It’s that scary time of year when the calendar reminds us that, like it or not, we need to square up with Uncle Sam. If that isn’t enough, the new rules, regulations and tax laws coming out every year make figuring out exactly what we owe almost as painful as writing the check.
While they can’t stop April 15th from coming, our tax experts from the Savannah CPA firm of Hancock Askew & Co. made it a little less stressful for many of our readers, giving up their lunch break Wednesday to help callers with their most pressing tax questions.
Questions such as: “If I live in Ohio but work in Georgia, are my travel and living expenses deductible?”
“If one of us filing jointly is over 65, can we both use the lower threshold for medical expenses?”
“Are legal fees in a criminal case in which I was exonerated deductible?”
These questions and many more were tackled by CPAs and tax specialists Susan Clifford, Stephen Leonard, Carolyn McIntosh and Brian Prevatt.
“This year’s call-in went very well with many calls across a wide range of topics,” said Clifford, a principal in the firm.
“Surprisingly, there was only one question about the new taxes associated with the Affordable Care Act and none about the individual mandate,” she said, adding that perhaps most taxpayers realized the new taxes won’t apply to them.
“And, while the deadline for having health care coverage in place is March 31, the repercussions of not having insurance won’t be felt until this time next year as people are filing their 2014 returns,” Clifford said.
Following is a sampling of questions and answers from Wednesday’s call-in:
Q: Must I pay Georgia income tax on a 1099R (retirement income) from another state?
A:“If you are a resident of Georgia, you are required to report all your income in Georgia, regardless of where it was earned. If you are 62-64, you are eligible for a Georgia retirement income exclusion of $62,000. If you are 65 or older, you are eligible for a Georgia retirement income exclusion of $65,000. This may be enough to offset the income on the 1099R so that you will not, in fact, have to pay any Georgia income tax on it.”
Q: I live in Ohio but have been working in Georgia. Can I deduct expenses for living away from home and traveling back and forth to see family?
A: “Travel expenses, including meals and lodging, incurred in connection with a temporary work assignment away from home are deductible. Travel expenses incurred for an indefinite work assignment are not. Any work assignment in excess of one year is considered indefinite, so if you have been working here more than a year, your costs are not deductible.”
Q: If a Georgia resident aged 62 retires in mid 2014, will the Georgia retirement exclusion of $65,000 be prorated from the date of retirement and will all his earned and unearned income be eligible for the exclusion?
A:“The Georgia retirement exclusion is not pro-rated based upon the date of retirement. All those reaching eligibility (age 62 or permanently disabled) will be allowed to claim the exclusion, whether or not they are officially retired. The $65,000 maximum excludable income is allowed for up to $4,000 of earned income (such as wages) and all unearned income (such as pensions, annuities, interest, dividends, capital gains, etc.) But remember that Social Security benefits are not taxable in Georgia and so the exclusion is not used for them.”
Q: Is the new Georgia title ad valorem tax on vehicles purchased in 2013 and later deductible on my individual tax return?
A:“Beginning March 1, 2013, state and local sales tax no longer apply to the purchase of a vehicle. In addition, the annual ad valorem tax has been eliminated. The sales tax and annual ad valorem tax is replaced with a one-time state and local title ad valorem tax, which does not appear to be deductible on federal or Georgia returns. In order to be deductible as personal property tax, it must be imposed on an annual basis.”
Q: My husband is over 65, but I am not. What is our threshold for deducting medical expenses?
A:“If one or both of you are 65 or older and you file a joint tax return, then medical expenses in excess of 7.5 percent of your adjusted gross income are deductible. For everyone else, only the amount in excess of 10 percent of AGI is deductible.”
Q: My mother passed away at the end of 2013 before taking the required minimum distribution from her retirement account. According to her bank, I will receive both her 2013 and 2014 minimum distributions this year, with the total reported as taxable income on a Form 1099R. Do I have to pay a penalty for 2013?
A:“Since your mother was required to take minimum distributions, then, as her beneficiary, you were required to take her minimum distribution before year-end. Since you were unable to take the required minimum distribution, then the amount of the shortfall in distributions is subject to a 50-percent penalty.
The IRS may waive the penalty if you establish that the shortfall in the amount of distributions was due to reasonable error and that reasonable steps are being taken to pay out the required minimum distributions. To request a waiver, follow the instructions to file Form 5329 Part VIII with your tax return and attach a statement as to why you were unable to take the required minimum distribution and that the required minimum distribution will be paid out to you as soon as possible.
