping a logbook to show the date, purpose of the travel and the number of miles driven.

Claiming the Deduction

In order to claim a deduction for the business use of your vehicle you will need to file an itemized return. The costs can be included on Schedule A of your IRS Form 1040. This deduction is part of the miscellaneous itemized deductions, and so subject to the 2% Adjusted Gross Income floor. For more information read Topic 508 on IRS.gov.

The 3 Main Types of IRS Audits

Although the IRS performs over a million audits per year, not every one results in an in person review. In fact, the most popular type of audit is done by mail. The Roni Deutch Tax Center - Tax Help Blog posted a new entry explaining the 3 main types of audits. Check out a section of the article below, or click here for the full text.

Letter Audit

The letter audit is by far the most common type of IRS audit. Typically, letter audits are a simple request for more information, or a list of possible math errors. Some times the audit is just to inform you of a correction that has been made to your return, which can result in either a tax bill, or a larger refund. The IRS may ask you to supply them with a few documents or receipts, and you will be required to respond.

The IRS may take a while to process your response, and it could take weeks or even months before you hear back regarding the audit. With a letter audit you are not required to meet face to face with any IRS representatives. All correspondences can be completed through the mail.

Office Review

The second, and more intimidating type of IRS audit is the office review. You will be asked to meet with an IRS auditor at a place in close proximity to your home address. The representative will work with you to schedule a review at a time that is convenient for you, and you can feel free to ask to reschedule any appointment that might not fit into your schedule.

How to Donate a Vehicle Without Leading to IRS Problems

Over the past few years the IRS has cracked down on vehicle donations, but you should not let the reports of new IRS regulations stop you from making a charitable contribution. Earlier this week the Roni Deutch Tax Center - Tax Help Blog posted a great new article explaining how to donate a vehicle to charity without leading to IRS problems. You can find a section of the blog entry below, or click here for the full text.

Selecting an Organization

One of the most important steps in donating a vehicle is choosing a qualified charity. Although you might want to help a specific organization, in order to claim the charitable contribution deduction you will need to donate your vehicle to an organization that is qualified by the IRS. You can use IRS Publication 78 to find a qualified charity, or just ask the organization if they have proof of their tax-exempt status.

Fair Market Value

Before you donate the vehicle, you will need to determine the fair market value of your car for tax purposes. Be sure to document the condition of your vehicle, and get estimates from a handful of sources. Make sure you find substantial proof to support the value you assign to the car.

Deduction Amount

The deduction you can claim for your vehicle depends on what the charity does with it. If the organization auctions off the car, then you should claim the amount that the vehicle was sold for. However, in some cases charities will give away vehicles to low-income families, or sell it for significantly less than fair market value. In these instances, the IRS will allow you to deduct the fair market value of the vehicle, but you will need proof of both how you determined the value, and proof that the charity sold the vehicle for less than fair market value.

Tax Deduction of the Week: Casualty Losses

The Roni Deutch Tax Center – Tax Help Blog posted another great tax deduction of the week, this time taking on casualty and theft losses as well as how to calculate the deduction you may qualify for if you suffer a significant loss. I have included a section of the article below or head on over to the Tax Help Blog for more great tax advice.

Casualty Losses

If you suffer the loss of property (including damage and/or destruction) because of a sudden event, then you may qualify for a casualty loss deduction. These events need to be unexpected, such as an earthquake, fire, flood, shipwreck, storm, tornado, vandalism, etc. However, there are a few situations that are not tax-deductible including accidental breaking, pet-related accidents, accidents resulting from willful neglect, or progressive deterioration.

Theft Losses

Losses of property due to theft may also be tax deductible. As the IRS explains, “a theft is the taking and removing of money or property with the intent to deprive the owner of it. The taking of property must be illegal under the law of the state where it occurred and it must have been done with criminal intent.” Therefore if you are the victim of a burglary, embezzlement, extortion, ransom, robbery, etc. then you may be able to claim a theft loss deduction.

Calculating the Deduction

According to IRS regulations your casualty losses are deductible to the extent that they exceed $100 per event, and the extent that they exceed 10% of your adjusted gross income (AGI). Therefore, if you suffer an $8,000 loss due to a flood, and your AGI is $40,000 then your total deduction will be $3,900 ($8,000 - $100 – {$40,000 x 10%}).

Tax Deduction of the Week: Rental Properties

Yesterday, the Roni Deutch Tax Center – Tax Help Blog posted a new entry in their deduction of the week series. This new article discusses rental properties and the tax deductions available to landlords. You can find the text of the blog entry below, or visit the Roni Deutch Tax Center – Tax Help Blog and subscribe to the RSS feed to stay updated on all future deduction of the week entries.

