Tuesday, December 31, 2013


Happy New Year everyone! Just a reminder: For those of you who use your RV or car for business, this is the perfect time to record your odometer readings. You will need this to record the total mileage on your vehicle for the year.

Thanks for all your support and questions. Stay safe and healthy in the new year and remember -  have fun!

Friday, October 25, 2013

RV Income Tax Deductions

Q.   Are there any deductions available for full-timers regarding the motor home other than interest on the MH loan? We have no other residence.

A.  If it is beneficial for you to file a Schedule A, and if your home state taxes you on the assessed value of your RV, that portion is an income tax deduction similiar to real property taxes in addition to your interest.  There are no other deductions available unless you use your RV for business purposes. There are multiple discussions within this website for possible business deductions.

Monday, September 30, 2013

Q.  Saw your blog and thought you might be able to help us out with a tax question.  We are new to RV ownership...

We live in VA and own (or rather the bank owns) a park model trailer that is at least semi-permanently in a campground where we rent the land. Much to our surprise, we have gotten 2 bills for personal property taxes from the county of Mathews.  That doesn't make much sense to me? We can only have access to the trailer 6 months a year.  The park model is from 2003. They claim the assessed value is $25,000. The view that we have of the Chesapeake Bay may well be priceless, but the trailer is most certainly over-inflated. 

Does this all sound Kosher to you? 

A.  Actually, it does sound Kosher.  Although I am no expert in property taxes, a park model on a foundation (I believe) is considered real property in most states, and will be taxed as such.  Most RVs, including Trailers, Fifth Wheels and Motor Homes are taxed as personal property through annual license fees. Most states assess a tax partially based on the fair market value (FMV) of the vehicle. I suggest you call up the county assessor and ascertain how they arrived at the FMV. Usually there is some process in which you may apply for relief. Whether or not relief is granted is another topic! Good luck.

Thursday, August 15, 2013

Business Expenses for Starting a New Business

Q.  We full-time in our 5th wheel and we have just started a concession business that we plan to travel with.  My in-laws were telling me there are all kinds of tax deductions we should get from doing so.  Where do I start as far as record keeping, what all can I deduct, mileage, gas, camping, new rig when we upgrade in a year?  I have so many questions, I just really don’t know where to start!  I really appreciate any help or advice you can offer!

A.  Your question deals with multiple issues.  First & foremost, I would tackle the bookkeeping (record keeping). A sterling set of records will be your best insurance of being able to deduct any type of business expense. Take advantage of the many bookkeeping programs available and start using them immediately. By keeping track of your mileage, fuel, camping fees, cost of maintenance as well as the purchase of a new rig, you will at least know your hard costs. The ability to deduct various expenses will depend on many factors, none of which I can answer without knowing many details of your business. I suggest you peruse this website and read the sections I have addressed. Use the labels as a guide.

After reviewing much of what I have written you will note there are no guidelines for RVers in the IRS Code and or regulations. The trick is to take advantage of what deductions are allowable for real estate (as opposed to wheel estate) dwellers.  We can only hope to keep accurate records which we can then apply to the rules and guidelines. The most difficult part pertaining to full time RVers is the issue of constantly relocating our tax homes. It's a difficult issue to cope with, and one that can seem very unfair. But that's just the way it is. Some things you will be able to legitimately write off, others you will not be able to take advantage of. Without proper records, however, you won't have a leg to stand on! Good luck and thanks for writing. 

Wednesday, August 14, 2013

Work Camper Travel Between Jobs

Q.  As a work-camper in Florida I will travel 2,300 miles as part of a 4 day trip to my next assignment.   Based on IRS regulations can I deduct my expenses traveling to my new job in Arizona?  The job is with a resort. I will not be paid but and I will be receiving a 1099 after my  6 month employment is completed. Question: are my travel expenses deductible traveling from one work-camping job to the next?

 A.  IRS Pub 521 lists all the details of qualify for deducting your moving expenses. Regrettably, in my opinion, it is going to be tough to qualify given the short duration of your commitment. Additionally, if you are a full time RVer not returning to a permanent dwelling, and your employer did not send you on a temporary assignment, you cannot qualify for the rules of temporary employment.

 When a full time RVer is moving from location to location, you are also moving your tax home from one location to the next.  Currently in order to qualify for deducting your costs of relocating, is to find employment (or self-employment) which will meet either the 39 or 78 week requirement. Sorry I can't offer more encouragement. If you have a permanent home to which you will be returning, and your employer sends you on a temporary assignment, the result would be different. Thank you for writing.

Sunday, June 23, 2013

Out of State Filing

Q.  I live and work in the state of Hawaii.  This year, my income has all come from the state of California. I did spend 5 weeks in CA, but will file as a Hawaii resident, paying both federal and HI taxes. Since I spent so little time in CA, am I correct in thinking that I am not liable for CA taxes?

A.  The time one spends in any state, only determines whether or not you are a full time resident, part time resident, or just a visitor. Your requirement for filing is determined by the source income, with a different limit for almost every state. Normally the state bases the filing requirement on your Adjusted Gross Income (AGI) together with your filing status. If you are at or over this threshold, you are required to file a return. CA is one of the most aggressive states. Please don't wait until CA tries to contact you. By then they will add stiff penalties plus interest. I suggest you take a look at the list of states on the left side of this blog and visit the Franchise Tax Board website in California.

Wednesday, June 19, 2013

Under-water Mortagage

Q.  I have a motor home which I am selling, but owe more than the selling price. I will have to write a check for about $20,000 to pay off my loan.  I have been deducting the mortgage interest as a second home and the license fees. When I file my tax return, can I take the $20,000 as a deduction?

A.  Regrettably the $20,000 won't be deductible. This is true for any personal asset, including a residence, primary or not. Sometimes there just isn't any justice in our tax code. Sorry to be the bearer of bad news.

Monday, June 17, 2013

Travel for Volunteer Work

Q.   As full timers, we travel from our home state in TX to various locals around the US doing volunteer work. Even though RVers are classified us as itinerants, it would seem we should be allowed some deduction for traveling from one site to another, which oftentimes is a considerable distance. Can we count the non-vacation aspects of the travel as a deductible expense?

A.  Your point is well taken, and as much as I would like to say to go for it, I doubt under examination if it would be justified. Once at the site, driving errands or people around on behalf of the charitable organization would classify as charitable travel, and you should keep track of these miles. If I learn otherwise, I will certainly post an update on this site. Thanks for all your good efforts and keep up the good work!

Finding the Right Sales Tax Table

Q.  Although our official residence is Texas, it occurred to me that with our travels, we may be able to take advantage of sales taxes in the various states we actually stay in. Other than keeping the receipts (which I dislike), what are our best options?

A.  Without keeping receipts, you can try 2 different approaches: (1) Use the sales tax tables for Texas. As TX is a no personal income tax state, their sales tax rates are higher than many states, and this might work nicely for you. (2) The IRS Worksheet for multiple moves  is another option. You can use the higher of the two without any problem.

Thursday, June 13, 2013

Pause for an Audit

Every once in awhile, a client receives a love letter from the IRS. The vast majority of these are computer generated where an amount reported by a third party does not match the amount reported on the tax return in question. A few weeks ago this happened to a client of mine involving an IRA withdrawal. As it turned out, the bank reporting the 1099-R made an error, agreed to correct their mistake, and everyone went on their way.

