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Filing Requirements for Dependents

Whether a dependent has to file a return generally depends on the amount of the dependent’s earned and unearned income and whether the dependent is married, is age 65 or older, or is blind.

Note: A dependent may have to file a return even if his or her income is less than the amount that would normally require a return.

Even if you are not legally required to file, you should file a federal tax return to get money back if any of the following apply:

You had income tax withheld from your pay.

You qualify for the earned income credit.

You qualify for the additional child tax credit.

Receive a Faster Refund with Direct Deposit

January 21, 2012 at 8:24 am | Posted in Taxes | Leave a comment
Tags: Income Tax, knoxville cpa, tax tip

The New Year has arrived, which means . . . it’s tax time!

This year, do you want your refund faster? Have it deposited directly into your bank account. More taxpayers are choosing direct deposit as the way to receive their federal tax refunds. More than 78.4 million people had their tax refunds deposited directly into their bank accounts last year. It’s the secure and convenient way to get money in your wallet faster.

Security. The payment is secure – there is no check to get lost. Each year thousands of refund checks are returned by the US Post Office to the IRS as undeliverable mail. Direct deposit eliminates undeliverable mail and is also the best way to guard against having a tax refund stolen.
Convenience. There’s no special trip to the bank to deposit a check!

You can also electronically direct your refund to multiple accounts. With the new “split refund” option, taxpayers can divide their refunds among as many as three checking or savings accounts and three different U.S. financial institutions. The split refund option, using Form 8888, is also available for paper returns.

Caution: Some financial institutions do not allow a joint refund to be deposited into an individual account. Check with your bank or other financial institution to make sure your direct deposit will be accepted. Also, make sure you have the correct nine-digit routing number and your account number when selecting direct deposit.

To request direct deposit, just ask us. We are happy to assist you. Call 865-690-2662

Standard Mileage Rates for 2012 Released

December 12, 2011 at 11:42 am | Posted in Uncategorized | Leave a comment

The IRS on Friday released standard mileage rates for use in 2012. Taxpayers can use the optional standard mileage rates to calculate the deductible costs of operating an automobile.

For business use of an automobile remains at 55½ cents per mile. For medical or moving expenses, it is 23 cents per mile (a half-cent decrease from the second half of 2011). For services to charitable organizations, the rate (which is set by statute) is 14 cents per mile.

Rather than using the standard mileage rates, taxpayers may instead use their actual costs if they maintain adequate records and can substantiate their expenses. The rules for substantiating these amounts appear in Rev. Proc. 2010-51.

For automobiles a taxpayer uses for business purposes, the portion of the business standard mileage rate treated as depreciation is 23 cents per mile for 2012 (it was 22 cents per mile for 2011).

Check Your Withholdings

November 20, 2011 at 2:40 pm | Posted in Uncategorized | Leave a comment

With less than two months remaining in the calendar year, it’s a great time to double check your federal withholding to make sure enough taxes are being taken out of your pay.

The average refund for 2010 was just over $3,000. Although in part due to tax credits associated with the economic stimulus package, it’s still an increase of nearly 10 percent from the previous year. In addition, even though the Making Work Pay Tax Credit lowered tax withholding rates in 2010 for millions of American households, some workers and retirees still need to take steps to make sure enough tax is being taken out of their checks.

Certain folks should pay particular attention to their withholding. These include:

Married couples with two incomes

Individuals with multiple jobs

Dependents

Some Social Security recipients who work

Workers who do not have valid Social Security numbers

Retirees who receive pension payments

Taxpayers who wind up owing too much tax because not enough money was withheld from their paychecks during 2011 may qualify for special relief on a penalty that sometimes applies. Depending on their personal situation, some people could have less withheld from their paychecks than they need or want.

Failure to adjust withholding could result in potentially smaller refunds or, in limited instances, a taxpayer may owe tax rather than receive a refund next year.

If you’re not sure how much you need to withhold from your paycheck, just give us a call at 865-690-2662, and we’ll figure it out with you.

Retirement Contributions Limits and Other Tax Benefits for 2012

November 11, 2011 at 7:56 am | Posted in Uncategorized | Leave a comment

The IRS has announced the maximum contribution limits for your 401(k) and other retirement plans for 2012. In general, many of the pension plan limitations will change for 2012 because the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment. However, other limitations will remain unchanged. Highlights include:

Individuals Limits for 401(k): Annual compensation limit $250,000 in 2012 (up from $245,000 in 2011); maximum annual contribution $17,000 in 2012 (up from $16,500 in 2011) with a $5,500 contributions for age 50 and older.

Savings Incentive Match Plan for Employees (SIMPLE): Contribution limit $11,500 with a $2,500 catch up clause for age 50 and older. Remains unchanged from 2011.

