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Most types of income are taxable, but some are not. Income can include money, property or services that you receive. Here are some examples of income that are usually not taxable:
- Child support payments;
- Gifts, bequests and inheritances;
- Welfare benefits;
- Damage awards for physical injury or sickness;
- Cash rebates from a dealer or manufacturer for an item you buy; and
- Reimbursements for qualified adoption expenses.
Some income is not taxable except under certain conditions. Examples include:
Life insurance proceeds paid to you because of an insured person’s death are usually not taxable. However, if you redeem a life insurance policy for cash, any amount that is more than the cost of the policy is taxable.
Income you get from a qualified scholarship is normally not taxable. Amounts you use for certain costs, such as tuition and required course books, are not taxable. However, amounts used for room and board are taxable.
All income, such as wages and tips, is taxable unless the law specifically excludes it. This includes non-cash income from bartering, such as the exchange of property or services. Both parties must include the fair market value of goods or services received as income on their tax return.
If you received a refund, credit or offset of state or local income taxes in 2012, you may be required to report this amount. If you did not receive a 2012 Form 1099-G, check with the government agency that made the payments to you. That agency may have made the form available only in an electronic format. You will need to get instructions from the agency to retrieve this document. Report any taxable refund you received even if you did not receive Form 1099-G.
September is often a time of transition, when people decide to make major life decisions–such as changing jobs. If you’re looking for a new job, then you may be able to claim a tax deduction for some of your job hunting expenses–as long as it’s in your same line of work.
Here are seven things you need to know about deducting these costs:
1. Your expenses must be for a job search in your current occupation. You may not deduct expenses related to a search for a job in a new occupation. If your employer or another party reimburses you for an expense, you may not deduct it.
2. You can deduct employment and job placement agency fees you pay while looking for a job.
3. You can deduct the cost of preparing and mailing copies of your resume to prospective employers.
4. If you travel to look for a new job, you may be able to deduct your travel expenses. However, you can only deduct them if the trip is primarily to look for a new job.
5. You can’t deduct job search expenses if there was a substantial break between the end of your last job and the time you began looking for a new one.
6. You can’t deduct job search expenses if you’re looking for a job for the first time.
7. You will usually claim job search expenses as a miscellaneous itemized deduction, but can deduct only the amount of your total miscellaneous deductions that exceed two percent of your adjusted gross income.
If you moved due to a change in your job or business location, or because you started a new job or business, you may be able to deduct your reasonable moving expenses; however, you may not deduct any expenses for meals. If you meet the requirements of the tax law for the deduction of moving expenses, you can deduct allowable expenses for a move to the area of a new main job location within the United States or its possessions. Your move may be from one United States location to another or from a foreign country to the United States.
Note: The rules applicable to moving within or to the United States are different from the rules that apply to moves outside the United States. These rules are discussed separately.
To qualify for the moving expense deduction, you must satisfy three requirements.
Under the first requirement, your move must closely relate to the start of work. Generally, you can consider moving expenses within one year of the date you first report to work at a new job location. Additional rules apply to this requirement. Please contact us if you need assistance understanding this requirement.
The second requirement is the “distance test”; your new workplace must be at least 50 miles farther from your old home than your old job location was from your old home. For example, if your old main job location was 12 miles from your former home, your new main job location must be at least 62 miles from that former home. If you had no previous workplace, your new job location must be at least 50 miles from your old home.
The third requirement is the “time test”. If you are an employee, you must work full-time for at least 39 weeks during the first 12 months immediately following your arrival in the general area of your new job location. If you are self-employed, you must work full time for at least 39 weeks during the first 12 months and for a total of at least 78 weeks during the first 24 months immediately following your arrival in the general area of your new work location. There are exceptions to the time test in case of death, disability and involuntary separation, among other things. And, if your income tax return is due before you have satisfied this requirement, you can still deduct your allowable moving expenses if you expect to meet the time test.
Note: If you are a member of the armed forces and your move was due to a military order and permanent change of station, you do not have to satisfy the “distance or time tests”.
What Are “Reasonable” Expenses?