A week later, a client received another type of letter informing him that he had been selected for a Compliance Research Examination. This type of audit is utilized by the IRS to judge how taxpayers actually comply with IRS regulations, and according to the IRS letter, improve the fairness of the tax system. I won't comment on that, but will tell you these audits can be very lengthy, take much preparation work, can be fairly costly,  and always result in loads of time that usually is better spent (by the taxpayer) elsewhere.

In light of this, I thought it a good idea to discuss what steps you should take if you should be selected for this type of audit. This IRS web site has an excellent video of the Audit Process which may answer many of your questions. The very first thing I should say, however, is if you've been a good record keeper and have complied with the IRS record keeping requirements, you have nothing to worry about. The IRS needs to find out where taxpayers are not in compliance, possibly hiding income, and other pertinent information. Remember, our tax system in the US is voluntary. Unfortunately, this can also mean you're guilty of non-compliance until proven otherwise.

First, every item on your tax return for the year selected, needs to be verified. Married filing jointly? Better have a copy of your marriage certificate handy. Yes, it is that intrusive, and you will be asked questions which are very personal and may not seem to pertain to the tax at hand. Don't get mad at the auditor though, he or she is just doing their job. I have actually been asked if the auditor came into my office with a chip on their shoulder ready to hang my client out to dry. Nothing could be further from the truth. In this case, the gentleman who showed up at my door, was courteous, considerate, and went out of his way to explain any concerns.

Prior to the audit, you will be sent Form 4564 Information Document Request which will detail every document needed to justify the income and or expense claimed on the return being reviewed. In this case, it was 7 pages long, which seems like a lot, but most pages covered two Schedules on the return. This letter will inform you of the documents you need to provide. You will be given ample time to provide the documents and you will know exactly the items which the IRS intends to review.

Next you will go line by line down each form of the return to verify both the reported income, and resulting expenditures, if any. In my case, it was simple as all the income was from a W-2 form, and pass-through entities, such as an S-Corporation and LLCs. Since I also prepared these business returns, it was easy to answer questions.

You will need to provide receipts and cancelled checks or other proof of payment for the expense items claimed. As an example, if you claim a deduction for real property taxes on Schedule A you will need to meet the two IRS requirements: (1)  That you own the property, and (2) you have a legal requirement to pay them. Here you would provide a copy of the grant deed with your name on the property, and copies of the tax bill and either a cancelled check or online receipt of payment. The same requirements are true for home mortgage interest, so you will need to provide proof of indebtedness, so on and so forth.

It is helpful to remember the IRS computers and auditors are concerned with swings in both income and expenses. Why high in one year, lower in another? In this case, one of the taxpayer's LLCs consisted of rental income from commercial buildings which had been under construction over a couple of years. This resulted in little income in early years and higher income in later years.  Knowing  my client kept records and spread sheets of monies invested, copies of these spread sheets and cancelled checks were provided along with copies of the Certificate of Completion from the County office. Together with copies of the depreciation schedules showing that no depreciation was claimed prior to completion of the buildings, the swings in income were clearly explained. Don't be afraid to go back a couple of years and even forward 1 year to show the progression of a large asset when questioned. Even though it may not be requested, sometimes a little extra effort to explain a situation goes a long way.

To prepare for the audit, I put on my IRS auditor hat and tried to think of things that I would need if I were the auditor. Knowing that time is money, copies of every document needed, together with a header page were provided, resulting in 14 piles of documents.  The auditor could go through it in the same order it was listed on Form 4564. If the auditor needed, for example, a K1 form in more than one stack, he or she could find one included  in each stack. This reduced the need to shuffle paper back and forth. Once each and every item was checked off, I was ready for the auditor. I also used a highlighting pen to highlight the item of income or expense which flowed to the individual tax return.

It took almost 19 hours to prepare all, and the effort paid off. What was to be a 6 to 8 hour review, resulted in a 4 and 1/2 hour visit. The auditor was happy that he could leave early, and he was free to  take all the stacks with him to review at his leisure. Remember, you only need copies, not originals.

If the thought of going through this by yourself seems daunting, you should consider giving your preparer a power of attorney to handle the audit on your behalf. This is exactly what my client did. My client didn't need to show up and give up a day of time, and I had all the information at hand to take care of it. When the interview portion was over, there were only two questions which I couldn't answer. The auditor simply made note of it, and I was able to contact my client, get the answers, and then follow up with the auditor. By letting a third party handle your audit, it will save you time, frustration, and you won't run the risk of insulting or berating the auditor, who is only doing their job. I can assure you, you won't be doing yourself a favor.

So what items can be problematic? Although there were no issues on the return in question, I can see where some taxpayers may not keep some documents long enough.  The statute of limitations expires 3 years after the latter of the due date or filing date of the year in question; but if you have any type of capital assets, especially a business asset which you are depreciating, you need to keep proof of the purchase price of the assets along with the amount of depreciation claimed each year. This is no different than keeping the escrow settlement statement on a purchase of a personal residence, along with proof of all capital improvements to justify the tax basis when you sell the house. The very same principal applies to all capital assets, including sales of stock.

In review, the audit was time consuming yes. But my client had the substantiation required, there were only a couple of minor mistakes which may or may not result in additional taxes owed, since they may offset each other. Although the result won't be final until later this month, I was very pleased by the way it went. The auditor was great! (Maybe when this is over he will let me take him to lunch.) The key to a stress-free audit is preparedness. Perhaps the system I use for my business may work for many of you. I have adapted a 3 ring binder system. Rather than keep everything in filing cabinets, each year I start a new 3 ring binder with monthly dividers. When making a deposit, I photocopy each and every check, and attach the ATM machine receipt to the page with the photocopies. Then for each bill paid, (I pay them all online)  simply put the bill into the binder for the corresponding month, then write the confirmation number for each payment on the bill. Oftentimes bills are paid on credit cards. Use the same approach. Take the original receipt and staple it to the credit card bill. Your credit card statement will show proof of payment. If you should use the credit card for both personal and business use, be certain to pay the credit card using two different accounts! In is best to have a separate credit card for business, but experience shows this isn't always practical. As soon as the bank statement is ready,  reconcile the bank balance and put everything into the binder. This way, if you should ever be selected for a Compliance Research Examination, all you will need to do is hand the auditor the binder for the year. No worries, no searching, no copying and no printing, it's all there in black and white. Give it a little thought, and you should be able to design a simple system that makes your life IRS worry free as well!

Coming soon: Answers to your questions. This audit consumed my time.Thanks for your patience and bring on more questions!

Tuesday, May 7, 2013

The Aftermath of Tax Season & an Update on Record Retention

Three weeks after the filing deadline I still find myself recouping from what has been the most grueling tax filing season of my career. Just when I thought I was mostly back to normal, I discovered during a quick lunch out yesterday, that I put on my shirt inside out and didn't even know it! That has occurred only one other time a couple of decades ago while travelling in the "Tub", our RV prior to The Popeye Express. We were parked at the visitor center at the shore of the Mississippi River in La Crosse, WI, when I went down to watch a boat go through the nearby locks. This is rather slow operation, and afterward as I was walking back towards the Tub I couldn't understand why I couldn't retrieve a tissue I had in my short's pocket. Ducking into the public rest room, I discovered that not only had I put on my pull-on shorts inside out, they were also backwards. Do you think I was a tad tired that morning?

