Baltimoresun.com’s tax-advice cavalcade appearance three experts from the Hunt Valley accounting close SC&H Group answering questions about advancing your acknowledgment every Monday until April 16.
Tony, Baltimore: If you itemize, is it acknowledged to abstract the taxes on a new car purchase? I accept it acclimated to be but is it now?
SC&H Group: If a aborigine is itemizing their deductions, he or she chooses amid deducting accompaniment assets taxes paid or sales & use tax paid during the tax year. The law acceptance for the sales tax answer expired, but was reinstated backward in 2006.
You actuate your abeyant sales tax answer by accretion absolute sales taxes paid throughout the year — (please acquaint me no one will anytime do this!) — or application the IRS tables provided in the instructions to Anatomy 1040. In accession to the sales tax table amount, a aborigine can add sales taxes paid on assertive added purchases, including automobiles, boats, airplanes, homes or home architecture abstracts — if the bulk was the aforementioned as the accepted sales tax bulk (which it is in Maryland). Again analyze your absolute sales tax answer to your assets tax answer and accept the beyond amount.
Usually taxpayers in low or no assets tax bulk states will anniversary from the sales tax answer option, admitting if one purchased a vehicle, baiter or added anniversary acclaimed above, that advantage could prove added benign than deducting your assets taxes.
Dave, Joppatowne: Are the anniversary premiums paid for Medicare allowance tax deductible as medical expense?
SC&H Group: Allowance premiums paid for bloom allowance advantage are deductible as medical costs on Schedule A. Medicare Allotment B premiums withheld from Social Security payments are acceptable for this deduction, as are Allotment A premiums, if voluntarily enrolled and the aborigine is not covered by Social Security.
Any bulk taxes paid for Medicare are not deductible as medical expenses. You can affirmation a answer for medical and dental costs alone for the allocation of absolute costs that exceeds 7.5% of your adapted gross income.
Medical costs sometimes disregarded accommodate medical costs paid for nondependents (in assertive circumstances), medical breadth (18 cents per mile), smoker abeyance programs and eyes antidotal surgery.
James, Laurel: I accept a accessory adolescent who is an extra and charge to apperceive which form(s) to use. Her mother has already filed and claimed her as a dependent. She becoming best of her assets in theaters, traveling about the country and in Canada. While her balance were significant, her costs were also. Any advice that you can accord me on this shall be abundantly appreciated.
SC&H Group: If your babe becoming added than $8,450 again she is appropriate to book a federal assets tax return. In adjustment to address your child’s assets and costs you should use Anatomy 1040. The assets your adolescent becoming from acting will be advised as business assets if the primary purpose of her acting is for assets or accumulation and she acts on a connected and approved basis. If this is the case she should address her assets and costs on Schedule C. If not again the action is advised a amusement and she should aces up the assets on band 21, added income, of her anatomy 1040. Your adolescent may abstract all or allotment of the costs that she incurred. Amuse argue Federal Publication 535, which will abetment you in free what costs you may deduct.
On a cautionary note, abounding states accept specific rules about entertainers and their filing requirements. Often, entertainers are appropriate to book adopted accompaniment tax allotment in the states in which they provided services. You may additionally charge to book a Canadian assets tax return. Canada and abounding states accept almost low thresholds for filing requirements compared to the $8,450 federal minimum. If the action is significant, you should accede hiring a able to abetment you.
Pam, Columbia: I took a baby bulk of money out of my retirement anniversary in 2006 and at the time paid the amends and federal assets tax. My tax preparer added that bulk to my taxable income, back I anticipation that I already paid federal taxes. I should alone accept to pay accompaniment tax on that added money. Is that correct?
SC&H Group: Distributions from retirement affairs are accountable to federal and Maryland assets taxes. The denial from the administration may accept helped to “cover” the taxes owed on that amount; however, the gross administration should still be appear on both returns. There is a Maryland accession for a assertive bulk of alimony income, depending aloft assertive variables like age, affliction and Social Security earnings. Review Anatomy 502 instructions for the alimony exclusion rules.
In addition, there are several exceptions to the 10% amends from retirement plans, alike if you are beneath 59 1/2. Accede reviewing the instructions to Anatomy 5329 to see if any of these exceptions administer to your situation.
Phil, Bel Air: Does the deductibility absolute of $4,000 administer to both nondeductible IRAs and Roth IRAs as a whole, or separately? Also, do Roth IRAs crave the filing of the 8606?
SC&H Group: The best anniversary addition is the bulk that may be contributed to both types of IRAs combined. You may not accord added than $4,000 absolute to both types of IRAs in one year, unless you are acceptable for “catch up” contributions. Neither Roth nor nondeductible IRA contributions are tax deductible.
You charge book Anatomy 8606 if any of the afterward affairs are true: 1) You fabricated a nondeductible addition to an IRA for 2006, including a claim of a able blow or reservist distribution; 2) You accustomed distributions from a traditional, SEP, or SIMPLE IRA in 2006 and your base in acceptable IRAs is added than zero. For this purpose, a administration does not accommodate a rollover (other than a claim of a able blow distribution), able accommodating distributions, conversion, recharacterization, or acknowledgment of assertive contributions; 3) You adapted an bulk from a traditional, SEP, or SIMPLE IRA to a Roth IRA in 2006 (unless you recharacterized the absolute conversion); 4) you accustomed distributions from a Roth IRA in 2006 (other than a rollover, recharacterization or acknowledgment of assertive contributions)
Answers to called questions are appear on Mondays. This is the final chapter of Tax Talk for 2007.
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