Selected Taxpayer Penalties

Violation	Section	Penalty
Failure to disclose foreign financial assets	6038D	$10,000 penalty (increased if failure continues after notification)
Failure to file return, Late filing penalty	6651(a)(1)	5% of unpaid balance for each month or part of a month the retu-
		rn is late.Maximum 25%.
Failure to pay tax, Late payment penalty	6651(a)(2)	0.5% of unpaid balance for each month or part of a month there
		is unpaid balance.Maximum 25%.
Fraudulant failure to file tax return	6651(f)	Section 6651(a)(1) penalty is replaced with 15% of tax per month
		not to exceed 75% of tax.

Farm Income and Deductions: 10 Key Points

IRS Tax Tip 2012-56

You are in the business of farming if you cultivate, operate or manage a farm for profit, either as an owner or a tenant. A farm includes livestock, dairy, poultry, fish, fruit and truck farms. It also includes plantations, ranches, ranges and orchards. 

The IRS has 10 key points for farmers regarding federal income taxes.

1. Crop insurance proceeds You must include in income any crop insurance proceeds you receive as the result of crop damage. You generally include them in the year you receive them. 

2. Sales caused by weather-related condition If you sell more livestock, including poultry, than you normally would in a year because of weather-related conditions, you may be able to postpone until the next year the reporting of the gain from selling the additional animals. 

3. Farm income averaging You may be able to average all or some of your current year's farm income by allocating it to the three prior years. This may lower your current year tax if your current year income from farming is high, and your taxable income from one or more of the three prior years was low. This method does not change your prior year tax, it only uses the prior year information to determine your current year tax.

4. Deductible farm expenses The ordinary and necessary costs of operating a farm for profit are deductible business expenses.  An ordinary expense is an expense that is common and accepted in the farming business. A necessary expense is one that is appropriate for the business.

5. Employees and hired help You can deduct reasonable wages paid for labor hired to perform your farming operations. This includes full-time and part-time workers. You must withhold Social Security, Medicare and income taxes for employees.

6. Items purchased for resale You may be able to deduct, in the year of the sale, the cost of items purchased for resale, including livestock and the freight charges for transporting livestock to the farm. 

7. Net operating losses If your deductible expenses from operating your farm are more than your other income for the year, you may have a net operating loss. You can carry that loss over to other years and deduct it. You may get a refund of part or all of the income tax you paid for past years, or you may be able to reduce your tax in future years.

8. Repayment of loans You cannot deduct the repayment of a loan if the loan proceeds are used for personal expenses. However, if you use the proceeds of the loan for your farming business, you can deduct the interest that you pay on the loan.

9. Fuel and road use You may be eligible to claim a credit or refund of federal excise taxes on fuel used on a farm for farming purposes. 

10.  Farmers Tax Guide More information about farm income and deductions is in IRS Publication 225, Farmer’s Tax Guide, which is available at www.irs.gov or by calling the IRS at 800-TAX-FORM (800-829-3676).

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Tax Credits, AMT and Special Taxpayers

Tax Credit	For			Rate		Tax Form
Additional	Taxpayers who don't claim full $1,000			Up to $1,000		8812
Child	tax credit for each child and have			per child
	(1) one or more qualifying children
	and over $3,000 of earned income
	or (2) three or more qualifying child
Adoption	Expenses incurred in the legal adopti-			$13,360 for a special		8839
Expense	on of a child under age 18 or for the			needs child; up to
	adoption of an incapacitated or			$13,36t0 per child for
	special needs person (regardless of			all other adoptions
	age).Credit is phased out for modified
	AGI between $185,210 -$225,210.
Alternative	1. Qualified fuel cell motor vehicle.			1. Limit depends on		8910
Motor	2. Plug-in conversion.			model.
Vehicle				2. 10% of cost of
				conversion, to a max
				credit of $4,000.
Child and	Care expenses for dependent(s) under			20% to 35% of qualif-		2441
Dependent	age 13 or incapacitated that allow			ying (limited)
Care	taxpayer to work or look for work			expenses depending
				on AGI level

Schedule F – Profit/Loss from Farm (Final Page)

Business Use of Vehicles – 75% Rule

Farmers can claim 75% business use for vehicles used primarily for farming business instead of keeping records of business mileage.  Once this method is elected, it must be used in future years.  Like-wise, if the standard mileage rate or actual expenses method is elected, the farmer cannot revert to the 75% rule.

