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Wednesday, November 16, 2011

TAX PLANNING QUESTION: CAN I DEDUCT MILEAGE TO GAMES I REFEREE ??

By JC Leahy
Twitter@jc_leahy

JC Leahy
TAX QUESTION, FROM MIKE, IN BOWIE, MARYLAND:  As a paid sports referee, what  mileage can I deduct when traveling to referee a basket ball game? Can I count the mileage from home to game site and from the game site back to home?

ANSWER:  Mike, you are refereeing games as a regular, paid activity.  You are paid on a 1099-basis  You are, in fact, conducting a small business, and the basketball sites are, in fact, your client work sites.  I know from our conversations that there is no out-of-town overnight travel involved.   You drive from home to the basketball courts and back.

As a rule, when you use your personal automobile to drive to a business site, or between business sites, or to run business errands of any sort -- you are entitled to deduct  automobile costs at the IRS-designated mileage rate.  The exception to this rule is commuting.  Commuting is travel from home to and from a place of regular employment or business.  Commuting miles are personal expenses and are not tax deductible.  If you regularly referee at several athletic facilities and you drive from home, the mileage would probably be classified as nondeductible commuting. All other business mileage EXCEPT commuting is deductible.  This includes mileage for referee-related business errands of any kind as well as mileage for transportation between any business or client locations.

 One way to optimize your mileage deductions would be to have a tax-qualified home office for your referee business, and to engage in business related activities in your home office before and after each trip to an athletic facility.  That way, when you get in your car, you are not driving from/to HOME; you are driving from/to YOUR OFFICE -- to a game.  That's deductible.

For your home office to "qualify", it must be your "principle place of business."  Ever since the aftermath of the Solomon Case in the early 1990's, it has been much easier for a home office "qualify" as your principle place of business.  If any one of these 3 tests is true, your office is your principle place of business:

  1. The primary value of your business is delivered in the home office, or
  2. You regularly meet with customers or prospects in the home office, or
  3. The primary management or administration of your business is conducted in the home office.
Additionally, the home office must be used ONLY for your business, and not for ANY personal things.  And your home office must be physically separated from personal-use areas of your home, as by the walls of the room or by any sort of partition.  If you office meets any of the 3 use tests, is used only for business, and is physically separate, then the office "qualifies" as your as your principle-place-of-business tax-deductible home office

For documentation, you'll need a contemporaneous log of your mileage, and also some sort of written log or evidence about the before-and-after business use of your home office. 

Here's material for further reading:
Small Business Mileage Deductions

Any further questions, of course, let me know!


JC Leahy, MA Accounting

Sunday, November 13, 2011

GAMES THEY PLAY WITH SOCIAL SECURITY

Question by Bill of Silver Spring, Maryland
Answer by JC Leahy, MA Accounting
Twitter@jc_leahy

Question:
I am receiving Social Security retirement benefits, but I also have to work for extra money to make ends meet. I am a self employed full-time painting contractor. Business has been really tough these past couple of years.  Last year, despite my full-time efforts, I made a net of zero at the painting business. This year, so far I have a net $70,000. This income won't reduce my monthly Social Security check, will it?

Answer:
Bill, Congress has made our Social Security benefits into an unfortunate shell game. I won't tax your interest with all the details -- but here are the scraps that relate to your specific retirement planning question.

If you work after you start to receive Social Security benefits, your Social Security benefits may be reduced because of  your employment or self-employment income. This only affects you if you are receiving early Social Security retirement benefits. If you have reached your "full" retirement age, your benefits are NOT reduced as a result of other income. Early retirement age is 62. Your full retirement age depends on how young you are..

To determine your full retirement age according to the SSA, look for your birth year in this list
• 1937 or earlier: 65
• 1938: 65 + 2 months
• 1939: 65 + 4 months
• 1940: 65 + 6 months
• 1941: 65 + 8 months
• 1942: 65 + 10 months
• 1943-1954: 66
• 1955: 66 + 2 months
• 1956: 66 + 4 months
• 1957: 66 + 6 months
• 1958: 66 + 8 months
• 1959: 66 + 10 months
• 1960 or later: 67

For example, Bill, based on the above table your full retirement age is 65 years and 2 months because you were born in 1938. Your current age is 71. Since you are older than your full-benefits retirement age, your Social Security benefit will NOT be reduced because of your self employment earnings.

If you were, say 62, not only would you get a reduced Social Security benefit, but that reduced benefit would be FURTHER reduced by $1 for every $2 of income you made in excess of $14,160 annually. So, if you had a net of $70,000 from your painting business, your Social Security benefit would be reduced by ($70,000 - $14160) x 0.5 = $27,920 REDUCTION. In your case, Bill, $27,920 subtracted from your annual Social Security benefit would leave you a remaining Social Security retirement monthly check of approximately zero. It's a lucky thing they don't count negative numbers in that calculation, because if they did, Congress would want YOU to send THEM a check!! LOL!!!


Oh! Wait a minute!!  Au sérieux!  You might actually have to send Congress a check -- even if you ARE over the full retirement age. No kidding!!  Here's how it works. If you earn wages, salary, self employment income or any other kind of income while you are receiving Social Security -- Uncle Sam may want you to send some of that Social Security money back in the form of income tax .

