Monday, July 23, 2012

Renting Your Vacation Home


Income that you receive for the rental of your vacation home must generally be reported on your federal income tax return.
However, if you rent the property for only a short time each year, you may not be required to report the rental income.
The IRS offers these tips on reporting rental income from a vacation home such as a house, apartment, condominium, mobile home or boat:
Rental Income and Expenses  Rental income, as well as certain rental expenses that can be deducted, are normally reported on Schedule E, Supplemental Income and Loss.
Limitation on Vacation Home Rentals  When you use a vacation home as your residence and also rent it to others, you must divide the expenses between rental use and personal use, and you may not deduct the rental portion of the expenses in excess of the rental income.

You are considered to use the property as a residence if your personal use is more than 14 days, or more than 10% of the total days it is rented to others if that figure is greater. For example, if you live in your vacation home for 17 days and rent it 160 days during the year, the property is considered used as a residence and your deductible rental expenses would be limited to the amount of rental income.
Special Rule for Limited Rental Use  If you use a vacation home as a residence and rent it for fewer than 15 days per year, you do not have to report any of the rental income. Schedule A, Itemized Deductions, may be used to report regularly deductible personal expenses, such as qualified mortgage interest, property taxes, and casualty losses.
IRS Publication 527, Residential Rental Property (Including Rental of Vacation Homes), is available at IRS.gov or by calling 800-TAX-FORM (800-829-3676). The booklet offers more information about rental property, including special rules about personal use and how to report rental income and expenses.

Wednesday, July 18, 2012

Special Tax Benefits for Armed Forces Personnel


Military personnel and their families face unique life challenges with their duties, expenses and transitions. The IRS wants active members of the U.S. Armed Forces to be aware of all the special tax benefits that are available to them.
Here are 10 of those special tax benefits:
1. Moving Expenses If you are a member of the Armed Forces on active duty and you move because of a permanent change of station, you may be able to deduct some of your unreimbursed moving expenses.
2. Combat Pay If you serve in a combat zone as an enlisted person or as a warrant officer for any part of a month, all your military pay received for military service during that month is not taxable. For officers, the monthly exclusion is capped at the highest enlisted pay, plus any hostile fire or imminent danger pay received. You can also elect to include your nontaxable combat pay in your "earned income" for purposes of claiming the Earned Income Tax Credit.
3. Extension of Deadlines The deadline for filing tax returns, paying taxes, filing claims for refund, and taking other actions with the IRS is automatically extended for qualifying members of the military.
4. Uniform Cost and Upkeep If military regulations prohibit you from wearing certain uniforms when off duty, you can deduct the cost and upkeep of those uniforms, but you must reduce your expenses by any allowance or reimbursement you receive.
5. Joint Returns Generally, joint income tax returns must be signed by both spouses. However, when one spouse is unavailable due to military duty, a power of attorney may be used to file a joint return.
6. Travel to Reserve Duty If you are a member of the US Armed Forces Reserves, you can deduct unreimbursed travel expenses for traveling more than 100 miles away from home to perform your reserve duties.
7. ROTC Students Subsistence allowances paid to ROTC students participating in advanced training are not taxable. However, active duty pay – such as pay received during summer advanced camp – is taxable.
8. Transitioning Back to Civilian Life You may be able to deduct some costs you incur while looking for a new job. Expenses may include travel, resume preparation fees, and outplacement agency fees. Moving expenses may be deductible if your move is closely related to the start of work at a new job location, and you meet certain tests.
9. Tax Help Most military installations offer free tax filing and preparation assistance during and/or after the tax filing season.
10. Tax Information IRS Publication 3, Armed Forces’ Tax Guide, is an excellent resource as it summarizes many important military-related tax topics. Publication 3 can be downloaded from IRS.gov or may be ordered by calling 1-800-TAX-FORM (800-829-3676).

Friday, July 6, 2012

Keep the Child and Dependent Care Tax Credit in Mind for Summer Planning


During the summer many parents may be planning the time between school years for their children while they work or look for work. The IRS wants to remind taxpayers that are considering their summer agenda to keep in mind a tax credit that can help them offset some day camp expenses.
The Child and Dependent Care Tax Credit is available for expenses incurred during the summer and throughout the rest of the year. Here are six facts the IRS wants taxpayers to know about the credit:
1. Children must be under age 13 in order to qualify.
2. Taxpayers may qualify for the credit, whether the childcare provider is a sitter at home or a daycare facility outside the home.
3. You may use up to $3,000 of the unreimbursed expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals to figure the credit.
4. The credit can be up to 35 percent of qualifying expenses, depending on income.
5. Expenses for overnight camps or summer school/tutoring do not qualify.
6. Save receipts and paperwork as a reminder when filing your 2012 tax return. Remember to note the Employee Identification Number (EIN) of the camp as well as its location and the dates attended.
For more information check out IRS Publication 503, Child and Dependent Care Expenses. This publication is available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Tuesday, July 3, 2012

