Richard Conboy, a certified public accountant based in Danvers, answered readers' tax questions. Here's a transcript of the discussion.
Boston_com_Moderator: Hi all, thanks for joining us for this morning's tax chat. Richard Conboy, a CPA based in Danvers, will be joining us shortly.
Lou__Guest_: Hello Richard, I have a question about the tax deduction on vehicle mileage. I currently receive a vehicle allowance from my company for use of my personal vehicle, this allowance is included in my W2 as wages. Can I take the mileage for my vehicle for the year?
Richard_Conboy: Yes - if you can also itemize your deductions. You will need to use form 2106 to report the actual mileage you used for business and then either use the IRS standard rate or all of the actual expenses incurred to operate - insurance, taxes, gas, inspection, etc. The total will be carried to the Misc expenses on the itemized deduction page and should partially offset the amount included in your W-2.
joy__Guest_: i own a condo that i previously lived in . In the fall of 2007 I had the bathroom remodeled, with the hopes of renting out the unit in 2008. That scenario has now happened. Can any of the remodeling be written off? if so, in what year, 2007 or 2008?
Richard_Conboy: Yes. you will include the cost of remodeling the bathroom in the basis of the condo you will use to calculate the annual depreciation on the unit. You'll only be deducting a smalll percentage of the unit each year, but you will be writing off some of the costs.
mm__Guest_: Hi, I received 3 1099 MISC forms from three part time jobs. How do I enter all the tax IDs on one Schedule C? Do I need to file 3 separate schedule C forms and 3 separate SE forms? Thank you so much!
Richard_Conboy: No - you can combine all of the 1099 form you recieved into one number on sched C and then carry the net amount to a single sched SE
jen__Guest_: we wound up owing quite a bit (more than 9k!) this year on federal taxes so clearly have done something wrong. my husband and i make about $165K (combined), have two kids, and contribute to our 401ks and medical/childcare FSAs. we do not own a home. did we mess up our withholdings? (i think we claimed 2 each, thinking there's 4 people in our family). is there anything we do to minimize our tax bill?
Richard_Conboy: Jen this is a tough question to get right without seeing your return. I would guess that you may have under-withheld, as you suspect, but I also suspect you might get tagged with the Alt Min tax. It would be a good idea to check your withholding exemptions closely.
Sally_Sale__Guest_: Hi Richard, I plan on selling my condo and moving to a rental property. Does the $250k (filing single) exemption on any gain on the sale - would I be liable for any tax if I do not purchase another home?
Richard_Conboy: Salle, your right about the exemption. If the gain on the sale of your condo is less than the $250K exemption, you won't owe any tax on that gain. You do not need to roll that gain over again into a new residence to keep the gain, but you can't cliam the exclusion again until you have held the next residence for at least twp years.
unemployed__Guest_: I am currently unemployed (by choice) and pay for my own health insurance. May I deduct the cost of my health insurance on my schedule A as a health expense? My medical costs would, otherwise well-exceed my premiums.
Richard_Conboy: You can claim the medical expenses directly on schedule A. But remember, there's a 7.5% haircut that reduces your deductible medical expenses before you can benefit from the deductions. Because you are unemployed, this may not amount to a big hurdle, but you should be aware of it.
sox_28__Guest_: My husband passed away in 2006. For 2006 we filed a joint return. In 2007, he received a 1099 for forgiveness of debt from an auto loan. Do I have to include the income on my return or can I file a return under his social security number to report the income. My understanding is that we cannot file a joint return in the second year after death and we have no children.
Richard_Conboy: That's correct, you can only file jointly in the year of his death. As for the 1099 for the debt forgiveness, I believe you should not include that in your return, unless you were a joint signer on the loan and you took title to the car after his death as the surviving spouse of the joint owner. I would assume the forgiveness related to some credit life insurence that he purchased when he bought the car.
Deidre__Guest_: Hi, I just began work this week as an independent contractor, writing grants for a non-profit organization. I am aware that I will need to file quarterly taxes and a Schedule C. Could you tell me what other paperwork I should keep, or any other key points to keep in mind? Thank you.
Richard_Conboy: Deidre; good luck in your new career. As an independent contractor, you will definately need to keep track of your income and your expenses for tax purposes. As a grant writer, you could be working from home or in an the client's office. If you are paying for any related expenses - office supplies, computer connections, research materials, etc. You should also keep track of those. As an independent contractor, you might also be in a position to deduct your home or cell phone for the percentage of business use that it gets. I would suggest that you look over some of the IRS publications for the self employed as well as any other guides you might come across for the self-employed business person.
