If you've suffered a loss on an investment property, you can't deduct it while keeping the property in the family by selling it to a spouse, brother, sister, parent, grandparent, child, or grandchild. It doesn't matter if the sale is perfectly legitamate. The Tax Code prohibits any loss deduction from a sale to one of these relatives.
Here's the LOOPHOOLE:
The Tax Code does not consider in-laws to be relatives under this rule. So, don't sell to your son or daughter, sell to your son-in-law or daughter-in-law, or just about any in-law. You'll keep the the property in the family and get a deduction too. Awesome.
Wednesday, October 31, 2007
Saturday, October 27, 2007
HIT LIST OF THE IRS
Other Target Occupations that the IRS will most likely audit is:
Salespeople: Outside and auto-sales people are particular favorites. Agents look for, and often find, poorl documented travel expenses and padded promotional figures.
Airline Pilots: High incomes, a propensity to invest in questionable tax shelters, and commuting expenses claimed as business travel makes them an inviting prospects.
Flight Attendants: Travel expenses are usually a high percentage of their total income and often are not well documented. Some persist in trying to deduct pantyhose, permanents, cosmetics, and similar items that the cours have repeatedly rulded out as personal other then business expenses.
Executives: As a group they are not usually singled out. But if the retun includes a form 2106, showing a sizable sum for unreimbursed employee expenses, an audit is more likely. Anyone whose income is over $50,000 a year is usually under their microscope.
Teachers and College Professors: Agents pounce on returns claiming office at home deductions. they are also wary of educational expense deductions because they may turn out to be vacations in disquise.
Clergymen: Bona fide priests, ministers, and rabbis arent considered a problem group. Buf if w-2s show income from a nonchurch employers the irs will be on alert for mail order ministry scams.
Waitress and Cabdrivers: Anyone in an occupatin where you can earn tips are a significant factor is likely to get a closer look from the irs nowadays. Also, truly deceptive descriptions under their occupation can trigger penalties.
Salespeople: Outside and auto-sales people are particular favorites. Agents look for, and often find, poorl documented travel expenses and padded promotional figures.
Airline Pilots: High incomes, a propensity to invest in questionable tax shelters, and commuting expenses claimed as business travel makes them an inviting prospects.
Flight Attendants: Travel expenses are usually a high percentage of their total income and often are not well documented. Some persist in trying to deduct pantyhose, permanents, cosmetics, and similar items that the cours have repeatedly rulded out as personal other then business expenses.
Executives: As a group they are not usually singled out. But if the retun includes a form 2106, showing a sizable sum for unreimbursed employee expenses, an audit is more likely. Anyone whose income is over $50,000 a year is usually under their microscope.
Teachers and College Professors: Agents pounce on returns claiming office at home deductions. they are also wary of educational expense deductions because they may turn out to be vacations in disquise.
Clergymen: Bona fide priests, ministers, and rabbis arent considered a problem group. Buf if w-2s show income from a nonchurch employers the irs will be on alert for mail order ministry scams.
Waitress and Cabdrivers: Anyone in an occupatin where you can earn tips are a significant factor is likely to get a closer look from the irs nowadays. Also, truly deceptive descriptions under their occupation can trigger penalties.
THE IRS'S HIT LIST
Doctors and dentists are high-priority targets for tax audit. These are the items the IRS looks for: Dubious promotional expenses. If the same four people take turns having lunch together once a week and take turns pickig up the tab, a close examination of diaries and log books will show this. Agents also take a close look at limited partnership investments, seeking signs of abusive tax shelters.
DEDUCTIBLE GAMBLING LOSSES
Gambling winnings are taxable and winnings over $600 are reported to the IRS.
1. State sales taxes. As part of the last-minute tax package last December, Congress resurrected the chance for taxpayers to deduct state and local sales taxes. Although all taxpayers have a shot at this write-off, it makes sense primarily for those who live in states that do not impose an income tax. You must choose between deducting state income taxes or state sales taxes and, for most citizens of income-tax states, the income-tax deduction is a better deal. You won't find this break mentioned on the tax forms, but here's how to claim this deduction: Enter your write-off on line 5 of Schedule A and write "ST" on the dotted line to the left of that line. IRS even has a one calculator on its Web site to help you figure the deduction, which varies by your state and income level.
2. $250 educators' expenses. This break, too, lost its place on the tax forms because it expired at the end of 2005 and wasn't reinstated until the 2006 forms were set. Still, teachers and their aides can deduct up to $250 they spent in 2006 for books and classroom supplies. If you qualify, put your deduction on line 23 of the Form 1040, the line now used for the Archer medical savings account (MSA) deduction, and write "E" on the dots to the left. If you also claim the MSA deduction, write "B" (for both) on the line and attach a breakdown of how much you're claiming for each. You get this deduction regardless of whether you itemize.
