BITS & PIECES OF TAX NEWS
AND OTHER ITEMS of INTEREST
ADA TAX PROFESSIONALS 9140 Ustick Road Boise ID 83704 377-4303
What is TAXABLE INCOME?
We often find that our clients are confused about what income is reportable and/or taxable. Many believe if they do not receive an official statement from the payer, i.e., a W-2 or 1099, that the income is not reportable. All income regardless of the amount is taxable unless specifically excluded by law. Income can be in the form of cash or anything else of value --- bartered services or goods, or cancelled or forgiven debt. The good news is that sometimes there are write-offs against the income or it is excludable under specific provisions of the law.
Examples of taxable income:
Employer payments, tips, other benefits
Money received (including “under the table”) for services performed or goods sold
VA disability payments (in certain circumstances)
Recoveries of previously deducted amounts
Foster care payments (only under certain circumstances)
Gambling winnings, prizes, awards
Gifts and inheritances (only under certain circumstances)
Insurance claims and lawsuits in many situations
Life insurance (rarely, but sometimes)
Fiduciary Fees, Director’s Fees
Scholarships if not spent on qualified expenses
Profits on the sale of property, stock
Rent of property, including a part of your home
Investment earnings: interest, dividends, royalties
Examples of excludable income:
Rents from your principal residence or 2nd home, if less than 15 days per year
Sale of principal residence, if the sale meets the exclusion requirements
Free rent if for the convenience of the employer
Life insurance, if because of the death of the insured
Scholarships, if they qualify
VA disability payments, if not based on years of service
Prizes and awards if selected without any action on the taxpayer’s part
Canceled debt in a Title 11 bankruptcy (may adjust basis)
We welcome Yvonne Cegnar, our new year-around receptionist!
Check out our website at adataxpros.com for helpful links to federal and local government sites and to read our current and past newsletters. Also, our Questionnaires and Appointment Checklists can be downloaded from our website. In addition, you will be able to check on the status of your tax refund.
N O T E S F O R O U R S E N I O R S
After retirement, or when planning for it, many of our clients have questions about the taxability of Social Security, how retirement distributions and investment sales affect their taxes, and even if they need to file a tax return at all. Below are guidelines regarding some issues that may be of interest to you or your parents. An IRS publication entitled "Older Americans' Tax Guide" (Pub 554) covers various topics applicable to seniors, and is available at irs.gov.
The filing requirement for 2006 for a single person over age 65 is $9,700. For a married couple filing joint with one over 65, the filing requirement is $17,900; with both over age 65, $18,900. This takes into account a higher standard deduction for those aged 65 and older. Note: Social Security benefits are not a part of this equation.
Earned Income Credit (EIC)
If you work, and if you are low income and still under age 65 at the end of the year, you may qualify for EIC. If your income, not including Social Security, is under $11,750 ($13,750 if married filing joint) you may qualify.
If you are working, your wages are subject to withholding for income tax and Social Security/Medicare tax even if you are receiving Social Security benefits. Also, you may choose to have income tax withheld from your Social Security benefit payments.
Gain from the sale of investments, as well as interest and dividends earned, may be taxed at a lower Capital Gains tax rate. Even if you do not meet the filing requirement for the year, if you have sales of stocks or mutual funds it is highly recommended that you report such sales by filing a tax return. You may have losses to carry forward or need to prove the gain to IRS.
To determine whether any of your Social Security benefits may be taxable, compare the base amount
($32,000 MFJ or $25,000 for other filing statuses) to the total of:
½ of your benefits, plus your other income, including tax- exempt interest.
If part of your benefits is taxable, how much is taxable depends on several factors. Generally, 50% of your benefits will be taxed if the calculation above is over the base amount but under $44,000 MFJ or $34,000 for other filing statuses; above these amounts, up to 85% of your benefits may be taxed.
Idaho Grocery Credit & Telephone Tax Credit
If you do not meet the filing requirement, you do not need to file a tax return in order to receive Idaho's Grocery Credit. Instead, you may file Idaho Form 24. For those age 65 and older, the grocery credit is $35 per person. If you are not required to file a 1040 this year, there is also a form for receiving the new credit for long-distance taxes paid in past years; give us a call.
These include insurance premiums, including certain long-term care insurance and Medicare premiums, as well as most expenses for doctors, hospitals, prescriptions, dental and vision care, etc. Nursing home expenses are deductible in certain cases. Reasonable costs to accommodate a home to a person's disabled condition may be considered deductible medical costs. Transportation costs, including miles to medical appointments (deduction = 22 cents a mile), also may be deductible. Check with us if you think itemizing may be advantageous and if you have questions about medical expenses that can be included.
There are many other tax issues for older taxpayers, but these are some that we thought would be helpful for our clients. Please feel free to call us if you have additional questions.
Major breakthrough in plastic recycling! Plastic containers including lids with recycle codes 1-7 are now recyclable in the blue bins. This includes cottage cheese containers and prescription drug containers and much more.
So – You want to be a corporation!
Are you ready to …..