So what was different about filing season 2013? Start with the IRS using their new efiling system. It has been a 3 year phase in, and 2013 was year 4, meaning they couldn't use the old system anymore. This caused delays in both forms being available, the ability to efile, and the ability to retrieve timely acknowledgements. Add to this the requirement that all the software vendors also had to reprogram their software, and most companies decided to "tweak" their programs to further enhance them, and you have a recipe for errors, delays, and whatever else you can think to throw at it. I survived.

In the meantime, a good friend sent me an article titled Never Throw Away Your  Tax Returns which was something I was not anxious to read. I managed to slog through it, and although I can't dispute the author's concerns, for most of us, I feel it is more trouble than it is worth. Why?

1.  Social Security sends out annual reports. If you actually read them when they arrive, you should spot any irregularities in reported wages immediately and contact the SSA to have your records corrected. It makes more sense to me to save your W-2 forms, if you must.

2.  A copy of an old tax return is not the same as a receipt for the purchase of an asset. You should save the receipt for any asset used in business, until the asset is sold, and the statute of limitations on the final tax return where the sale of this asset has been reported.

3.  Almost every state with a state income tax has a minimum filing requirement. As most are indexed for inflation, the amount changes each year. Remember, we are taxed on our source income, not just our state of residence. So, if you have what is called a K-1 form, or a W-2 form for that matter, from another state, you should always check the non-resident filing requirement. Most often you won't meet the filing requirement, but if you do need to file a return, and if you owe tax, most states allow you to take a credit for taxes paid to another state, if your state of residence also taxes you on this income. And don't forget, if state income taxes were withheld on the non-resident state, you will need to file a return to claim a refund.

4.  Again, I really think copies of W-2 forms to prove income are a lot easier to keep than old tax records.

5.  Yes, there are states such as California who when IRA's first became available, allowed a smaller deduction than the $2,000 federal deduction. Conformity finally caught up, but for my clients, I saved just the pages for those years showing the difference in the allowable deduction. This is called your basis, and I hope you have all saved these records.

So what have I been up to since April 15th? I have taken the bull by the horns, and have finally completed the digitizing of all tax records for clients. For me, this has been a 5 year program, as I bought my scanner in 2008, and started scanning in client records since that time. It's been a BIG job, but one finally put behind me. Fortunately my tax software allows me to print pdf copies of returns, so that eliminated a lot of scanning.

In addition to a file for each client for each year since 2008, I also created a permanent file. The permanent file contains items such as the following:

1.  Escrow settlement statements for the purchase of any residence along with investment business real estate.

2.  Escrow settlement statements for the refinancing of all real property.

3.  Copies of tax forms showing the basis for a personal residence when the old law required you to replace a residence within a two year period of the sale and for the same amount or more than the sale of the old residence. Several of my clients still live in these houses, and even though the law is no longer in effect, they still may need to prove their basis in these houses.

4.  Pages one and two of both the federal & state tax return back in the 70's and 80's when CA did not conform to the federal deductible amounts to prove the basis in the state IRA's. 

5.  Anything else I kept in my old paper permanent file such as divorce decrees showing alimony, child support, and absolutely anything else that could effect a future return.

So now I have 3 really big 4 drawer legal size filing cabinets empty, except for the hanging files. They will go up for sale as soon as we return from our trip. If you're interested & have a means to transport them from my southern California office, send me an email with an offer and they may be yours!

As for me, I'm ready to fire up the big diesel in the Popeye Express and hit the road. Thanks to all of you who wrote in questions and voiced your concerns.  Hope to see you at the FMCA International Convention in Gillette WY in mid-June. Look us up if you'll be there!

Wednesday, March 27, 2013

What Expenses can we Deduct?

Q.   Where on your site can I find answers about what and how much of your expenses can be deducted when you live and travel full time in your RV and do business on the road? 

A.  Since there is no place in the IRS code that pertains to RVers working on the road or otherwise, there is really no one place on my site where you will find deductible expenses. You have to start with the expenses allowable if you worked out of your house, and go from there.

Each case is so different, and deductible expenses will be different not only from one person to the next, but even when using your RV full time, will differ from year to year. Hopefully after April 15, given a few days to recoup, I will make up some examples which may be of help.

Tuesday, March 26, 2013

Changing your Residency

Q.  We want to change our primary residence, but have been unable to sell our house and apartment building. We became full-timers in January and want to relocate to South Dakota. Do we have to wait until our house sells before doing so?

A.  No, there is no requirement that your former house needs to sell first. Each state has different residency requirements, but selling a house in a former state isn't one of them. Usually it's the amount of time you establish in the new state. Go to the links provided on the left side of my blog. This would be a good place to start. And since you are now on the road, why not make a trip there and find out personally. Good luck with the property sales, and enjoy your new life.

Monday, March 25, 2013

Campground Research for Job Search Deduction

Q.  If you spend time on the road researching campgrounds with the purpose of obtaining a camp host position, are any of the road expenses deductible under the job search deduction?

A.  To put on my devils advocate hat, I would say that if they offered you a job, and you made 1 trip to confirm it to be a suitable location for you, and I was preparing your tax, I would take that as a job search expense. I view pre-discovery trips to be problematic. Just my opinion.

Friday, March 22, 2013

Impact of Medicare Tax on 2013 Estimated Tax Vouchers

Q.  I've been hearing a lot about the new Medicare tax affecting our returns this year. I don't follow. Where do I find this new tax?
A.  The Medicare Tax takes affect this year, 2013, so you won't find it until this time next year when we file our 2013 returns. It is a tax on investment income, and won't affect the majority of Americans. If you are filling a joint return, the threshold amount is investment income of $250,000 or more; $125,000 for single filers, and everyone else (such as a trust return) $200,000.

The only impact this year is on figuring your estimated tax payments. I think most of us can rest easy!

Thursday, March 21, 2013

Deducting Mortgage Interest on your RV

Q.  My husband and I are retired military and currently live full time in our RV. Although we do have a small cabin in another state, there is no mortgage on it. I am taking the mortgage interest on the RV as a deduction on our tax return. Is this correct? What is the impact if we take the standard deduction?

A.  Yes, since your RV is your primary residence you can deduct the mortgage interest. The mortgage interest would be deductible even if the RV was a secondary residence, providing, of course, it meets all the criteria.  If you elect to take the standard deduction, there would be no impact as you don't account for how it is "spent" so to speak. Always take the higher of the two.

Wednesday, March 20, 2013

Distributions From an HSA etc.

Q.  What do I do with Form 1099-SA? I've never seen one before.

A.  If you received this form, you made a withdrawal from a HSA (Health Savings Account) Archer MSA, or a MA MSA. In either case, usually the funds are used to pay for medical care. If you used the proceeds to pay for medical care,  you will need to file form 8889 to report the amount which is not taxable.  Insert the amount used (usually all of it) to cover your medical care costs.  If the proceeds were not used to pay for medical care, you will be taxed on the entire amount. More  paperwork and more headaches!

Tuesday, March 19, 2013

Missing Incoming 1099

Q.  I want to file my return, but have not received the 1099 Forms I was expecting in regard to the BP oil spill. Calls to the lawyer offices and claims department have gone in a big circle nowhere. Why can't they at least give me the federal ID number so I can go ahead and file?