3. College tuition. You won't find this one on the forms, either, but you may qualify to deduct up to $4,000 you paid in college tuition in 2006 for yourself, your spouse or a dependent. This break can pay off if your income is too high to qualify to claim the Hope or Lifetime Learning credit. For 2006 returns, the deduction is taken on line 35 of the Form 1040, the line for the domestic production deduction. Write "T" to the left of that line. If you're claiming the production break, too, write "B" on the dotted line and attach a breakdown of how much you're claiming for each. You also get to claim this deduction regardless of whether you itemize.
4. Student loan interest paid by mom and dad. Until recently, if parents paid back a student loan incurred by their children, no one got a tax break. To get a deduction, the law held that you had to be both liable for the debt and actually pay it yourself. But now there's an exception. If mom and dad pay back the loan, IRS treats it as though they gave the money to their child, who then paid the debt. So, a child who's not claimed as a dependent can qualify to deduct up to $2,500 of student loan interest paid by mom and dad.
5. Out-of-pocket charitable contributions. It's hard to overlook the big charitable gifts you made during the year, by check or payroll deduction. But the little things add up, too, and you can write off out-of-pocket costs you incur while doing good works. Ingredients for casseroles you regularly prepare for a nonprofit organization's soup kitchen, for example, or the cost of stamps you buy for your school's fundraiser count as a charitable contribution. If you drove your car for charity in 2006, deduct 14 cents a mile, unless you were doing Hurricane Katrina relief work. In that case, you get 32 cents a mile.
6. Moving expense to take first job. Here's an interesting dichotomy: Job-hunting expenses incurred while looking for your first job are not deductible; but moving expenses to get to that first job are. And you get this write-off even if you don't itemize. If you moved more than 50 miles, you can deduct the cost of getting yourself and your household goods to the new area, including 18 cents a mile (and parking fees and tolls) for driving your own car.
7. Military reservists travel expenses. If you are a member of the National Guard or military reserve, you may deserve a deduction for travel expenses to drills or meetings. To qualify, you must travel more than 100 miles and be away from home overnight. If you qualify, you can deduct the cost of lodging and half the cost of your meals, plus 44.5 cents a mile (and any parking or toll fees) for driving your own car. You get this deduction regardless of whether you itemize.
8. Child-care credit. A credit is so much better than a deduction: It reduces your tax bill dollar for dollar. So missing one is even more painful than missing a deduction that simply reduces the amount of income that's subject to tax. But it's easy to overlook the child-care credit if you pay your child-care bills through a reimbursement account at work. Until a few years ago, the child-care credit applied to no more than $4,800 of qualifying expenses. And, the law allows you to run up to $5,000 of such expenses through a tax-favored reimbursement account at work. Now, however, up to $6,000 can qualify for the credit ... but the old $5,000 limit still applies to reimbursement accounts. So, if you run the maximum $5,000 through a plan at work, but spend more for work-related child care, you can claim the credit on up to an extra $1,000. That would cut your tax bill by at least $200.
9. Estate tax on income in respect of a decedent. This sounds complicated, but it can save you a lot of money if you inherited an IRA from someone whose estate was big enough to be subject to the federal estate tax. Basically, you get an income-tax deduction for the amount of estate tax paid on the IRA balance. Let's say you inherited a $100,000 IRA, and the fact that the $100,000 was included in your benefactor's estate added $45,000 to the estate tax bill. As you withdraw the money from the IRA and pay tax on it, you also get to deduct a proportional amount of the estate tax paid. If you withdraw $50,000 in one year, for example, you get to claim a $22,500 itemized deduction on Schedule A.
10. State tax you paid last spring. Did you owe tax when you filed your 2005 state tax return in the spring of 2006? Then remember to include that amount with your state-tax deduction on your 2006 return, along with state income taxes withheld from your paychecks or paid via quarterly estimated payments.
11. Refinancing points. When you buy a house, you get to deduct points paid to get your mortgage in one fell swoop. When you refinance a mortgage, though, you have to deduct the points over the life of the loan. That means 1/30th a year if it's a 30 year mortgage -- that's $33 a year for each $1,000 of points you paid. Not much, maybe, but don't throw it away. And, in the year you pay off the loan -- because you sell the house or refinance again -- you may get to deduct all as-yet-undeducted points. You do unless you refinance with the same lender. In that case, you add points on the latest deal to the leftovers from the previous refinancing and deduct the expense ratably over the life of the new loan.
