TAX TIP 1040+ Quality Tax Preparation....Some Taxes are deductable

Tax Tip

Some taxes are deductible on your income tax return

Are you planning to itemize on your 2013 federal income tax return? If so, it's likely you'll claim a deduction for taxes paid. According to IRS statistics, taxes are the most frequently claimed itemized deduction, as well as the largest. But what kind of tax can you deduct on your personal return?

State and local income taxes or general sales taxes are deductible for 2013, and you can choose whichever gives you the most benefit.

You can also deduct real estate taxes you pay on your home or other real property you own (including property owned in a foreign country). That's true even if you pay the tax into an escrow account managed by your mortgage holder. In that case, you can deduct the amount actually paid to the tax collector. Just be sure the entire payment is for taxes. Why? Assessments included on your real estate bill for improvements such as sidewalks and sewer lines are generally added to your basis in the property—meaning no write-off this year.

Remember to check closing statements, too, when you buy or sell property, because you can claim the portion of current real estate taxes you're responsible for. However, if you agree to pay delinquent taxes the seller owed at the time of closing, that expense is considered part of your basis in the property.

Personal property taxes are imposed annually on the value of property other than real estate. Certain motor vehicle registration fees fit this description.

Other taxes you can deduct include foreign income taxes. Caution: Instead of deducting these taxes, you have the option of taking a credit, which will reduce your tax bill dollar for dollar and may offer more benefit.

If you inherit certain assets and are required to report the income on your return, you may be able to deduct a portion of the federal estate tax paid. Claim this deduction on Schedule A, on the line for miscellaneous items.

Some taxes, such as self-employment taxes, are deductible elsewhere on your return. Other taxes are not deductible at all. Examples include marriage licenses, gift taxes, gasoline taxes, and Medicare taxes (including the 3.8% net investment income tax).

Feel free to contact us if you have questions about the deductibility of a tax you paid during the year, or if you received a refund of a tax you deducted in a prior year. We're here to help.

Joseph C Becker, CPB, MBA, CQP
Ten Forty plus Quality Tax Preparation & Financial Services
www.tenfortyplus.com
281-397-7777, Fax 281-397-7443
joeb@tenfortyplus.com

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Joseph C Becker, CPB, MBA, CQP
Ten Forty plus Quality Tax Preparation & Financial Services
www.tenfortyplus.com
281-397-7777, Fax 281-397-7443
joeb@tenfortyplus.com

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Tax Tips - IRS issues repair regulations

Tax Tip

IRS issues repair regulations

At the end of 2013, the IRS published guidance designed to help answer a question you probably consider whenever you acquire a business asset: Should you depreciate the cost over time or expense it currently?

The new guidance, referred to as capitalization and repair regulations, explains the federal income tax treatment of expenditures you make for materials and supplies, repairs and maintenance, and business property you buy, produce, or improve.

The regulations apply to all businesses, including sole proprietorships, rentals, and farms, and are generally effective beginning January 1, 2014. However, the rules may also affect your prior- and current-year tax returns. Here's what you need to do.

Set up procedures. Written accounting policies detailing the method and reason for classification of asset purchases will help make sure you benefit from expensing elections available in the regulations.

Review past decisions. Look over your depreciation schedule, as well as your general ledger for past years. Make sure decisions regarding the expensing or capitalization of assets conform to the new requirements.

File necessary forms. If you determine some assets should have been treated differently under the new rules, you may need to amend prior year returns or file "Form 3115, Application for Change in Accounting Method."

Please give us a call to discuss how the capitalization and repair regulations will affect your business.

Joseph C Becker, CPB, MBA, CFE
Ten Forty plus Quality Tax Preparation & Financial Services
www.tenfortyplus.com
281-397-7777, Fax 281-397-7443
joeb@tenfortyplus.com