Interest

As a landlord you will pay a decent amount of money in interest. Fortunately, many of these expenses can be deducted on your tax return including mortgage interest, loans to improve the property, and credit card interest on goods or services used in your property management.

Travel Expenses

If you have to travel to maintain your rental, collect rent, or show off the property, then you can deduct these expenses. You have the option to either deduct the actual expenses – which can be especially useful if you must travel by plane and stay in a hotel – or take the IRS’ standard mileage rate for any miles driven.

Home Office

If you have a home office that you use to run your property management business then you may be eligible to claim the home office deduction. However, in order to qualify as a home office in the eyes of the IRS the room must meet certain specifications. To learn more about the home office deduction check out this deduction of the week entry from earlier this year.

Employees, Independent Contractors, and Professionals

Any wages paid to an employee or independent contractor (such as a property manager or on call repair person) can be deducted as a business expense. Additionally, fees paid to a professional (such as an attorney, accountant, real estate investment advisor) can also be deducted as operating expenses.

Common Questions About Estimated Quarterly Tax Payments

The June 15^th deadline for making estimated payments to the IRS is only a few days away. To help confused taxpayers, the RDTC Tax Help Blog has posted an entry with answers to the 10 most common questions about quarterly tax payments. I have included a few of questions and answers below, but you can find the full list at RDTC.com.

What federal taxes am I required to include in my quarterly payment?

In your estimated quarterly payment you must pay your federal income tax, as well as Social Security and Medicare taxes, which are known collectively as the self-employment tax. The amount of tax you are required to pay will depend on your income level.

When are my quarterly tax payments due?

The federal due dates for estimated tax payments are April 15, June 15, September 15, and January 15. However, if one of these dates falls on a weekend or legal holiday then the associated payment will be due the following business day.

What forms do I need to use to file my payment?

To file your quarterly payment you will need to complete IRS Form 1040-ES. If you cannot download it online, then you can get a copy at a local IRS office or by calling 800-TAX-FORM.

My business is setup as a partnership; will I still need to make estimated tax payments?

Yes, you and your partner will both need to make quarterly payments unless you are paying yourself wages and are having the necessary taxes withheld from your paychecks.

The Standard Deduction

Last week the RDTC Tax Help Blog posted a new entry in its Deduction of the Week series. The new article explains the standard deduction, and how to determine if you should itemize or not. I have included a section of the Deduction of the Week entry below, but you can find the full text at the RDTC Tax Help Blog.

To Itemize or Not?

If you itemize deductions on your tax return, you will be eligible to claim dozens of tax deductions, such as the mortgage interest deduction or vehicle registration fee deduction. However, if you do not qualify for many deductions, you can claim the standard deduction, which will reduce your adjusted gross income by a flat amount.

To decide if you should itemize or not, you should first determine all the deductions you qualify for and the total amounts of those deductions. If that number is higher than the standard deduction you would qualify for then you should itemize. If the number is lower, then you should claim the standard deduction.

Standard Deduction Amounts

Listed below are the standard deduction amounts for 2010:

• Single $5,700
• Married Filing Jointly $11,400
• Married Filing Separately $5,700
• Head of Household $8,400

Cost-Saving Moving Tips

Now is a great time to buy a new home! However, to qualify for the $8000 tax credit, you must know that time is of the essence. To qualify for the tax credit, you need to be in a signed contract by April 30th and you’ll have until June 30th, 2010 for the sale to close. One of the extra expenses of a new home is the cost of moving. A recent Kiplinger’s article provides some great tips on how to save on your move into your new home. Take a look at a couple of money-saving tips below and don’t forget to go to my Tax Help Blog to check-out whether you qualify to deduct some of your moving expenses on next year’s tax return.

1. Don’t Pay Full Freight. Are you going cross-country? A move for a 3-bedroom home could cost as much as $8,000! Try to move in the off-season, between October and April and you can save 10%. Get several written estimates with rates per hour (for a local move) or per pound (for an interstate move). Bids should cover every room in your house and should be done in person.

2. Kick the tires. If you're moving across town, ask around for recommendations and then go to the Better Business Bureau's Web site to make sure there haven't been any complaints filed against your prospects. If you're moving across state lines, your first pit stop is the web site of the American Moving & Storage Association, a trade group. From the home page, click on "Find a ProMover Now," and as many as six movers will call to set up an in-home estimate. If you have a firm you want to use for an interstate move, you can make sure it's licensed with the Federal Motor Carrier Safety Administration and view the company's complaint and safety record by clicking "Search Movers & Complaint History."