Obamacare: Seven New Taxes on Citizens Earning Less than $250,000
Robert Allen Bonelli
29 Jun 2012
While we were all debating the cost to our liberty due to the Patient
Protection and Affordable Care Act (Obamacare), we were ignoring the
cost to our pockets. There are twenty - yes, twenty - hidden new
taxes of this law. Making matters even more relevant is that seven of
these taxes are levied on all citizens regardless of income.
 The first, and best known, of these seven taxes that will hit all Americans as a result of Obamacare is the Individual Mandate Tax (no longer concealed as a penalty). This provision will require a couple
to pay the higher of a base tax of $1,360 per year, or 2.5% of adjusted growth income starting with lower base tax and rising to this level by 2016. Individuals will see a base tax of $695 and families a
base tax of $2,085 per year by 2016. Next up is the Medicine Cabinet Tax that took effect in 2011. This tax
prohibits reimbursement of expenses for over-the-counter medicine,  with the lone exception of insulin, from an employee’s pre-tax dollar funded Health Saving Account (HSA), Flexible Spending Account (FSA) or
Health Reimbursement Account (HRA). This provision hurts middle class earners particularly hard since they earn enough to actually pay federal taxes, but not enough to make this restriction negligible.
The Flexible Spending Account (FSA) Cap, which will begin in 2013, is perhaps the most hurtful provision to the middle class.. This part of the law imposes a cap of $2,500 per year (which is now unlimited) on
the amount of pre-tax dollars that could be deposited into these accounts. Why is this particularly hurtful to the middle class? It is because funds in these accounts may be used to pay for special needs
education for special needs children in the United States. Tuition rates for this type of special education can easily exceed $14,000 per year and the use of pre-tax dollars has helped many middle income
families. Another direct hit to the middle class is the Medical Itemized Deduction Hurdle which is currently 7.5% of adjusted gross income. This is the hurdle that must be met before medical expenses over that
hurdle can be taken as a deduction on federal income taxes. Obamacare raises this hurdle to 10% of adjusted gross income beginning in 2013. Consider the middle class family with $80,000 of adjusted gross income and $8,000 of medical expenses. Currently, that family can get some relief from being able to take a $2,000 deduction (7.5% X $80,000 = $6,000; $8,000 –$6,000 = $2,000). An increase to 10% would eliminate the deduction in this example and if that family was paying a 25% federal tax rate, the real cost of that lost deduction would be $500. The fifth new tax on the middle class, and all Americans, is the
Health Savings Account (HSA) Withdrawal Tax Hike. This provision  increases the additional tax on non-medical early withdrawals from an HSA from 10% currently to 20% beginning in 2013. This provision
actually sets these accounts apart from Investment Retirement Accounts (IRAs) and other tax advantaged accounts, all of which remain with a 10% early withdrawal tax. Another regressive tax that is part of this law began in 2010 and that is the Indoor Tanning Services Tax, which places a 10% excise tax on
people using tanning salons. While some may regard this as insignificant, the broader implication is that this act of taxation is a blatant move by the federal government to control the behavior of citizens.. This provision, as does the Individual Mandate and as Justice Kennedy said during the oral arguments on the constitutionality of the law said, “….fundamentally changes the relationship between the federal government and the citizen.” The seventh new tax that directly impacts the middle class, along with all citizens, is the Excise Tax on Comprehensive Health Insurance Plans or the “Cadillac” Health Insurance Plan Tax. These are plans that provide extensive coverage and that are generally fully paid for,  or largely paid for, by employers. This provision imposes a 40% excise tax on the employer-paid premium on taxpayers who are covered by such plans, beginning in 2018. The reason it begins in 2018 is because most  unionized workers are covered by plans that fall under this definition  and a deferral was made to spare union members from this tax for at least a period of time. There are thirteen other taxes that apply to businesses and that apply
to high income (over $250,000 per year) households. While these additional provisions will not impact the middle class directly, they can have serious indirect consequences for middle and low income earners. Beginning in 2014, the Employer Mandate Tax will impose an annual non-deductible tax on employers with more than 50 employees who do not provide health insurance for their employees. The impact of this provision on low and middle income earners, and really all working Americans, is that employers will be confronted with three choices. The first is provide some level of health  insurance, as many do today, and there would be no impact on employees. The second choice is to pay the penalty, which would most
likely be less expensive than providing health insurance, and force employees to seek their own health insurance or purchase it through federal government controlled state exchanges. Studies have estimated
that 20 million Americans will lose their employee funded health insurance as a result of this provision and employers electing this option. The third choice is for employers to lay off employees, or not
hire additional employees, because Obamacare forces them to either provide health insurance or pay the new tax. Another new tax, the Tax on Medical Device Manufacturers that begins in 2013, places a 2.3% excise tax on all items retailing for more than $100. This provision will not only drive up the cost of various
medical devices ranging from mobility assistance devices to personal testing supplies, but will also impact an industry that employs 360,000 people in 6,000 plants across our country. This tax, while not a direct tax, would have significant negative impact on the middle class. The Surtax on Investment Income for households earning $250,000 and more, beginning in 2013, will raise the Capital Gains Tax from 15% to 23.8% on investment income for these households and will raise Taxes on Dividends from 15% to 43.4% for the same households. Aside from the impact on retired citizens dependent on dividends, this provision will pull income from the private economy. In addition, the tax rate on Other Investment Income earned by Subchapter S Corporation (which many small business are organized as, allowing the owners to claim all business income as personal income) will rise from 35% to 43.4%. This part of the provision would place additional pressure on small businesses resulting in more layoffs and less hiring, impacting all American workers. All but one of the remaining new taxes in Obamacare are directed at health industry businesses and while they will not impact middle income families directly, the additional costs will most likely be passed on to the public. The last new tax is really interesting, it is a tax on certain biofuels! These are the facts. It does not matter if you support Mr. Obama and his new law or if you oppose it, the new taxes on the middle class or real and all Americans should understand their impact on their families and the economy.