A.  Although your software may ask for a federal ID number, there is actually no legal requirement that it appears on your tax return.  My suggestion would be to go ahead and file with your income reported to the best of your knowledge. The IRS uses the 1099 forms to "match up" returns. Even if you don't show receipt of a 1099, as long as the income you report on your return is at least the amount reported to the IRS or more, there should be no concern.

In the event you should receive a 1099 later this year and it matches what you have reported, there is no problem. If the reported income is greater than what you reported on your return, you have 3 years to amend the return from the later of the filing date or due date.

Monday, March 18, 2013

RV Parsonage Allowance?

Q.  As a retired minister I will be a full time RVer with a parsonage allowance.  Will this apply to campground fees and memberships?

A.  This is an area I haven't dealt with in years, so you may want to find someone who specializes in the ministry. My understanding is that the clergy does not have to report the fair market value of the parsonage they live in. This comes under the housing benefit for the convenience of the employer rule,(so that ministers are available at all times to tend to the flock, so to speak). According to my resources, Reg 1.107-1 stipulates... " it includes the portion of a retired minister's pension designated as a rental allowance by the national governing body of a religious denomination having complete control over the retirement fund."

I'm not certain, but this would tend to make me think the amount for parsonage allowance  received could be used to apply towards your campground fees. Clearly, the law was not written with RVs in mind. Please seek out several opinions on this. Truly, this is nothing more than a WAG!

Friday, March 15, 2013

Depreciation for a Park Model

Q.  It seems to me I should be able to depreciate my Park Model as a trailer, using a 5 year life. My tax preparer has doubts. What is your opinion?

A.  I think your tax preparer is using sound judgement. Park Models are almost never moved, and since they usually become residential rentals, the MACRS life of 27.5 years is most likely the right choice. I realize many people want to depreciate these assets as quickly as possible, but stop and think in the long term for a moment. If you write the assets off in 5 years, you will have very little in the way of expenses to shelter future income. As raging inflation is bound to rear its ugly head at some point, you will ask more for rent, and have less to write off. Just think about it.

PS. Since my original answer, the Tax Court has disallowed depreciation of RVs. See Jackson, T,C, Memo 2014-160, August 7, 2014.

Wednesday, March 13, 2013

Schedule D Woes

Q.  I have been trying to fill out Schedule D, but the instructions keep referring to Form 8949. I only have a couple of stock sales, why are they forcing me to use these forms, when all I want to do is plug in the figures and be finished with it?

A.  Your goal is exactly what my goal is, but regrettable, the IRS has different ideas. Although I can't tell you the exact reason, I suspect it has something (perhaps everything) to do with brokerage firm reporting requirements  Have you noticed that Form 8949 refer to the boxes the brokerage firms are putting on the 1099-B forms?

If you're using software, you will have no choice but to fill out the 8949 forms to get them to transfer to Schedule D. Reporting sales of assets used to be somewhat straight forward, but now it has become a real challenge. Good luck in your endeavor!

Tuesday, March 12, 2013

Late Arriving Forms

Q.  Honey, I filed my return last week and a 1065-K1 form just arrived showing a small amount of income. Shall I just forget about it or???

A.  The answer depends on your comfort level. I prefer to take steps immediately to remedy the situation even if I need to amend the return. If you do so by April 15th, you will owe no interest on the additional tax. If you do nothing, the IRS computers will eventually catch up to you. Since the amount is small, there should not be any penalty, but they will charge you the additional tax plus interest. The problem with waiting for the IRS is they are usually about 2 years behind.

One other comment. Please check the title on your K-1 form. I find about half of these are held in retirement accounts such as IRAs etc. In this case, the item is non-reportable and you need do nothing.

Monday, March 11, 2013

RV Parking at Fraternal Lodges

Q.  Can payments made to fraternal organizations who provide RV parking qualify as  charitable donations?

A.  There are a couple of considerations here:

  • Contributions which benefit the donor are not deductible, unless the benefit received is the lesser of $9.90 (the 2012 amount) or 2% of the total contribution.
  • The IRS will no longer consider cancelled checks as proof of donation. The recipient organization must provide a receipt or letter stating the date made, and amount of the contribution, that no benefit was received, and it must be received contemporaneously.

In my opinion, I would never take a "donation" for RV parking as a charitable contribution. Most of these fraternal organizations are run by volunteers who give generously of their time. Quite often they are overwhelmed, receive no compensation, and burdening them further with requesting contemporaneous records might be stretching their generosity.

Friday, March 8, 2013

Alimony Note

Today I read a note a client tucked into her tax package about receiving alimony from a former spouse. I'd never seen this before, but apparently the gentlemen has financially done well of late, and decided to share the wealth with his ex-wife rather than Uncle Sam.

To accomplish this, you must contact an attorney as this stipulation must be ordered by the court, and must be payable until the death of the spouse.  So if you're feeling more generous to ex-spouses rather than Uncle Sam, listen up: This just might be a tax saving idea to catch on! I only see winners here.

Thursday, March 7, 2013

I paid dearly. Can I claim him as a dependent?

Q. I have a son who graduated from college last year and was a full time student. I did provide more than half his support and he turned 24 in the fall. Can I still take him as a dependent?

A.  Unfortunately to meet the test they must be under the age of 24 as of 12/31/12, so you will not be able to claim him as your dependent based on this criteria alone. No one ever said tax laws are fair!

Wednesday, March 6, 2013

Contemporaneous Records

Q.  What does the IRS mean by contemporaneous record keeping? How do you do that?

A.  Strictly speaking, it means keeping your records as they occur. This is a requirement pertaining especially to business travel & entertainment. Due to the abuses in this area, the IRS expects taxpayers to keep records of the date, who they saw, the business purpose, topics discussed etc.,  on the day the business travel or entertainment expense happens. In the past I advised my clients to keep a little pocket calendar along with a pen or pencil in the glove box in their car. This way they could easily jot down odometer readings for travel and make notes of any entertainment expenses. In our digital world today, many people record their expenses on laptop computers, tablets, etc. This begs the question: How do you prove it was recorded contemporaneously?  I don't have an answer for that. None of my clients have been audited recently. If any of you have experience in this area, please let me know what standards the IRS required along with the outcome.

Tuesday, March 5, 2013

Kiddy Tax Issues

Q.  My 16 year old daughter received a combined 1099 form showing 1099-Int, 1099-Div and 1099-B. Can I just report these on Form 8812 and save her the trouble of filing a separate return?

A.   In this instance, the answer is no, since a 1099-B was reported. If only Interest & Dividends are reported, then it is easier to use Form 8812 and pay any tax owed on the parent(s) return. When capital gains are reported (1099-B) and if they meet all the other requirements, they must file their own return. Sorry.

Monday, March 4, 2013

Office-in-Home Wishing Thinking

Q.  Since I am a self-employed full-timer and work exclusively out of our coach, it seems I should be able to take an office-in-home deduction. Do you agree?

A.  Unfortunately, it's impossible to live in a motor-home and or trailer, 5th wheel etc., and qualify for an office-in-home deduction, regardless of how logical it may seem.  The circumstances which allow you to take this deduction are as follows:

  • Exclusive use test.  You must use the area designated for business purposes only. Any other personal use such as eating, sleeping, or storage, disqualifies this deduction.
  • It must be used regularly. Occasional or incidental use will also disqualify the deduction.
  • If the space is used for other than a trade or business, even if profitable, will disqualify the deduction.
Under these stringent guidelines, even walking through the area from 1 place to another would be considered personal use. 

