Saturday, February 25, 2012


I've had several inquiries of late on what to do when you discover your suspended passive activities seem to be overstated. Passive activities can be rental properties, investments, and even an endeavor where you don't meet the material participation rules. Usually it has been my experience that overstated losses occur when an incorrect method of depreciation was used, or someone inadvertently depreciated the cost of a property which included the land.

The "official" answer is of course, to amend past tax returns to ascertain the correct amount of a suspended passive activity.  I prefer a more practical method. If an activity is truly completely suspended, and no change will result in taxable income, I prepare a worksheet to show what the suspended loss should have been, and simply enter the corrected amount on Form 8582 (Passive Activity Loss Limitations) pertaining to the current year.

In my view, the IRS and or state taxing agency is not impacted as the taxable income does not change; I win as I don't have to spend valuable time amended prior returns that result in no change to taxable income; and my clients win as they don't have to pay me additional fees. Of course many practitioners would disagree with me as they want to generate additional fees.

Friday, February 24, 2012

Gifting a Time Share

Q.  I have a Florida time share that I cannot seem to give away. Is it possible to donate this to a charity and at least get a charitable donation for it?

A.  Possible, yes, practical - to be determined. You will need to retain a certified appraiser to obtain a written valuation of the property.  Then, depending on the Fair Market Value (FMV) and your cost basis, the type of charity, etc. you may or may not have a worthwhile deduction. Prior to going to this expense and trouble, I would first determine if there is a charitable organization willing to receive your gift. You may have a real challenge on your hands. Good luck!

Thursday, February 23, 2012

Keeping Track of Gross Receipts

Q.  I just filed my 2011 return, and in today's mail I received another 1099-MISC. Does this mean I need to amend my return?

A.  You should have reported all income received whether or not a 1099 was issued. You didn't say if this is the case, but if you included all income under gross receipts, for whatever purpose, the fact that a late 1099 arrived is not cause to amend a return. This is one reason why it is so important to have some type of accounting system that you will consistently use.

Wednesday, February 22, 2012

Choose the Right Valuation

Q.  In July last year, I started as a rep for 3 different companies selling advertising for various campground directories.  I purchased my car in 2010 and want to use the actual cost method as opposed to the mileage method. For depreciation purposes, I use the amount I paid for the car, right?

A.  Maybe. The rule is the lesser of the FMV of your car when you place it into service or your cost. Most cars depreciate right after you drive them off the showroom floor, so you may have to use an amount less than you paid for your car. Check the Kelley Blue Book or Edmunds websites to get an estimated value of your car when you placed it into business use. IRS auditors are quite savvy about this basic rule.

Tuesday, February 21, 2012

Establishing Electronic Payments to the IRS

Q.  Since we are now full-timers, it is often inconvenient to make estimated tax payments by mail. Is there an easy way to do this online?

A.  Yes! You do so by setting up an account through EFTPS (Electronic Federal Tax Payment System). The first step is to enroll. You simply fill out a questionnaire at their website, then the EFTPS will mail you your PIN number. This is a permanent number and needs to be kept in a secure place. Now you'll be set to make payments, view prior payments, and generally make all necessary payments to the IRS online. Use my link for easy access!

Monday, February 20, 2012

Room for More?

Q.  Are you currently taking on any new clients? I need help!

A.  At this time, I am happy to report that I do have room for a few new clients. My practice is now 32 years strong; with an aging client base, some have passed on, while others have retired and are no longer in business. So, if you are a good record keeper, and have a clean set of books, the answer is yes. My only request is that you contact me immediately so you can be certain of receiving timely service. April 15th will be here before we know it!