You can deduct only those expenses that are reasonable under the circumstances of your move. For example, the cost of traveling from your former home to your new one should be by the shortest, most direct route available by conventional transportation. If during your trip to your new home, you make side trips for sight-seeing, the additional expenses for your side trips are not deductible as moving expenses.
You can deduct the cost of packing, crating and transporting your household goods and personal property, and you may be able to include the cost of storing and insuring these items while in transit. You may also deduct costs of connecting or disconnecting utilities.
Tip: You can include the cost of storing and insuring household goods and personal effects within any period of 30 consecutive days after the day your things are moved from your former home and before they are delivered to your new home.
Tip: You can deduct the cost of shipping your car and your pets to your new home.
Nondeductible expenses. You cannot deduct as moving expenses any part of the purchase price of your new home, the costs of buying or selling a home, or the cost of entering into or breaking a lease. Don’t hesitate to call us if you have any questions about which expenses are deductible.
Reimbursed expenses. If your employer reimburses you for the costs of a move for which you took a deduction, you may have to include the reimbursement as income on your tax return.
Travel Expenses – How to Calculate the Deduction
If you use your car to take yourself, members of your household, or your personal effects to your new home, you can figure your expenses by deducting either:
- Your actual expenses, such as gas and oil for your car, if you keep an accurate record of each expense, or
- The standard mileage rate is 24 cents per mile for miles driven during 2013 (23 cents per mile in 2012).
Tip: If you choose the standard mileage rate you can deduct parking fees and tolls you pay in moving. You cannot deduct any general repairs, general maintenance, insurance, or depreciation for your car.
You can deduct the cost of transportation and lodging for yourself and members of your household while traveling from your former home to your new home. This includes expenses for the day you arrive. You can include any lodging expenses you had in the area of your former home within one day after you could not live in your former home because your furniture had been moved. You can deduct expenses for only one trip to your new home for yourself and members of your household; however, all of you do not have to travel together.
Member of Your Household
You can deduct moving expenses you pay for yourself and members of your household. A member of your household is anyone who has both your former and new home as his or her home. It does not include a tenant or employee, unless you can claim that person as a dependent.
If you’re still not sure whether your moving expenses are deductible, please give us a call. We’re here to help!
Tax rules on rental income from second homes can be complicated, particularly if you rent the home out for several months of the year, but also use the home yourself.
There is however, one provision that is not complicated. Homeowners who rent out their property for 14 or fewer days a year can pocket the rental income, tax-free.
Known as the “Master’s exemption”, because it is used by homeowners, near the Augusta National Golf Club in Augusta, GA who rent out their homes during the Master’s Tournament (for as much as $20,000!). It is also used by homeowners who rent out their homes for movie productions or those whose residences are located near Super Bowl sites or national political conventions.
Tip: If you live close to a vacation destination such as the beach or mountains, you may be able to make some extra cash by renting out your home (principal residence) when you go on vacation–as long as it’s two weeks or less. And, although you can’t take depreciation or deduct for maintenance, you can deduct mortgage interest and property taxes on Schedule A.
In general, income from rental of a vacation home for 15 days or longer must be reported on your tax return on Schedule E, Supplemental Income and Loss. You should also keep in mind that the definition of a “vacation home” is not limited to a house. Apartments, condominiums, mobile homes, and boats are also considered vacation homes in the eyes of the IRS.
Further, the IRS states that a vacation home is considered a residence if personal use exceeds 14 days or more than 10% of the total days it is rented to others (if that figure is greater). When you use a vacation home as your residence and also rent it to others, you must divide the expenses between rental use and personal use, and you may not deduct the rental portion of the expenses in excess of the rental income.
Example: Let’s say you own a house in the mountains and rent it out during ski season, typically between mid-December and mid-April. You and your family also vacation at the house for one week in October and two weeks in August. The rest of the time the house is unused.
The family uses the house for 21 days and it is rented out to others for 121 days for a total of 142 days of use during the year. In this scenario 85% of expenses such as mortgage interest, property taxes, maintenance, utilities, and depreciation can be written off against the rental income on Schedule E. As for the remaining 15% of expenses, only the owner’s mortgage interest and property taxes are deductible on Schedule A.