Friday, March 1, 2013

Q.  I just received the 1099-ES vouchers from my preparer, and I noticed the total amounts were almost identical to what I owed this year. Most of my income comes from qualified dividends and capital gains. With the rates increasing from 15% to 20%, shouldn't my estimated tax payments be higher?

A.  Although capital gain rates increased as you stated, this will affect taxpayers with taxable incomes in the 39.6% bracket, or those with taxable incomes starting at $400,000 and up, depending on your filing status. If you don't fall into that category, you will continue to enjoy low capital gain rates. If you do fall within the 39.6% bracket, you should call your preparer and discuss your estimated tax payments. It is possible the software package used hasn't factored in this rate change.

Thursday, February 28, 2013

Q.  We recently sold our house and are starting a small business to run out of our trailer. Do you know of any reliable sources which may point us in the right direction?

A. Here is a link to the IRS Small Business and Self-Employed Tax Center which should answer many questions. I only have one point I'd like to make. Before rushing off and forming a separate business entity such as a partnership, LLC or corporation, start off small and run as a sole proprietor. Forming many of these entities is quite easy, they can be costly depending on the state, and like a divorce, hard to get rid of!

Wednesday, February 27, 2013

Selling Your RV

Q. Is it necessary to report the sale of an RV and pay taxes if we buy a replacement for the same price as the one sold or more? We are full-timers and consider this our personal residence.

A.  For decades, when one sold a personal residence at a gain, you could avoid taxes only by buying a replacement residence for the same price or more. These rules went out the door many years ago. Today, the rules are simpler and no replacement is necessary. Here is a link to IRS Pub. 523 which explains the rules for selling a personal residence and reporting a gain.

I can't imagine anyone selling an RV today or even trading one in, at a gain. Generally speaking, selling a personal asset at a gain is a reportable transaction; selling a personal asset at a loss is never deductible. I don't think you have anything to be concerned about!

Tuesday, February 26, 2013

Tax Preparation Fees

Q.  Why do fees for tax preparation keep rising? I find it's getting very costly. My income comes mainly from Capital Gains. I just don't understand!

A.  I may have the answer to your question. Of course, I can't explain why various preparers charge what they do, when they increase their fees, or even if they've increased fees. Largely it will depend on where they are located in the country. When I lived in Tucson back in the 1990s, the fees we charged were less than half of what they charged in Phoenix, so preparers in an affluent area will likely charge more.

Last year, filing 2011 returns, there was a substantial change in the forms for capital gains. Previously we had only Schedule D to deal with. Quite often we could take the totals on the 1099-B form prepared by your brokerage house, put in only the totals, and fire it off to the IRS, much the same way as we did for 1099-Int or 1099-Div.

Beginning with the 2011 returns, however, the IRS forced us to use Form 8949. There were 3 possibilities: a separate form for short term gains, a separate form for long term gains, and a separate form when no 1099-B was issued. Additionally, it became necessary to further subdivide this information depending on whether or not the brokerage house reported the basis information. Sometimes they do, and sometimes they don't provide it. Very few 1099-Bs have arrived from my clients as yet, but last year they weren't separated, so the only choice is to enter each security separately. What used to take minutes, now can take hours.

My hourly fee haven't increased in 3 years, but  multiply the total time necessary to enter pages of data by the hourly fee, and you can easily see why fees have risen, even though the hourly rate hasn't. When in doubt, you can always ask your preparer. He or she can give you a more complete analysis of your return and why they charged what they did.

Monday, February 25, 2013

Q.  Are there any costs of travelling we can deduct if we work for a company, and are full time RVers?

A.  If you are talking about getting to your job, the answer is no. That is a non-deductible commuting cost. Even if you live in another state, you may have made your employer's location your tax home, which is usually the case.

If however your employer sends you to a different area as part of your work, you may have some flexibility. As an employee, your best recourse is to see if your employer has a plan for reimbursement. This is the cleanest and simplest way to recoup your costs.  Barring that, much depends on the type of employment, if your employer sends you to off-site locations, etc. In this matter, details really count!

Friday, February 22, 2013

Finding the Right Help - Part 5

Now that we've discussed the Who, What, Where & Why of how to find the right help, when to find your tax help is the next step. As in most things of importance, the logical answer is before you need help. In an ideal situation, it would be most beneficial to be able to sit down and discuss your tax needs and be able to have a meaningful conversation either in person or by phone, prior to the tax filing season.

In the real world, however, this usually is impractical as most of us wait until we can't figure it out ourselves, or the tax filing deadline is fast approaching, and we need help now. Given that most preparers work between 60 - 80 hours per week during the filing season, no one is going to be thrilled to get into a long conversation as to how they could best help you. They will most likely have their secretary book an appointment, and you will be very lucky to even have a conversation with the preparer prior to your tax appointment.

Your best option is to be as thorough and prepared as possible, so as to get right to the heart of the matter and take as little time as possible. Here you might have an advantage  by sending in your return or by creating pdf files and sending it via a secure server or an email attachment. When I am able to review all the documentation required, and the prospective client utilities the organizer I send to them, it makes my life much easier, as then I can call with any questions; and there are always questions. It makes for much less stress for each of us, and cutting back on the time an office visit takes usually results in a lower bill. In this case, each of us wins.

Finally, I will briefly discuss the how of finding your professional preparer. The best advertising is always by word of mouth, so start with your circle of friends, family, and perhaps most importantly, business associates. If your tax issues more or less mirror a trusted colleague, chances are the preparer he or she uses will have experience in the area you need most. If you have your own business, the preparer your retired uncle who was a school teacher all his working life, may not be familiar with the issues a business person has. If the person recommended is unable to accommodate new clients, by following the guidelines outlined over this week, you should be able to find someone to your liking on your own. As a last resort, you can always file for an extension of time to file before the April 15 filing deadline. Just be certain to estimate your tax to see if you will owe anything. Remember, the extension is for filing, not paying your taxes. Good luck, and next year, please start earlier!

Thursday, February 21, 2013

Finding the Right Help - Part 4

Now it's time to consider the questions you may wish to ask a prospective preparer. Please keep in mind that many criteria exist, and your priorities may be different from mine. Here are some of the things I would ask, and the reasons for each.

