2002 TAX GUIDE UPDATES
ARCHIVE The
material presented in our archive is for informational purposes
only. TTS has no control over content on web sites that may have
links within this archive.
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1:
Page 2 - New in 2002:
Health care tax credit - Workers who lose their jobs as a result of trade agreements can claim a 65% refundable tax credit for premiums to continue their health insurance coverage. This includes COBRA and state-sponsored insurance programs. Use Form 8885. This law is part of the Trade Act of 2002.
Free tax preparation for low incomers - The IRS is working with firms who prepare tax returns to offer free tax preparation and electronic filing for low incomers. Low income has not yet been defined but this will apply for 2002 returns.
Home Sale Relief for 9-11 Attack - If a house had to be sold due to physical damage or the owner or other resident was killed or lost or changed jobs due to the terrorist attack of September 11th and they had not lived in the home 2 out of the 5 years prior to the sale, capital gains can still be excluded. It will be in a reduced amount from the $250,000 for singles, $500,000 for marrieds. To determine the allowable gain, multiply $250,000 or $500,000 (whichever is applicable) by the proportion of the two years the house was used as their principal residence.
On 2002 returns, individuals will not have to file
Schedule B, Interest and Ordinary Dividends, unless their interest and dividends total $1500 or higher. If they have interest in any amount in a foreign account or trust, the schedule will still have to be filed.
IR-2002-102
Buyers of GAS/ELECTRIC HYBRID CARS
- This deduction is not limited to cars used for business. Cars used personally (the "family" car) also qualify.
Social Security Wage Base
- If you overpaid your social security tax this year, you should file for a credit on your income tax return. Enter the credit on Form 1040, line 65 or Form 1040A, line 43.
Page 3 - Interesting Court Cases:
A law school librarian went back to school for a law degree. She deducted her education costs as a business expense saying it aided her current job at the library. The Tax Court did not allow the deduction saying it qualified her for a new profession.
Stephen Galligan, et ux, TC Memo 2002-150
A music teacher deducted the room where he gave lessons in his home. The IRS said it was not used exclusively for his sideline business. It also contained a sofa bed, closet and personal belongings. 75% of the room was used exclusively - equipped with sound equipment, speakers, tapes, a keyboard and computer, therefore, that portion of the room was allowed for the deduction.
Jack C. C. Huang, TC Summary Opinion 2002-93
A pilot who left the military was employed as a commercial pilot. He was required to take a training course for flying the type of plane the airline used. He deducted it as an education expense. The IRS Disallowed the deduction saying it qualified him for a "first job." The Tax Court ruled since the training was required for all the pilots working for the airline, the expense qualified as an employee business expense.
Jon R. Echer, TC Summary Opinion 2002-44
A rental had a leak in the roof and rather than repairing it, the owner replaced the roof, deducting it as a repair. The IRS said it was an improvement and had to be depreciated. The Tax Court ruled since the purpose was to repair the leak, it did not "improve" the home and allowed the deduction.
Nevia Campbell, TC Summary Opinion 2002-117
Page 4 - IRS:
If you can't pay your taxes,
the IRS has an installment plan where you can pay them over the
next three years. There is a set-up fee of $43 plus interest and
penalty per month on the balance unpaid. If you owe less than
$10,000 and haven't defaulted on IRS payments in the past, you may
be eligible. This could cost less than charging it on your credit
card or taking out a loan.
The penalty for not filing is 5% per month up to 25%. If
you file on time, the late payment fee is .5% per month and is
reduced to .25% if you pay through the installment plan.
New free electronic filing for your 2002 tax return. The
IRS Free File program is available to 60% of all taxpayers. To
find out if you're eligible, go to www.irs.gov and click on Free
File.
If your tax return underreports the tax you owe, the IRS may apply
a 20% penalty. To avoid this, they require "adequate disclosure"
regarding the deduction. The IRS has published rules defining
"adequate disclosure."
New filing addresses for the following states: Arizona,
Idaho, Indiana, Kentucky, Louisiana, Maine, Mississippi, Nebraska,
New Jersey, New Hampshire, North Dakota, Ohio, Oklahoma, South
Dakota, Vermont and Washington. You can get the correct address at
www.irs.gov in "The Newsroom." A return sent to the wrong address
may be delayed or lost.
Don't forget, you can get a four month filing extension by
using Form 4868. Taxes are still due, so be sure to make a tax
payment to cover any shortfall.
Most forms and publications can be printed from the IRS website,
www.irs.gov.
IRS Audits - The IRS will return to random audits on individual tax returns this year.
The IRS and You
- Be sure if you use an IRS approved carrier at a store location such as
Mail Boxes Etc., that you know when they will actually ship. A taxpayer dropped off a Tax Court petition utilizing UPS' next day air at
Mail Boxes Etc. but they didn't get it to UPS until the following day, causing the taxpayer to miss the deadline and the IRS ruled it was filed late.
Richard M. Schafer, TC Summ Op 2002-119.
Two new toll-free phone
numbers:
1-800-829-4933 - This is for small businesses for information or assistance with tax returns. 1-800-829-1954 - This is for individuals inquiring on their expected current year tax refund.
IRS Web Page - A new IRS web page covering estate and gift tax rules as well as recent tax law changes is found at
www.irs.gov.
Type "estate and gift tax" in the Search window.
Page 6:
Alternative Minimum Tax Trigger
- Too many employee business expenses (deductible if exceeds 2% of
adjusted gross income for regular tax) can set off alternative
minimum tax.
Adoption Expense Credit - A tax credit for a foreign
adoption cannot be taken until the adoption is final.
Page 7 - Capital Gains:
A university professor's hiring agreement stated that the rights to any inventions he made while in their employ would be turned over to the college. The school paid him royalties for an invention he patented. The IRS ruled that patent royalties are taxed as capital gains because they were in addition to his university salary and the amount of the payment was determined by what the school earned from licensing the patent.
Page 8 - Capital Gains - Principal residence:
Home sales that occur before two years can get a partial exclusion
if the move is due to job changes that add fifty miles to the
commute, health issues (like multiple births or moving nearer to a
health care facility) or circumstances such as divorce. These
rules are retroactive. See IRS Pub 523, Selling Your Home.
Page 9 - Divorce:
A couple's divorce decree stated that if the ex-husband paid alimony in a timely manner and if his ex-wife was alive and not remarried after a specified amount of time, he could pay the remainder of his alimony in a lump sum. He chose to use that option. Although the divorce decree did not state the payment was tax-free, the IRS has ruled a lump sum payment of alimony is tax deductible to the ex-husband, the payer, and taxable to the ex-wife, the recipient.