Paying income tax on Social Security retirement benefits DOES seem unfair. After all, every payday for your entire working life you paid FULL Federal income tax, state income tax, and various payroll taxes on EVERY DIME of Social Security once already. To tax you again when you take the money back out of Social Security is to tax you TWICE!!!! But that's the way the system works. Originally, back in the New Deal era, all Social Security retirement benefits were exempt from this double-taxation but Congress just couldn't resist the temptation to change that.  You might call this the Raw Deal. 

It's definitley a bad investment.  Experts often say that your investment in Social Security is one of the least attractive investments you will ever make -- and when you delve into the details, it's not hard to see why.

So it's good-news and bad news for you, Bill. You are old enough so that your monthly Social Security check will not be reduced. You will, however, face double-taxation of some of your Social Security benefits.

I hope this helps. If you need more information, give me a call or enter a "comment" below.

(Question to young folks: So you think your Roth IRA benefits are going to be tax-free when you retire? Hmmmm....)

Sunday, November 6, 2011

How to Obtain a Transcript of your Federal Income Tax Return

By JC Leahy,  MA, Accounting
Twitter@JC_Leahy

In this case, the transcript was required the Department of Homeland Security U.S. Citizenship and Immigration Services. My client had filed a Petition to Remove Conditions on Residence (Form I-751) for his wife. The Immigration Service was demanding that he show proof that his marriage was not a sham "entered into in order to evade U.S. Immigration laws." Immigration demanded an "official transcript" from the IRS of one or more joint income tax returns.

His question for me was: "What the heck is a tax return official transcript and how can I get one." An official transcript from the IRS can be obtained free by filing a Form 4506-T, Request for Transcript of Tax Return.. It's a free service. Form 4506-T is pretty straightforward. Just make sure you tell them on line 6 what form you want a copy of.  Be sure, also, to tell them on line 8 which years' tax returns you want. Here's a link to print a copy of Form 4506-T with instructions:

DOWNLOAD FORM 4506-T, REQUEST FOR TRANSCRIPT OF TAX RETURN


The problem with using Form 4506-T is that is takes considerable time to process.  You can speed up the process by using the telephone.  Simply call the IRS at 800-908-9946 and make your request verbally.  If you are near a FAX machine, they will FAX you your transcript while you wait.  In that case, be sure not to call them on the same phone line that the FAX uses.

There is a very similar form in case you need a copy of a tax return with all it's attachments. This if Form 4506 "Request for Copy of Tax Return". It sounds similar, and the form is very similar, but this one costs you a fee of $57 per tax return. A complete copy will show the details of all the attachments to your tax return while a transcript does not. Here's a link to print a copy of Form 4506-T with instructions:

DOWNLOAD FORM 4506, REQUEST FOR COPY OF TAX RETURN

There are all sorts of reasons why you might need a copy of your tax return or even an "official transcript."  For example, mortgage loan applications, job applications, security clearance applications.  You might want to bookmark this article, just for future reference.

Comments or questions? Enter them as a "comment" to this article.

ADDENDUM:

District of Columbia Tax Contact Telephone Numbers
Maryland Tax Contact Telephone Numbers
Pennsylvania Tax Contact Telephone Numbers
Virginia Tax Contact Telephone Numbers

Contact Data:
JC Leahy,  MA, Accounting
JC Leahy and Company, LLC
dba Maximul Legal Refund (TM)
Income Tax Help When You Need It! (TM)
Silver Spring, Maryland
Tel. (301)537-5365
E-Mail jcleahy@taxhelpwhenyouneedit.com

TAX PLANNING: RAFFLE AND CONTEST TICKETS AS TAX DEDUCTIONS

By JC Leahy
TaxHelpWhenYouNeedIt.com
Income Tax Preparation & Consulting
jcleahy@taxhelpwhenyouneedit.com

If I buy raffle tickets from a charitable or educational organization, how much is deductible on my income tax return?  For example, what if I buy a raffle ticket from my child's school?  How much of that is deductible as a charitable contribution?

The general rule is that if you give something to a tax exempt organization and receive something in return, you must subtract the value of what you received, to determine the amount of your charitable contribution. For example, if you give a charity $10 for a box of candy which normally sells for $8, then only $2 is deductible as a charitable contribution: $10 minus $8.  In the case of a raffle ticket, when you buy the ticket, you get something in return - a chance to win the prize. In the IRS's eyes, the value of the CHANCE to win the prize is always WORTH THE  PRICE  you pay for the raffle ticket; therefore, NOTHING  is deductible. So if you buy a $10 raffle ticket from you child's school, zero is deductible: $10 minus $10 equals zero.

The exception occurs if you pay money to a tax exempt organization and then get a raffle ticket free. For example, you might pay $200 regular annual dues to a tax exempt organization and the organization might send you a raffle ticket free of charge. Since you paid nothing for the raffle ticket, EVERYTHING you paid to the charitable organization is deductible. In the example, the full $200 is deductible.

So the answer is:  Everything, nothing, or somewhere-in-between, depending on the situation..