Section 179 Deduction – Farm Property

Farm property that qualifies for a Section 179 deduction includes:

(1)Tangible personal property such as machinery and equipment, milk tanks, automatic feeders, barn cleaners and office equipment.

(2)Livestock

(3)Certain facilities used for the bulk storage of fungible commodities.  This includes grain bins used in connection with the production of grain or livestock.

(4)Single purpose agricultural and horticultural structures.

Depreciating Farm Assets

3, 5, 7, & 10 year MACRS property used in a farming business must be depreciated using the 150% DB or SL method.

Form T (Timber) – Forest Activities Schedule

Generally, Form T should be filed when standing timber is sold or cut, or when there are other timber transactions.  Form T must be completed to claim a deduction for timber depletion, to elect to treat the cutting of timber as a sale or exchange.

Domestic Producer Deduction (DPD)

For 2011, the DPD is 95 of the lesser of the business’s:

(1)Qualified production activities income or

(2)Taxable income (AGI for individuals) determined without regard to the DPD.

The DPD cannot exceed 50% of the wages paid and reported on For W-2 by the business for the year.

Oil and Gas Activities – Individuals with oil-related qualified production activities income must reduce their DPD by 3% of the least of their (1) oil-related qualified production activities income, (2)qualified production activities income, or (3)AGI

Qualified Production Activities Income

To determine the net income that qualifies for the 9% deduction, the taxpayer’s receipts must be divided into those from eligible activities (Domestic Production Gross Receipts DPGR) and non-DPGR.  Then, the taxpayer’s expenses are allocated between the two categories of income.  The DPGR less allocable expenses equals qualified production activities income.

Eligible activities – The following activities generate DPGR if performed in the USA

(1)Manufacture, production, growth or extraction of: (a)Tangible personal property (clothes, goods, food, ag products), (b)Computer software, and (c)Sound recordings.

(2)Certain film production

(3)Production of electricity, natural gas or portable water

(4)Construction or substantial renovation of residential and commercial buildings and infrastructure by taxpayers engaged in the construction business.

(5)Engineering and architectural services performed by a taxpayer engaged in the business of performing engineering or architecture.

Schedule J

Farm Income Averaging

Farmers (and fishermen) may elect to compute their tax by averaging their farm income over three years.

Tax for a year that an election is made will equal the sum of: 

(1)Tax computed on current-year taxable income not including any elected farm income plus 

(2)Increase in tax if taxable income for each of three prior tax years was increased by 1/3 of current-year elected farm income.

Election is available to 

(1)Individuals engaged in a farming business, including a sole proprietor, partner or shareholder of an S corporation and 

(2)Individuals engaged in a fishing business.

Agricultural Labor

1)Noncash payments – Noncash payments for agricultural labor are exempt from FICA and FUTA taxes.  Income tax is withheld only if both the employer and the employee agree to do so.

2)Small cash payments – Annual cash payments of less than $150 per worker for agricultural labor are exempt from FICA tax unless the employer pays more than $2,500 to all employees.  For payments to seasonal workers, the $2,500 test does not apply.  However, those wages are counted toward the $2,500 limit to see if FICA taxes apply to other workers.

Schedule F – Profit/Loss from Farming Continued page 3

Crop Shares

Rents received as crop share are included in income in the year the crop shares are reduced to money, whether the cash or accrual method is used.

Crop shares used to feed livestock – crop share received by a landlord and fed to livestock are considered converted to money when fed to the livestock.  The FMV of the crop shares is included in income at that time.  At the same time, a business expense deduction, for the same amount, is taken for livestock feed.  Even though these two transactions cancel each other out, they may be necessary to determine net earnings from self-employment under the farm optional method.

Crop shares given to others – crop shares received as a landlord and given to others are considered converted to money when given.  The FMV of the crop shares is reported as income even though someone else receives payment for the crop shares.