See an attorney
Properly capitalize your company (leave money in it)
Write and follow the bylaws
Have meetings and record minutes
Do double entry bookkeeping
Have payroll and file quarterly payroll reports
Creating a corporation can have advantages --- like being president of a company and having liability protection. You are creating another entity that is separate from yourself. This is what gives you personal liability protection. But you need to be prepared to treat your business like a different entity to keep someone from piercing that corporate shell. Activities like paying for personal expenses out of the corporate account or transferring money back and forth are indicators that your corporation is not a separate entity.
A NEW CORPORATION!
Gribskov, Inc. dba (doing business as) Ada Tax Professionals
What does this mean? It just means that Elke and her husband David created a corporation.
Instead of Elke Gribskov, dba Ada Tax Professionals, the new corporation is Gribskov,
Inc., with Elke as President. Our business name remains the same, Ada Tax Professionals.
corporation has shareholders, directors, officers and employees with different functions --- even if they are all the same two people! The duties must be kept separate and decisions made at separate meetings. The incorporating papers and bylaws regulate the corporation, and minutes are crucial. There are a lot of ramifications (legal, financial, recordkeeping and tax) to incorporating, and it should not be done lightly. ALWAYS check with your tax practitioner and attorney if you are considering forming a new corporation or partnership
.Ustick Road Widening ---The Continuing Saga!
When is construction starting? How is our access and parking affected? The construction is slated to start February 5, but the contracts aren’t awarded yet! When construction begins they will first need to move utilities, tear down a few homes, trees, fences, etc. It appears likely that we will make it through all or most of the tax season before the road is actually cut. We are close to acquiring the neighboring property as an answer to the parking issue. It will be an adventure! Meanwhile, watch for parking opportunities in front of our building and the one east of us.
BEGINNING JANUARY 29, WE WILL BE OPEN FROM 8:30-6:30 m-th, 8:30-6:00 FRI, & 10:00-2:00 SAT.
NO SUBSTANTIATION = NO DEDUCTION!
Beginning in 2007, all cash donations must have written documentation
with the charity’s name, date and amount of donation. Diaries, notes, or personal check registers will no longer be enough.
The IRS says you now need your bank record or written communication from the charity. Cancelled checks, bank or credit card statement and payroll stubs are acceptable.
Noncash donations of clothing and household items must be in "good condition or better." Household items include furniture, furnishings, electronics, and appliances. No deduction for worn out and broken items. You may want to take pictures to verify condition. These new rules become effective for most of our clients beginning in 2007. The old substantiation rules are still in effect. Cash gifts of $250 or more need a written receipt from the charity. Noncash charitable donations exceeding $500 requires filing form 8283 with your tax return. Donations of vehicles, boats and airplanes require a 1098-C from the charity.
DON'T LET THESE RULES DISCOURAGE YOU! These are still some of the best deductions out there!
Residential Energy Credits
You may be able to take a new energy credit on your 2006 tax return
. This credit is for making the following improvements to your main home, or purchasing qualified energy property:
A) Qualified insulation systems
that reduce heat gain or loss, exterior windows or doors, and metal roofs.
B) Qualified air circulating fans, hot water boilers, water heaters, heat pumps, central air conditioners, and furnaces.
C) Qualified solar panels, solar water heating equipment, and fuel cell power plants.
Of course they could not make this credit straightforward or simple! There are limits:
The credit for property in the above A list is limited to 10% of the cost. The credit for property in the above B list is limited to between $50 and $300 for each item. The total credit for property in the A and B lists combined is limited to $500, but only $200 can be for windows. For property in the above C list, the limit is 30% of the cost, but a maximum of $2000 for solar panels and solar water heating systems. Fuel cell power plants are limited by a maximum credit of $500 for each .5 kilowatt of capacity.
Solar systems cannot be used to heat a pool or hot tub. Leave it to the IRS to take all the fun out of everything! :-)
Visit www.energystar.gov for a helpful chart of qualifying property.
Spotlight… on AMY
Amy Young, our capable receptionist and newest tax preparer, will be back for her third tax season. Though she is quick to say that her first and foremost role is that of mom and wife, she has been a great asset here at Ada Tax Professionals. Her "words to live by" are "Invest in people, not things,"
and she has demonstrated her philosophy in her work environment as well as with her family. Amy comes from Flagstaff, Arizona, and also lived in Minnesota, which is evident in her speech! She came to Boise with her husband
, Blain, and two girls, Bekah and Tori, about 10 years ago. Her family has a dog named Taxi. In addition to her high school education in Arizona, she took art and architecture classes at Northern Arizona University, and has had tax education as well. She is especially interested in areas of the tax law that help people invest in themselves, like the Savers' Credit.
Quilting and reading are Amy's hobbies….she loves reading kids' books with Bekah and enjoys humor (Dave Berry!) and biographies (her recent favorite is by Christopher Reeves).
Amy's husband is a contractor, and is interested in travel. One of Amy's life goals is to travel through Russia with Blain. She would also like to help her daughter Tori (who is a wonderful artist) to reach her goal of starting a remodeling business one day
, as well as encouraging Bekah, an animal lover, to start a veterinary clinic.