I needed continuing legal eduction credits before year end and took a tax seminar. Some of what I learned:
--It probably is common sense, but you can't avoid taking deductions to avoid paying AMT. (But you can methodically time your deductions) You also will get tagged for playing the game of way overpaying your state taxes in order to deduct them in one year and then add them back in the next year. (I have never been that clever).
--A number of people apparently are getting clever about making sure they get enough quarters of work to be eligible for social security. For example, one spouse might not have worked much over the years. That spouse may become self employed and try to earn about $4000 a year, to be eligible for 4 quarters of coverage that year. The SSA is getting suspicious about some of this supposed self employment because it has discovered some people are making up income to get social security elibility.
--For those of you that use cars partly for business and either deduct mileage at the current IRS rates or are reimbursed from your employer, there is another related deduction you can take. You might be able to deduct a loss on the vehicle when you eventually sell it. The loss can only be for the business use portion of the use of the vehicle, and you have to reduce part of the loss for depreciation that is taken into account in the IRS mileage rates. For example, say your basis in a car is $30,000. You drove it 100,000 miles. Half was for business use. You sell it for $4000. Say the depreciation from the IRS tables is $5000 (roughly 5% of the basis). The loss is $15,000 less $5000 less $2000, for a loss of $8000. This loss is not subject to any AGI limitation. No schdule A is required. Only form 4797.
--The speaker was of the opinion that if you have a health savings account, let the money accumulate and use other money to pay your medical bills.
--Kids, don't forget that you may be able to deduct your moving expenses when moving from college to your first job.
--AMT addbacks are more complicated than most think. For example, interest on home equity lines may be deductible for regular taxes, but will not be for AMT if money isn't used to acquire or improve your home. But, if you used the money for investment purposes, you might be able to deduct the interest as investment interest. Say you bought a condo for investment. If you stay in the condo a few days, it no longer is held for investment and you can't deduct the interest. Gets complicated because so many rules are different for AMT than for regular tax. Deduct interest on a RV used as a second home? If you use the RV at all for transportation, you can't deduct the interest under the AMT set of rules. Park it for a year? Can deduct the interest. We spent half the day on AMT. Sillyness.
--Big audit area of late are passive activities. If you have rental income/partnership income, you might want to read the IRS audit guide on passive losses. You can get it from http://www.irs.gov/businesses/small/article/0,,id=146318,00.html
--The IRS has said it will for sure audit returns where the primary shareholder of an S Corporation claims $0 salary. It is on the march to stop people from claiming income is dividend income rather than income which is really from services. A reasonable salary is required. Currently, the unwritten rule is that if a shareholder is paid at least $90,000 in salary, the IRS isn't worried about whether the owner should be paid more than that as a reasonable salary.
--It probably is common sense, but you can't avoid taking deductions to avoid paying AMT. (But you can methodically time your deductions) You also will get tagged for playing the game of way overpaying your state taxes in order to deduct them in one year and then add them back in the next year. (I have never been that clever).
--A number of people apparently are getting clever about making sure they get enough quarters of work to be eligible for social security. For example, one spouse might not have worked much over the years. That spouse may become self employed and try to earn about $4000 a year, to be eligible for 4 quarters of coverage that year. The SSA is getting suspicious about some of this supposed self employment because it has discovered some people are making up income to get social security elibility.
--For those of you that use cars partly for business and either deduct mileage at the current IRS rates or are reimbursed from your employer, there is another related deduction you can take. You might be able to deduct a loss on the vehicle when you eventually sell it. The loss can only be for the business use portion of the use of the vehicle, and you have to reduce part of the loss for depreciation that is taken into account in the IRS mileage rates. For example, say your basis in a car is $30,000. You drove it 100,000 miles. Half was for business use. You sell it for $4000. Say the depreciation from the IRS tables is $5000 (roughly 5% of the basis). The loss is $15,000 less $5000 less $2000, for a loss of $8000. This loss is not subject to any AGI limitation. No schdule A is required. Only form 4797.
--The speaker was of the opinion that if you have a health savings account, let the money accumulate and use other money to pay your medical bills.
--Kids, don't forget that you may be able to deduct your moving expenses when moving from college to your first job.
--AMT addbacks are more complicated than most think. For example, interest on home equity lines may be deductible for regular taxes, but will not be for AMT if money isn't used to acquire or improve your home. But, if you used the money for investment purposes, you might be able to deduct the interest as investment interest. Say you bought a condo for investment. If you stay in the condo a few days, it no longer is held for investment and you can't deduct the interest. Gets complicated because so many rules are different for AMT than for regular tax. Deduct interest on a RV used as a second home? If you use the RV at all for transportation, you can't deduct the interest under the AMT set of rules. Park it for a year? Can deduct the interest. We spent half the day on AMT. Sillyness.
--Big audit area of late are passive activities. If you have rental income/partnership income, you might want to read the IRS audit guide on passive losses. You can get it from http://www.irs.gov/businesses/small/article/0,,id=146318,00.html
--The IRS has said it will for sure audit returns where the primary shareholder of an S Corporation claims $0 salary. It is on the march to stop people from claiming income is dividend income rather than income which is really from services. A reasonable salary is required. Currently, the unwritten rule is that if a shareholder is paid at least $90,000 in salary, the IRS isn't worried about whether the owner should be paid more than that as a reasonable salary.