Page 10 - Educational Tax Credits:
The IRS has ruled if a parent waives their dependency election for their student/child, the student can claim an education credit. Therefore, if your adjusted gross income exceeds the maximum amount to take the credit, you should consider this to allow the student to receive the benefit of the credit.
Note: The student must have offsetting income in order to
claim an education credit.
The IRS says students can claim education tax credits if their
parents do not claim them as personal exemptions. This even
applies if the parents paid the student's tuition. The student
must have offsetting tax liability and can't claim a personal
exemption on their own return.
Page
11 - Home Offices - For the Employee:
Be sure if you are an employee claiming a home office deduction,
you can prove it is for your employer's convenience. Have your
employer write a detailed letter why it is necessary for you to
maintain an office at home for their convenience.
If you claim a home office
deduction, verify it with pictures. You may not need the
photographs now, but if you are audited two or three years after
you last use the office (or move from that home), they will come
in handy.
Page 17 - Tax Alert:
Make sure your social security number is correct on your W-2 sent with your tax return. If incorrect, it will be ruled "not a
processible form." Your refund will be held and will not accrue interest while it is held.
Page 18 - Withholding the correct amount:
Did you refinance your mortgage this year? If your payment is lower, your interest is probably lower and this could result in a higher tax bill.
Page 19 - Retirement Plans:
The IRS can make hardship exceptions to the 60-day rollover rule
for distributions from a retirement plan in the case of a disaster
or an event beyond the control of the taxpayer.
Page 21:
Minimal distribution age for 403(b), 401(k) and other qualified retirement plans begins at 70½
unless you are still employed. This does not apply to IRA's.
401(k) Cash or Deferred Plans
- The IRS has ruled that an employer who allowed workers to exchange unused sick leave for a payin to their 401(k) plan
and did not give them a cash option, these payins are tax-free. No income, Social Security and Medicare tax is required.
Page 22
- Roth IRA:
If you closed out your Roth IRA due to the falling stock market,
the loss may be taken as a miscellaneous deduction subject to the
2% of adjusted gross income rule. You must close out all your Roth
IRA accounts to claim it.
Page 23 - Section 529 Plans:
Has your Section 529 Plan taken a loss with the downturn of the
stock market? The IRS has not made a formal ruling on how to deal
with losses, but preliminary advice says they fall under Section
165. This would allow you to close the account without a penalty
and deduct the loss as a miscellaneous itemized deduction
exceeding 2% of your adjusted gross income. As with any
investment, wait 60 days before opening a new account or the IRS
could disallow your deduction.
The IRS has determined that you can
deduct losses in 529 plans for college savings. If you close out
an account due to losses in the stock market, you can treat the
loss as an itemized deduction.
If the deduction doesn't help, open a new account in the same
child's name or a sibling (or grandchild) within 60 days of
closing the old one. It will be treated as a tax-free rollover.
Page
25:
If you are an employee of a university which offers reduced tuition for graduate school classes, it is not considered a tax-free fringe benefit by the IRS and the $5250 exclusion for employer-paid education does not apply. Reduced tuition for undergraduate courses is excludable.
Page 30 - Medical & Dental Deductions:
In Publication 502, the IRS states that health club memberships can not be treated as a medical expense, even if used to treat obesity and required by a physician.
A disabled person and his mentally and physically impaired son were recommended by their doctors to swim for therapy. They built a pool and deducted its maintenance as a medical expense. The IRS rejected the deduction but the Tax Court determined the pool was prescribed by their physicians and was not used by rest of the family for recreation, therefore the maintenance costs are deductible as a medical expense.
Robert Emanuel, TC Summ Op 2002-127.
Now that Claritin is available over the counter, it cannot be
deducted as a medical expense nor can it be reimbursed from a
flexible spending account.
Medical expenses paid for a
surrogate mother are not deductible unless the surrogate qualifies
as a dependent of the taxpayer. Legal fees are also not
deductible.
Page 34 - Charitable Contributions:
In Rev. Ruling 2002-67, the IRS confirms that a taxpayer may transfer an auto to a charity's authorized agent and treat it as a direct donation to the charity qualifying for a deduction. For example, a car dealer values the car, sells it and gives the charity the money from the sale. In addition, the agent may take care of the required paperwork necessary for the contemporaneous written acknowledgment of the donation. Remember, it is important to have proof of the condition of the vehicle such as photographs, maintenance records, independent appraisals. The IRS requires that the method used to determine the fair market value of the auto must be reasonable. A used car pricing guide can establish the value only if the car is the same make, model and year, it is sold in the same area and is in the same condition.
Here are
last-minute ways you can save on your taxes:
Don't forget to contribute to an IRA for 2002. The deadline is
April 15, 2003. If your children had earned income, they are also
eligible. Their maximum contribution is either $3,000 or the
amount of their earned income (whichever is less).
If you own your own business, contributions to its qualified
retirement plan can be made as late as the extended due date of
the tax return.
If you are married, figure out your tax bill both ways: married
filing jointly and married filing separately. File your return for
the one that generates the better result.
Can you file as Head of Household or as a Surviving Spouse? This
will give you a better tax benefit if you're eligible.
You may want to file an amended return for a deduction you
previously overlooked or for a tax law that is retroactive. You
have three years from when you filed your return or two years
after you paid the tax.
Looking Ahead to 2003:
Standard mileage rate for business driving is 36 cents per mile, down from 36.5.
Medical and moving driving rates are 12 cents per mile, down from 13.
Charity remains 14 cents per mile.
Standard deduction: $7950 for marrieds, $7000 for head of household, $4750 for singles.
Personal exemption: $3050.
Social Security tax wage base increases to $87,000.
2003 TAX GUIDE UPDATES
ARCHIVE
Page 2: New
in 2003
Child Tax Credit - the child tax credit advance check sent
this summer was based upon your 2002 return. If the check was
greater than your 2003 situation allows, consider it a gift from
the IRS. You do not have to repay the overage.
If you need to verify the amount of your rebate, go to:
Over the counter drugs - In Rev. Ruling 2003-102, the IRS
announced that over the counter medications for treatment of
specific conditions may be paid through your Flexible Spending
account (FSA). This includes herbal remedies recommended by a
doctor. No prescription required. Items for general wellbeing such
as vitamins and dietary supplements are not allowed. Herbal
remedies used for general health or self-diagnosed do not qualify.
