Home Office Deduction Changes

IRS Announces Simplified Option for Claiming Home Office Deduction Starting This Year; Eligible Home-Based Businesses May Deduct up to $1,500; Saves Taxpayers 1.6 Million Hours A Year

WASHINGTON — The Internal Revenue Service today announced a simplified option that many owners of home-based businesses and some home-based workers may use to figure their deductions for the business use of their homes.

In tax year 2010, the most recent year for which figures are available, nearly 3.4 million taxpayers claimed deductions for business use of a home (commonly referred to as the home office deduction).

The new optional deduction, capped at $1,500 per year based on $5 a square foot for up to 300 square feet, will reduce the paperwork and recordkeeping burden on small businesses by an estimated 1.6 million hours annually.

“This is a common-sense rule to provide taxpayers an easier way to calculate and claim the home office deduction,” said Acting IRS Commissioner Steven T. Miller. “The IRS continues to look for similar ways to combat complexity and encourages people to look at this option as they consider tax planning in 2013.”

The new option provides eligible taxpayers an easier path to claiming the home office deduction. Currently, they are generally required to fill out a 43-line form (Form 8829) often with complex calculations of allocated expenses, depreciation and carryovers of unused deductions.  Taxpayers claiming the optional deduction will complete a significantly simplified form.

Though homeowners using the new option cannot depreciate the portion of their home used in a trade or business, they can claim allowable mortgage interest, real estate taxes and casualty losses on the home as itemized deductions on Schedule A. These deductions need not be allocated between personal and business use, as is required under the regular method.

Business expenses unrelated to the home, such as advertising, supplies and wages paid to employees are still fully deductible.

Current restrictions on the home office deduction, such as the requirement that a home office must be used regularly and exclusively for business and the limit tied to the income derived from the particular business, still apply under the new option.

The new simplified option is available starting with the 2013 return most taxpayers file early in 2014. Further details on the new option can be found in Revenue Procedure 2013-13, posted today on IRS.gov. Revenue Procedure 2013-13 is effective for taxable years beginning on or after January 1, 2013, and the IRS welcomes public comment on this new option to improve it for tax year 2014 and later years. There are three ways to submit comments.

Source : IR-2013-5

http://www.irs.gov/pub/irs-drop/rp-13-13.pdf

Recent Changes To Tax Law – 2012 Returns Delayed

The gates to begin filing tax returns will no be open until January 30.  However you can still bring in your information before hand if you have it ready.  The following link will provide you with a summary of the recent changes that took place that affect 2012 and future years:

http://tax.cchgroup.com/downloads/files/pdfs/legislation/ATPR.pdf

 

Where’s Your Refund?

Did you know you can check the status of your refund to see when you will be receiving it?  The following are the links:

Federal: https://sa2.www4.irs.gov/irfof/lang/en/irfofgetstatus.jsp

Minnesota: https://www.mndor.state.mn.us/tp/refund/RIvWF7oP/#1

Wisconsin: https://ww2.revenue.wi.gov/RefundInquiry/application

While we generally give you target dates for the receipt of your refund.  There are occasions where your refund can be delayed a couple days, a week, or longer.

This year the Internal Revenue Service put it some extra security measures to protect your money.  While most taxpayers will still receive their refunds as scheduled, be aware that your refund may take a week or more longer if your refund comes under review for any reason.  Generally, if you file your return by Wednesday evening you will receive your refund the Friday of the following week.

For Minnesota, we have generally seen refunds arrive in as little as 2 business days, but they usually arrive within a week of the filing date.

For Wisconsin, you will usually receive your refund within 10 business days.

Once your return is in process there is usually no way to expedite the refund.  If you do not receive your refund on the scheduled date you will usually be given a date of when it will be processed by when you inquire.

Medical and Dental Expenses – Deductible or Not?

Eight Things to Know about Medical and Dental Expenses and Your Taxes 

If you, your spouse or dependents had significant medical or dental costs in 2011, you may be able to deduct those expenses when you file your tax return. Here are eight things the IRS wants you to know about medical and dental expenses and other benefits.

1. You must itemize You deduct qualifying medical and dental expenses if you itemize on Form 1040, Schedule A.

2. Deduction is limited You can deduct total medical care expenses that exceed 7.5 percent of your adjusted gross income for the year. You figure this on Form 1040, Schedule A.