  • How long have you been practicing? The reason this is important to me is nothing trumps credentials like experience. I can't think of a year when someone didn't have an issue that I'd never encountered before. In my opinion, the more experience the better.
  • What type of taxes do you prepare? Often times people will specialize in one area and not have too much experience in other areas. As an example, many practitioners don't prepare Fiduciary returns, corporate returns, etc.
  • What do you limit your practice to?  As an example, although I prepare a few Schedule Fs (farming), if someone came to me with a 5,000 acre ranch running cattle with 17 employees, I would pass. I simply have no experience in this area. Another area, if it pertains to you, would be tax deferred exchanges. If you exchange property often, you would want someone with this type of experience.
  • How large is your firm? It helps to know if you're dealing with a single practitioner or an office with many preparers. There are pros and cons to each. In a larger firm, your tax will likely be run through the office in a matter of a few days to a couple of hours. Although there is nothing wrong with this, sometimes it's nice to be able to take the time to think about a client's particular situation prior to finishing the return. A larger firm does, however, provide more people to run ideas across. A smaller firm may have more time to work on your tax, and not feel the pressure of getting a number of returns out the door in an arbitrarily set turn-around time. Some of my best clients came to me after using a large firm. The larger firms consider a company that only grosses say $5,000,000 as very small, and quite often turns it over to their junior employees. 
  • If you (the prospective preparer) should suddenly be taken ill, (or worse) what contingency plans do you have? Here is where a larger firm may have an advantage, as there should be several capable people to take over. In a smaller firm, you need to ask. In my case, my husband is also an EA, so we can cover for each other.
  • What are your fees? Some firms charge by the hour, some by the form, and some, such as myself a combination of both. As an example, if I have a minimum fee which includes Form 1040, Schedule A (itemized deductions) and Schedule B (interest and dividends) which is what clients typically have, it isn't fair for a client with 2 W-2 forms, 2 1099-Int and 1 1099-Div to pay the same amount as a client with 17 W-2 forms, (think the film industry here), 5 1099-Int and 12 1099-Div forms. So if this is a concern, ask for an estimate. They most likely will be unable to do so until they actually see the type of paperwork you have and the number of forms involved. When a new client comes to me, I can always give them an estimate, and if they don't like it, I return the paperwork with no hard feelings either way. Neither of us like surprises.
These are just a few issues you may wish to consider. I suggest before calling anyone, write down of list of questions important to you so you won't forget to ask.

Wednesday, February 20, 2013

Finding the Right Help - Part 3

When you first speak with a prospective professional, he or she will need to understand how they can best help you. It will be to your benefit to be as forthcoming as possible. Try to articulate why you need their help. This can be as simple as responding to a notice from various taxing authorities to seeking a long term relationship for tax preparation and tax planning purposes.

In order to help you as much as possible regarding income tax preparation and planning, there are many questions we need to ask. Usually the vast majority of information needed can be obtained from prior year's tax returns, so be prepared to bring up to 5 years of returns to your first meeting, especially if you have passive or capital loss carryovers.

Another thing needed will be the tax basis of any assets you have sold during the year. This includes the cost basis of any securities sold, possibly the tax basis of securities inherited, from either the estate tax return, if any, (filed for the deceased) to a letter from the estate attorney listing the basis reported. Escrow settlement statements from real property purchased along with escrow settlement statements from property refinanced is also necessary.

If you have rental properties or other business assets, prior year depreciation schedules are necessary. If you happen to file state tax returns that don't recognize federal rules, such as California, there should be separate depreciation schedules for the state. This is very necessary as when these items are sold, your tax basis is likely to be higher for the state than it is for the federal return. You certainly don't want to pay more tax then necessary if a gain should result.

This may also be true if you have a different basis in your IRA in the state as compared to the federal return. There were years where some states did not allow a full deduction for your IRA contribution. For example, back in the 1980's. if you contributed the maximum allowed by the IRS of $2,000, CA only allowed you to deduct $1,500, resulting in a basis of $500 for each of the years in question. When you start withdrawing your IRA, it is quite likely some of the withdrawal will be tax free on your state return.

This list can go on and on and is not at all inclusive, but should give you a good idea of the items needed to do a proper job. If in doubt, ask!

Tomorrow I'll cover some of the questions you should be asking a prospective tax professional.

Tuesday, February 19, 2013

Finding the Right Help - Part 2

Now that you know who you are looking for, let's look at where you might find this person.

Only you will know the reason you are looking for help. Perhaps your former preparer retired and you are seeking a replacement, or perhaps you have always self-prepared, but currently need help. Here it helps to know yourself. If you are only comfortable with a one-on-one consultation and need to discuss each piece of paper as it crosses the desk, and generally want lots of hand holding, you'd be best to find your professional in the general vicinity of your location.

If you are the self-sufficient type who has always handled the finances in your family, can articulate your needs and wants verbally, or can write a cognizant email, can handle simple computer tasks such as attaching a pdf file to an email or scanning documents, then literally the whole world is open to you.

Most of my clients are in the latter category. They are very busy people, and or simply want to do more "fun" things than sit at my desk. Most of them have some sort of small business and simply don't have the time. Time is money, as the saying goes, and if you can make more if it doing what you do best, why take the time for a visit? The vast majority of my taxes arrive in the mail, by a delivery service, and more recently, by pdf file. Isn't technology great!

Tomorrow we'll discuss possible ways to articulate what you need.

Monday, February 18, 2013

Finding the Right Help - Part 1

Q.  After struggling with Schedule D, Forms 8949, and Form 4797. I've decided to throw in the towel and find a professional to prepare my taxes. This is a job I have always done myself. Can you advise me in how to find a competent tax professional?

A.  This is an excellent question, and I hope you won't mind me answering your question over more than one day. Actually there are several competent professionals you can turn to. Let's review the best 4 options.

  • Tax Attorneys
  • Certified Public Accountants
  • Enrolled Agents
  • Registered Tax Preparers
Most tax attorney's limit their practices to estate and fiduciary returns, however, you may find one in your area who prepares individual tax returns. They are licensed by the state they practice, and are required to complete competency courses each year.

Certified Public Accounts (CPA's) are another excellent choice. Each CPA is licensed in the state they practice, however, they may have reciprocity in more than one state. The vast majority of CPA's work in big accounting firms and do not necessarily prepare returns for individuals, but act solely as accountants. CPA's preparing individual and business returns are plentiful, however, and can easily be found in the yellow pages or through any reliable search engine. CPA's also have required competency courses in both accounting and taxation each year.

Enrolled Agents (EA's) usually limit their practices solely to the practice of taxation. EA's are licensed by the US Department of Treasury, and as such, may practice in any state or US Territory.  As with any professional, you should have no trouble finding one that prepares individual and or business returns. Since many EA's are not accountants, if you have a return than requires a balance sheet, be certain they have had accounting courses and are knowledgeable in basic accounting principals. EA's also have required competency courses in federal taxation each year.

Registered Tax Preparers are the newest of the above four designations. These individuals must register with the IRS and complete competency courses each year.

To be continued. . .   

Friday, February 15, 2013

Tumblr: New from the IRS

The IRS just announced their new Tumblr site. To quote from their email to me:

New IRS Tumblr Site Helps with Tax Season
Tax issues can touch a wide range of people who need information in many different ways. For that reason, the IRS has added Tumblr to its list of social media platforms it is using to share IRS news and information. The new Tumblr platform provides another way for taxpayers to get current tax information when and where they want it.
Tumblr is a micro-blogging site where users can access and share text, photos, videos and other information from their browser, smartphone, tablet or desktop.

The new site shares information about important programs to help taxpayers, such as tax law changes, the Earned Income Tax Credit and Free File. The Tumblr site also makes it easier for IRS partners and others to share tax information they receive from the IRS.

In addition to Tumblr, check out these other IRS Social Media sites:
  • YouTube - The IRS YouTube channels offer short, informative videos in English, American Sign Language and Spanish. IRS currently has more than 100 videos with more than 3.1 million views. For more information, watch the YouTube video “IRS Social Media.”
  • Twitter - More than 61,000 people follow the IRS twitter feeds. The latest tax information is available at @IRSnews or @IRSenEspanol.@IRStaxpros covers news for tax professionals; @RecruitmentIRSprovides updates for job seekers. The Taxpayer Advocate Service has information available @YourVoiceAtIRS.
Remember, to protect taxpayer privacy, the IRS only uses social media tools to share public information. IRS does not answer personal tax or account questions. You should never post confidential information, like a Social Security number, on social media sites.
For more information on IRS’s use of social media, go to IRS.gov/socialmedia. 