Agriculutral Programs

Commodity Credit Corporation loans

CCC nonrecourse marketing assistance loan program

Conservation Reserve Program (CRP)

Crop insurance and disaster payments

Tobacco quota buyout program payments

Income Deferral-Livestock Sales

1-year deferral – A farmer can elect to postpone reporting the proceeds from the sale of livestock (including poultry) if more animals than usual business practice were sold due to weather-related conditions.  The gain from the sale of the additional animals may be included in income the year after the sale.

Qualifications for income tax deferral:

1)Principal business is farming

2)Cash method of accounting is used

3)Under normal conditions, the sale would not have occurred and

4)Weather-related conditions resulted in an area being designated as eligible for assistance by the federal government.

Making the election – Generally, the 1-year deferral under Section 451 is elected by attaching a statement to the return for the year of the sale.  However, farmers who qualify for the Section 451 election and who are also eligible to use the Section 1033 involuntary conversion rules to postpone the gain from weather-related sales of livestock in an area eligible for federal assistance can make the Section 451 election any time during the 4 years after the year the livestock are sold.

Livestock Sales – Where to Report

Schedule F

1)Raised livestock held primarily for sale

2)Livestock bought for resale

Form 4797

1)Animals not held primarily for sale

2)Livestock held for draft, breeding,  dairy or sporting purposes

Schedule F – Profit/Loss From Farming Continued

Farming Income and SE tax

Income reported on Schedule F

1)Sales of livestock and other items bought for resale

2)Sales of livestock, produce, grains, etc. that taxpayer raised

3)Distributions from cooperatives in the year made available to members

4)Agricultural program payments such as commodity credit loans or certificates, crop insurance proceeds and disaster payments, feed assistance and payments, fertilizer and lime program payments, government payments for improvements, etc.

5)Custom hire machine work

6)Federal and state fuel tax credits

7)Conservation Reserve Program (CRP) payments

Farming income not subject to SE tax

1)Gains from sales of farmland or depreciable farm equipment

2)Gains from sales of livestock held for draft, breeding, sport or dairy purposes (report on Form 4797). Animals not held primarily for sale are considered business assets of the farm.

3)Tobacco quota buyout payments received under the 2004 Tobacco Reform Act.

Computing SE tax – 3 ways

1)Regular method

2)Farm optional method – is a way for a farmer to continue to accrue Social Security benefits when net profit for the year is small or is a loss.  It is available if Gross Income (GI) from farming is $6,720 or less or Net farm profit is less than $4,851.  Net earnings are the lesser of $4,480 (4.851 x 92.35%) or 2/3 of Gross Farm Income (not less than zero).

3)Nonfarm optional method – is available only if (1) net nonfarm profits are less than $4,851 and less than 72.189% of gross non-farm income and (2) net earnings from self-employment are at least $400 in two of the prior three years.  It can only be used five times.

Farm Rental Income – Rent received for the use of farmland is rental income, not farm income.  Such rental income is not subject to SE tax.

Determining material participation for SE tax – A landlord materially participates in the farming activity (and is subject to SE tax) if the landlord has an arrangement with the tenant for participation and the landlord meets any of the following tests:

 1)The landlord does any three of the following: (a) pays at least half the direct costs of producing the crop or livestock. (b) furnishes at least half the tools, equipment and livestock used in the production activities. (c) advises or consults with the tenant. (d) inspects the production activities periodically.

 2)Regularly and frequently makes management decisions substantially contributing to the success of the enterprise.

3)Works 100 hours or more spread over a period of 5 weeks or more in activities connected with agricultural production.

4)Does things that, considered in their totality, show material and significant involvement in production of the farm commodities.

Pasture income and rental

1)Rental income – Fee paid to the taxpayer for renting out the taxpayer’s pasture for the use and care of the renter’s cattle (Schedule E).

2)Farm income – Fee paid to the taxpayer for taking someone else’s cattle to the taxpayer’s pasture and for assuming responsibility for furnishing water, salt, etc. (schedule F).

Where to report farm rental income

Form 4835 – Rent is a share of crops or livestock produced by the tenant, and the taxpayer did not materially participate in farm operation or management.

Schedule E – Cash rent is a flat charge for use of farm land.

Schedule F – Farm operations in which the landlord materially participates, whether received in cash or as a crop share.

Schedule C – Rental of farm equipment as a trade or business.