3. Expenses must have been paid in 2011 You can include the medical and dental expenses you paid during the year, regardless of when the services were provided. You’ll need to have good receipts or records to substantiate your expenses.

4. You can’t deduct reimbursed expenses Your total medical expenses for the year must be reduced by any reimbursement. Normally, it makes no difference if you receive the reimbursement or if it is paid directly to the doctor or hospital.

5. Whose expenses qualify You may include qualified medical expenses you pay for yourself, your spouse and your dependents. Some exceptions and special rules apply to divorced or separated parents, taxpayers with a multiple support agreement or those with a qualifying relative who is not your child.

6. Types of expenses that qualify You can deduct expenses primarily paid for the diagnosis, cure, mitigation, treatment or prevention of disease, or treatment affecting any structure or function of the body. For drugs, you can only deduct prescription medication and insulin. You can also include premiums for medical, dental and some long-term care insurance in your expenses. Starting in 2011, you can also include lactation supplies.

7. Transportation costs may qualify You may deduct transportation costs primarily for and essential to medical care that qualify as medical expenses. You can deduct the actual fare for a taxi, bus, train, plane or ambulance as well as tolls and parking fees. If you use your car for medical transportation, you can deduct actual out-of-pocket expenses such as gas and oil, or you can deduct the standard mileage rate for medical expenses, which is 19 cents per mile for 2011.

8. Tax-favored saving for medical expenses Distributions from Health Savings Accounts and withdrawals from Flexible Spending Arrangements may be tax free if used to pay qualified medical expenses including prescription medication and insulin.

For additional information, see Publication 502, Medical and Dental Expenses or Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans, available at www.irs.gov or by calling 800-TAX-FORM (800-829-3676).

Links:

  • Publication 502, Medical and Dental Expenses (PDF)
  • Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans (PDF)

Videos:

Medical and Dental Expenses English | ASL

Podcast:

Medical and Dental Expenses 

Reference From IRS Tax Tips 2012-30

Seven Tips to Help You Determine if Your Social Security Benefits are Taxable

Many people may not realize the Social Security benefits they received in 2011 may be taxable. All Social Security recipients should receive a Form SSA-1099 from the Social Security Administration which shows the total amount of their benefits. You can use this information to help you determine if your benefits are taxable. Here are seven tips from the IRS to help you:

1. How much – if any – of your Social Security benefits are taxable depends on your total income and marital status.

2. Generally, if Social Security benefits were your only income for 2011, your benefits are not taxable and you probably do not need to file a federal income tax return.

3. If you received income from other sources, your benefits will not be taxed unless your modified adjusted gross income is more than the base amount for your filing status (see below).

4. Your taxable benefits and modified adjusted gross income are figured on a worksheet in the Form 1040A or Form 1040 Instruction booklet. Your tax software program will also figure this for you.

5. You can do the following quick computation to determine whether some of your benefits may be taxable:

  • First, add one-half of the total Social Security benefits you received to all your other income, including any tax-exempt interest and other exclusions from income.
  • Then, compare this total to the base amount for your filing status. If the total is more than your base amount, some of your benefits may be taxable.

6. The 2011 base amounts are:

  • $32,000 for married couples filing jointly.
  • $25,000 for single, head of household, qualifying widow/widower with a dependent child, or married individuals filing separately who did not live with their spouse at any time during the year.
  • $0 for married persons filing separately who lived together during the year.

7. For additional information on the taxability of Social Security benefits, see IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits. You can get a copy of Publication 915 at www.irs.gov or by calling 800-TAX-FORM (800-829-3676).

Link: 

Publication 915, Social Security and Equivalent Railroad Retirement Benefits.

Reference – IRS TAX TIP 2012-26

Five Tips for Recently Married or Divorced Taxpayers with a Name Change

If you changed your name after a recent marriage or divorce, the IRS reminds you to take the necessary steps to ensure the name on your tax return matches the name registered with the Social Security Administration.   A mismatch between the name shown on your tax return and the SSA records can cause problems in the processing of your return and may even delay your refund.

Here are five tips from the IRS for recently married or divorced taxpayers who have a name change.

