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Claiming Insanity

July 28th, 2015

Missouri courts require that when a person is declared mentally incompetent, that person cannot be tried, convicted, or sentenced of a crime. In order to be declared mentally incompetent, the jury must decide that you are mentally incapacitated and then two doctors must agree.

If you have been charged with a crime, contact our law office at 816-524-4949 or visit our website at www.Hoorfarlaw.com.

 

Mortgage Interest

July 22nd, 2015

Anyone who owns a home as their primary residence and has a mortgage on the property can deduct the mortgage interest as an itemized deduction on Schedule A of their personal income tax return. In order to deduct the amount you paid, you will need to use Form 8396. Typically you will receive a Form 1098 from your mortgage company, letting you know how much in mortgage interest you paid for that tax year.

However, it is important to note that you are only able to deduct the mortgage interest that you actually paid yourself. It is very common for older parents to pay for their children’s mortgage while the children get back on their feet. But if this occurs, the older parents are able to deduct the mortgage interest paid by them. The child cannot deduct the mortgage interest paid by their parents. If you or someone you know is havingtax issues, we can be reached at Hoorfarlaw.com or 816-524-4949.

 

Medical Expenses

July 21st, 2015

Medical expenses

If you itemize your deductions for a tax year, then you may be able to deduct your personal medical expenses. The expenses, if deducted, are reported on your Schedule A.

Unfortunately, you are only able to deduct the amount of medical expenses that exceeds 10% of your federal adjusted gross income. For example, if you made $100,000 in a year, then you will only be able to deduct your medical expenses that exceeded $10,000. The first $10,000 is not deductible for you.

In order to try and exceed the 10% threshold, you are able to use the medical expenses of a spouse, if you are filing a joint tax return, or for any of your dependents.

Some common examples include ambulance services, dentures, and medical mileage. If you or someone you know is having tax issues, we can be reached at Hoorfarlaw.com or 816-524-4949.

 

Canceled Debt

July 17th, 2015

The cancellation of debt, meaning any debt you are personally responsible for, can be taxable to you. Around the office, we call this “phantom income” or “ghost income” because it is not actually money that you received, but the IRS taxes you like you did.

However, if you are not personally responsible for the debt, then the debt will not be taxable to you when it is forgiven or cancelled. The taxation of the cancelled debt only applies to the person who was relieved of the debt, meaning the person who was personally responsible for the debt.

If you have any cancelled or forgiven debt, you should receive a Form 1099-C from the creditor that forgave the debt. You will then need to report it as ordinary income for that year’s income tax return. Because it is ordinary income, it is taxed at your normal tax bracket.

But, there are some exceptions to the rule that the cancelled debt is taxable to you. The most commonly used exceptions are for student loans, bankruptcy, or insolvency. If you or someone you know is dealing with tax issues, we can be reached at Hoorfarlaw.com or 816-524-4949.

 

Social Security

July 15th, 2015

 

If you, or someone you know, receive Social Security benefits or will receive them soon, here are a few tips for you to remember.

First, if your only source of income is Social Security, then your benefits will not be taxable and you should not have to file an income tax return.

However, if you have other sources of income in addition to Social Security, then a portion of your Social Security benefits will be taxable. The taxable amount is determined by the amount of income from your other sources of income. But, the maximum taxable amount is 85% of your Social Security income.

In order to report your Social Security benefits on your income tax return, you should receive a Form 1099-SSA from the government. If you or someone you know is having tax issues, we can be reached at Hoorfarlaw.com or 816-524-4949.

 

Vacation Property

July 14th, 2015

vacation property

When you have real estate that generates rental income for you, you must report your rental income and rental expenses on Schedule F of your personal tax return.

However, there are certain limitations that can apply if you use the real estate for personal and rental purposes. The IRS considers real estate used personally if you use the property for yourself for the greater of 14 days or 10% of the total days you rent out the property. If you use the property for personal purposes as well, you must then divide the property’s total expenses between the rental portion and the personal use portion.

In addition to having to divide the expenses, you will not be able to deduct any rental expenses in excess of the rental income for the property.

Some examples of deductions that can be taken for rental property are mortgage interest, real estate taxes, casualty losses, utilities, maintenance, and depreciation. If you or someone you know is dealing with tax issues, we can be reached at Hoorfarlaw.com or 816-524-4949.

 

Rollovers

July 10th, 2015

A rollover is when a person withdraws or takes money out of one retirement account and moves it to another retirement account. If done correctly, then the transfer of money from one account into another is not taxable.

One requirement for a valid retirement rollover is that the retirement plan distribution is an eligible distribution. Distributions that are made because of a hardship, are a required minimum distribution, or are nontaxable already cannot be rolled over.

Another requirement for a valid retirement rollover is that the money must be transferred into the new account within 60 days of receiving the money. If the money is not transferred within the 60 day window, then the money that was not transferred within the timeframe will be completely taxable. Even if you transfer the money into another retirement account on day 61 or any time thereafter, all of the money will be taxable to you.

An additional 10% penalty is applied on money that distributed to a person under the age of 59.5 and that is not rolled over within the 60 day window. If you or someone you know is having tax issues we can be reached at Hoorfarlaw.com or 816-524-4949.

 

Pensions

July 9th, 2015

There are two general rules when it comes to the taxation of pensions. The first rule is that any money you receive from a pension or retirement plan that you did not contribute to or you used tax free money to contribute to will be entirely taxable to you. An example of this type of plan would be where the retirement plan or pension is entirely funded by an employer and the employee does not contribute or deposit any of their own money or wages into the plan.

The second rule is that any money you receive from a pension or retirement plan that you contributed to by using already taxed money will only be partially taxable to you. An example of this type of plan is when an employee is paid from their employer and then the employee takes those wages and invests them into a retirement plan. The amount of money invested into the plan by the employee is not taxable because it was already taxed. However, any gains that occur because of that money are going to be fully taxable because the gains were not taxed before.

There is also a 10% penalty on any money that is taken out of a pension or retirement plan before the person reaches age 59.5. This means that any money received from a pension or retirement plan before age 59.5 will be taxed at that person’s normal income tax rate plus an additional 10% for withdrawing the funds early.

However, there are a few exceptions to this rule, such as permanent disabilities, death of a plan participant, or equal periodic payments. If you or someone you know is having tax issues, you can reach us at Hoorfarlaw.com or 816-524-4949.

 

Capital Losses

July 8th, 2015

While the basics for capital gains apply to capital losses as well, there are a few special rules that apply to capital losses. First, you cannot deduct any losses that you incur as a result of selling your personal-use property. This means that any losses from the sale of your car or your house cannot be deducted.

In addition, the IRS places a $3,000 maximum loss deduction that you can take every year. This means that if you are doing your income taxes for the year and your capital losses are over $3,000 or your losses exceed your capital gains over $3,000, then you are limited to deducting just the $3,000 for that year’s tax return. Any remaining losses that could not be deducted can be carried forward to future tax years, but again at a $3,000 maximum deduction per year. Another thing to remember about the $3,000 deduction limit is that it is cut in half if your filing status is married filing separately.

When you have sold a capital asset and you are doing your own income taxes, you need to report the sale of your capital asset on Form 8949 of your federal tax return. Then, whatever gain or loss results from that form moves over to Schedule D of your federal tax return. If you or someone you know is having tax issues, you can contact us at Hoorfarlaw.com or 816-524-4949.

 

Capital Gains

July 7th, 2015

Almost everything we own and use is a capital asset. Some examples are a home, household furnishings, stocks, or bonds.

Any time a capital asset is sold, the difference between the selling price and what you paid for it originally results in either a capital gain or capital loss. When the asset is sold, besides the cost and the selling price, you must look at how long you have owned that asset. If you have owned the asset for a year or less, then it is considered a short term asset. If you have owned the asset for more than a year, then it is considered a long term asset.

Depending on your tax bracket, your capital gain could be taxed at a 0%, 10%, or 15% tax rate. However, if your income exceeds $400,000 or if your tax bracket is the maximum 39.6%, then your capital gain will be taxed at a 20% tax rate. If you or someone you know is having tax issues you can get ahold of us at Hoorfarlaw.com or gives us a call at 816-524-4949.

 

 

 
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