Over the counter medications are still not allowed as itemized
deductions on your tax return.
Offers in compromise - Effective November, 2003, the IRS is
now charging a $150 processing fee for offers in compromise
requests. If the offer is accepted, the fee will be applied
towards your tax liability. If refused, the $150 is
non-refundable.
Medical expense - Cost of home exercise equipment qualifies
as a medical expense if prescribed by a doctor to treat obesity or
other illness. The taxpayer must prove the equipment was purchased
to treat the disease, not for general health and that they would
not otherwise have made the purchase. The cost can also be covered
by your flexible spending account (FSA).
Tax Relief for armed forces - Members of services can now
ignore as much as 10 years spent away on extended duty when
calculating home ownership and principal residency prior to being
sold. Retroactive to May 6, 1997. Sellers have until November 12,
2004 to claim refunds for years closed by statute of limitations.
Reservists and National Guard can deduct overnight travel expenses
for trips exceeding 100 miles even if they don't itemize. Compute
your deduction on Form 2106 or 2106EZ. On Form 1040, line 33,
write in "RC" and the amount on the dotted line on the left.
Include the amount in the total recorded on line 33.
Merchant Seamen can deduct incidental expenses while on board ship
up to $3.00 per day.
Deduction for hybrid cars - The IRS has certified the
Toyota Prius (2001-2004 models, Honda Civic Hybrid 2003 model, and
Honda Insight (2000 - 2002 models) qualify for the following
deduction:
No deduction after 2006 unless
extended by Congress. This applies whether the car is for personal
or business use.
Don't forget if you bought and placed in use a new
hybrid car in 2003, you can take a $2000 deduction on your 1040
even if you don't itemize. You must be the original owner. The
cars that qualify for this special deduction are 2004 Toyota Prius
and previously the IRS qualified 2001, 2002, and 2003 Toyota Prius,
2000, 2001, and 2002 Honda Insight and 2003 Honda Civic Hybrid.
Medical school residents - The Tax Court has ruled that
stipends paid to medical school residents are not subject to FICA
tax. They are not exempt from federal income tax. (Mayo…, DC
Minn., 2003-2 USTC)
Page 3 Interesting Court Case
The Tax Court recently disallowed a deduction for cellular phone
expenses due to the taxpayer's lack of proof. (A. Gaylord, TCM,
7416)
In 2001, the 8th Circuit Court ruled that buyout payments in
exchange for waiving tenure rights of college professors were not
subject to FICA or Medicare taxes. The IRS is now offering refunds
to tenured faculty in Arkansas, Iowa, Minnesota, Missouri,
Nebraska, North and South Dakota.
Page 4 IRS & You
New IRS help phone number for electronic filers (both for
individuals and businesses): 866-255-0654.
Due to the anthrax scare, all mail to the Tax Court is irradiated
which may cause the postmark to be illegible. When mailing
documents, use certified, return receipt requested and keep your
postmarked receipt as proof.
The Tax Court has ruled that a
taxpayer may record any "in-person interview" with the IRS
concerning collection of taxes. This definition includes
collection due process hearings. Keene v Commissioner, 121 TC
No. 2.
Page 6 Year-Round Tax Planning
Forgiven debt - The IRS considers a forgiven debt as income
and income tax must be paid on it. For example, a person "loaned"
money for a project by putting it on his credit card. He was
romantically involved and when she left him without repaying his
credit card bill, the company forgave the debt. The IRS said
because he did not have a written record of a loan, he could not
show he had an offsetting bad debt deduction and owed tax.
Investment Fraud - If you lost money due to investment
fraud, you may be able to deduct 100% of the loss. Investment
fraud is considered an ordinary theft loss, not a capital loss
which is limited to $3,000 per year above capital gains. Consult
your attorney or tax advisor to see if your loss qualifies,
because each state defines fraud/theft differently.
Page 8 Capital Losses
Don't forget to deduct any carryforwards from past year's returns.
Page
9 Earned Income Credit
The maximum credit in 2003 for one child is $2,547; two or more
children is $4,204; no children is $382.
The 2003 reportable earned income limit is $29,666 for a
qualifying individual with one child; $33,692 with two or more
children; and $11,230 with no children. New limits for married
filing jointly: $30,666 one child, $34,692 tow or more, and
$12,230 no children.
Page 19
Pre-Tax Investment Plans
A Letter Ruling 200311043 allows the value of unused vacation,
which cannot be carried forward to the following year or cashed
out, may be contributed to the employee's profit-sharing
retirement plan free from income and payroll tax.
One of the effects of new tax legislation was that it has allowed
non-elective contributions to the employee's 403(b) account in
lieu of sick pay and/or unused vacation time at separation of
service. This was not included in the tax guide due to the fact
that state laws differ on the exact rules. This is something you
definitely need to talk to your 403(b) specialist about so you can
take advantage of it in your state.
Page 22 IRA
Interesting Court Case - A tax evader was fined $75,000,
most of which he neglected to pay. Therefore, the IRS garnished
his IRA for collecting the fine. The Tax Court rules an IRA can be
used for unpaid criminal penalties. (Grico, D.C., Pa)
Page 25 Employer Fringe Benefits
An employee that receives a portion of salary as reimbursement for
using his own vehicle for company business does not have to pay
income and payroll tax on that portion. The driver must maintain a
mileage log. If the reimbursement exceeds the number of miles
times the IRS standard mileage rate, the excess is taxed. Rev. Rul.
2004-1 (Check with your accountant to see if this will apply to
2003 return.)
Transportation fringes - Salary reduction plans excluding $195 for
parking and/or $100 for commuting can carry over unused funds from
year to year. However, if the worker leaves that employment, he
forfeits the unused portion, they cannot be refunded.
Page 30 Medical and Dental Deductions
IRS issued Letter Ruling 200318017 allowing expenses relating to
artificial fertilization to be deductible as medical expenses.
These include donor fees, agency and legal fees, any
medical/psychological testing.
Flexible Spending Accounts (FSA) - The IRS has ruled making
FSA's better than ever. In addition to medical and dental
expenses, they can pay for over the counter medicines, bandages,
chiropractic, fertility treatments, incontinence products, laser
eye surgery, long-term care premiums (some limitations apply),
weight loss programs prescribed by a doctor. They cannot pay for
cosmetic surgery, gym memberships for general health, tooth
whitening, or vitamins. Over the counter drugs vary by employers,
check with your company for what is covered.