1. f you took your spouse’s last name — or if you hyphenated your last names, you may run into complications if you don’t notify the SSA. When newlyweds file a tax return using their new last names, IRS computers can’t match the new name with their Social Security number.

2. If you recently divorced and changed back to your previous last name, you’ll also need to notify the SSA of this name change.

3. Informing the SSA of a name change is easy. Simply file a Form SS-5, Application for a Social Security Card, at your local SSA office or by mail and provide a recently issued document as proof of your legal name change.

4. Form SS-5 is available on SSA’s website athttp://www.socialsecurity.gov/, by calling 800-772-1213 or at local offices. Your new card will have the same number as your previous card, but will show your new name.

5. If you adopted your spouse’s children after getting married and their names changed, you’ll need to update their names with SSA too. For adopted children without SSNs, the parents can apply for an Adoption Taxpayer Identification Number – or ATIN – by filing Form W-7A, Application for Taxpayer Identification Number for Pending U.S. Adoptions with the IRS. The ATIN is a temporary number used in place of an SSN on the tax return. Form W-7A is available on the IRS.gov website or by calling 800-TAX-FORM (800-829-3676).

Resource from IRS Tax Tip 2012-23

Reducing Your Tax Burden From Canceled Real Estate and Non-Real Estate Debt

Are you faced with mounting credit card debt and in the process of settling with the credit card companies, or have you already settled.  Are you faced with other non-real estate debt (i.e. car loans, recreation vehicles, etc.) and are in the process of settling with the lender?  Do you have a home that is “underwater” and you owe more than it is worth and are faced with cancellation of debt through foreclosure, considering a deed in lieu, or trying to “short-sale” it?  If you answered yes to any of these cases, whether you settle and agree to pay them zero or less principal than the amount owed and/or the secured property is repossessed you may be unaware that this may result in you paying income taxes on the canceled or forgiven debt.

Federal tax law, and in most cases state law, consider canceled debt a form of income that is subject to income tax.  The following article gives a brief explanation of how a short-sale on your home can affect your taxes before and after December 31, 2012:

http://www.houselogic.com/blog/taxes-incentives/tax-rules-short-sales/

If you are trying to sell your principle residence prior to December 31, 2012 via a short sale, or a foreclosure or deed in lieu is finalized prior to this date, you may not have any tax consequence.  However, after this date if your primary residence is sold on a short sale, foreclosed, or given back via a deed in lieu you may be subject to federal and state income tax.  This exclusion is not available for secondary residences (i.e. cabins, vacation homes, rental property).

In regards to real estate debt on secondary residences and other non-real estate debt there are options to reducing your tax burden from canceled debt by claiming insolvency.  This is also an option for real estate debt on your primary residence if it is “canceled” in any form after December 31, 2012 and you are not filing bankruptcy.  Insolvency, is similar to bankruptcy, and simply means if you take the value of all your assets and possessions (cash on hand, retirement accounts, real estate, cars, recreational vehicles, housewares, clothing, collectibles, etc.) are less the amount of your liabilities (mortgage debt, car debt, credit card debt, etc).  While insolvency doesn’t “remove” your debt obligation like a bankruptcy or settlement, it presents the opportunity for you to reduce your potential tax burden from any form of canceled debt.

If you are looking for a real-estate agent that can assist you with a short-sale or want to see what your options are, we work with several real estate agents that we could refer you to.  One of our local real estate companies that specializes in home sales (including short-sales) and  home purchases is Red Key Realty, Inc.  (http://www.smothersgroup.com/) in Lindstrom.  Becky Carlson (651) 338-8524) or Peter Smothers (651) 210-8860 will be able to go over your options with you.  Peter may also be able to assist with your options for non-real estate debt.  If you are looking for other referrals we would be happy to provide them to you.

We recommend you discuss your situation with your tax professional to see if you meet the requirements of any advice stated above since all situations are unique.  Please contact us at (651) 257-2152 with any questions or concerns.

Summary of 2011 & Beyond Tax Changes

Looking for an update of what changed in 2011 or some additional changes that are pending in the future?  Click the link below for this information:

Summary of 2011 & Beyond Tax Changes

Call our office at (651) 257-2152 if you have any questions or concerns.

 

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