Archive for the ‘Deductions’ Category

Were You a Ponzi Scheme Investor? Here is What the IRS says…

Wednesday, March 27th, 2013

Bernard (Bernie) Madoff rocked the world of thousands of taxpayers. So, what is the IRS doing to help those who have suffered losses? The code § 165(a) already exists to help those who cannot recuperate losses by establishing a deduction.

How will the IRS deal with the onslaught of potentially thousands of losses in 2008? This is where operation “Safe Harbor” comes into play.

The Ponzi Scheme was fictitious. The numbers were not real. The losses were real. The losses were varied and lack documentation. The scheme relied on variables that created problems in proving exactly how much was lost. How then does the IRS handle these losses? Enter the 95%/75% Safe Harbor ruling.

There are three conditions a loss must meet to benefit from the 95%/75% safety net:

(1) The treatment of a qualified loss as a theft loss;

(2) The tax year in which the theft was discovered; and

(3) The amount of the deduction.

How does the 95%/75% Safe Harbor work?

The technical explanation:

  1. Are you not intending to recover the losses? Then multiply the amount of the investment by 95%.
  2. Are you intending to recover the losses? Then multiply the amount of the investment by 75%. Then subtract any losses recovered.

It makes real sense to utilize the Safe Harbor approach.

This article is a summation of:

http://www.journalofaccountancy.com/web/20091552.htm

See this article for a more definitive explanation on the subject.

Key 2007 Exemptions and Deductions

Wednesday, December 5th, 2007

Listed here for your reference are key deduction rates for 2007.

Personal Exemptions

The personal exemption for each qualifying dependent increases by $100 for 2007.

  2007 2006
Exemption $3,400 $3,300

The exemption phases out by 2% for each $2,500 ($1,250 for married filing separately) by which your income is over:

  2007 Phase Out
Single $156,400
Married Filing Separately $117,300
Married Filing Jointly $234,600
Head of Household $195,500

2007 Alert: This phaseout amount is now reduced by 1/3 in 2007.

Standard Deductions

Standard deductions for those who do not itemize are as follows:

  2007 2006
Single $5,350 $5,150
Married Filing Separately $5,350 $5,150
Married Filing Joint $10,700 $10,300
Head of Household $7,850 $7,550

If 65 or over and/or blind add:

  2007 2006
Single/Head of Household $1,300 $1,250
Married/Surviving Spouse $1,050 $1,000

Itemized Deduction Phaseout

Deductions are reduced by 3% of every dollar of Adjusted Gross Income (AGI) over $156,400 ($78,200 if married filing separately) up to a maximum phaseout of 80% of your itemized deductions. Your medical expenses, investment interest, casualty losses and gambling losses are excluded.

2007 Alert: The phaseout amount noted above is now reduced by 1/3 in 2007.

Standard Mileage Rates

The standard mileage rates for 2007 are:

Mileage 2007 Rate/Mile
Business Travel $0.485
Medical/Moving $0.20
Charitable Work $0.14

Deductible Expenses That Keep on Working

Monday, January 1st, 2007

Most tax deductible expenses are incurred and deducted against your income in a single tax year. There are several deductions, however, that you can carry from one year to the next. Capital Losses, Business Losses and Charitable Contributions are three common examples.

Capital Losses: You can carry forward a capital loss from the sale of stocks or other securities until they are used up or until the day you die. Capital losses can be used to offset any capital gains you may have in the current year. You can then use up to $3,000 of a capital loss each year to offset regular income. If your capital losses are greater than your capital gains plus $3,000 of income, you can carry forward what remains to offset gains and income in future years.

Business Losses: These losses usually apply to self-employed clients. Business losses can be carried back two years or forward for twenty years. One of the reasons for the generous carry back and carry forward deductibility is the recognition a self-employed person who has a net loss for the year may need cash fast. That person can file amended returns and secure a quick refund for taxes paid in the prior two years. Then any remaining losses can offset income in the current year and future years until exhausted.

Charitable Contributions: Your annual charitable contributions may only be deducted up to an amount equal to a percentage (20-50%) of your adjusted gross income. Should your contributions ever exceed this level you will be able to carry the remainder of the contributions forward to offset taxable income over the next five years. If you think you have a carry forward or carry back deduction, please call to discuss your situation and appropriate next steps.