“Given that your mother passed away late in the year and the bank plans to distribute the required minimum distribution to you early in 2014, it is likely the IRS will waive the 50-percent penalty for you.”
Q: We have purchased a piece of land that we intend to hold for appreciation. There will not be any income, but we know we will incur expenses. Are they deductible?
A:“You have two ways to treat the expenses on investment property. Real estate taxes can always be deducted as real estate taxes on schedule A. If you financed the property, the interest is investment interest and can be deducted up to the amount of your investment income. The excess carries over indefinitely.
Other expenses (insurance, for instance) are considered to be investment expenses that can be deducted as a miscellaneous itemized deduction along with things like tax preparation fees, union dues and the cost of your safe deposit box. Only the amount of miscellaneous itemized deductions that exceed 2 percent of adjusted gross income can be deducted.
“Your other option is to elect to capitalize the expenses (meaning add them to the cost of the property.) This must be done annually by making an election on your tax return. You can elect to capitalize some costs but not others. And you can make the election in some years and not others.”
Q: Will I be subject to the 3.8-percent Medicare surtax on investment income?
A:“The Medicare surtax on net investment income began in 2013 and is an aspect of health care reform. It applies to unearned income of single files who have a modified adjusted gross income above $200,000 ($250,000 for joint filers). This surtax is levied on the smaller of the filer’s net investment income or the excess of modified AGI over the applicable dollar threshold (i.e. $250,000 for married individuals). Investment income includes interest, dividends, capital gains, annuities, royalties and passive rental income. Tax free interest is exempt, along with payouts from retirement plans.”
Q: Are legal fees in a criminal case in which I was exonerated deductible?
A:“No, those would be considered a personal expense. Legal fees are only deductible if they are related to the performance of your job, are paid to produce or collect taxable income or if paid for help in determining, collecting or obtaining a refund of any tax.”
Q: I haven’t been filing income tax returns, but I know I am over-withheld so I won’t be subject to any penalties, will I?
A:“You are correct in thinking you will not pay any penalties because penalties and interest are calculated based on the balance due. If you have a filing requirement, you must file a return. And if you are owed a refund, you should know that the IRS does not refund overpayments on returns more than three years overdue. This means that if you have not filed your 2010 return, the deadline to do so and collect your refund is April 15, 2014.”
Q: My income consists entirely of single family rental activities. I typically report a loss each year. My tax preparer told me that I am not required to file a return since my reportable income is below the threshold. Is he correct that I am not required to file a return?
A:“Income tax return filing requirements in 2013 are established by certain income limitations based upon age and filing status. The income limitation is the standard deduction plus the personal exemption allowed for your age and filing status.
For instance, a single filer in 2013 aged 65 or older must file if gross income is above $11,500. But for someone with multiple rental activities, it is our recommendation to file these returns to support your deduction claims and to begin the IRS’ statute of limitations of three years.
Without filing a return, the statute of limitations will not begin, and the IRS can challenge the activities without limit. There are also various elections in regard to treating losses and expenses which must be made with a timely filed return. Failure to file a return may result in the disallowance of many beneficial tax treatments for rental and business activities.”
Q: What benefits are available to retirees in the state of Georgia?
A:“Some Georgia taxpayers may be eligible for a retirement income adjustment on their Georgia tax return. Taxpayers who are 62 to 64 years of age, or permanently and totally disabled regardless of age, may exclude up to $35,000 per year. The exclusion goes up to $65,000 for taxpayers who are age 65 or older during any part of the taxable year.
Retirement income includes income from pensions and annuities, interest income, dividend income, net income from rental property, capital gains income and income from royalties. For married couples filing joint returns with both members receiving retirement income, the maximum adjustment for the applicable year may be up to twice the individual exclusion amount.
“Retirement income exceeding the maximum adjustable amount will be taxed at the normal rate. In addition to the retirement income exclusion, Social Security benefits, to the extent they are included in Federal taxable income, may be subtracted from your Georgia income.”
DISCLAIMER
IRS Circular 230 Notice: Federal regulations apply to written and verbal communications regarding federal tax matters between Hancock Askew & Co. LLP and its clients. Pursuant to these federal regulations, we inform you that any U.S. federal tax advice in this communication (including any attachments) is not intended or written to be used, and cannot be used, by the addressee or any other person or entity for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.