Tax Chat with CPA Buz Aaron

March 5, 2007

Harvey “Buz” Aaron is a senior tax manager for Braver PC as well as Vice President of Tax Services for Braver Wealth Management, Inc. Buz has particular expertise in the area of individual taxation.

Buz_Aaron: Good morning. My name is Buz Aaron. I have been doing individual taxes for 25 years and I'm here to answer your questions.

Augur__Guest_: We have a newly formed business that was incorporated in November, 2005. It involves a computer-based technology, and during 2006 we invested considerable funds in its development. The product has not yet been launched. We are planning to do so this year. Can we take any of the losses in 2006 on our personal tax form? Do we have to file a tax return for the organization, if it has only losses and no profit?

Buz_Aaron: Hello, Augur. Part of this answer depends on what kind of corporation you are. Did you make an election to be treated as a subchapter S corporation, in which case any eligible losses would flow through to your individual return? You will need to file returns for the corporation for 2005 and 2006 since a corporation has an existence separate from the individuals who work for it.

john__Guest_: I have been separated from my wife for seven years but we continue to file joint returns. She does not have any taxable income as she gets SSI disability. Is this OK to continue filing? I get the break since I pay less this way.

Buz_Aaron: Hi John. The question here is are you legally married? If yes, then you can continue doing what you are doing. If no, then you cannot file joint returns.

little22__Guest_: Where can I find federal tax booklets?

Buz_Aaron: Hello, Little22. I'm not sure about the booklets themselves, but you can get all the forms and instructions at irs.gov.

john__Guest_: We are still married. Thanks.

Buz_Aaron: Hi John. I just want to make sure you are also getting your telephone excise tax credit. See line 71 of your form 1040.

little22__Guest_: I am getting married in June. What are our options for next year?

Buz_Aaron: Hi again, Little22. Congratulations! Once you actually tie the knot, you have only two options: married filing jointly or married filing separately. The way the tax tables are constructed -- for most people most of the time -- it is more beneficial to file jointly.

little22__Guest_: I only have a cell phone. Does the telephone excise credit still apply to me?

Buz_Aaron: [NOTE: Wireless services did bundle services during the time period specified by the IRS, meaning customers who paid the excise tax during that time are eligible for the tax credit.] Hi, Little22. The telephone excise tax applies to everyone who paid the federal excise tax for long distance service between Feb. 28, 2003, and Aug. 1, 2006. If you've only had a cell phone for that period of time, I would say it does not apply to you.

George_K___Guest_: I have a question. I started a landscaping & snowplowing business late last year. I am a sole proprietor. I purchased my two largest assets, a pickup truck and skid loader, in anticipation of starting the business, but three months before I actually registered the business with my town and started accepting clients. This delay was due to financing and operator licensing issues. Can these two assets still be treated as Section 179 deductions? Or did I inadvertently and unknowingly give up that option?

Buz_Aaron: Good morning, George. I don't believe the timing here would be a technical disqualification. You should still be able to depreciate these assets, and depending on the total value of assets purchased, elect to take section 179.

Sully_Girl__Guest_: To make a very long story short, my boss never took taxes out last year and I am not a contracted employee, He said the IRS is making him pay the $5,000 in taxes instead of giving me a W-9, since I am not a contracted employee. He admitted this was his mistake. He told me that he is going to want my tax return. I don't have to give it to him, right? Is there any way of him finding out what I filed on my taxes?

Buz_Aaron: Hello Sully_Girl. I'm not sure what you mean by a "contracted employee.” Were you issued a form W-2 or a form 1099 by the people who paid you?

den__Guest_: Good Morning. Please clarify if you would: there are no federal excise taxes applied when making long distance calls on a cell phone? Thank you.

Buz_Aaron: [NOTE: See above.] This is true. The federal excise taxes were applied to long-distance calls based on distance and elapsed time. This is clearly not how cell phone usage is billed.

Augur__Guest_: We are trying to determine from the incorporation documents whether we are a C Corp or a S Corp. If the documentation says we are a Stock Corporation, does that mean we are an S Corp?

