Saturday, April 9, 2011

Running out of time!

Tax Tip:  Pressed for more filing time? Check out the IRS website for links to extension forms and other forms which may be of help. Don't forget about your state extension. Many states require their own extension forms, others honor the IRS form. Use the links to each state on the left of this blog to check any state you may need to file in. Please don't wait until April 18th to get your extension filed. The IRS servers will likely be clogged and you may not get your extension filed in time!

Friday, April 8, 2011

What is Bonus Depreciation?

Q.  Someone told me you could take 100% of the cost of a depreciable item this year. Knowing this, I included all my equipment purchases (small items like computers, printers, etc.) under supplies. My tax preparer now has asked me to send a detailed list of dates, items and cost for each item. I don't understand why I need to look all this up. It it's 100% deductible, what's the point? SS, Idaho

A.  Like most things, our tax laws don't take the easy way out. In order to take accelerated write offs either under Code Section 179 or as Bonus Depreciation, you must make an election to do so. This election is made on the schedule for depreciation (Form 4562) and for Bonus Depreciation, pertains only to purchases made between September 8th and December 31, on the 2010 tax return. Hence, your preparer needs all the detail information.

Tax Tip:  The 100% Bonus Depreciation extends through this year - until December 32, 2011. This may be a real tax saver for those of you who are business owners and may be able to take advantage of this. Unlike Section 179 depreciation, there are no limitations! RG, Idaho

P.S. Depreciation is no longer available for RVs. See Jackson, T.C. Memo 2014-160, August 7, 2014.

Thursday, April 7, 2011

A (x?*&!) Royalty Trust what?

Q.  Honey, according to my broker, I have 5 ***Royalty Trust reports to include in my tax return.  I downloaded just one and it took me 15 minutes to find. Then, after reading through the 36 pages, I haven't a clue as to what I am supposed to do. When I called my broker, he told me to take it to my income tax advisor. I don't have an income tax advisor as I've always prepared my own taxes. Now what do I do? I still have 4 more to go!  MG, Indiana

A.  These trust types of income reporting are a real pain in the you-know-where. I had to do the same today and pro-rate the darn thing for the 4 days my client owned it in 2010.

Perhaps it's time to find a tax advisor-preparer who can help you with these. The issues are quite complex. The broker in question had my client in this "investment" for less than 60 days. It makes me upset to think he bought something in Nov. 2009 and sold it in Jan. 2010. If this investment was so wonderful, why sell unless you want to generate fees?

I advise my clients not to own any investment they can't explain to a 12 year old in less than 5 minutes. If you don't know what you own and what the income tax ramifications are, why own it? Perhaps you should find a new broker along with a tax advisor.

Wednesday, April 6, 2011

What if I already funded my IRA and the contribution is unallowed?

Q.  According to my tax preparer, I am unable to contribute to either my Roth IRA or my SEP. This really upsets me as I had already funded my Roth IRA. What do I do now? KF, Arkansas

A.  It's unfortunate, but there are times, especially in this economy, where if your self-employed income shows a loss, you are barred from making any type of contribution. Remember, you must have earned income in order to make any type of retirement contribution.

Your only recourse is to call your brokerage house and ask them to apply your contribution to 2011 instead of 2010. Hopefully, this will be a better year for you!

Tuesday, April 5, 2011

Seeking a new or better job?

Tax Tip:  With so many people unemployed, don't overlook Job Searching Expenses if you can itemize your deductions. Although they go under the section for miscellaneous deductions, and are therefore subject to the 2% of AGI (Adjusted Gross Income) limitation, they may add up.

These costs include resume's, postage, employment agency fees, advertising costs, career counseling, 50% of meal and entertainment costs, and any travel expenses directly connected with seeking employment, such as an interview in another city requiring an overnight stay. You don't have to actually land a new job to qualify for taking the expenses.

You cannot be seeking a job in a new career field; it must be in your same occupation. You must also be currently employed or recently unemployed, and it cannot be your first job out of college. Good luck!

Monday, April 4, 2011

How does an extension impact your SEP?

Q.  I want to contribute the maximum to my SEP-IRA, but my preparer is putting my tax on extension. How can I figure how much I need to contribute by the April 15 deadline?

A.  Fortunately, only Traditional and Roth IRA's need to be funded by April 15th for a 2010 contribution. SEPs, SIMPLES, and the various types of other retirement plans can be funded when the tax return is filed, but not afterward! This insures you will be allowed to contribute the maximum amount. I always suggest that clients needn't wait until the last possible moment. Generally most of us have an idea of what we can contribute, so why not make the majority of the contribution in January, and then contribute the final amount by the filing date. This allows your retirement funds to grow for a longer period.


Tax Tip:  There is nothing that says you can't fund your 2011 IRA right now. Why wait until next year when you can have your investments grow as early as possible. I suggest my clients fund their IRA accounts in January of each year.