Saturday, January 22, 2011

Volunteer Time & Services

Q.  I am a retired residential construction contractor and my wife just signed us up for a 2 week stint with Habitat for Humanity this summer. How much can we deduct for the value of my time and services?

A.  Unfortunately there is no deduction allowable for the value of time and services.  You may be able to deduct your travel costs if you need to drive to the location where the project is. You can also deduct any out-of-pocket expenses incurred in connection with the project. I'm thinking of some small tools, hardware, safety glasses, etc. but only if you are not reimbursed for these items. You must keep all receipts and a clear record of the items purchased and used in connection with this project. The deduction is taken on Schedule A. Of course if you take the standard deduction, no record keeping is required!

Friday, January 21, 2011

Work Camping Forms: 1099 or W-2 ?

Q.  I'll be work camping for the first time this season & I'm a bit confused.  Will I be receiving a 1099 or W-2 form?  BS, Montana

A.  That will depend on your contract. If you've been hired as an employee, you will receive a W-2 form. If you've been hired as an independent contractor, you'll receive a 1099 form.

Tax Tip:  Always read any employment or services type contract carefully. Most often, you will be receiving a 1099 form as many small employers don't want to pay for half of your self-employment taxes. This means, however, that you will need to pay them. Don't forget to estimate the amount of both income and self-employment taxes in order to make quarterly payments. You want to avoid penalties and interest for underpayment of taxes when filing your individual tax return.

Thursday, January 20, 2011

Travel Expense deduction, please!

Q.  I just received word that I will be starting a job in South Dakota. It seems to me that I should be able to deduct travel expenses since I will be leaving from Yuma the last week of April. How much can I deduct? MG, Arizona

A.  With the limited information you gave, most likely you won't qualify to deduct any travel expense. Basically, when you leave Yuma, you will relocate your tax home to South Dakota. For most of us, where we park is where we work, thus making it our tax home. If you were self employed and Yuma was your tax home, a temporary leave for business reasons in South Dakota might qualify. However, if you are working for someone else, your travel comes under the heading of commuting, which has always been considered a personal expense.

The better question to ask yourself is would you qualify to take the moving expense deduction? Again, that depends on your situation. Generally the move must be a minimum of 50 miles from your former workplace. Then you must work full time at least 39 weeks during the 12 months after the move. Self employed individuals must work full time at least 78 weeks during the 24 months after the move. There are a few exceptions, so check them out if you think you qualify. Here's a link to Pub 521, which includes all the rules and instructions for Form 3903.

Most RVers work part time jobs to supplement their income and will not qualify for any type of travel or moving expense. Perhaps it will help to think of it this way. Our elected US Senators and Congressmen can't deduct their travel expenses either. They must continue to reside in the state they represent, however, their tax home is clearly in Washington DC.

Wednesday, January 19, 2011

Books and Record keeping

Q.  As a new RVer just starting out in business, what type of records do I need to keep? FG, South Dakota

A.  Although not a tax question, this pertains to so many people, I decided to publish your question. Without proper records, it would be impossible to prepare a tax return. For everyone starting out in business, and even if you've been in business a few years, reviewing  IRS Pub 583 is an excellent start. When paging through this publication, keep hitting the next button on the bottom right of each page, as this pub is several pages long.

If you are any type of entity other than a sole proprietor, you  need to use a double-entry bookkeeping system. There are several good software products on the market.

Tuesday, January 18, 2011

Business use of a vehicle using the Standard Mileage Rate

Q. My previous tax preparer told me I need to keep track of my business mileage until I sell my vehicle. Since I take the standard mileage rate, I don't understand the need to keep track of it. Please explain, why? JA, Iowa

A.  One of the elements in using the standard mileage rate for business use of a vehicle includes depreciation.  As an example, if you drove your vehicle 10,000 miles for business usage in 2009 and used the standard rate of 50 cents, 23 cents of that 50 cents or $2,300 was considered to be depreciation. You would need to reduce the cost basis of your vehicle by the $2,300, the depreciation allowed in 2009.

Tax Tip:  When using a vehicle for business use, even if claiming the standard mileage rate, you must also calculate the amount of depreciation taken. You will need this cumulative figure when you dispose of the vehicle. Since most vehicles are used for both business and pleasure, when disposing of the vehicle, you need to prorate the sales (or trade-in) price of the vehicle and report either the gain or loss on the sale.

Monday, January 17, 2011

Filing requirement for CA Part-year and Non-residents

Q.  Last year we rented out our house and we left California. Will we still be required to file a California return even though we are no longer residents? JR, Nevada

A.  You didn't say when you left California, but most likely you will be filing a Part-year Resident return. The filing requirement for a CA part-year resident or a non-resident depends on the gross receipts. Since I would need to know your marital status, ages, and if you had any dependents, I can't give you a definitive answer. Use the links on the left to reach the Franchise Tax Board's on-line site.

Tax Tip:  California taxes on world-wide income. Once your taxable income together with the resulting tax is determined, the percentage of California source income to total income is used to calculate any tax due.