Buz_Aaron: Hello again, Augur. It means right now, you are a C Corp. To be an S Corp, you need to make an affirmative election by using form 2553. To be effective for 2007, you must file this form by March 15. You can get the form and instructions at irs.gov.

beth__Guest_: Hello, my husband is going to school full-time for furniture making. It is not an accredited college. Can we deduct expenses for his school supplies?

Buz_Aaron: Hello, Beth. I'm afraid not. In order to deduct tuition or related expenses, the school must be accredited.

Paul__Guest_: I have questions about an investment in Carlyle XIII returns. I have been unable to get in touch with TurboTax to get a printout of my past taxes(I have the old TurboTax data but not the text files) especially anything to do with the form K-1. Can you provide any help here ? A phone number for TurboTax?

Buz_Aaron: Hi, Paul. Lesson 1 here? Always keep paper copies of your returns and paperwork used to prepare the returns. I don't know much about TurboTax, but you could probably get a number by Googling them. Also, I might suggest contacting Carlyle to get more information about their investment.

newmother__Guest_: In 2006, my husband and I were unsuccessful in an attempt to adopt an infant. Are we able to deduct the legal costs in 2006?

Buz_Aaron: Hello, Newmother. I'm afraid not. In order to get the tax benefits, there must actually be a legal adoption.

little22__Guest_: My employer offers pre-tax parking and transportation costs (MBTA). Will this pre-tax "benefit" affect me badly when I do my taxes next year?

Buz_Aaron: Hi again, Little22. Why do you put the word "benefit" in quotations? Pre-tax expenses are a good thing. It means you pay for them with dollars you don't pay taxes on.

a_low__Guest_: When does an individual get hit with the AMT tax? I am nervous about the AMT.

Buz_Aaron: Hi A_Low. You've hit a real nerve here. I don't blame you for being nervous about the AMT. It's a tax that's gone haywire and is impacting many more people than it was ever intended to tax. For the most part, people who live in high income tax states, such as Massachusetts, tend to get hit because taxes, both income and real estate, are not deductible for AMT purposes. In addition, if you have miscellaneous itemized deductions, this will contribute to being caught by the AMT monster because they are not deductible when computing AMT.

a_low__Guest_: Hello, I work two jobs for two different companies, traveling to different work sites. What can I deduct? Mileage driven, work clothes, books for work? Anything else?

Buz_Aaron: Hi, A_Low. Be careful here. If you are an employee, the travel between your home and any of the work sites is considered personal commuting and not deductible. However, if you travel between the work sites during the day, the travel between them is deductible. The trip home is also personal and not deductible. As for work clothes, these are not deductible if they are suitable to be worn at other times. Examples of deductible items would be uniforms or special or protective articles. The general rule is that you can deduct items spent in pursuit of your employment which are not reimbursed by your employer. If the books help you do your job better, they would be deductible.

beth__Guest_: Back to the school -- can we take the lifetime learning credit?

Buz_Aaron: Hi, Beth. It does appear that this credit is allowable for vocational training.

chet__Guest_: My fiancé and I bought a house last September. We are filing taxes separately this year. In terms of real estate taxes and mortgage interest, can we divide that in two and both take 50% of the overall amount? Example: If it was $2,000, can we both file for $1,000?

Buz_Aaron: Hi, Chet. If you bought the house together, meaning you are both listed on the title and the mortgage, then, yes, you should split the taxes and interest 50/50.

Sonny__Guest_: Hello. I filed my taxes as single and forgot to claim myself as dependent (line 6a), which would have allowed me to take additional tax breaks. Can I recover the money I overpaid to IRS on 1040X? Thanks.

Buz_Aaron: Absolutely!

mlw__Guest_: We would like to deduct our out-of-pocket medical expenses. What is the minimum amount of money we have to pay out in order to get a deduction?

Buz_Aaron: Hello, MLW. First of all, you have to have enough other deductions to be able to itemize. Second, medical expenses are deductible only to the extent they exceed 7 7.5 percent of your adjusted gross income. Please refer to federal schedule A and the related instructions.

Buz_Aaron: I'm afraid we're out of time for today. Thank you all for your questions. I enjoyed my time and I hope you found the answers helpful.