12. Reinvested dividends. This isn't really a deduction, but it is a subtraction that can save you money ... and this is the break former IRS Commissioner Fred Goldberg told Kiplinger's that lots of taxpayers miss. If, like most investors, you have mutual fund dividends automatically invested in extra shares, remember that each reinvestment increases your "tax basis" in the fund. That, in turn, reduces the taxable capital gain (or increases the tax-saving loss) when you redeem shares. Forgetting to include the reinvested dividends in your basis -- which you subtract from the proceeds of sale to pinpoint your gain -- means overpaying your tax.
13. Jury pay paid to employer. Here's a break that's not as easy to miss this year as in the past: Jury pay you turned over to your employer. Some employers continue to pay employees' full salary while they are doing their civic duty but ask that they turn over their jury fees to the corporate treasury. The only problem is that the IRS demands that you report those fees as taxable income. You've always had a right to deduct the amount, so you weren't taxed on money that simply passed through your hands. But this is the first year the tax forms include a line dedicated to this deduction.
2. $250 educators' expenses. This break, too, lost its place on the tax forms because it expired at the end of 2005 and wasn't reinstated until the 2006 forms were set. Still, teachers and their aides can deduct up to $250 they spent in 2006 for books and classroom supplies. If you qualify, put your deduction on line 23 of the Form 1040, the line now used for the Archer medical savings account (MSA) deduction, and write "E" on the dots to the left. If you also claim the MSA deduction, write "B" (for both) on the line and attach a breakdown of how much you're claiming for each. You get this deduction regardless of whether you itemize.
3. College tuition. You won't find this one on the forms, either, but you may qualify to deduct up to $4,000 you paid in college tuition in 2006 for yourself, your spouse or a dependent. This break can pay off if your income is too high to qualify to claim the Hope or Lifetime Learning credit. For 2006 returns, the deduction is taken on line 35 of the Form 1040, the line for the domestic production deduction. Write "T" to the left of that line. If you're claiming the production break, too, write "B" on the dotted line and attach a breakdown of how much you're claiming for each. You also get to claim this deduction regardless of whether you itemize.
4. Student loan interest paid by mom and dad. Until recently, if parents paid back a student loan incurred by their children, no one got a tax break. To get a deduction, the law held that you had to be both liable for the debt and actually pay it yourself. But now there's an exception. If mom and dad pay back the loan, IRS treats it as though they gave the money to their child, who then paid the debt. So, a child who's not claimed as a dependent can qualify to deduct up to $2,500 of student loan interest paid by mom and dad.
5. Out-of-pocket charitable contributions. It's hard to overlook the big charitable gifts you made during the year, by check or payroll deduction. But the little things add up, too, and you can write off out-of-pocket costs you incur while doing good works. Ingredients for casseroles you regularly prepare for a nonprofit organization's soup kitchen, for example, or the cost of stamps you buy for your school's fundraiser count as a charitable contribution. If you drove your car for charity in 2006, deduct 14 cents a mile, unless you were doing Hurricane Katrina relief work. In that case, you get 32 cents a mile.
6. Moving expense to take first job. Here's an interesting dichotomy: Job-hunting expenses incurred while looking for your first job are not deductible; but moving expenses to get to that first job are. And you get this write-off even if you don't itemize. If you moved more than 50 miles, you can deduct the cost of getting yourself and your household goods to the new area, including 18 cents a mile (and parking fees and tolls) for driving your own car.
7. Military reservists travel expenses. If you are a member of the National Guard or military reserve, you may deserve a deduction for travel expenses to drills or meetings. To qualify, you must travel more than 100 miles and be away from home overnight. If you qualify, you can deduct the cost of lodging and half the cost of your meals, plus 44.5 cents a mile (and any parking or toll fees) for driving your own car. You get this deduction regardless of whether you itemize.
8. Child-care credit. A credit is so much better than a deduction: It reduces your tax bill dollar for dollar. So missing one is even more painful than missing a deduction that simply reduces the amount of income that's subject to tax. But it's easy to overlook the child-care credit if you pay your child-care bills through a reimbursement account at work. Until a few years ago, the child-care credit applied to no more than $4,800 of qualifying expenses. And, the law allows you to run up to $5,000 of such expenses through a tax-favored reimbursement account at work. Now, however, up to $6,000 can qualify for the credit ... but the old $5,000 limit still applies to reimbursement accounts. So, if you run the maximum $5,000 through a plan at work, but spend more for work-related child care, you can claim the credit on up to an extra $1,000. That would cut your tax bill by at least $200.
9. Estate tax on income in respect of a decedent. This sounds complicated, but it can save you a lot of money if you inherited an IRA from someone whose estate was big enough to be subject to the federal estate tax. Basically, you get an income-tax deduction for the amount of estate tax paid on the IRA balance. Let's say you inherited a $100,000 IRA, and the fact that the $100,000 was included in your benefactor's estate added $45,000 to the estate tax bill. As you withdraw the money from the IRA and pay tax on it, you also get to deduct a proportional amount of the estate tax paid. If you withdraw $50,000 in one year, for example, you get to claim a $22,500 itemized deduction on Schedule A.