Page 33 Mortgage Interest [See page
34 NOTE (this is where this
issue is discussed)]
If you refinance your mortgage with the same lender, you will not
be able to deduct the remaining points from your old loan. They
must be prorated over the term of the new loan. (If you refinance
with a different lender, you get to write off all the remaining
points and only prorate the new loan's points.)
Page 37 Casualty and Theft Losses
Interesting Court Case: A washing machine hose broke and
flooded a home while the owner was away. It caused serious damage
to the home and its contents. The homeowner deducted the loss.
The IRS objected to the deduction because the break was caused by
gradual decay to the hose.
The Tax Court ruled that while the IRS was correct in the cause of
the hose breakage, the damage to the remainder of the home was
"sudden and unexpected." They allowed the deduction if the owner
can prove the losses. Pamela S. Cooper, TC Summ Op 2003-168
Page 42 Depreciation
Depreciation limits for trucks and vans placed in service in
2003 are:
1st year
$ 3,360 2nd
year
$5,400
with 30% bonus depreciation $ 7,960
3rd year
$3,250
with 50% bonus depreciation $11,010
4th & after
$1,975
Truck or van is considered a
passenger vehicle on a tuck chassis including SUVs and minivans.
Depreciation limits for electric vehicles placed in service in
2003 are:
1st year
$ 9,080 2nd year
$14,600
with 30% bonus depreciation
$22,880 3rd year
$ 8,750
with 50% bonus depreciation
$32,030 4th & after
$ 5,225
TAX BREAKS
FOR MILITARY PERSONNEL
Home Sale Exclusion - Gains on home sales are excluded up
to $250,000 ($500,000 joint return) if the homeowner used it as
his principle residence 2 out of the last 5 years. This has been
loosened up to 10 years for qualified military personnel.
Death Benefits - The government's death benefit of military
is excluded from tax. It doubled to $12,000 from $6,000. If
survivors excluded $3000 of the $6000 (the former tax free limit),
file an amended return (write "Military Family Tax Relief" in red
at the top) for a refund for 2001 and 2002. Applies to deaths
after September 10, 2001.
Travel Expenses - Overnight travel of National Guard
members and reservists that aren't reimbursed can be deducted in
2003. You do not have to itemize nor is it reduced by 2% of your
adjusted gross income. Overnight travel must be for more than 100
miles from the member's home. Expenses include transportation,
meals, and lodging (up to Dept. of Defense's per diem).
Child Care Expenses - Childcare benefits provided to
members of the military may be excluded from income beginning in
2003.
PREPARING
FOR 2004
Standard Mileage Rates
Deductible business: $.375 per mile
Charitable travel, medical travel, moving: $.14 per mile
NEW: Taxpayers using up to four automobiles at a time for
business can use the standard rate. Before if using more than one
vehicle at a time meant using the actual expense method only.
Contribution Limits
403(b), 401(k),
457.................................... $13,000
If 50 or older by December 31, 2004.............. $16,000
SIMPLE..................................................... $
9,000
If 50 or older by December 31, 2004.............. $10,500
Standard Deduction Amounts:
Single....................................................... $
4,850
Head of Household...................................... $ 7,150
Married Filing Jointly.................................... $ 9,700
Married Filing Separately.............................. $ 4,850
Personal Exemption..................................... $ 3,100
Social Security Wage Base........................... $87,900
2004 TAX GUIDE UPDATES
ARCHIVE
Since the tax guide went to press, Congress has passed two major
tax acts: the working Families Tax Relief Act of 2004 and the
American Jobs Creation Act of 2004. These have many tax breaks but
also close some loopholes.
At the end of this section, we will remind you of some things you
can do before year-end that will save you tax dollars in 2004. And
we will close with upcoming changes in the tax law to help you
plan for 2005.
Page 2 - New in 2004:
Marriage Penalty Relief - Two
breaks have been extended until 2010:
The Standard Deduction for Marrieds is double the amount
for Singles.
The 15% tax bracket for Marrieds is double the amount for
Singles.
Child Tax Credit - The credit
for a dependent child under age 17 is $1,000 through 2009. The
refundable credit to low-income taxpayers is 15% of earned income
over $10,750 in 2004. And military personnel can include tax-free
combat pay as earned income for purposes of figuring the child
credit and the earned income credit.
Sales Tax Deduction -
New for 2004, you can deduct either your state and local income
tax or your state and local sales tax but only if you itemize.
Taxpayers in every state have this choice. You can use the IRS's
sales tax tables or your actual receipts if you save them. If you
use the IRS's tables, you can add sales taxes on the purchase of
motor vehicles, boats and other items designated by the IRS. For
Marrieds filing separate, both have to deduct the state sales tax
or both deduct the state income tax.
The IRS discovered errors in the sales tax tables released last
month and updated the tables for Arkansas, California and
Virginia. Go to
www.irs.gov.
Educator Expenses - The
above-the-line deduction of up to $250 for out-of-pocket classroom
expenses has been extended. Expenses over and above the $250 can
be deducted as unreimbursed employee business expenses subject to
the 2% of AGI floor.
Rural Letter Carriers -
Beginning in 2004, rural letter carriers can deduct their
unreimbursed expenses as a miscellaneous itemized deduction.
Supplemental pay to called-up military
- For workers activated for more than 30 days any supplemental pay
from their employer while serving in the military is not subject
to payroll tax or tax withholding, although they are taxed as
income. If payroll taxes have been paid, both the individual and
the business are entitled to a refund. (IRS Revenue Ruling 69-136)
Archer Medical Savings Accounts
- The Archer Medical Savings Accounts have been extended as an
alternative to Health Savings Accounts.
Hybrid and Electric Cars - The
deduction for a new hybrid car has been extended, up to $2,000 in
2004. The IRS has certified the 2005 and 2004 Toyota Prius and
2004 Honda Civic Hybrid as qualifying for this deduction. The car
must be purchased and placed in service by the end of 2004. The
2005 Ford Escape Hybrid qualifies for the $2000 clean burning fuel
deduction. The 2005 Honda Insight and Honda Accord Hybrid also
qualify.
The tax credit for the purchase of an electric car has also
been extended, up to $4,000 in 2004.
Business start-up costs -
Effective October 23, 2004, taxpayers can deduct up to $5,000 of
start-up expenses up front. Expenses over $5,000 must be amortized
over 15 years (instead of the 60-month period of the previous
law). There is a dollar for dollar phase out for start-up expenses
over $50,000.