Individual Retirement Plans (IRAs): Maximum contribution $5,000 with a $1,000 catch up contribution for those age 50 and older. The contribution can be split between a Roth IRA and a traditional IRA, but must not exceed $6,000. Remains unchanged from 2011.

Looking Ahead to 2012
The value of each personal and dependent exemption will increase $100 to $3,800 in 2012.

The new standard deduction is $11,900 in 2012 for married couples filing jointly. Individuals and married people filing separately will see the standard deduction rise to $5,950 and the standard deduction for head of household rises to $8,700. Nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions.

Annual gift tax exclusion remains at $13,000 in 2012. The basic exclusion from estate tax amount increases to $5,120,000, from $5,000,000 in 2011

Hobby or Business? Why It Matters

October 27, 2011 at 7:43 am | Posted in Taxes | Leave a comment
Tags: CPA, Income Tax, knoxville cpa, small business, tax tip

Millions of Americans have hobbies such as sewing, woodworking, fishing, gardening, stamp and coin collecting, but when that hobby starts to turn a profit, it might just be considered a business by the IRS.

Definition of a Hobby vs a Business
The IRS defines a hobby as an activity that is not pursued for profit. A business, on the other hand, is an activity that is carried out with the reasonable expectation of earning a profit.

The tax considerations are different for each activity so it’s important for taxpayers to determine whether an activity is engaged in for profit as a business or is just a hobby for personal enjoyment.

Of course, you must report and pay tax on income from almost all sources, including hobbies. But when it comes to deductions such as expenses and losses, the two activities differ in their tax implications.

Is Your Hobby Actually a Business?
If you’re not sure whether you’re running a business or simply enjoying a hobby, here are some of the factors you should consider:

Does the time and effort put into the activity indicate an intention to make a profit?

Do you depend on income from the activity?

If there are losses, are they due to circumstances beyond your control or did they occur in the start-up phase of the business?

Have you changed methods of operation to improve profitability?

Do you have the knowledge needed to carry on the activity as a successful business?

Have you made a profit in similar activities in the past?

Does the activity make a profit in some years?

Do you expect to make a profit in the future from the appreciation of assets used in the activity?

An activity is presumed to be for profit if it makes a profit in at least three of the last five tax years, including the current year (or at least two of the last seven years for activities that consist primarily of breeding, showing, training, or racing horses).

The IRS says that it looks at all facts when determining whether a hobby is for pleasure or business, but the profit test is the primary one. If the activity earned income in three out of the last five years, it is for profit. If the activity does not meet the profit test, the IRS will take an individualized look at the facts of your activity using the list of questions above to determine whether it’s a business or a hobby. (It should be noted that this list is not all-inclusive.)

Business Activity: If the activity is determined to be a business, you can deduct ordinary and necessary expenses for the operation of the business on a Schedule C or C-EZ on your Form 1040 without considerations for percentage limitations. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is appropriate for your business.

Hobby: If an activity is a hobby, not for profit, losses from that activity may not be used to offset other income. You can only deduct expenses up to the amount of income earned from the hobby. These expenses, with other miscellaneous expenses, are itemized on Schedule A and must also meet the 2 percent limitation of your adjusted gross income in order to be deducted.

What Are Allowable Hobby Deductions?
If your activity is not carried on for profit, allowable deductions cannot exceed the gross receipts for the activity.

Note: Internal Revenue Code Section 183 (Activities Not Engaged in for Profit) limits deductions that can be claimed when an activity is not engaged in for profit. IRC 183 is sometimes referred to as the “hobby loss rule.”

Deductions for hobby activities are claimed as itemized deductions on Schedule A, Form 1040. These deductions must be taken in the following order and only to the extent stated in each of three categories:

Deductions that a taxpayer may claim for certain personal expenses, such as home mortgage interest and taxes, may be taken in full.

Deductions that don’t result in an adjustment to the basis of property, such as advertising, insurance premiums, and wages, may be taken next, to the extent gross income for the activity is more than the deductions from the first category.

Deductions that reduce the basis of property, such as depreciation and amortization, are taken last, but only to the extent gross income for the activity is more than the deductions taken in the first two categories.

If your hobby is regularly generating income, it could make tax sense for you to consider it a business because you might be able to lower your taxes and take certain deductions.

Give us a call if you’re not sure whether your hobby is actually a business and we’ll help you figure it out.

What Income Is Nontaxable?

September 7, 2011 at 11:36 am | Posted in Uncategorized | Leave a comment

Generally, you are taxed on income that is available to you regardless of whether it is actually in your possession, but there are some situations when certain types of income are partially taxed or not taxed at all.