Form 1040, line 21 – Personal property rental, not conducted as a trade or business (for example, infrequent rental of a tractor). Related expenses are deducted on line 36 of Form 1040 with the notation “PPR.”

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Schedule F – Profit/Loss From Farming

Crop Production, Animal Production, or Forestry and Logging

Accounting Methods for Farmers

1)Cash method

2)Accrual method – required for certain farm corporations and partnerships, & for all tax shelters.  Generally, if inventories are used to figure gross income, the accrual method is required.  However, an exception is allowed for taxpayers with average annual gross receipts of $1 million or less.  Farmers who are required to use an accrual method are subject to UNICAP for plants (even if the plant preproductive period is two years or less) and animals.

3)Special methods for certain income and expense items – Crop method – Can be used by farmers who do not complete harvesting and disposing of crops within the tax year they planted (Exception:timeber).  The entire cost of producing the crop, including expenses of seed or young plants, is deducted in the year the income from the crop is realized.

4)Combination method – May be used if it reflects income and is used consistently.  Certain restrictions apply

Limit on Farm Losses - For tax years beginning after 2009, the farming loss of taxpayer (other than a C corporation) who receives an applicable subsidy is limited to the great of (1) $300,000 ($150,000 if MFS) or (2) the taxpayer’s total net farm income for the prior five tax years.

Farm Inventories – Inventories include all unsold items at the end of the tax year, whether raised or purchased, that are held for sale or for use as feed, seed, etc.  Generally, growing crops are not included in inventory.

Valuation methods

1)Cost

2)Lower of cost or market

3)Farm-price method – Each item is valued at the market price less the estimated direct cost of disposition (such as broker’s commission, freight and hauling to market, etc.)

4)Unit-livestock-price method – Livestock is classified according to kind and age, and a standard unit price is used for each animal within a class.  All raised livestock and livestock purchased for sale must be included in inventory.  Animals purchased for draft, breeding, dairy or sporting purposes may be treated as depreciable assets or included in inventory.

1040 Quickfinder Handbook

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Schedule SE

Self-Employment Tax computed on Schedule SE applies to sole proprietors (Schedule C and F) and general partners of a partnership (Schedule K-1, Form 1065).

Tax rate for 2011. SE tax = net SE earnings x 13.3%, on net SE earnings up to $106,800.  For this purpose, ne SE earnings are the net profit from all trades and businesses multiplied by 92.35%.  Net SE earnings are combined with any FICA wages earned as an employee for determining when the $106,800 limit is met.

Who must file schedule SE. In general, any individual who carries on a trade or business must file Schedule SE if net earnings from all trades or businesses are $433.13 or more ($433.13 x 0.9235 = $400).

Trade or business. An activity carried on for a livelihood or in good faith to make a profit.  A taxpayer does not actually have to make a profit to be a trade or business as long as there is a motive for making a profit.  The activity does not have to be a regular full-time job to be subject to SE tax.

Rental of personal property. If the taxpayer is in the business of renting personal property, such as equipment or vehicles, income and expenses are reported on Schedule C and subject to SE tax.  If the rental activity is not conducted as a trade or business, the income is not subject to SE tax and is reported on line 21 of Form 1040.  In such cases, the related expenses are included in the total earnings by a retired farmer who rents his tractor to his son is not subject to SE tax unless the farmer is in the business of renting equipment to customers.

Income Not Subject to SE tax

1.Rental income from real estate activities and personal property leased with the real estate, except when services are also provided for the occupants (For example, a hotel).

2.Earnings by certain nonresident aliens

3.Gains or losses on the sale of investment property.

4.Interest earned by a business, except for interest charged on AR balances, or on interest earned from notes or bonds as a dealer in stocks or securities.

5.Earnings from a hobby, if the activity is not continuous or regular and the activity’s purpose is not for profit.

Reference: 1040 Quickfinder Handbook

Business vs. Hobby Losses

An individual who conducts an activity as a for-profit business is allowed to deduct expenses that are ordinary and necessary in carrying on the trade or business.  If expenses exceed income, the loss is deductible against other income.  However, if a loss is attributable to an activity not engaged in for profit (a hobby), the loss is not allowed as a deduction against other income.

Facts & Circumstances Test

1)The manner in which taxpayer carries on the activity.

2)The expertise of taxpayer or advisors

3)Time & effort spent by taxpayer in carrying on the activity

4)The expectation that assets used may appreciate in value

5)Taxpayer’s success in other similar or dissimilar activities

6)Taxpayer’s history of income/loss with respect to the activity

7)Amount of occasional profits, if any

8)Financial status of taxpayer

9)Elements of personal pleasure or recreation

Schedule C

Part I: Income
	Gross receipts or sales
	Returns & Allowances
	COGS (Cost of Goods Sold)
	Other Income
		Finance reserve income
		Scrap sales
		Bad debts recovered
		Interest received
		Prizes and awards
Part II:Expenses
	Advertising
	Car & truck expenses
		1)Actual cost- Deduct the business-use percentage times the actual cost of operating the vehicle (gas, oil, repairs, insurance, tires, license, etc.)
		OR
		2)Standard mileage- For 2011, the business standard mileage rate is $.51 per mile through June 30 and $.55.5 per mile the remainder of the year
	Comissions and fees (Contract Labor not included)
	Contract Labor (services performed by non-employees)
	Depletion
		A depletion is allowed when a taxpayer has an economic interest in mineral property, an oil, gas or geothermal well, or standing timber.
	Depreciation and Section 179
	Employee benefit programs (expenses for accident and health plans, group-term life insurance & dependent care benefit programs)
	Insurance
	Interest
	Legal & professional fees (fees such as those charged by accountants that are ordinary & necessary expenses of operating a business)
	Office expenses
	Pension & profit-sharing plans (contributions to pension, profit-sharing or annuity plans, or plans for the benefit of employees)
	Rent or lease
	Repairs & maintenance
	Supplies
	Taxes & licenses
	Travel
	Meals & entertainment
	Utilities
	Wages
	Other expenses
		A deduction for charitable contributions is not allowed on Schedule C
	Business use of home expense (form 8829)
	Net profit or loss
Part III: COGS

Standard Deduction vs. Itemizing: Seven Facts to Help You Choose

Each year, millions of taxpayers choose whether to take the standard deduction or to itemize their deductions. The following seven facts from the IRS can help you choose the method that gives you the lowest tax.

1. Qualifying expenses - Whether to itemize deductions on your tax return depends on how much you spent on certain expenses last year. If the total amount you spent on qualifying medical care, mortgage interest, taxes, charitable contributions, casualty losses and miscellaneous deductions is more than your standard deduction, you can usually benefit by itemizing.

2. Standard deduction amounts -Your standard deduction is based on your filing status and is subject to inflation adjustments each year. For 2011, the amounts are:
        Single     $5,800
        Married Filing Jointly   $11,600
        Head of Household   $8,500
        Married Filing Separately  $5,800
        Qualifying Widow(er)  $11,600

3. Some taxpayers have different standard deductions - The standard deduction amount depends on your filing status, whether you are 65 or older or blind and whether another taxpayer can claim an exemption for you. If any of these apply, use the Standard Deduction Worksheet on the back of Form 1040EZ, or in the 1040A or 1040 instructions.

4. Limited itemized deductions - Your itemized deductions are no longer limited because of your adjusted gross income.

5. Married filing separately - When a married couple files separate returns and one spouse itemizes deductions, the other spouse cannot claim the standard deduction and therefore must itemize to claim their allowable deductions.

6. Some taxpayers are not eligible for the standard deduction - They include nonresident aliens, dual-status aliens and individuals who file returns for periods of less than 12 months due to a change in accounting periods.

7. Forms to use - The standard deduction can be taken on Forms 1040, 1040A or 1040EZ. To itemize your deductions, use Form 1040, U.S. Individual Income Tax Return, and Schedule A, Itemized Deductions.

These forms and instructions may be downloaded from the IRS website atwww.irs.gov or ordered by calling 800-TAX-FORM (800-829-3676).

Links:

• Publication 17, Your Federal Income Tax (PDF)
• Schedule A, Itemized Deductions (PDF) 

Seven Tips to Help Taxpayers Avoid Phony Refund Schemes Abusing Popular College Tax Credit

The Internal Revenue Service offers the following seven tips to help taxpayers avoid an emerging scheme tempting senior citizens and other taxpayers to file tax returns claiming fraudulent refunds.

These schemes promise refunds to people who have little or no income and normally don’t have a tax filing requirement.

Promoters claim they can obtain for their victims, often senior citizens, a tax refund or nonexistent stimulus payment based on the American Opportunity Tax Credit, even if the victim was not enrolled in or paying for college.

Con artists falsely claim that refunds are available even if the victim went to school decades ago. In many cases, scammers are targeting seniors, people with very low incomes and members of church congregations with bogus promises of free money.

A variation of this scheme also falsely claims the college credit is available to compensate people for paying taxes on groceries.

These schemes can be quite costly for victims. Promoters may charge exorbitant upfront fees to file these claims and are often long gone when victims discover they’ve been scammed.

Taxpayers should be careful of these scams because, regardless of who prepared their tax return, the taxpayer is legally responsible for the accuracy of their tax return and must repay any refunds received in error, plus any penalties and interest. They may even face criminal prosecution.

To avoid becoming ensnared in these schemes, the IRS says taxpayers should beware of any of the following:

• Fictitious claims for refunds or rebates based on false statements of entitlement to tax credits.
• Unfamiliar for-profit tax services selling refund and credit schemes to the membership of local churches.
• Internet solicitations that direct individuals to toll-free numbers and then solicit social security numbers.
• Homemade flyers and brochures implying credits or refunds are available without proof of eligibility.
• Offers of free money with no documentation required.
• Promises of refunds for “Low Income – No Documents Tax Returns.”
• Claims for the expired Economic Recovery Credit Program or for economic stimulus payments. 
• Unsolicited offers to prepare a return and split the refund.
• Unfamiliar return preparation firms soliciting business from cities outside of the normal business or commuting area.

In recent weeks, the IRS has identified and stopped an upsurge of these bogus refund claims coming in from across the United States. The IRS is actively investigating the sources of this scheme, and its promoters can be subject to criminal prosecution.

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Quick Guide to Business Entities

Entity	Advantages
Proprietorship	1)Easy to form & simple to operate
Schedule C or	2)Easy to sell assets.
Schedule F	3)Fewer administrative burdens
	4)All taxation to owner
	Disadvantages
	1)Limited source of capital
	2)No limited liability for owner
	3)No continuity past proprietor
	4)All net income is subject to self-employment (SE) tax
Partnership	Advantages
Form 1065	1)More sources of capital & more management resources
	2)Less adminisrative burdens than corporations
	3)Pass-through taxation; special allocations allowed
	4)Limited partners have limited liability and no SE tax
	Disadvantages
	1)Transfer of interests is more difficult than stock or limited liability units
	2)Each general partner is personally liable
	3)General partners' net income is subject to SE tax
	4)Complexity of partnership tax rules; restrictions on choice of tax year
C Corporation	Advantages
Form 1120	1)Can raise capital with stock sales
	2)Owners have limited liability
	3)Corporations have perpetual life
	4)Ease of transferability of stock
	5)More mangement resources
	Disadvantages
	1)Earnings subject to double taxation
	2)Administrative burdens
	3)Somewhat difficult to form and to dissolve
	4)Borrowing often requires shareholder guarantees
	5)Potential double taxation on dissolution
S Corporation	Advantages
Form 1120s	1)Pass-through status aoids double taxation
	2)Owners have limited liability
	3)Individual tax rates may be lower than the applicable corporate rates.
	4)Distributions from the S corporation are exempt from payroll taxes.
	Disadvantages
	1)Number of sharholders limited to 100; no corporate, partnership or  nonresident alien shareholders
	2)Only one class of stock permitted
	3)Lack of tax-free fringe benefits to greater-than-2% shareholder-employees
	4)Individual tax rates on the pass-through income may be higher than  applicable corporate rates; restrictions on choice of tax year
	5)Shareholders must directly invest to have basis to claim losses; guarantee of  entity debt is insufficient
Limited Liability	Advantages
Company	1)All members have limited liability
Schedule C or	2)No limit on number or types of members
Schedule F or	3)Pass-through taxation under partnership rules
Form 1065	4)Member distributions can include special allocations
	5)Members may participate in management
	6)Different classes of ownership may be permitted
	Disadvantages
	1)May have a limited life.  Tax year choice restricted if taxed as partnership
	2)Transferability of interests may be limited
	3)LLC laws vary from state to state
	4)LLC liability protection is relatively untested in the courts
	5)Members who have management authority, who have debt responsibility  or who materially participate may be exposed to SE tax
This information is from Quickfinders Handbook Thomson Rueters

The Sabbath Day

The Sabbath Day is a day of rest and an opportunity to think about Christ and the activities that went on in the previous week.  Max Jr. enjoyed last week because he completed his first audit count of inventory!