Section 179 First Year Expensing for
SUV's - This loophole has been closed for SUV's with
loaded weights between 6,000 to 14,000 put in service after
October 22, 2004. Buyers can no longer expense $102,000 in the
year of purchase. The new law caps the deduction at $25,000. Until
December 31, 2004, you can still take the 50% bonus depreciation
as well as regular depreciation. Bonus depreciation will be gone
after 2004.
Tax Relief for Vans and Light Trucks
- Limitations placed on depreciation of trade vans and light
trucks have been lifted. For trucks and vans, first-year
depreciation in 2004 is $3,260 (more if you include the 50% bonus
depreciation), $5,300 for the second year, $3,150 in the third,
and $1,875 in the fourth and later years. The trucks and vans are
excluded from the luxury auto limitations if they have been
modified to preclude anything but minimal personal use. This
disqualifies a comfortable passenger van used by real estate
agents to drive prospective clients even if only used for
business.
Charitable deductions for donated cars,
boats and planes - Make your donation in 2004 because
in 2005, if the charity sells it without using or improving it,
your deduction will be limited to the sale price.
Home Sale Exclusion - If a
main residence is acquired by a like-kind exchange and is sold
within 5 years, no gain on the sale of the home can be excluded.
Tsunami Relief Charitable Contributions
- Just signed into law, any cash contributions (cash, check or
credit cards) made to qualified charities during the month of
January, 2005 for tsunami relief can be deducted on your 2004 tax
return. A single deduction may not be split between tax years 2004
and 2005 but if you make multiple contributions, you can designate
one for 2004 and another for 2005. Must be postmarked or charged
by January 31st.
How to prove tax deductions without
cancelled checks? The Check Clearing for the 21st
Century Act means most consumers will never see their checks again
after paying a bill. Therefore, you will need to keep your bank
statements containing the images of your cancelled or substitute
checks. It must show the check number, amount, payee's name and
posting date to be acceptable as proof. A check image is not
required if the above is present.
Page 3 - Interesting Court Cases
Under an early retirement settlement, teachers in a school
district voluntarily gave up tenure in exchange for cash payments.
The IRS had the district withhold employment tax and the teachers
sued for refunds. The Court said when a payment is made for the
surrender of valuable legal rights, it is not in exchange for
labor and therefore the refunds were given. (Phyllis F. Klender,
DC ED Mich., No. 02-10082-BC)
A man made weekly contributions to two churches and claimed a
charitable deduction of $6,045 although he had no receipts or
cancelled checks as proof. The IRS disallowed the entire deduction
as a result. In Tax Court, they found his testimony to be credible
and he provided letters from both churches stating he had
contributed $8,201 (more than his actual deduction). Because of
this support, his deduction was actually increased to the higher
figure. (Lionel D. Jones, TC Summary Opinion 2004-76)
Social security disability benefits cannot be excluded from income
because anyone with enough quarters of coverage is eligible to
receive them no matter what the disability is. (Reimels, 123 TC
No. 13)
A boilermaker living in a small town took jobs requiring that he
travel all over the state with each job lasting a couple of months
or less. The Tax Court ruled each job was temporary and he can
deduct the commuting costs of jobs where the commute exceeded 35
miles. (The commute distance allowed would be different if he
lived in a metropolitan area.) (Wheir, TC Summ. Op. 2004-117)
A competitive bodybuilder ate special meat and took vitamin
supplements to help his strength and muscle development. He also
purchased special oils for competitions. He deducted them as a
business expense. The Tax Court disallowed his food and vitamin
supplements as personal expenses but allowed his deduction for the
oils. (Wheir, TC Summ. Op. 2004-117)
A woman claimed a miscellaneous deduction of $80,950 for items her
landlord disposed of. She listed items such as books, photos,
school notes, and other personal items. She deducted the time
spent on them as well as her family memories saying those were
irreplaceable. The Tax Court ruled "Loss of sentimental value is
not a deductible loss." Time is also not a deductible expense. If
she had had proof of the value of the missing items, she could
have qualified for a theft deduction. Not having any proof, she
didn't qualify for it either. (Lynda Wang, TC Summ Op 2004-119)
A high school golf coach took his team to his golf club to
practice and tried to deduct the dues as a business expense. The
Tax Court ruled against it saying not even a golf professional can
deduct dues. (Garcia, TC Summ Op. 2005-2)
Page 4 - The IRS and You
The IRS is holding $2 billion of overpaid taxes for 2001. If you
did not file a return or receive your refund in 2001, the filing
deadline is April 15th, 2005.
ALERT-The IRS is coming down on E-Bay sales. Be sure to
report your income made from selling on E-Bay.
The IRS says that copies of tax returns are generally available
for the past 6 years. A $39 fee is required for each year
requested.
A couple filed their return by regular mail requesting a refund
just before the statute of limitations had expired. Later, when
they inquired about it, the IRS said the return had never been
received. Because the statute of limitations had passed, the IRS
denied the refund. In Tax Court, the couple could not prove the
return was mailed on time. (Sorrentino, 10th Cir.) This is why
using registered or certified mail is important.
Tips To Avoid An Audit:
Report income like dividends and interest.
Declare money you move offshore. You must declare if assets
exceed $10,000.
Make sure you have a legitimate business purpose for business
expenses you claim.
Page 9 - Divorce and Potential Tax
Traps
As part of a divorce settlement, a taxpayer paid a lump sum to his
ex-wife. This payment is considered a divorce-related payment and
is not taxable to the recipient nor can it be deducted by the
husband says the IRS in a private letter ruling.
A former husband continued making payments on his ex's mortgage
after the divorce. Each owned 1/2 of the home and were jointly
liable for the loan. In a private ruling, the IRS says 50% of the
payment is considered alimony to his ex and the other half qualifies
as mortgage interest and property tax deductions.
A divorce court split a husband's IRA and transferred it to an IRA
in the ex-wife's name. She took the funds out of the IRA to buy
out her husband's interest in their home. She owes a 10% penalty
plus income tax on the withdrawal. At the time of the divorce,
they could have arranged to swap their shares in the IRA and the
home tax-free. (Cohen, TC Memo. 2004-227)
Unless a divorce decree requires that interest is paid on child
support in arrears and treats the interest as support, it is
considered taxable income.
Alimony that can continue after the recipient's death is not
deductible to the payor nor is it taxable to the payee.
Page 18 - Children's Social Security
Numbers Required
What should you do if you had a baby before the end of the year
but don't have a social security number yet? First of all, if you
haven't already, apply for one with the Social Security
Administration. If you don't receive your number by April 15, file
an extension with any tax due. When the number arrives, fill in
your return and send it to the IRS.
