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.