Todd__Guest_: I have always done my own taxes and used the standard deduction. This year I used an accountant and got a lot more back. He wants to refile past year's for me. If I refile past year's am I more likely to be audited?
Richard_Conboy: No - the audit selction criteria has nothing to do with changes from one year to the next. Amending a prior year return is not something that would draw any additional scrutiny either.
cpasoxred__Guest_: richard, as a sole member of an LLC, can I treat payments to myself as a salary expense and thus reduce my taxable income? or are they considered draws that reduce my equity? thanks
Richard_Conboy: For tax purposes, a single member LLC is a disregarded entity. On your tax return, you would simply report all of your income and expenses on schedule C. Drawing a salsry from the LLC is simply moving the income from one pocket of your pant to another. It has no impact. It would complicate your accounting and reporting, but not gain anything. There are other means to do this - for example in the case of a professional corporation, but the LLC is not the vehicle to do this.
d__Guest_: Determing Cost Basis of donated items? If you donated a list of items can you easily estimate the thrift sale value of the items and list as a lump sum in taxes or do you have to itemize? And also what is basis of thrift sale value(Your value based on condition, age and amt that you think it should warrant?)
Richard_Conboy: This has become a tricky question for this year. The IRS now insists that you have a receipt to document every non-cash contribution. Anything contributed must be in "good" condition or better to qualify. So from you perspective, don't contribute anythin you probably can't justify as good. As for the value, I knwo that the Salvation Army nd the MOrgan memorial receipts have a list of items and a range of associated values of each item. Try to establish value using these lists. then enter the totall in the proper places on form 8283 and add that to your tax returns.
loper__Guest_: I was doing the federal free turbo tax and got to the state turbo tax where I had to pay $$. There were somethings I wasn't sure about in this section so I quit out of it. In your opinion should I visit a tax company or should I just finish with what I am not sure of on turbotax? My refund looks a lot skimpier then in previous years.
Richard_Conboy: Good luck
Richard_Conboy: This one of the drawbacks to the tax-in-the box approach. Your questions show that you are comparing this year's result to the prior year's but don't know how to evelauate that changes from year to year. Most of the software programs can provide yo with a list of items from last year to this year, if you used their product last year. Look at this list and evalauate each item. If you can explain and understand the changes in each income and deduction item from year to year, you can probably find the reason for the change. Once you find the reason, the next step is to understand what to do about it. That's where an experienced CPA can help and add the most value.
Guido__Guest_: I received a 1099 for the sale of stock last year in the amount of $952.00. This was stock in a company which used to employ my wife in the late 1980's and early 1990's. She bought the stock over time through an employee stock purchase program. I have no idea what the purchase price of the stock was. I know I have to report the $952.00 stock sale. I have no idea what the basis/purchase price of stock was. Can I report on Schedule D that the purchaseprice/basis was the same as the sales price - $952.00?
Richard_Conboy: It will be best if you can do the research to establish the best basis number you can for that stock. Somewhere along the line, you must have had statements reporting the amounts and shares purchsed. I would recommend that you try contacting the company directly. That mightbe the easiest approach. For all you know, you might have aloss on the sale that could help to offsett other income on your return.
d__Guest_: Question for 2009 tax purposes: Recently my work introduced a 401K Roth plan in addition to a normal 401K plan. My understanding is that I can contribute up to $ 15,500(I'm under 50) total in either. Wanted to conform and also ask does my 401K Roth contributioins effect my ability to contribute to a separate Roth IRA account in 2009 up to $ 4K? Are they separate or does my 401K Roth contributions effect the amount I can put jn the Roth IRA? Thanks
Richard_Conboy: The maximun contribution to either Roth or traditional 401(k) plans cannot exceed the annual maximum. Don't assume you can contribute $15K to one and another $25k top the other. Also, if you are doing this thru your employer, the plan administrator, or the payroll manager, will be counting your contributions and will let you know when you get to the maximum.
Richard_Conboy: Yes. you can include the stock and tools that you bring to the business as your "contributed capital" to the new business. It's very simple in theory, but then again, so is rocket science.
RichardY__Guest_: What do I need to report a capital gains loss for fed and state filings?