Page 21 - IRAs
In a private ruling, the IRS allowed a taxpayer to roll the excess
portion of his distribution back into his IRA even though the
60-day rollover period had passed. His bank had miscalculated his
minimum withdrawal and sent him a check that was too much, which
he did not discover until the 60 days had passed.
Page 23 - Section 529 Savings Plans
For those using Section 529 plans as an estate planning tool as
well as college savings, although they are considered removed from
your estate, they are still assets for Medicare eligibility. So if
you needed long-term care in the future, they could be taken by
Medicare authorities. If you contribute to a 529 trust, the funds
will not be available to Medicare but will be removed from your
estate. Consult an attorney to see if this is a good option.
Page 25 - Employer Fringe Benefits
An employer gave its workers turkeys and hams gift baskets for
Christmas but some employees complained because they were
vegetarians. The employer substituted gift certificates but the
IRS ruled that these are taxable to employees and subject to
payroll tax. (IRS Technical Advice Memorandum 200437030)
Page 26 - Sources of Income
Taxable Interest and Capital gain or
(loss) - Be sure to double check the 1099s you receive.
Their error rates have been reported at 10%.
Also remember to include your reinvested dividends in the cost of
shares sold.
Page 30 - Medical and Dental
Deductions
Medical and legal expenses paid for surrogate mothers are not
deductible.
Page 33 - Mortgage Interest
Deduction for the mortgage interest to a second home is not
limited to a home within the United States. If you pay the
mortgage in foreign currency, be sure to figure the currency
conversion for the interest portion of each payment as the
exchange rate fluctuates throughout the year. All other rules for
deducting the interest on a second home apply.
Page 34 - Gifts To Charities
Gifts of autos to charity -
the IRS warned in November that taxpayers with car donations
should not claim inflated deductions even though the tightened
rules don't apply until 2005. What can you do to protect your
deduction? 1. Donate to a qualified charity. 2. Deduct the fair
market value based on the car's condition - what you could
actually sell the car for. 3. Provide proper documentation. See
IRS Pub. 526.
Donating frequent flier miles to charity is
not tax deductible.
Page 37 - Casualty and Theft Losses
Because a casualty deduction is allowed for the cost of lost
goods, not the replacement value, you need to keep records of the
cost of your household items, valuables and collectibles so you
can deduct them in case they are lost in a casualty. See IRS Pub
584.
This next section offers opportunities still available to lessen
your tax bill for 2004.
Taxes You Paid - Mail your
January 2005 estimate in late December and you can write it off
for 2004.
Interest You Paid - Make the
January mortgage payment in December and you can deduct the
interest portion of the payment for 2004.
Gifts to Charity - Mail a
check or give cash before the end of the year and it is deductible
in 2004. Giving appreciated stock saves you paying capital gains
on any appreciation and you take a deduction for the full value of
the stock if you've owned it for a year or more.
Medical and Dental Deductions
- If you are close to the limit of 7 1/2% exceeding your Adjusted
Gross Income, consider paying for elective medical or dental
procedures in December. And be sure to use your medical
reimbursement before December 31st.
Casualty and Theft Losses -
Losses in 2004 in presidentially declared disaster areas can be
taken either in 2004 or 2003, whichever will save you more money.
Investments - Don't forget if
you have some losers in your portfolio, capitol losses can offset
all your gains and up to $3,000 of other income. Beware of the
wash-sale rule: no deduction for losses is allowed if you buy back
the same stock within 30 days previous to or after a sale.
Withholding - If you haven't
withheld enough for the year, make up the difference in December.
(Withheld taxes are treated as if you paid them evenly during the
year.) To avoid a tax penalty, you must either pay 100% of your
2003 tax or 90% of your 2004 tax. If your 2003 Adjusted Gross
Income exceeded $150,000, you must prepay 110% of your 2003 tax
bill.
Page 42 - First Year Expensing &
Depreciation
The big tax breaks for SUVs over 6000 pounds can be recaptured if
business use falls below 50% in subsequent years after purchase.
Planning for 2005
Standard Mileage Rate
Deductible business = $.405 per mile
Charitable travel = $.14 per mile
Medical travel = $.15 per mile
Moving = $.15 per mile
Social Security Wage Base for 2005
- Applies to the first $90,000.
Social Security Earnings Limit
Between 62 and 65 and 6 months................ $12,000
65 and 6 months in 2005............................ $31,800
65 and 6 months and over.......................... no limit
Retirement plan pay in maximums
401(k), 403(b), 457...................................$14,000
Catch up for those turning 50......................$ 4,000
SIMPLE....................................................$10,000
Catch up for those turning 50......................$ 2,000
Defined Contribution Plans...........................$42,000
2005 TAX GUIDE UPDATES
ARCHIVE
Page 2 - 2005 Updates
Standard Mileage Rate
Medical
travel (Sept. 1-Dec. 31) = $0.22 per mile Moving
(Sept. 1-Dec. 31) = $0.22 per mile
Page 2 - New in 2005
American Jobs Creation Act of 2004
State and Local tax deduction:
More than 1 million taxpayers did not claim the deduction. More
than half were from non-income tax states: Alaska, Florida,
Nevada, South Dakota, Texas, Washington and Wyoming.
Tax Relief for Katrina Victims
Itemizers can take all uninsured losses without regard to the 10%
of adjusted gross income or the $100 floor. They can claim their
loss on either their 2004 or 2005 tax returns.
Gains from insurance companies can be deferred up to 5 years if
the replacement home is located in the disaster area.
The 10% penalty for early withdrawals from IRAs and qualified
plans is waived if the withdrawals are $100,000 or less. Income
tax due can be paid over 3 years. If any amount is recontributed,
it will be treated as a rollover and tax can be recovered by
filing an amended 1040.
People housing Katrina victims for 60 days or more can deduct $500
for each person (excluding their own spouses and children) up to
$2000. They cannot charge rent. Use Form 8914.
The mileage rate for Katrina-related charitable driving is $.34
per mile through the end of 2006.
Personal debts forgiven to Katrina victims are not taxed as
income. This includes people in Alabama, Florida, Louisiana and
Mississippi who suffered an economic loss from the hurricane.
Businesses get bonus depreciation of 50% of the cost of assets put
in service in the Gulf Opportunity Zone.
The maximum HOPE and Lifetime Learning Credits are doubled for
2005 and 2006 for students in colleges in the hurricane area.
Form 8863 will be reissued.
Katrina breaks that have been extended to Rita and Wilma victims
are:
The $100
floor and 10% of adjusted gross income offset are waived.
The 10%
penalty does not apply if distribution from an IRA or retirement
plan is $100,000 or less and taxes can be paid over 3 years.
Recontributed amounts will be treated as rollovers and taxes can
be recovered by filing an amended tax return.
Victims
can borrow the lesser of $100,000 or 100% of their qualified
retirement plan and can defer repayment.
Hurricane Katrina, Rita and Wilma toll-free phone # 866-562-5227.
See Publication 4492 for helpful tips for Katrina, Rita and
Wilma victims.
Health Reimbursement Account
The value of unused sick leave can be contributed to an HRA when
employees retire and used to pay for the retiree’s medical
expenses, says the IRS in a private ruling. Tax is due if
workers can take cash for their unused leave.
Per Diem Rates
For lodging, meals and incidentals: $226 in high cost areas, $141
everywhere else.
For meals and incidentals only: $58 in high cost areas, $45
everywhere else.
Self-employeds use the meals and incidentals rate only. They
must substantiate their lodging with actual receipts and
records.
Page 3 - Interesting Court Cases
A salesman who was given some marketing duties was told an MBA
would help him in his occupation. Before completing the MBA he
was promoted. His firm would not reimburse him for his tuition.
Tax Court says the cost of the MBA is deductible because it did
not qualify him for a new occupation or business. (Allemeier, TC
Memo, 2005-207)
After receiving 3 installments of a jackpot, a lottery winner sold
her rights to the remaining annual payments for $7.1 million.
The company sent her a 1099 and she reported it as a capital
gain on her tax return.
The Tax Court ruled the payment was not capital gains but ordinary
income. (Prebola, TC Memo 2005-261)
A 67-year old with unpaid student loans had social security
benefits withheld to pay off the debt. There is no statute of
limitations for repaying student loans. (Lockhart V U.S.)
A university offered buy-outs of tenured faculty for several
years. The teachers who took them had to relinquish their tenure
rights so the Tax Court ruled they did not have to pay FICA tax.
Payroll taxes are owed on non-tenured faculty and/or employees.
(Univ. of Pittsburgh, D.C., Pa)
A couple sent their children to a private school teaching
traditional as well as religious education. The school gave them
a letter stating 55% of tuition was for religious education and
they deducted it as a charitable donation. The tax Court ruled
they received a value for the tuition and denied the deduction.
(Sklar, 125 TC No. 14)
A military veteran’s widow received a taxable survivors’
retirement benefit from the military. She challenged the benefit
stating it should be tax-free for veterans who die of injuries
related to their service. The military agreed and changed the
benefit retroactively. The widow requested a refund of the taxes
paid on the benefit and the IRS denied.
Tax Court ruled the benefit was tax-free and the IRS must refund
the taxes. (Remedios E. Ebert, Court of Federal Claims, No.
04-270T)
Courts continue to uphold the ruling that the telephone excise
taxes are illegal in many cases, yet the IRS is still collecting
them. It is estimated that $9 billion in refunds is at stake.
Contact your tax professional about protecting a possible claim.
(American Bankers Ins. Group, CA-11, No. 04-10720)
Page 4 - The IRS and You
The Tax Court has ruled that the IRS can take future income tax
refunds to offset unpaid taxes that were discharged in
bankruptcy. (Pigott, D.C., Ala.)
The standard 3-year statute of limitations does not apply if the
taxpayer omits more than 25% of gross income from their tax
return. In that case, the IRS has 6 years to get back taxes.
An IRS worker prepared a tax return for a grandmother allowing
her to claim 2 grandchildren as dependents even though she did
not provide over half of their support. She was audited and
denied the deduction. The Tax Court agreed with the IRS. (Reyes,
TC Summ. Op 2005-142) NOTE: having the IRS prepare your return
does not guarantee its accuracy!
What to do if you’re served with a summons from the IRS? Speak
to an attorney before you take any action.
Will you avoid taxes if you move abroad? No, all worldwide
income of US citizens is subject to income tax in the US.
See Publication 2053 (A Quick and Easy Access to IRS Tax Help
and Tax Products) for resources, telephone numbers, addresses,
IRS tax products and other tax help from the IRS.
Do not change or tamper with the signature line (jurat) on your
tax return. The wording of the jurat is required by law and
tampering with it invalidates your tax return. You will be
penalized for nonfiling. (IRS Rev Rul 2005-18; IRB 2005-14,1)
Page 11 - Health Savings Accounts (HSA)
HSA money cannot be used to pay for medical gap insurance
premiums.
Premiums for long-term care insurance can be paid from your HSA.
The deductibility varies by taxpayer’s age. Consult your tax
advisor.
Page 16 - Sources of Tax-Free Income
Income earned overseas:
The $50,000 foreign earned income exclusion is not eligible for
workers in Antarctica. (Arnett, 126 TC No. 5)
Page 21 - Individual Retirement
Accounts
A taxpayer requested a distribution from his IRA but he changed
his mind and never cashed the check. The IRS taxed the
distribution and required the 10% early withdrawal penalty. The
taxpayer challenged the ruling since he didn’t use the money.
Tax Court agreed with the IRS saying he was in “constructive
receipt” and free to use the funds at anytime. (Arthur F.
Millard, TC Memo, 2005-192)
An inherited IRA can be disclaimed even after receipt of a
distribution in the year of the IRA owner’s death and passed on
to the next heir. Technical rules apply. (IRS Rev. Rul 2005-36)
If one pledges their IRA as security for a loan, it is
considered distributed and immediately taxable. In addition you
lose the immunity for creditor claims. (In re: Ronald Roberts,
Banks SD, No. 03-15730)
Page 25 - Fringe Benefits
Providing outside gym memberships is taxable. They are only
tax-free if the gym is located on a premises owned or leased by
the employer.
Working condition fringe benefits include:
subscriptions to business periodicals employee training business travel use of employer vehicles for business uniforms professional dues outplacement services
Page 30 - Medical and Dental Deductions
The cost of a sex change operation is not a medical expense. It
is treated as cosmetic surgery, which is nondeductible for
income tax purposes. (IRS private ruling)
Page 32 - Taxes You Paid
State and local transfer taxes paid on home purchases are not
deductible. They are added to the basis of the residence and
reduce the capital gains when the house is sold.
2006 TAX GUIDE UPDATES
ARCHIVE
Page 2 - New in 2006
Farmers in areas
experiencing severe drought for the year ending August 31, 2006
have until December 31, 2007 to defer their gain and replace
their livestock. The IRS publishes a list of drought-affected
counties. Notice 2006-82
Tax credit for Toyota or Lexus hybrids purchased after September
30, 2006 receive only half the tax credit. The new credit
amounts are as follows:
Prius $1,575
Highlander and Camry $1,300
Lexus RX 400h $1,100
The credit will be reduced again for vehicles purchased after
March 31, 2007 and eliminated for those bought after September
30, 2007.
Per diems for lodging, meals and incidentals increased on
October 1, 2006. Go to www.irs.gov/pub/irs-pdf/p1542.pdf. For
rates outside the continental US and foreign countries, go to
www.gsa.gov. Click on “Per diem rates.”
Congress extended several items that expired at the end of 2005.
Because the tax forms are already printed, they will have to be
written in:
College tuition and fees deduction: Write in on Form 1040,
line 35, the line for domestic production deduction. Write T to
the left of the line.
Educator’s deduction: Write in on Form 1040, line 23, the line
for Archer MSA deduction. Write E to the left of the line.
If claiming both deductions (college tuition and domestic
production or educator expense and archer MSA), write B and
attach a separate sheet describing the breakdown of each
deduction.
Deduction for state and local sales tax: Write in on Schedule
A, line 5. Write ST to the left of the line.
Amount of credit for excise tax paid on long distance charges:
Individuals claim a credit instead of the actual taxes paid
based on the number of exemptions they claim:
1 exemption - $30 credit
2 exemptions - $40 credit
3 exemptions - $50 credit
4 or more - $60 maximum credit
Professional stock traders can elect to treat their holdings as
if they sold them at the end of the year and deduct their deemed
losses without being limited to the $3000 cap. The deadline for
making this election is the due date of the previous year’s
return; therefore to make this election for the 2007 tax year,
the deadline is April 16th. You must attach a statement to your
1040 or extension.
A court has ruled medical residents’ salary is never exempt from
FICA. (Albany Med Ctr, D.C., NY) Since the courts are divided on
this, the appeals court will have to resolve it.
Direct deposit options for your tax refund includes IRAs,
Coverdell Education savings accounts, Health Savings accounts,
Archer medical savings accounts or your checking/savings
accounts.
If you own one or more foreign bank accounts and their combined
balance exceeds $10,000, they must be reported to the IRS. File
on Schedule B, lines 7a and 7b. You must also file Form TD F
90-22.1 with the Treasury by June 30 to report accounts for the
previous year.
Page 6 - Alternative Minimum Tax (AMT)
You cannot opt not to claim deductions in order to avoid paying
the AMT, an appeals court states. (Qureshi, Fed. Cir.)
It is estimated that 3.5 million taxpayers will pay AMT for
2006.
The AMT can reduce or eliminate the tax credit for hybrid
vehicles purchase in 2006.
Page 7 - Capital Gains
The 15% maximum tax rate is only available if you own the stock
for 60 days before and after the ex-dividend date. Otherwise it
is taxable at ordinary income tax rates.
For taxpayers who sold stock of insurers that demutualized, a
federal court states policy owners’ rights, which were given up
at the time of demutualization, do have value. That value is to
be determined later.
Therefore, if you sold stock in 2003 and followed the IRS’s
instructions to report the proceeds as capital gains, fill out
Form 1040X and write “Protective Claim” at the top of the form.
When the value is determined, you will have protected your right
to a possible refund.
Page 9 - Divorce
ALERT: Pay attention to the wording of your divorce decree! A
husband was paying alimony to his ex-wife for the rest of her
life or until she remarried. He asked the court to allow him to
pay a lump sum covering all future alimony and the court agreed.
However, he was not allowed to deduct this payment on his income
tax return because the ex-wife’s lawyer ahd put into their
divorce decree that a lump sum payment was tax-free to her and
not deductible for the husband. The ruling stands because the
court okayed the order.
Page 10 - Educational tax credits
In a private ruling, payments of high school tuition and fees do
not qualify for education credits. Only college or other
post-secondary education qualifies.
Page 21 - Retirement Plans
Tax Court ruled if you are 55 or older in the year you terminate
employment and leave your retirement plan with your former
employer, you will not receive the 10% penalty on withdrawals
prior to age 59 ½. This exemption applies to all future
withdrawals. You will be penalized 10% if you roll it over to an
IRA and take a distribution before 59 ½. (Olintz, TC Summ. Op.
2006-155)
Page 21 - IRA
Tax Court ruled a taxpayer was considered an active participant
in her company’s pension even though she did not work enough
hours to earn pension benefits. This limited her IRA
contribution to the 2006 income caps. In her case, she was
ineligible to deduct her IRA contribution because her income
exceeded the cap. (Colombell, TC Summ. Op. 2006-184)
Page 30 - Medical and Dental deductions
The following improvements may be deductible for persons with
disabilities:
Modifications to kitchen counters or cabinets Adding bars or railings in bathrooms Adding a ramp to your entry Widening doorways/halls Grading your lot for ease of access Any modifications made if you rent and the landlord doesn’t
repay or compensate you for the improvements.
You may also deduct the operating costs of equipment such as
power, maintenance, and repair. Items may include elevator, air
conditioner and chair lifts.
Page 73 IRS and You
You can’t rely on informal IRS tax advice if you call the
toll-free telephone line. The Court of Federal Claims ruled that
an IRS employee gave the wrong due date for filing an amended
return. The taxpayer missed the deadline and was denied the
refund due him. The deadline was not extended due to the IRS
employee’s error. (Katz, Ct. of Fed. Claims)
Three ways taxpayers can apply online for a payment agreement to
pay back taxes in installments:
Full payment within 10 days – no fee, penalty or interest Full payment within 120 days – no fee but penalties and
interest due Pay monthly - $45 fee, penalties and interest due.
Tax Court ruled a taxpayer can not record an IRS hearing by
telephone. Only a person to person meeting can be recorded. (Calafati,
127 TC No. 16)
To get the quickest refund, e-file and have your refund
deposited directly to your account. It should arrive within 2
weeks.
The IRS is holding $92 million in refunds for 2005 due to having
the wrong address from taxpayers. Check on your refund at
www.irs.gov and file Form 8822 to change your address.
Page 78
Residents of Washington DC, Maine, Maryland, Massachusetts, New
Hampshire, New York and Vermont have until April 17th to file
their income tax return. April 17th is also the deadline to pay
the first quarterly installment of their 2007 estimated tax.
Medical
travel (Sept. 1-Dec. 31) = $0.22 per mile
Prius $1,575