Additional resources are always welcome. Check it out and let me know what you think!

Thursday, February 14, 2013

Happy Valentine's Day!

Q.  Last year I inherited some money from my father's estate. I can't seem to find where it goes on my tax return. Can you please enlighten me?

A.  Nothing but good news here. Inherited money is non-taxable to you. If the estate is really large, any tax owed is paid at the estate tax level by the executor of the estate. If funds are held for some time, they are usually put into a trust account, which by law (in many states) must be an interest bearing account. If this is the case, only the income generated by the trust account would be taxable to the beneficiary's and would be passed through to each beneficiary on a 1041-K1 form. Principal received is not taxed at the beneficiary level.

Wednesday, February 13, 2013

Deducting Medical Reimbursements

Q.  As a self employed person, I understand I can reimburse myself for medical expenses and deduct it is a business expense. How is this possible?

A.  Trust me, if it were that easy, everyone would be doing it. There are several qualifications, the first of which is that you must be employed by your business. Internal Revenue Code 105 and 125 deal with some of these issues. For a brief synopsis, please read the following link: Section 105 Medical Reimbursement

The first thing you should do is to call a qualified business attorney, and or insurance agent knowledgeable with these plans to see if it would be worthwhile for your business.  Good luck.

Tuesday, February 12, 2013

IRS Update: IR-2013-18

The IRS release 2013-18 issued yesterday stated they will be able to accept returns containing depreciation schedules (Form 4562) immediately and returns containing education credits (Form 8863) beginning on Valentine's Day. This is really good news as it will avoid a potential backlog of taxes that could grind the wheels of progress to a halt. Now all we have to do is wait for the states to catch up!

P,S, PS. Since my original comment, depreciation has been disallowed for RVs. See Jackson, T.C. Memo 2014-160, August 7, 2014.

Monday, February 11, 2013

Reportable vs Taxable Income

Q.  Honey, I'm not sure what the difference between reportable income and taxable income is. Can you please explain?

A.  This is an excellent question, and the terms come up often.  Most of us are familiar with the standard deduction and personal exemption amounts for our marital status and age group. Basically, income reported in excess of these amounts require us to file an annual income tax return.  If the gross income reported is below the standard deduction and personal exemption, usually no income tax return is required.

Notice I said gross income.  Gross income and reportable income are quite often the same.  Thus, if you sell securities for say $100,000 your gross (and in this case) reportable income would require a filing of a return.

Your taxable income, however, may be zero or zilch, if for example, you paid $110,000 for these securities, you would have a taxable loss.  The reason you need to report the reportable income, however, is the IRS or state taxing agencies, have no idea of your basis, and therefore cannot compute your taxable income, as they have no way of knowing your profit or loss.

Oftentimes on Form 1099-R (used for reporting retirement income) the taxable income is lower than the gross reportable income, as part of the proceeds may be a portion of your contribution or another non-taxable fringe benefit such as reimbursements. I hope this helps you.

Friday, February 8, 2013

How to Hold Title

Q.  How should I hold title to the motor home I plan on purchasing this month?

A.  This is a legal question I am not qualified to answer.  Several states have different options, so be safe, and seek legal counsel if you feel it is an issue in the state you are planning on licensing it. Generally, (my opinion) I see no difference in the way you hold title to your car. If concerned, buy an hour's worth of time from a reputable attorney to put your mind at ease.

Thursday, February 7, 2013

Exchanging an RV

Q.  Will an RV qualify for an exchange the same as an apartment building?

A.  Technically it could qualify for an exchange under code section 1031, but the likelihood of that happening is between zero and zilch.

First, when is the last time you heard of anyone selling an RV at a gain? If you don't recognize a gain on sale, there is absolutely no point in an exchange.

Second, an exchange only pertains to business property. Even if you had established a percentage of business use for your RV, after allocating the business vs the personal usage, you are down to a very small number.

Third, you would need to establish business usage of the property (RV in this case) you exchange into. This is no easy task.

Rather than wave every shade of red flag on your tax return daring the IRS to scrutinize it, I personally would pass.

Wednesday, February 6, 2013

Business Returns Waiting Game

Q.  Why is it taking so long to be able to file business returns? I can download forms, but I've been told we can't efile them and if we mail them it, the IRS won't process them. Doesn't the government want to get paid?

A. As a business person, we all know that keeping revenue flowing in is our number one priority. Apparently Congress hasn't grasped this theory. To answer your question seriously however, there are several factors at work here.

Congress waited until 2013 to pass laws retroactive to 2012

Once legislation is passed, someone, somewhere has to read through the myriad of pages (this can be several hundred and more) and try to condense it to a 1 or 2 page form. This can't be an easy task.

Next, the programmers need to get to work on it

Then the IRS needs to do the testing to make certain the forms and programming are compatible with their new e filing system.

Finally, the professional software I use, and the off-the-shelf software consumers use, all need to be tested to make certain they work all the way through the system.

Whew! I've tired myself out just thinking about it. Admittedly it's an extraordinarily frustrating year for everyone. All we can do is be patient and wait it out.

P.S. Since my original answer, depreciation has been disallowed on RVs. See Jackson, T.C. Memo 2014-160, August 7, 2014.

Tuesday, February 5, 2013

Q.  I am a working artist traveling in my 5th wheel. I'm moving from Texas to Florida for a few months. It seems I should be able to deduct the cost of travelling from Texas to Florida, but reading your prior posts, I'm confused. Can you please straighten me out?

A.  It is confusing. If you are a full-timer, what you are actually doing is relocating. As a full-timer, this would be considered commuting mileage, as you are moving your tax home from Texas to Florida. Commuting mileage is non-deductible.

If however, you plan to return to Texas and you are not a full timer, have a specific business reason to travel to Florida, and your visit is totally work related, you may be able to deduct this mileage as travel expenses.

As a full timer, you most likely won't qualify for moving expenses, unless you work full time in the general area for at least 78 weeks during the 24 months right after the move. Don't you wonder who dreams this stuff up?

Monday, February 4, 2013

2013 Standard Mileage Rates

Q.  Is there any increase of standard mileage rates in 2013? Gas prices seem to go ever higher!

A.  Yes, but it won't offset the higher gas and diesel prices. Beginning 1/1/13 business mileage rates are 56.5 cents per mile, charitable mileage rates remain at 14 cents per mile, and medical and moving mileage increase from 23 to 24 cents per mile. Please remember to keep proper records or you may lose this deduction entirely!

Friday, February 1, 2013

Full Time RVing & Your Tax Home

Possibly one of the more confusing aspects of being a full-timer is declaring a tax home, especially if you or your companion are self employed. When you no longer have a stationery dwelling, and your business travels with you, it's quite likely that you may have more than 1 tax home in any given year. When you are self-employed, your tax home travels with you. In many instances, you will be required to file several state returns, whether you visited the state or not. This is because all income is reported to the IRS by the sourcing state. Receiving your income from Google Ads? Google is located in CA, so without even visiting the state, you may be required to file a CA return if your income reaches or exceeds the threshold for your filing status.

