Sunday, December 15, 2013

The Tax Break in Your Garage / Auto - Car Mileage Is Deductible Under Certain Conditions

Tom Herman for the Wall St. Journal writes: If you use your car for business purposes, you may be eligible for a valuable tax deduction.

You might also be eligible if you use your car—or some other type of vehicle, such as a van or truck—for medical purposes, moving or to help charitable organizations. Just be sure to keep good records. It also might help to be aware of a choice you have in calculating your deduction.
The easy way is to use the Internal Revenue Service's optional standard mileage rate. The other option: Deduct your actual expenses. Here are a few details.
A few days ago, the IRS announced the optional standard mileage rates for next year:
56 cents a mile for business miles driven, down from 56.5 cents a mile this year.
23.5 cents a mile for medical or moving purposes, down from 24 cents a mile this year.
14 cents a mile driven "in service of charitable organizations."
The IRS said the standard mileage rate for business is "based on an annual study of the fixed and variable costs of operating an automobile."
The rate for medical and moving purposes is "based on the variable costs" of operating a car. The rate for helping charities is set by statute.
If you conclude these rates are too stingy, consider deducting your actual expenses, such as oil, gas, tolls and many other items. (See IRS Publication 17 for more information.) If you use your car for both business and personal purposes, divide your expenses accordingly.
The IRS offers an example: You are a contractor and drive your car 20,000 miles during the year, but 8,000 miles are personal use. You can claim only 60% of the costs (12,000 is 60% of 20,000) of operating your car as a business expense.
Warning: This can be a surprisingly complex area, including just figuring out the basic question of who is eligible. You may need to consult a trusty tax professional. Most employees and self-employed workers should look at "Figure 26-B: When are Transportation Expenses Deductible?" in IRS Publication 17.
"Daily transportation expenses you incur while traveling from home to one or more regular places of business are generally nondeductible commuting expenses," the IRS says.
But there are "many exceptions for deducting transportation expenses, like whether your work location is temporary (inside or outside the metropolitan area), traveling for [the] same trade or business, or if you have a home office."
Posted on 6:09 PM | Categories:

Tax Planning Strategy For 2013 With Two Experts (click to view)

ValuWalk Staff writes for ValueWalk: Tax Planning Strategy: Nothing is certain but death and taxes and what is certain this year is that taxes have gone up. Increases in the social security tax rate, Federal laws such as the Affordable Care Act and the American Taxpayer Relief Act of 2012, and stock market gains mean many Americans are facing much higher tax bills. Financial advisors Alexandra Lebenthal and Mark Cortazzo will help us minimize the pain.   This week’s guests are both experts in tax strategies. Alexandra Lebenthal is the President and CEO of Lebenthal Holdings, a boutique investment bank, as well as an asset management and wealth management firm for high net worth individuals.  It is the largest woman-owned securities underwriting firm in the business. Lebenthal is the third generation to run a Lebenthal investment firm.  Mark Cortazzo is a familiar face on WEALTHTRACK. Founder and senior partner of the now 20-plus year old wealth management firm MACRO Consulting Group, Cortazzo has been recognized as a top advisor by Barron’s Magazine for the fifth consecutive year, as well as by Worth andFortune magazines.  InvestmentNews recently identified him as a “top transformational advisor”.
Posted on 11:53 AM | Categories:

Tax Break for IRA Gifts Expires Soon / Provision Applies to Those 70½ and Older

ANNE TERGESEN for the wall st journal writes: Time is running out for a popular tax provision that allows owners of individual retirement accounts who are 70½ or older to save on taxes when donating to charity.
The provision, which expires Dec. 31 (though Congress could reauthorize it), allows individuals ages 70½ or older to donate up to $100,000 of IRA assets to charity without reporting the withdrawal as taxable income. By reducing taxable income, the provision can help retirees avoid or reduce a host of taxes and penalties—including many tax increases that took effect this year. It can also count toward the annual required minimum distribution that people 70½ or older must take from a traditional IRA.
Those who are charitably inclined are likely to fare better with the charitable IRA rollover provision than they would by withdrawing money from their IRAs, paying income taxes, and writing checks to charity, says Ed Slott, an IRA expert in Rockville Centre, N.Y.
Consider what would happen with a $10,000 gift to your alma mater. If you don't itemize your deductions, you would normally receive no tax break for the gift. But under the charitable IRA rollover provision, the $10,000 won't be included in your income. Assuming you are in the 25% tax bracket, that would save you $2,500.
If you itemize, you won't receive a deduction. But the $10,000 IRA withdrawal won't inflate your taxable income, either. That may help you keep your adjusted gross income below the thresholds at which you would lose some of your deductions and other tax benefits.
For example, individuals with more than $200,000 of adjusted gross income and couples with more than $250,000 are subject to the new 3.8% tax on net investment income. Individuals with AGI above $250,000 and couples above $300,000 now start losing personal exemptions and itemized deductions. As income rises, you can also lose deductions for medical expenses, casualty losses and miscellaneous itemized deductions.
The rollover provision can also help taxpayers avoid or reduce taxes on Social Security benefits and avoid higher Medicare Parts B and D premiums, which kick in when adjusted gross income exceeds $85,000 for individuals and $170,000 for couples. To take advantage of the provision, you must be 70½ or older on the day you make the gift. Instruct your IRA custodian to directly transfer the money by Dec. 31 to a qualified charity.
Private foundations, donor-advised funds and supporting organizations are not qualified charities, says Conrad Teitell, an attorney at Cummings & Lockwood in Stamford, Conn. The charity must acknowledge the gift in writing, and you cannot receive anything in return.
Some prefer to donate appreciated securities from outside their IRAs to take a deduction for the fair-market value while avoiding the capital-gains tax. To see which approach benefits you more, do the math, says Mr. Teitell.
Congress has reinstated the IRA charitable rollover provision three times before, each time for two years. Some are betting lawmakers will resurrect it again in 2014.
Posted on 11:53 AM | Categories:

Who’s afraid of the alternative minimum tax?

Jason Alderman for KDH writes: Year after year, Congress keeps kicking meaningful income tax reform down the road. Consequently, taxpayers continue to be stuck with an archaic, overly complicated mess that pleases no one — except perhaps some tax accountants who charge by the hour.


A prime example is the dreaded alternative minimum tax (AMT). Enacted in 1969 to close loopholes that allowed wealthy taxpayers to avoid paying income taxes, the AMT has been tinkered with so much over the years that millions of middle-income taxpayers now get snared as well.
Historically, the biggest issue has been that while regular tax brackets, exemptions and standard deductions were adjusted annually for inflation, those used to calculate the AMT were not. Some years, Congress approved one-time “patches” to the AMT income exemption amount so fewer people had to pay AMT — usually at the last minute. The Tax Payer Relief Act of 2012 finally made the inflation patch permanent.
Many people never realize they’re subject to the AMT until they get a letter from the IRS saying they owe additional tax — plus interest and penalties. So it pays to know how the AMT works:
Each year, taxpayers must determine their AMT status. The IRS’ AMT Assistant at www.irs.gov can help you quickly calculate whether you’re likely to owe AMT. If you’re a likely candidate, you must fill out IRS Form 6251 along with your regular tax form. In a nutshell, the difference between your regular tax calculation and the AMT amount gets added to your return as additional tax.
Lower-income taxpayers typically escape having to pay AMT, but middle-income people with larger-than-average deductions or certain other tax circumstances sometimes fall prey. Here’s why:
Under the regular tax calculation, you subtract allowable credits and deductions from your gross income to determine the amount of tax owed. When calculating the AMT, however, many usual deductions and exemptions are adjusted downward or completely disallowed, resulting in a higher taxable income.
Deductions that aren’t allowed in the AMT calculation include:
Personal exemptions for yourself, spouse and dependents.
The standard deduction (claimed by those who don’t itemize deductions).
State and local income, sales and property taxes.
Miscellaneous itemized deductions.
Interest on second mortgages; however, primary mortgage interest can be deducted.
(Note: The medical/dental expense deduction is more limited than under regular income tax.)
Other items that may trigger the AMT include exercising large stock options (unless you sell the stock within the same year) and large, long-term capital gains. Usually no single item triggers the AMT, but the right combination of factors often will — for example, if you pay high state and local taxes, claim numerous personal exemptions for dependents and have unusually large itemized deductions.
Back to Form 6251: You’ll be asked to perform a series of calculations to determine your AMT income. From that amount you subtract the AMT exemption. For 2013, the AMT exemption amounts are:
$51,900 for single and head of household filers
$80,800 for married couples filing jointly
$40,400 for married filing separately
After several calculations, you finally arrive at how much, if any, AMT you owe. Many of people hire a tax professional to help. Alternatively, most tax-preparation software will also calculate AMT. Just make sure that if you had an AMT capital loss in a previous year’s return that you carry the loss forward for this year’s calculation to offset any capital gains subject to AMT the software may not know to do that if it doesn’t have access to previous returns.
Posted on 11:53 AM | Categories: