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Tax Planning Letter

Question: Is contribution to a Roth IRA for tax year 2008 tax deductible?

While filing out the tax form I noticed that for explanation for Line 51 (Retirement Savings Contributions Credit (Saver’s Credit) on Form 1040 says “you may be able to take this credit if you or your spouse if filing jointly, make a) contributions to a traditional or Roth IRA

This is the part where I got confused. I thought that Roth IRA is not tax deductible but under letter “a” it says “traditional” OR Roth, which makes me wonder if the rule changed for tax year 2008 (one of Obama’s plans)?

Can someone explain this to me? Thanks!

Answer: The Roth is not tax deductible.

The Retirement Savings Contributions Credit (Saver's Credit) is a separate credit, if you qualify, that is not connected to the deductiblity of your IRA, 401(k), 403(b), etc.

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Estate Tax Planning 2009

Question: Real Estate Tax advice.. very detailed ..any experts in real estate tax out there?

We are selling our principal residence in South Carolina which we will have lived in and owned for about 18 months (thus short of the 2 year mandatory minimum for tax free status).

We will have tens of thousands of dollars in capital improvements (new hardwood flooring, counters, siding, deck, extensive bathroom renovation..done in 2009). We also have lots of money in repairs and painting, cleaning, yard maintenance etc.

We will hopefully sell in spring 2010.

1. We plan to make about 80k over what we bought it for.. can we deduct any of what we spent fixing it up?
2. Will we get taxed on every dollar over what we originally paid in 2008? There are no extenuating circumstances to force the move.
3. Can we deduct our closing costs from originally purchasing it?
4. Is there anything else you can tell me that might help..ie. things I CAN deduct to help me avoid some of the profit tax?

Thanks and Happy New Year!

K

Answer: 1. We plan to make about 80k over what we bought it for.. can we deduct any of what we spent fixing it up?

Add the costs of improvements, but not maintenance and repairs, to the purchase price of the house. Also, add the real estate commission you pay to sell the house to the purchase price of the house. The total of these amounts is included in the "basis" of the house (see also 3 for other additions to the basis). Only the difference between the selling price and the basis of the house is subject to income tax.

2. Will we get taxed on every dollar over what we originally paid in 2008? There are no extenuating circumstances to force the move.

No. You may be subject to tax only on the difference between the selling price and the basis of the house. Since you have owned the house for 18 months, your gain is long-term capital gain and is going to be taxed at a maximum of 15%.

3. Can we deduct our closing costs from originally purchasing it?

You can add the cost of the survey, deed recording fee, title insurance, and other expenses which are related to the purchase of the property to your basis. You cannot add any fees related to the mortgage, such as the mortgage origination fee.

4. Is there anything else you can tell me that might help..ie. things I CAN deduct to help me avoid some of the profit tax?

In the year of sale, if you have not deducted all of the points (also known as origination fees), you may deduct them on Schedule A.

Best advice is to seek out an experienced professional who can go into the details as mentioned above. It will be money well spent and can save you a lot in taxes.

Business Valuations for Gift and Estate Tax Planning: What Financial Planning Professionals Need ...

Tax Planning Manual

Question: False Advertising; did I get ripped off?

I recently purchased a treadmill on Craigslist and I was told that the treadmill was only ‘a couple years old.’ Also, I was told the seller paid $1300 said years ago. I originally offered $400, with a listed price of $600 obo, but seeing as it had hardly been used and was only ‘a couple’ years old, I was willing to pay the $460 she bargained back with. Once I had it home I was reading the owners manual she included…and the original Bill of Sale fell out. It listed that she herself only paid $1094.99 shipping/tax included; it also said that she purchased it in 2003, double the amount of time ago she had advertised. Am I out the money with no possible repercussions or would I be able to make a claim in court? I don’t necessarily plan on taking it that far should I be able to, I just want her to know I’m serious about getting back the extra money I offered because it was advertised as a late model.

Answer: You know, a really good pair of running shoes is maybe $90 - and you get to go outside. Treadmills are clothes dryers waiting to happen.

Rhonda Abrams

Tax Planning Attorney

Question: No federal tax taken out of paycheck…what to do?

A friend of mine just found out that no federal tax was taken out all year and now owes the IRS almost $5K. In hindsight, she should’ve checked her paystub, but when she approached her boss, she blamed my friend saying it’s because she only took 1 withholding (which is not true), then said it was the paycheck company’s fault. She knows she can get on a payment plan with the IRS, but she’s still really upset about how her boss handled it. Wouldn’t an employer who uses Quickbooks catch an employee who didn’t have a “federal tax” line on their paystub? Should she see a tax attorney?
Update – SS and Medicare was taken out properly.

Answer: It's possible for an employee not to need to have federal tax taken out, so no, the software would not flag that as an error. And if she had filed a W-4 with one allowance, and made enough money that she now owes $5K, then something would have bene deducted.

In any case, even though it sounds like her boss really handled her complaint badly, the problem is hers. She owes the money and will have to pay it. There's no point in seeing a tax attorney.

Fort Worth Business Planning Attorney Dallas Tax Law Lawyer

Tax Planning Opportunities

Question: Obama’s American Opportunity Tax Grant does any one know when he plans to start this?

He is offering college and most students $4,000 in exchange for 100 hours of volunteer service.

Answer: It's not a grant, it's a tax credit. After you (or your parents) pay for your education, you may claim a tax credit of up to $4000 of the costs for that school year, provided that you've completed 100 hours of volunteer service.

The IRS still has to write the regulations on how this will work, so I don't think you (or your parents) should expect to be able to use this credit right now. Maybe when filing your 2009 taxes.

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