TIP 1. Record Keeping
Our tax system collects
income information from various 3rd parties. Each of us must provide the bulk of our
deductions, exclusions and credit information. Often the key to reducing tax is keeping
good records.
Two tax related documents
that are commonly overlooked (and thus often misplaced):
·
HUD Closing Statement: When buying, selling, or
refinancing a house, the actual gain or loss is usually tax-deferred; however, there are
often tax and interest items on the closing statement that will affect your current year
deductions.
·
Stock Purchase Confirmations: Although stock
transactions are not taxable until sold, the nontaxable basis of sold stock is determined
from the purchase information. Since many years may pass between the purchase and
sale of stock, often the purchase information gets lost or misplaced. If brokerage
companies have changed during that time, it may be very difficult to track down accurate
purchase information.
TIP 2. IRA Contributions
Most people wait until the
last moment for tax purposes to make contributions to their IRAs. However, in order to maximize the benefits of
tax-free accumulation available from an IRA, contributions should be made as soon as
possible in the year (as well as taking required distributions as late as possible.) Consistently contributing at the beginning of the
year as opposed to the end of the year can make a difference of tens of thousands of
dollars by the time an individual reaches retirement.
TIP 3. Deductible Interest
Analyze your debt and
consider restructuring it to maximize your interest expense deduction. In certain cases
you may be able to refinance personal debt, which is not deductible, to mortgage interest,
which is deductible, subject to limitations.
TIP 4. New Mileage Rates
The
IRS has released the new optional standard mileage rates for 2011 for use in computing the deductible costs of operating an
automobile.
Beginning January 1, 2011
through June 30, 2011 the standard mileage rates will be:
· 51
cents a mile for all business miles driven
· 19
cents a mile when computing deductible medical or moving expenses
· 14 cents a mile when giving services to
a charitable organization
Beginning July 1, 2011
through December 31, 2011 the standard mileage rates will be:
· 55.5 cents a mile for all business miles driven
· 23.5 cents a mile when computing deductible medical or moving
expenses
· 14 cents a mile when giving services to
a charitable organization
TIP 5. Itemized Deductions
1. Arizona allows 100% of your medical deductions. There is no
7.5% of adjusted gross income subtraction.
2. Personal Property Tax (Car tags) is often forgotten. Only the value or lieu tax is
deductable. Most people provide the amount of the check written to ADOT, which overstates
the deduction by about $10 per car per year in Cochise County. Further, we most often do
not know what has been provided, the tax amount or the check amount, and have to ask.By
going to servicearizona.com/webapp/feeRecap/ you can get a printout for all your vehicles
that break out the deduction and if you pay extra for the various charity plates, it
provides the charitable deduction. Please provide us with this printout.
3. Charitable
deductions, cash or non-cash, must be supported by bank records or receipt, letter or
other written communication from the donee, indicating donees name and the date and amount
of the donation. Such documentation must be in hand prior to filing the tax return. If
non-cash contributions exceed $500.00 a Form 8283 is needed (an input sheet for this
information is provided in your organizer). Further, if you give $250.00 cash or non-cash,
or more at one time to one donee, that donee must provide a statement prior to filing your
return, what goods or services, if any, were exchanged for your donation. The Salvation
Army, Goodwill, etc. provide lists of values for items commonly given. Goodwill list can
be found at goodwill.org/page/guest/about along with other helpful information. Click on
Donate goods then Tax deduction. If you are donating a vehicle or
goods valued in excess of $5,000 please contact us prior to making the gift. You, the
donor, must value your gift. Neither the tax preparer nor the donee can establish value.
TIP 6. Kiddie Tax
Your
dependent children under the age of 19 on 1/1/11, or a full
time student under age 24, with interest and/or dividend income in excess of $950 or total
investment income in excess of $1,900 will be taxed at the higher of their rate, or that
of their parents.
TIP
7. Mortgage Interest
The post
October 13th 1987 acquisition indebtedness may not exceed $1 million and home
equity indebtedness (non-acquisition debt) can not exceed $100,000. Acquisition debt includes debt for substantial
improvements.
TIP
8. Employer Proved Cell Phones
The Small
Business Jobs Act of 2010 removed cell phones as a "Listed Asset", requiring
difficult record-keeping. IRS Notice 2011-72 notes that an emplyer-provided cell phone
would be a taxable fringe benefit unless it was provided for noncompensatory business
reasons and not to just promote employee morale. If the employer-provided cell phone is
for noncompensatory business reasons, any personal use will be treated as a non-taxable
de-minimus fringe benefit.
TIP
9. Joint Tenancy, Joint Tenancy with the Right of Survivorship, and Other Types of
Joint Tenancy
Many
people hold real estate, bank accounts, stocks, etc. in some type of joint tenancy to avoid probate and create liquidity after
their death. This sounds good, but....
The entire
asset is subject to the creditors of both owners.
Either
owner can use the entire asset, leaving the other owner nothing.
Either
owner can transfer his/her interest, breaking the joint tenancy.
In
community property states, you only get a 50% step-up in basis on the 1st tenant to die.
There are
much better ways to avoid
probate.
TIP
10. What is Use Tax?
Use Tax is
charged to a residence of one jurisdiction when they purchase goods form another
jurisdiction and pay no sales tax or less sales tax than they would have paid to the
resident jurisdiction and use or consume the items in the residence jurisdiction.
Arizona
and the city of Sierra Vista and Douglas have Use Tax. Arizona for the first time has a
line on their income tax return to report Use Tax. To report Use Tax to Sierra Vista or Douglas
you must use a form TPT-1 available online from azdor.gov. Arizona Use Tax rate is 6.6 %, Sierra
Vista rate is 1.75%, and Douglas rate is 2.5%.
If you
reside in Sierra Vista and order a $100.00 item without paying sales tax, you would owe
$6.60 to Arizona and $1.75 to Sierra Vista. If you paid $4.00 tax on the same item when
you bought it you would owe Arizona $2.60 and Sierra Vista $1.75. If you bought the same
item in Huachuca city, which has a 1.5 % rate you would owe $0.25 to Sierra Vista or if
that item was food, not taxable by Huachuca city, you would owe $1.75.
The state
of Arizona has determined that you not only have to pay Use Tax, you have to keep track of
it.
400 W. Fry Blvd., Suite 4
Sierra Vista, AZ 85635
(520) 459-2366
1-800-541-8080
FAX (520) 458-5229 |