Richard_Conboy: I would ask why you wouldn't want to. The capiital loss might be available to offset some of your current taxable income, or might be carried over to next year for the same Purpose.
shirley__Guest_: I was laid of of a job in Rhode Island last summer and began collecting unemployment. I also started trying to establish my own professional services business and expended money in order to attract clients (professional fees, membership dues, purchase of a computer and establishing blackberry service). I did not receive any income from my business in 2007. Can I still file a schedule C and claim losses against my income from the beginning of the year even though I was also collecting unemploymement from another state?
Richard_Conboy: As long as you are truly engaged in the pursuit of business, doing so in a business-like manner,can document that you have done so and that the expenses are directly related to your business pursuit, I would encourage you to utilize the sced C approach. If there is any doubt, I would recommend that you hold all of the expenses as items you should capitalize and deduct/depreciate/amortize in later years after your business is collecting revenue.
jim__Guest_: My company reimburses just 22 cents per mile for private car use. Can I itemize the remaining amount? And how much is the federal allowance?
Richard_Conboy: Yes, you can calculate the additional expenses and include them with your other itemized deductions. Remember that unreimbursed employee business expenses are considered miscellanoeoud itemized deductions and are subject to a 2% "haircut" of minimum before you will get any benefit.
Richard_Conboy: The IRS standard mileage rate for 2007 was 47.5 cents.
unemployed__Guest_: From what you state above, is my insurance premium considered a medical expense?
Richard_Conboy: Medical insurance premiums are dedutible. In your case, you might want to look at a high deductible medical plan that is connected to a Health Savings Acct (not a flexible spending plan). You can then put the deductible amount into the savings plan, and any unused amount can continue to accumulate from year to year.
TomD__Guest_: Hello. I have a question on medical expenses. I do my mothers taxes and she is elderly and in an assisted living facility. I prepaid a couple of months rent for 2008 in December 2007 with the hope that I could offset some of her capital gains. I had to sell some of her stocks in 2007. A portion of the assisted living rent is considered medical. I believe its 52%.
Richard_Conboy: If the assisted living facily has informed you that they have determined that 52% of the "rent" is considered a medical expense, then you should use that number. Remember that medical expenses are subject to that 7.5% haircut, meaning that your expenses have to exceed 7.5% of her AGI before she can benefit from those expenses. If her capital gains are substantial, she might not benefit.
Ariel__Guest_: i've already filed taxes and recieved my returns from the state and feds but i forgot to file something.
Richard_Conboy: Wait six weeks and then file an amended federal (and state) return to make the correction. Now, don't forget to remember to file the amended return.
RM08__Guest_: Hello Richard, I received a corrected 1099-DIV after filing my Massachusetts return. The change does not affect my tax for this year but does affect the short term loss available for carryover to 2008 on Schedule B. Do I need to amend my 2007 Mass. return? Thanks!
Richard_Conboy: I would encourage you to file the amended return. It sets the record straight for the future, on their books and yours.
guest77__Guest_: we bought a home in 2007 that needed a lot of work...can we benefit by our construction?
Richard_Conboy: You will benefit enormously by your construction, but not for taxes - at least not until you sell the house. You will et the immediate benefit of improved living facilities, an increase in the potential selling value, and other psychic pleasure, but that\'s all.
Ariel__Guest_: in 2007, i sold a house , received $189,600. i am not required to pay capital gains on it but should i file this form before April deadline?
Richard_Conboy: If the house your sold was your residence, you may be able to exclude the gain, but I would encourage you to report it. Even if you have no other income, you might be eligible for the Stimulus rebate because of other factors.
carla__Guest_: Hi, I have a question about foreign earned income. This person earned foreign income in 2007. I can apply the foreign income exclusion, therefore no federal tax will be charged. My question is this income subject to social security.
Richard_Conboy: That one is way to complicated for this forum. However, if the person qualifies for the foriegn earned income exclusion, there might be a specific treaty with the country of residence regarding social security. Get thee to a CPA!!
Annie__Guest_: Is home insurance deductible?
Richard_Conboy: It normally isn't deductible. It might be in certain cases, for example if you rent out part of your home, or use part of your home as a home office for your business, or if you have a specific rider for fine arts that you keep at home.
Richard_Conboy: It depend upon the facts and circumstances.
Gerry__Guest_: I received a 1099-ltc from Conseco Insurance for a return of 80% of premiums that I paid over a 10 year period . My LTC contract provided that I would get the 80% return. By them issuing a 1099 ltc, do I have to report this on my taxes? I did not use this money for medical expenses, it was just a return of my premiums. I did not deduct these premiums directly, but I did use the amounts to determine if my other medical expenses were in excess of 7.5% of my income. Do I have to report the 1099 LTC as income?