10. State tax you paid last spring. Did you owe tax when you filed your 2005 state tax return in the spring of 2006? Then remember to include that amount with your state-tax deduction on your 2006 return, along with state income taxes withheld from your paychecks or paid via quarterly estimated payments.
11. Refinancing points. When you buy a house, you get to deduct points paid to get your mortgage in one fell swoop. When you refinance a mortgage, though, you have to deduct the points over the life of the loan. That means 1/30th a year if it's a 30 year mortgage -- that's $33 a year for each $1,000 of points you paid. Not much, maybe, but don't throw it away. And, in the year you pay off the loan -- because you sell the house or refinance again -- you may get to deduct all as-yet-undeducted points. You do unless you refinance with the same lender. In that case, you add points on the latest deal to the leftovers from the previous refinancing and deduct the expense ratably over the life of the new loan.
12. Reinvested dividends. This isn't really a deduction, but it is a subtraction that can save you money ... and this is the break former IRS Commissioner Fred Goldberg told Kiplinger's that lots of taxpayers miss. If, like most investors, you have mutual fund dividends automatically invested in extra shares, remember that each reinvestment increases your "tax basis" in the fund. That, in turn, reduces the taxable capital gain (or increases the tax-saving loss) when you redeem shares. Forgetting to include the reinvested dividends in your basis -- which you subtract from the proceeds of sale to pinpoint your gain -- means overpaying your tax.
13. Jury pay paid to employer. Here's a break that's not as easy to miss this year as in the past: Jury pay you turned over to your employer. Some employers continue to pay employees' full salary while they are doing their civic duty but ask that they turn over their jury fees to the corporate treasury. The only problem is that the IRS demands that you report those fees as taxable income. You've always had a right to deduct the amount, so you weren't taxed on money that simply passed through your hands. But this is the first year the tax forms include a line dedicated to this deduction.
Medical Bills? Make the most of it......
When it comes to taxes, even the smallest one adds up quick! The IRS has expanded the definition of deductible medical costs over the years. This is why it is important to plan ahead to take advantage of as many medical expenses as possible. We all have medical expenses, don't we?
Common medical expenses are costs of diagnosis, the treatment or prevention of a disease, or for affecting any structure or function the body. The key word here is specific, that the treatment must be specific not just for general health improvement.
So, for example, the IRS successfully denied taxpayers deductions for the cost of weight-control and stop-smoking classes that were designed to improve general health, not to treat a specific disease or ailment. On the other hand, a person with a health problem specifically related to being over weight such as high blood pressure would be allowed as a deduction.
The cost of a weight loss program spent to help keep a job is deductible. The IRS says it will allow any deduction a physician prescribes for the treatment of hypertension, obesity, or hearing problems.
This logic also applies to the cost of a swimming pool. If it is necessary for a person that has polio, then it is allowed. If you live on two floors, and due to a heart attack you install a elevator, the cost of the elevator would be considered a medical expense! Only the cost of it though.
Also generally deductible is the treatment of laetrile, medically unproven, however the IRS cannot make judgements in the medical field, so it is deductible.
Other deductibles : Birth control pills, condoms, face lifts, hair transplants, vasectomies, legal abortions, etc.
Common medical expenses are costs of diagnosis, the treatment or prevention of a disease, or for affecting any structure or function the body. The key word here is specific, that the treatment must be specific not just for general health improvement.
So, for example, the IRS successfully denied taxpayers deductions for the cost of weight-control and stop-smoking classes that were designed to improve general health, not to treat a specific disease or ailment. On the other hand, a person with a health problem specifically related to being over weight such as high blood pressure would be allowed as a deduction.
The cost of a weight loss program spent to help keep a job is deductible. The IRS says it will allow any deduction a physician prescribes for the treatment of hypertension, obesity, or hearing problems.
This logic also applies to the cost of a swimming pool. If it is necessary for a person that has polio, then it is allowed. If you live on two floors, and due to a heart attack you install a elevator, the cost of the elevator would be considered a medical expense! Only the cost of it though.
Also generally deductible is the treatment of laetrile, medically unproven, however the IRS cannot make judgements in the medical field, so it is deductible.
Other deductibles : Birth control pills, condoms, face lifts, hair transplants, vasectomies, legal abortions, etc.
INCOME TAXES
From having more dependents to buying a house, there are many legal ways to maximize your tax refund and plan ahead on next tax season! You may ask me anything related to income tax preparation as I am a Income Tax Guru, and I WILL POST THESE WAYS, IM JUST GETTING STARTED!
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