The Tax Tips Blog - Answers to your Federal tax questions: Recent Comments

Comment on The IRS has issued the 2007 standard mileage rates

David Greenslit CPA — Fri, 05 Sep 2008 21:12:10 GMT

I'd say, it boils down to 'his' place of business. You and him can have different places of business in my opinion. If his place of business is the office 5 miles away, that would seem to rule out mileage to and from his home. But he has an employee he is deliverying work to. I'd think that the IRS has seen this situation before and will make the argument that the fact that he is driving to his home is more important than the fact that an employee is there. He can generally not bring work home for himself and have a deduction. He could deliver work to other places though and get the write-off. It's not clear to me if you have a deduction here? If his 'place of business' is his home, I'd say the deduction would be good however.

Comment on The IRS has issued the 2007 standard mileage rates

David Greenslit CPA — Fri, 05 Sep 2008 20:44:49 GMT

I am going to make some assumptions: Your employer pays for the gas that you use for business and not for the gas you use for personal use of your car. That payment is made under an "accountable plan" which means you document the use, which varies from month to month. Since the payment for the gas to you does not show up on your W-2 as wages, you could then deduct the standard mileage rate times the number of miles. You then must subtract from this deduction, the payment made to you by your employer.

You need to determine what if anything is showing up on your W-2 from these payments. If the full amount paid is showing up, then deduct your business miles times the standard mileage rate.

You can use actual vehicle costs. You figure your total vehicle costs for the year, and then multiply that by a ratio that is: Business Miles / Total Miles. I'd advise you to depreciate your vehicle when using the actual cost method. The standard mileage rate method is simpler.

All this assumes, you have business mileage. Commuting costs are generally not deductible.

Comment on The IRS has issued the 2007 standard mileage rates

David Greenslit CPA — Fri, 05 Sep 2008 20:22:16 GMT

You can deduct driving costs, once you reach your place of business. If the temp agency is your place of business, and you drive there, and then to the work location, the driving costs from the agency to the work location could be argued to be deductible.

If the case is, your work sites are considered temporary, I'd say you could deduct all your driving costs. For people in construction, for instance, sheet-rockers, I advise them to deduct their driving costs because their work locations are temporary. This 'implies' that your place of business is your home.

So we have at least 2 rules here: the Place of Business rule, and the Temporary Work Sites rule. The two rules may not mesh together perfectly. I'd say there is an argument to be made for the deduction, if you had numerous work sites. The deduction would be made on schedule A.

Comment on Hobby Losses

David Greenslit CPA — Fri, 05 Sep 2008 19:55:58 GMT

The question is, is this operation a business or a hobby? I'd think most of the people you will be racing against, don't actually make money doing what they do. The IRS has a policy of being against people writing off the costs of their hobbies. I do not discount the possibility that you might make money with the endeavor. Try Googling: "IRS Hobby Loss Rules".

You might find yourself taking this approach: Report any winnings you get, and report expenses equal to your winnings. With the "building" of a car, you are going to have to learn about depreciation. Cars are assets, and expensed over time. Depreciation has its flip side, expenses, which in your case, are things like repairs.

Comment on Pre-paying a mortgage?

David Greenslit CPA — Fri, 05 Sep 2008 19:40:20 GMT

As far as the mechanics of the Earned Income Credit and the Self Employment tax go, it's true that you got a bigger refund by reporting the $12,000 and dismissing some write-offs.

I've faced this situation as a preparer and wondered what I am to do that the IRS and the Minnesota State Board of Accountancy would think of my recommending you go with the $12,000 number? It's been my policy to report the $7,000 in this case. To do otherwise, seems too aggressive an approach to take. It seems to border on manipulating the numbers to gain an advantage. This is my opinion, and it may turn out the IRS actuallly approves of what your accountant did.

Comment on The IRS has issued the 2007 standard mileage rates

David Greenslit CPA — Fri, 05 Sep 2008 19:33:29 GMT

I'd say the frequency of your commutes doesn't change the rules that apply to commuting. No, it's not deductible.

Comment on The IRS has issued the 2007 standard mileage rates

Heidi — Tue, 03 Jun 2008 14:46:11 GMT

Hi, my husband is a Podiatrist (an employee of an S Corporation)who has an office 5 miles from our home, works at a surgery center and hospital and travels to an office 20 miles away. I am the bookkeeper/administrative assistant for the S corporation and work exclusively out of our home. He brings work to me when he comes home at night and I send work back with him in the morning. The S corporation has recently been through an audit and the IRS is questioning the commuting miles from the local office to our home. Based on the fact that our home office is the principal location for me for bookkeeping, is there a way to justify those miles? My husband also regularly fields calls from patients and other physicians at home as well as preparatory work for surgeries and presentations.

Comment on Stimulus Rebate and Dependents

BIGGUY — Thu, 22 May 2008 20:21:10 GMT

To be eligible on the parents return the child must be under 17, so one turning 18 in 2008 and filing on their own in 2009 would not be double dipping because their parents did not receive anything for them in 2008.

Comment on Taxable Refunds and the AMT

WD Kebschull — Fri, 09 May 2008 14:53:38 GMT

I agree with the what was posted regarding the taxation of state income tax refunds. However, there are situations regarding state income tax refunds and the AMT that were not covered.

If there is a limited long-term capital gains rate based tax benefit in a year that the AMT is paid as a result of a state income tax overpayment causing more of the capital gains to be taxed at the lower rate (5 percent in 2007) and fewer of the LTCG's to be taxed at the higher rate (15 percent in 2007) there is a tax benefit of 10 percent of the tax overpayment that produced this benefit. Thus that portion of the refund would be "taxable".

However, I submit that, based on the language in section 111(a) of the Internal Revenue Code, the refund can only be used to increase the portion of capital gains taxed at 15 percent rather than 5 percent.

Based on IRS instructions (see publication 525) the taxable refund will be included in gross income where it can be taxed at the regular tax rate after the income used to overpay the state income tax in the year that the AMT paid was taxed at the AMT rate.

Interestingly, tax refunds that produced a tax benefit in a year the regular tax was paid are excluded from alternative minimum taxable income as a result of the instruction on Line 7 of Form 6251. Clearly, IRS instructions are in conflict with section 56(b)(1)(D) of the Internal Revenue Code.

Here is the link to comments that I summited to a House Ways and Means subcommittee last year.
http://waysandmeans.house.gov/hearings.asp?formmode=view&id=6052

Comment on Child and Dependent Care Credit and Single Parent Students

Ellen — Tue, 22 Apr 2008 07:11:54 GMT

You're right, it ISN'T clear what the protocol is should a single parent be a student. But I believe that the single parent in question would not be allowed the credit for the care of the child since single parent who is a student would logically not be the maintainer of the home (meaning more than fifty percent of their abode). Being the "breadwinner" is part of the list of qualifications, I believe.

-Ellen, contributor to www.dependentcare.com