Richard_Conboy: This i another one that is just a wee bit more incolved than what we would expect in this forum, but here goes.
Richard_Conboy: Because the insurance company is reporting the item, you are probably required to report it. However, you might be able to offsett this income against the previous premiums paid. This is best left to a CPA who can invest the time to do the research on this specific issue.
Deirdre__Guest_: I've always done my own taxes but this past year did a major renovation on my owner occupied two-family home. Is it particulary difficult to amortize the cost of the improvement? The tax program I used in the past doesn't have a section on this.
Richard_Conboy: If your tax program doesn't do depreciation, you probably should be using a professional. Depreciation by itself isn't really a difficult concept, but neither is physics. I just wouldn't try it on my own. Things really can blow up on you.
quite_taxing__Guest_: This year, turbo tax printed out some estimated tax payment coupons for use in 2008. My wife and I have never had to do this before. 1. What triggered this, 2. Should we pay them, 3. Would we adjust our withholding to prevent this from happening again. We both get bonuses from our workplace.
Richard_Conboy: Once again, the tax-in-the-box approach does leave something to be desired.. Most likely, The estimated tax vouchers were printed because you have a balance due and it exceeds a certain pre-established amount. You don't necessarily need to file these estimates, and you may be able to simply adjust you withholding. The balance due might be from a one-time event that may not occur again in 2008, but without understanding the issues, you might need to talk with a professional to get a better answer, and avoid penalties.
Tom__Guest_: My accountant was unable to file with IRS electronically, he says that it passed all diagnostics, so why it failed is unknown. He tells me that 8-10% of his efiles are failing this year and the IRS does not have an answer. Have you heard this as well?
Richard_Conboy: I have had some returns bounce back, but not a significant number. There are some returns that cannot be filed electronically because they contain certain forms or have certain events - like the death of a taxpayer. The IRS has gotten very good at the e-file thing, so I would try again, or get a better explaination.
cat__Guest_: Hello. Are IRA maintenance fees tax deductible?
Richard_Conboy: Only if paid directly by the beneficiary - not if deducted from the account.
Brian_V__Guest_: Hi. I received a letter from the IRS stating that I'd failed to report income from 2006. I'd received income from a disqualifying sale of ISOs which were reported on my W2 as resular income. However, I also received a 1099 B from E-trade, which I ignored because the income was listed on my W2. What is the best way to prove to the IRS that I paid taxes on this income already? Thanks
Richard_Conboy: I would encourage you to prepare amended return reporting the sale of the stock on schedule D and the amount reported on your W-2 as the basis and the net gain/loss. It is never a good idea to ignore 1099 forms. It's the primary reporting tool for the IRS to track income.
shane__Guest_: I have earned income from another state. This income can be taken as a deduction on MA Schedule Z. The incomes comes from a farm and oil royalties in KS. Would both incomes be included in this deduction?
Richard_Conboy: The income is generally reportd=ed and taxed in MA, you may also have a reporting requirement in KS. If you do, and you have to pay taxes, you will be allowed a CREDIT for those taxes in MA. No deductions, credits.
cat__Guest_: I will not be filing my taxes until next month, but am expecting a refund so was not planning to file an extension. Will I still be able to contribute to my 2007 IRA without one?
Richard_Conboy: You must make your 2007 IRA contribution no later than April 15. The extension is another matter. I would recommend that you either file the extension or jus file the return. The longer you delaym, the longer you will have to wait for your STimulus payment.
Jen__Guest_: My single mom who was living in Maine passed away in November. I am in the process of being appointed her personal representative. It's not final yet. Can I file an extension of her personal taxes even though I am not the representative yet? I am expecting her to get a refund.
Richard_Conboy: You can file the extension as her "personal representative" or as the "person in possession".
Pauliwood__Guest_: in 2007, i worked for a company based out of CT. My sales territory was all Massachusetts. MY accountant this year informed me, since I had a W-2 filled out from CT, I had to add my entire 2007 income, plus my wife's 2007 income and pay the highest CT tax. Is this accurate?
Richard_Conboy: It appears that because the employer treatd you as a CT employee, you will have to file in both CT and MA (assuming you are a MA resident) However, your resident state should allow a credit for the taxes paid to CT on CT sourced income. You may have other filing options for CT that might leave your wife out of it, but only you CPA can help you to make that decision.
