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Recent Tax Court decision could wreak ha

Glover v. Comm, a recent tax court decision, presents several issues to Merchant Mariners. Mr. Glover worked for Reinauer Transportation. His tugs pushed oil coastwise as far as Virginia. The tugs wou

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Recent Tax Court decision could wreak havoc on Mariners

State Taxes and Mariners

Suz asked this question So, what about if you live in one state (TN) and work as a merchant mariner in another state (HI), 45 days on/45 days off rotation? Do you pay HI state taxes, or does the payro

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State Taxes and Mariners

Mariner Tax Update January 2011

E-Filing alert! How many times have you read that mariners cannot E-File? How many websites have posted this. Year after year. And then all of a sudden preparers start proclaiming “mariners can

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Mariner Tax Update January 2011

Employee vs. Non-Employee LLC and S-Corp

I’ve been a client of yours for a few years now and I had a general tax question concerning my wife’s job status. She currently works full time for a marketing firm in “Deleted”

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Employee vs. Non-Employee LLC and S-Corp Planning for Mariners and their families

Maritime Tax Preparers and the Alternati

What they don’t want you to know… This video points out the tremendous effect of the AMT on merchant mariners. Seamen taking business deductions and offsets may very well be realizing litt

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Maritime Tax Preparers and the Alternative Minimum Tax

Mariner Tax Update January 2011

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by on January 26, 2011 at 1:53 pm

E-Filing alert!

How many times have you read that mariners cannot E-File? How many websites have posted this. Year after year. And then all of a sudden preparers start proclaiming “mariners can now e-file”. But nothing had changed in the law. So why the scuttlebutt?

It’s no surprise that most preparers have come down from the bogus position that merchant mariners cannot electronically file their tax returns. The justifications used over the years have been flimsy and the supporting documentation has been lacking. I actually remember a citation of the IRM (Internal Revenue Manual) to a specific line that stated mariners would have to mail in supporting documentation. I guess they figured no one would ever read the heading that stated these were the procedures for AUDIT AND AMENDMENT and had nothing to do with regular filing.

E-Filing Signature Documents

It’s difficult, I know. You have to get a signed form back to your preparer for them to electronically file you. But it isn’t optional. There could be serious issues with returns being filed without the proper signature documents.

Do not give a preparer signing power

It is a conflict and poor practice. Unless you are physically entering your pin you need to be providing a signature form. These are the rules.

Maguire Taxes

Federal Benefit Calculator For Massachusetts Teachers

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by on January 19, 2011 at 10:08 pm

How Does The Tax Relief Act Effect You

We saw a great calculator from Kiplinger’s that figures your tax savings under the new Tax Relief Act signed into law this past December. This law is going to put cash back in the pockets of many taxpayers.

For instance – A single taxpayer who is 24 and earns $120,000 a year will get back $2,400

What are the additional benefits for teachers in Massachusetts?

Our legislators certainly understand the financial sacrifice required by all educators. They have designed the tax relief act to help alleviate the sacrifices made by our teachers.

Other Calculators have failed to account for the additional provisions for Massachusetts teachers. We have developed this calculator to give you a low ball quick estimate of how much our government respects you…

1. Enter your annual salary:

2. How much of your salary is subject to Social Security

Ebayers Beware

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by on January 18, 2011 at 11:22 pm

You may be next…

Of the nearly 19 million taxpayers who filed a Schedule C (showing profit or loss from a business) between January and July of 2010, 25% reported a net loss on the form and 65% reported a net profit of less than $25,000. Another 6% reported profit of between $25,001 and $50,000, leaving just 4% with net earnings above $50,000. (A Schedule C listing revenues and expenses is supposed to be attached to the 1040 of taxpayers who operate businesses as unincorporated sole proprietors, including those who are paid by companies as independent contractors and those who sell online through eBay, Amazon.com and other Internet sites.) The big question is are you a hobby?

Uncle Sam Says

The following factors, although not all inclusive, may help you to determine whether your activity is an activity engaged in for profit or a hobby:

  • Does the time and effort put into the activity indicate an intention to make a profit?
  • Do you depend on income from the activity?
  • If there are losses, are they due to circumstances beyond your control or did they occur in the start-up phase of the business?
  • Have you changed methods of operation to improve profitability?
  • Do you have the knowledge needed to carry on the activity as a successful business?
  • Have you made a profit in similar activities in the past?
  • Does the activity make a profit in some years?
  • Do you expect to make a profit in the future from the appreciation of assets used in the activity?