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FAFSA

FAFSA's are due March 10th.  7 more days.

Schedule A: All Deductions Excluding Medical Expenses

State and Local Income Taxes – Taxpayers who choose to deduct state and local sales taxes can deduct either:

1)      Actual sales tax amount (based on their records)

2)      Predetermined deduction figures from IRS tables

Real Estate Taxes ­– Real estate taxes are deductible for all property owned by a taxpayer.

Personal Property Taxes – Personal property taxes are deductible if they are a state or local tax:

1)      Charged on personal property

2)      Based only on the value of the personal property

3)      Charged on a yearly basis.

Example: Automobile license fees.

Interest Expense

1)      Business interest

2)      Capitalized interest

3)      Student loan interest

4)      Investment interest

5)      Mortgage interest

6)      Passive activity interest

Charitable Contributions

Includes money given to:

1)      Churches, synagogues, temples, mosques and other religious organizations

2)      Federal, state and local governments, if contribution is solely for public purchases

3)      Nonprofit schools, hospitals and volunteer fire companies

4)      Public parks and recreation facilities

5)      Public charities such as Salvation Army, Red Cross, CARE, Goodwill Industries, United Way, Boy/Girl Scouts, Boys/Girls Clubs of America, etc.

6)      War veterans’ group

Charitable travel $0.14 per mile

Casualty and Theft Losses – A casualty is the damage, destruction or loss of property resulting from an identifiable event that is sudden, unexpected or unusual.

1)      Car accidents

2)      Earthquakes

3)      Fires, Floods, Hurricanes, Tornadoes, Volcanic Eruptions

4)      Mine cave-ins

5)      Shipwrecks

6)      Thefts

Miscellaneous Itemized Deductions

Fully Deductible:

1)      Amortizable premium on taxable bonds

2)      Casualty and theft losses from income-producing property

3)      Estate taxes imposed on taxable income

4)      Gambling losses

5)      Repayment of income of more than $3,000

6)      Special job-related expenses of the handicapped

7)      Unrecovered cost of annuities

Subject to 2%-of-AGI floor:

1)      Appraisal fees (for charitable donation or casualty losses)

2)      Clerical help and office rent for maintaining investments

3)      Credit card convenience fee for paying income tax by credit or debit card

4)      Employee business expense, including travel, 50% of meals and entertainment, supplies, small tools, professional books and journals, home office deductions, and depreciation on property used for business

5)      Excess deductions allowed a beneficiary on termination of an estate or trust

6)      Fees to collect interest or dividends

7)      Hobby expenses, up to the amount of hobby income

8)      Indirect miscellaneous of pass-through entities

9)      Investment expenses

10)   IRA, SEP, SIMPLE or self-employed qualified plan custodial fees paid with funds outside the account

11)   Job-hunting expenses

12)   Job-related education expenses

13)   Legal fees for collecting or producing taxable income, keeping a job or obtaining tax advice.  Legal fees in a voluntary bankruptcy to the extent attributable to the taxpayer’s business

14)   Liquidated damages paid to a former employer for breach of employment contract

15)   Loss on deposits in an insolvent or bankrupt financial institution

16)   Losses on IRA invesments when all amounts in all IRAs have been distributed and total distributions are less than unrecovered basis, if any.

17)   Medical examinations required by employer.

18)   Professional and union dues

19)   Research expenses of a college professor

20)   Safe deposit box fees or cost of installing a safe in a home

21)   Service charges on dividend reinvestment plans

22)   Tax preparation expenses

23)   Trust administration fees

24)   Undeveloped land management expenses

25)   Work clothes and uniforms if required and not suitable for street wear.

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