Friday, January 27, 2012

Cost vs Basis

Q.  My tax forms keep referring to "basis." Isn't this the same as my cost?

A.  Good question! Quite often your cost and basis will be the same, but sometimes not. For example, when you purchase real property, your cost is increased by capital improvements, and decreased by the amount of depreciation taken, if any. For securities, your cost may be reduced by the amount of principal payments (if any) you receive in lieu of dividends. Although this is a super simple example, your basis in property usually makes common sense. If in doubt, call up your income tax advisor.

Thursday, January 26, 2012

Do I Need to File a Return in 2011

Q. I'm single, over 65, and have a small retirement and social security coming in. Do I need to file a 2011 return?

A. Filing is not required unless your Gross Income is $10,950 or greater. Remember, just because you are required to file a return does not necessarily mean you owe tax. Quite often exemptions and tax credits will reduce your tax liability to zero.

Wednesday, January 25, 2012

Deducting Mortgage Interest

Q:  I work and live in Texas full time in a 5th wheel RV as my one and only primary residence on a private lot. I pay about $1500.00 a year in interest on the loan. Is this interest deductible?

A.  If your RV is the security for the loan, then the interest would be deductible under the mortgage interest rules. Since you live in Texas there is no state income tax to consider. RVers living in other states may find their state of residence no longer allows this deduction, so please check with the state in question. Due to the dire financial situation many states find themselves in, more and more of our state deductions are being eroded.

Tuesday, January 24, 2012

State Use Tax

The final item worth mentioning prior to returning to the Q & A format is use tax. With revenues down in all states, one of the means utilized to increase revenue is with use tax. Some states have actually included it as a line item on the state income tax return. Most commonly, use tax results from on-line purchases made without the seller collecting state sales tax.

If you live in California, Kansas, Maine, Massachusetts, Michigan, New Jersey, New York, North Carolina, Oklahoma or Vermont, be aware these states now have a Tax Use Look-up Table. As a "Safe Harbor," you can pay the amount on the table based on your state adjusted gross income. Of course if you kept your receipts, you should report the correct amount. The Safe Harbor should protect you from intentional disregard in the event of an audit and the resultant penalties.

Monday, January 23, 2012

New Lines on Schedules C,E and F

In order to better track the 1099 reporting requirement, the IRS has added two new lines to all business forms, including those for the Individual Income Tax Return.

First new line: Did you make any payments in 2011 that would require you to file Form(s) 1099?

Second new line: If "Yes," did you or will you file all required Forms 1099?

The catch is, if you wait until after January 31, 2012 to file these forms, you are late and can be assessed a penalty. It won't do much good to file them in March, when you file your individual or business tax returns. And, now that this question is a part of our returns, you can't ignore them as we all sign our returns under penalty of perjury, which by the way, is a felony! I can't stress the importance of timely compliance enough!