Many of my clients receive rental income from properties around the US. Many of these require filing in the state(s) the properties are located, if the gross income reaches the filing level for that state. This also holds true with other forms of passive income. Do you receive 1065K-1 forms, or 1120S K-1 forms? How about oil and gas royalties. But it becomes a little more complex when you are a full time RVer.

Example: Let's say you winter in Florida, and consider Florida you tax home, and you are self employed. Florida has no state income tax, so you would only be required to file a federal return.

Now it's spring, and you move up to Tennessee. This state only taxes your portfolio income, interest and dividends. The threshold for a married couple filing jointly is $2,500 of portfolio income. So as long as you don't earn that amount of portfolio income during your stay, there is no filing requirement.

It's summer, and you head up to Michigan. In this state, non-residents that receive Michigan sourced income of any amount, are required to file a return.

Fall has arrived and you head south to North Carolina. Non residents of NC are required to file if your income earned here equals or exceeds the threshold for the applicable filing status.

The vast majority of states tax you on income sourced from the state. In some states, regardless of the amount of income, if you are required to file a federal return, they want a state return as well.

Remember, I am talking of filing requirements, not paying taxes. If you are required to file in several states on the same income, what you pay in one state is usually taken as a credit on another state. For this example, let's go back to Google income. Say you meet the threshold for filing a return in CA. You are also required to file also file in New Mexico or Utah, or any state assessing a state income tax. If you stayed they long enough, regardless of your Florida residency, you may be required to file non-resident returns. So, depending on the state and the laws of that state, you would pay the first state, say California, report the same amounts in NM and UT, and then take a credit for the taxes you paid to the state of CA. Remember, there is no double taxation, but there are certainly double, triple etc. filing requirements!

Point to remember: On the left near the bottom of this page, I have links to each and every state. If you spend any time in any of these states, please check and find out their filing requirements. The technology exists for each state as well as the IRS, to track your sources of income. And, I am only talking about income taxes. There may be special requirements for self employed persons such as sales taxes, business filing taxes, etc. So have fun out there, but please make certain you've met your filing obligations. It's no fun to receive a love letter from a state taxing authority 2 years after-the-fact and have to pay fines, penalties, and interest on top of any tax you may actually owe!

Thursday, January 31, 2013

It's off to the Races

Q.  I recently heard that I should be able to efile my tax return, actually as of yesterday. Should it go through? I really need my refund!

A.  With many delays in passage of tax laws, and further delays with the IRS new efiling system, the IRS is currently set up for the simplest of returns. If you are filing with only W-2 forms, the IRS should be able to accept your return. If however you have some credits and or business forms, such as depreciation, you will not be able to file until late February or possibly sometime in March.  It's going to be an interesting filing season. Good luck!

Wednesday, January 23, 2013

New California Tax

Q.  I understand there is a new tax in California pertaining to lumber products. Can this be paid on the CA state return the way we now pay our use taxes here in California?

A.  No. This new tax on raw lumber or engineered wood products is paid directly as an additional 1% sales tax at the time of purchase. I'm glad I'm not working for one of the many hardware stores as a sales clerk having to explain why there is an additional 1% tax on the receipt!

Monday, January 21, 2013

Tax Seminar complete!

With yet another tax seminar under my belt, I can report that absolutely nothing was mentioned about the aforementioned 1099 filing requirements. So, it put the topic to bed, I am suggesting you follow the instructions on the form.

What to do if you sent in a 1099 where none was needed? Nothing. It never hurts to "over report." So there is no need to fret.

The seminar centered on the American Taxpayer Relief Act of 2012, which Congress passed on New Year's Day 2013. With no time to digest the new law, no time to design the required forms, and no time to implement all the changes needed to efile returns, this tax season is going to be very slow.

If you have a business return, depreciation schedules will not be ready until late February or early March. This means that you may not be able to file a return without an extension. It's frustrating at best. All corporate returns are due on March 15th, and without an act of Congress, that due date cannot be extended.  My suggestion is to simply have everything ready to go as early as possible, so your return can be completed up to the point the depreciation and many of the tax credit forms become available.

What software is affected? All software. The problem lies not in the software, but with the IRS computers which simply cannot be programmed for all these changes. And think about it. Congress passes a tax law, containing anywhere from perhaps a few pages to possibly a thousand or more pages, and someone, somewhere has to incorporate all these changes into a 1 or 2 page form which you and I are then asked to complete. It's a daunting task. So put on your sense of humor (we're all going to need it!) and try your best to finish what you do have as early as possible. We are all playing the waiting game.

P,S, PS. Since my original comment, depreciation has been disallowed for RVs. See Jackson, T.C. Memo 2014-160, August 7, 2014.

Friday, January 11, 2013

Clear as Mud

After posting last week, a client sent me the instructions to Form 1099-Misc with clearing conflicting instructions in regard to issuing a 1099 to a corporate entity.

As you read through the instructions, the word "except for" appears over and over again, making it extremely hard for the reader to comprehend.

So do you need to 1099 a corporate entity or not? The information retained from the last income tax seminar I attended clearly said there were no exceptions for corporate entities as in the past. That being said, several revisions were made to the law, and it is quite possible this has been rescinded. So, stay turned. I'll be attending yet another income tax seminar next Friday, and hopefully, they will have the correct answer.

Friday, January 4, 2013

1099 Alert - Now or Never!

If you file a corporate, partnership, a limited liability company return, or a sole proprietor on a Schedule C of an individual income tax return, have a rental reported on Schedule E, or file a Schedule F, in all likely-hood you will be required to file 1099 returns even if you have never done so before.

In the past, 1099 forms to corporate entities were exempt, but this exemption no longer applies to 2012. I’d rather be redundant that have you face the wrath of the IRS.

Remember, the technology exists for payments to be traced back to you; the fines have quadrupled, and worse, you may lose the ability to deduct these payments.

1099-MISC Forms: A payor is required to file notice of 
payment for services to any individual paid $600 or more
during the calendar year to both the government and pro-
vider, if that service is used in a business or rental property.
partial list includes, but is not limited to:
·          Accountants/Bookkeepers
·          Attorneys
·          Auto Mechanic/Shop (If you use your car in business)
·          Commissioned Salespersons
·          Computer Service Providers
·          Electricians/Plumbers/Contractors
·          Equipment Repair Service Providers
·          Graphic Art Studios
·          Janitors/Gardeners
·          Medical Care Providers
·          Non-employee assistants
·          Rent paid to Landlord & Property Management Firms
·          Rent paid for Equipment Rentals
·          Tax Practitioners
·          Technical Consultants

The corporate entity exception no longer applies.
Please review all your payees to include corporate entities
that have not been required in the past.
Additionally, you may be required to file these 1099 forms:

FORMS 1099-INT: Interest payments of $10 or more

FORMS 1099-DIV: Dividends paid shareholders from your corporation of $10 or more

FORMS 1098: Mortgage interest received of $10 or more

Due Dates:     To the provider – January 31, 20XX
                            To the IRS – February 28, 20XX

Please contact me no later than January 20, 2013 if you would like my assistance.

Tuesday, January 1, 2013

Happy New Year!

Welcome to 2013. As for me, the new year was ushered in by a surprise party by a few million cold germs the morning of New Year's Eve. No fun, but I'll recover shortly.

There are several case studies and or new information which need passing on, so I may delay your questions until they really start flowing in. In the meantime, stay alert, keep healthy, and enjoy a wonderful, prosperous and stress-free (at least tax-wise) new year!