Questions about vacation home rental income? Give us a call. We’ll help you figure it out.
AIRBNB Rental Income
Rental income is usually taxable under the Federal tax laws. But there is an exception if you rent out a home that you use as a home and the home is rented less than 15 days during the year. The exception is that rental income and rental expenses are not reported on your return at all. This allows a person to rent out his or her home for a short period of time with no tax consequences.
In addition to renting the home 14 or fewer days during the year, you must use the home for personal purposes more than the greater of 14 days or 10% of the total days it is rented to others at a fair rental price. This is no problem if you are temporarily renting out one spare room in a home that you live in. But for second homes or vacation homes, you need to keep track of your days.
The standard mileage rates for calculating deductible costs for using a car, van, pickup or lightweight “panel” truck is 56.5 cents per mile for business travel.
For other potentially deductible driving-related expenses, the rates are 24 cents per mile for medical purposes or when moving to a new residence (following additional rules), and 14 cents per mile for driving in the service of a charitable organization.
We have reinvented the design part of the business and move it to its own company, awfedesign, separating out the logical from the abstract. Awfedesign will be offering more services and packages for design work: website design, illustrations, art designs, logos, etc. We are also adding more ways to buy domains, emails and hosting packages. Click on the link and check out our new design company.
We here at chaoticcancellation are busy getting your end of year financials in order, reconciling December statements and generally getting caught from the end of the year 2012. We hope that by mid-February, we will be able to start tax preparation and getting your tax returns done early and/or sending your financials to your CPA.
January is our time to get caught up and the Internal Revenue Service has announced that it has revised its opening date for tax season, pushing it out just eight days to January 30, 2013. Normally, the tax season opens on January 22 each year however due to tax legislation, its been pushed out. The statement on the IRS website
The IRS is currently reviewing the details of this week’s tax legislation and assessing what impact it will have on this year’s filing season. The IRS will soon make available additional information on when taxpayers can start filing 2012 tax returns.
What this means is that the IRS will begin accepting tax returns on January 30, 2013. Most taxpayers should be able to file on that date though some taxpayers will have to wait a bit for revised forms. Those include folks claiming residential energy credits, depreciation of property or general business credits.
Mid-February is when we will start processing tax returns for our clients.
Online Accounting Finally!!
Many of you have been asking for an online accounting solution and we have finally found a great solution, it’s called Xero which we have partnered with. We are in the process of getting certified and if you are interested, we will be more than happy to convert your QuickBooks File to Xero so you can see your cash flow in real-time.
In order to give each of our clients better transparency on exactly what we do for you and when we’re doing it, we have started using a project management tool called basecamp to keep track of all the things related to your account such as notes on pending items, files, documents and to do list for your project in one place. This allows us to keep all aspects of your project organized, focused and archived, accessible from any computer with an internet connection, by all involved. It will keep everyone up to date with progress on the project and you will be able to see what day your project is scheduled to be worked on. Also you will be able to see any pending to do list that we need you to complete. (While we strive to keep to our schedules and your to dos as shown in basecamp, occasionally an emergency arises from the house fighting me or a client emergency and your scheduled date might be pushed out)
We will be sending out invitations by the end of January to each of our clients to join our basecamp project management tool if you haven’t already been invited. We invite you to login, set your password and join us in the fun. Feel free to check it out, have a look around, post a comment to a discussion or add a new discussion. The system is very simple to use, so just start using it in the way you think it should be used.
You can edit your contact information, and upload you photo (you don’t have to, it’s just a bit of fun and makes the project more personal for everyone). If you need more assistance, please get in touch by calling the office at 925-349-9075 and we can talk you through the features. If you don’t want daily emails or weekly updates, you can turn off the feature of getting emails as well.
Sometimes our notes are chaotic/cryptic and may not make any sense, please feel free to ask for clarification anytime. Whenever you have some thoughts about the project, or something you’d like me to take a look at, just upload it here and I’ll comment as soon as I can. We check the everything list at the end of each day.
As always we are still available via email, that won’t be going away, neither will a phone call or text message.
You can also book an appt via basecamp, just check the book appt calendar and find an open slot, add your name and time and we will send a confirmation email to you.