Here are some examples of items that are NOT included in your income:

Adoption expense reimbursements for qualifying expenses

Funding of your Health Savings Account (HSA) with a one-time direct transfer from your qualified individual retirement plan (Roth IRA or IRA, but not an ongoing SEP IRA or SIMPLE IRA), an Archer MSA, health reimbursement account (HRA), or health flexible spending account (FSA), but not from an ongoing SIMPLE IRA and SEP IRA

Child support payments

Gifts, bequests, and inheritances

Workers’ compensation benefits

Meals and lodging for the convenience of your employer

Compensatory damages awarded for physical injury or physical sickness

Welfare benefits

Cash rebates from a dealer or manufacturer

Here are examples of items that may or may not be included in your income:

Life Insurance. If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. Life insurance proceeds paid to you because of the death of the insured person are not taxable unless the policy was turned over to you for a price.

Scholarship or Fellowship Grant. If you are a candidate for a degree, you can exclude amounts you receive as a qualified scholarship or fellowship. Amounts used for room and board do not qualify.

Non-cash Income. Taxable income may be in a form other than cash. One example of this is bartering, which is an exchange of property or services. The fair market value of goods and services exchanged is fully taxable and must be included as income on Form 1040 of both parties.

Please contact us at 865-690-2662 if you’d like more information about what income is nontaxable.

Tips for Recently Married or Divorced Taxpayers

September 2, 2011 at 2:34 pm | Posted in Taxes | Leave a comment
Tags: CPA, Income Tax, knoxville cpa, tax tip

Newlyweds and the recently divorced should ensure the name on their tax return matches the name registered with the Social Security Administration (SSA). A mismatch could unexpectedly increase a tax bill or reduce the size of any refund.

For recently married taxpayers, the tax scenario begins when the bride says “I do.” If she takes her husband’s last name, but doesn’t tell the SSA about the name change, complications may arise. For example, if the couple files a joint tax return with the bride’s new name, the IRS computers will not be able to match the new name with the Social Security number.

After a divorce, a woman who had taken her husband’s name and made that change known to the SSA should contact the SSA if she goes back to her previous name.

If you have any questions related to your requirements to the IRS after getting married or divorced, or need help changing your name with the SSA, give us a call at 865-690-2662. We’re happy to help.

Tax Benefits for Job Seekers

August 7, 2011 at 9:21 pm | Posted in Job Seekers, Taxes | Leave a comment
Tags: Income Tax, knoxville cpa, tax tip

Some folks – especially these days – are polishing their resumes and attending career fairs in search of employment. If you are searching for a job this summer, you may be able to deduct some of those expenses on your tax return.
Here are six things you need to know about deducting costs related to your job search.

1. To deduct job search costs, the expenses must be spent on a job search in your current occupation. You may not deduct expenses related to looking for a job in a new occupation.
You can deduct employment and outplacement agency fees you pay while looking for a job in your present occupation.

2. If your employer pays you back in a later year for employment agency fees, you must include the amount you receive in your gross income up to the amount of your tax benefit in the earlier year.

3. You can deduct amounts you spend for preparing and mailing copies of a resume to prospective employers as long as you are looking for a new job in your present occupation.

4. If you travel to an area to look for a new job in your present occupation, you may be able to deduct travel expenses to and from the area. You can only deduct the travel expenses if the trip is primarily to look for a new job. The amount of time you spend on personal activity compared to the time spent looking for work is important in determining whether the trip is primarily personal or is related to your job search. (If you have questions about how to figure this, call us.)

5. You cannot deduct job search expenses if there was a substantial break between the end of your last job and the time you begin looking for a new one.

6. You cannot deduct job search expenses if you are looking for a job for the first time.

If you’d like more information about deducting expenses related to your job search, let us know. Call us at 865-690-2662 We’ll guide you through the process.

Additional helpful info can be found at www.godel.com job aids…

2011 IRS Mileage Rates Changed for July 1, 2011

July 25, 2011 at 7:10 am | Posted in Uncategorized | Leave a comment

The IRS standard mileage rate for the final six months of 2011 was increased as a result of the recent increase in gasoline prices. The IRS usually only adjusts this rate annually in the fall.

The standard mileage rate was increased by 4.5 cents for business, medical and moving travel for the last six months of 2011. Charitable travel remained unchanged at 14 cents per mile as this rate is set by statute, not the IRS.

The standard mileage rate is used to compute the deductible costs of operating an automobile for business use in lieu of tracking actual costs. This rate is also used as a benchmark by the federal government and many businesses to reimburse their employees for mileage.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

Mileage Rates for July 1, 2011 to December 31, 2011 are:

Business: 55.5 cents per mile (Compared to first six months at 51 cents per mile).

Medical: 23.5 cents per mile (Compared to first six months of 2011 at 19 cents per mile).

Moving: 23.5 cents per mile (Compared to first six months of 2011 at 19 cents per mile).

Charitable: Unchanged at 14 cents per mile.

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