BANQ__Guest_: I will be filing my 2007 tax paperwork for return. I typically owe becuase of my investments, but when I do finally file, will I pop up on the IRS radar to receive the incentive $$$ amount they are promising. I meet all requirements for this as a US citizen..
Richard_Conboy: If you meet all of the requirements for the STimulus rebate, you will get one. However, the longer you delay in filing your '07 return, the longer you will wait for that check. You will pop up on their radar screen once you file your return.
Jessica__Guest_: I have a followup question to your answer to someone else - I know beginning this year the IRS would require receipts - or better receipts, however they define them - for charitiable contributions other than cash. However, you mentioned a form (8283?) and I didn't fill one out, just entered the amount on the Schedule A as always. I think it was about $300. Is that separate form only required if the total, or one of the individual, contributions was over a certain amount?
Richard_Conboy: Jessica:
Richard_Conboy: You are good!! Yes, the 8283 is required only if your gifts of property (not cash) exceed $499.99
cat__Guest_: I am an indepdent contractor, and for one of my clients all of my expenses are included on my 1099, including the cost of taking his clients/vendors out to dinner. I've claimed these on my schedule C as 100% deductible meals. Is this correct?
Richard_Conboy: Yes. Because you were re-imbursed for these expenses they are not subject to the 50% limitation.
xman__Guest_: I have a lot of student loans from undergrad and grad school. I know that the interest I paid is deductable, but are there income limits on the ability to deduct that interest? I'm afraid I might make too much to be able to deduct the interst. Thanks.
Richard_Conboy: X-man;
Richard_Conboy: I suspect there was a question there, but I didn't get it. Remember the only thing we have to fear - is fear itself. Do some reading to see if you are over the limit.
cat__Guest_: I received an accident settlement, and part of it was used to pay medical expenses. Are these expenses still deductible?
Richard_Conboy: In many cases they won't be. But because circumstances differ for each person can result in different outcomes, it would be worth it to get some professional advice from someone who can review all of the info in detail.
keith__Guest_: If I were turning a craft/ hobby into a business, am I able to account for stock and tools already owned?
Richard_Conboy: Sorry about this, I thought I had answered this one. Yes. In most cases, you can take your stick and tools into consideration as "contributed capital", best to consult a skilled tax craftsman on this one and steer clear of a "hobbyist"
xman__Guest_: The question was whether there are income limits on the ability to deduct student loan interest. Thanks.
Richard_Conboy: There are limits. Assuming you are filing as single the deduction for student loan interest begins to phase out at $55K and is gone after about $70K. There are other strategies to address this, but not all of them will produce benefits.
Mike__Guest_: Lived in OH for 3 years, all of 2007. Have a Fidelity IRA Iconverted to Roth IRA in 2007. But I had my old MA address on account. I am really a legal OH resident. Should I just ask Fidelity to amend 1099R b/c right now MA is probably looking for a return from me
Richard_Conboy: I'm not clear on why Fidelity would create a 1099-R for MA when you are legally an OH resident. They are probably unlikely to create a new 1099R for you due to the address change. By itself, the 1099R is unlikely to attract any attention form MA, unless there are other factors that might justify treating you as a MA resident.
Pauliwood__Guest_: follow up to my CT income question., and yes, I am a MA resident. Doesn't me employment with that CT based company fall under the Ancillary Activity Test? I just don't see why if I only worked for a company based out of CT for 2 months, I should owe then in excess of $2500
Richard_Conboy: There are too many factors involved to get to a specific and concise answer. The company treated you as a CT employee and not MA. How long you were employed has no impact. Clay Buckholtz only pitched one game in MA, and you can bet he was subject to MA withholding tax. You are stuck between two tax jurisdictions and Your CPA is only trying to get the best outcome for you. Try to get more infoomation, and I would guess that it isn't as bad as it might seem.
xman__Guest_: Thank you. Can you clarify what you mean by "other strategies to address" student loan interest?
Richard_Conboy: You could possibly pay off your student lons using a home equity loan. This makes the interest deductible, but the rate may be higher (after considering the tax benefits) or you might not be eligibl.
Pauliwood__Guest_: ok, ty for your input and time today.
Richard_Conboy: Many thanx for your questions and patience. I really can spell, I just can;t type fast.
Richard_Conboy: There are many questions about taxes, unfortunately one question always begets another. There is a lot of help if you need it. Just look for the IRS publications, or one of the many Volunteer tax preparer groups.
Richard_Conboy: Good luck
Richard_Conboy: Richard
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