3. Let Uncle Sam help pay for it. If your move is job-related, you may be able to deduct some of your moving expenses whether or not you itemize your deductions. You must move within a year of your first day at the new job. In addition, your new office has to be at least 50 miles farther from your old house and office. If you qualify, you can deduct the cost of moving your household goods and traveling, but not meals. Some moving-related expenses that can be deducted for a job-related move include:

• Packing and transportation costs for moving household goods
• The cost of shipping goods from a place other than your former home (such as a storage unit)
• Any storage bills, or fees for disconnecting or reconnecting utilities
• All move-related travel expenses (such as mileage, tolls, lodging, parking fees, etc.)
• Expenses of shipping or relocating your car and pets to your new home

Continue reading Kiplinger’s full article here.

The Tax Advantages of Going Green in 2010

Last week the RDTC Tax Help Blog posted a new entry explaining the tax advantages of going “green” in 2010. As you can see from the text below, there are plenty of credits and tax breaks for both individuals and businesses that make energy efficient purchases. You can find a snippet of the original entry below, or checkout the full text at RDTC.com.

Driving Green

Unfortunately many taxpayers are under the impression that all of the tax incentives for buying a hybrid vehicle have expired. However, this is not true. There are plenty of popular vehicles that qualify for the tax credit. A few 2010 Ford Hybrids qualify for a couple of credits, including the Fusion, which can qualify for a credit of up to $3,400. Additionally, electric vehicles such as the Chevy Volt offer the best credits. If you decide to buy an electric vehicle in 2010 then you can claim a credit of up to $7,500.

Conscious Commuting

If you live close enough to your work to be able to ride your bicycle back and forth every day, then you might be eligible for tax-free reimbursement from your employer (if they participate in the program). New legislation allows employers to give employees up to $20 a month for riding a bike to work. Additionally, employers can reimburse up to $230 per month of an employee’s public transportation expenses. Be sure to talk to your employer or human resource department to see if they offer conscious commuting reimbursements.

Solar Savings

Homeowners and businesses have been able to take tax credits for installing solar panels for a while now, but many taxpayers are resistant due to the high expense. However, the prices of solar upgrades have gone down drastically over the past few years. Additionally, even less expensive solar products – such as solar powered water heathers – will qualify for a tax credit of up to 30% of the purchase price. This credit can even be claimed against the AMT.

Continue reading at RDTC.com…

Tax Incentives to Adopt a Child

Most Americans know about the tax benefits of having children, but you might be surprised to learn that there are actually decent tax incentives to adopt children. The RDTC Tax Help Blog posted a blog entry last week explaining the tax laws surrounding adoption. You can find a segment of the article below or find the full text at the RDTC Tax Help Blog.

The Basics

There are two main tax incentives for families that adopt, an exclusion and a credit. Taxpayers can take advantage of the credit and exclusion for the expenses of adopting an eligible child. Meaning, you may be able to exclude up to $12,170 (or whatever the limit is for the tax year) from your income, and claim a credit for the same amount. However, you cannot claim both the credit and exclusion for the same expenses.

Credit Amounts

The value of the credit for the past few years is listed below. It is important to note that the credit was expanded in 2001 as part of the Economic Growth and Tax Relief Reconciliation Act of 2001, which is due to expire at the end of 2010. Unless Congress extends the package the value of the credit will be reduced by at least 50%.

2011: $6,000 or less

2010: $12,170

2009: $12,150

2008: $11,650

2007: $11,390

2006: $10,960

Income Phase Outs

As with most federal tax credits and deductions, the value of the adoption credit phases out when your income reaches a certain level. The phase out ranges are listed below for the past few tax years. The IRS also provides a worksheet for figuring out your credit value in the Instructions for Form 8839.

2010: $182,520 - $222,520

2009: $182,180 - $222,180

2008: $174,730 - $214,730

2007: $170,820 - $210,820

2006: $164,410 - $204,410

Now Open: RDTC Tax Help Blog

I am proud to announce that the official Roni Deutch Tax Center website, RDTC.com, added a new blog to its content. The new blog, the RDTC Tax Help Blog, is full of useful information for any one who needs help with modern tax issues. The blog features categories you would expect to find in a tax resource center (frequently asked questions, glossary terms, articles, etc) but in an exciting new blog format. So be sure to head on over to RDTC.com to check out the new blog!