Point being – those extreme losses you’re incurring year after year may be a big indication of your business being a hobby. Keep an eye out for future legislation that may be more aggressive in shifting the burden of “for profit” proof back to the taxpayer.

EIC Update

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by on January 12, 2011 at 8:47 pm

Changes in the Earned Income Credit This Year

In 2011 there are a few changes to the EITC. Due to the Education Jobs and Medicaid Assistance Act of 2010 the Advance EITC is no longer available. This provision previously allowed workers who expected to qualify for the EITC to receive part of the credit in their paycheck by filing a form with their employer.

Also this year the maximum EITC has increased slightly to $5,666, and the maximum income limit rises to $49,078. The maximum credit goes to families with three or more children. Another change this year, due to the American Recovery and Reinvestment Acct, increased the EITC by 5% for families with 3 or more children. The provision is set to expire at the end of 2012.

Inherited Assets

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by on January 11, 2011 at 7:19 pm


What are the tax consequences?

My uncle passed away and
left me a $50,000 inheritance. What will I have to claim on my
income taxes this year?

Most likely nothing.
When we inherit assets the tax is generally to the Estate and not
the beneficiary if at all. Although the Estate Tax has phased back
and forth through the years, it is still alive and well within many
states. A $2,000,000 estate may not have a Federal Estate
Tax due for 2010, but Massachusetts will still want a piece.
Massachusetts is one state that still baselines it’s tax with a
unified credit (more…)

Employee vs. Non-Employee LLC and S-Corp Planning for Mariners and their families

2
by on January 10, 2011 at 8:12 pm

I’ve been a client of yours for a few years now and I had a general tax question concerning my wife’s job status. She currently works full time for a marketing firm in “Deleted”. She intends to cut back to a part time status where she can pick and choose which projects to work on. Some people in her field create their own “small business” if they are contracting out their services. She has the option to stay on her company’s payroll or to create herself into this “business.” I don’t know what the pros and cons are to this move tax wise. We are currently living in the “deleted” Area and I am still going to sea. If you could give me a little advice I would really appreciate it.

To LLC or not to LLC… That is the question… Or is it?

First off – like political economic theory – this is (more…)

Maritime Tax Preparers and the Alternative Minimum Tax

6
by on January 8, 2011 at 2:40 pm

What they don’t want you to know…

This video points out the tremendous effect of the AMT on merchant mariners. Seamen taking business deductions and offsets may very well be realizing little to no benefit from these offsets. It also examines some alternatives that may or may not assist in alleviating the effect of the AMT. It’s important to examine the short term and long term benefits of tax strategies. Tell your tax planner your short and long term goals.

AMT Effect on mariners incidental per diems

These expenses, like all employee business expenses are subject to AMT limitations. When a mariners income gets to a certain point, these deductions have little to no effect.

Mariners in the situations outlined in the video should pursue long term tax planning strategies to address AMT. Bogus Sailor tax offsets will not be effective.

Top 20 Silly Tax Deductions

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by on January 6, 2011 at 8:42 pm

Laugh if you like but some were allowed…

  1. Free beer – YES  -  Strange but true. A gas station owner gave his customers free beer in lieu of trading stamps and the Tax Court said yes, this is a legitimate business expense and tax deductible, which makes the next entry even stranger…
  2. Free whisky – NO  -  One gentleman thought a case or two of whisky would make nice client gifts, and thus tried to deduct them on his annual tax return. The category he chose was “meals & entertainment” saying it was for client entertainment. However, not only was it not allowed, it was a gift that violated state laws. Ouch!
  3. Cost of hiring an arsonist – NO  - I suppose hit men are out too? A man with a failing furniture business decided to hire someone to burn it down. The store-owner’s plan was not only to collect the $500,000 insurance money, but also to deduct the $10,000 expenses of hiring the arsonist! He was denied.
  4. Fake Boobs – YES  - This one is infamous. A stripper going by the name of “Chesty Love” used her hard-earned savings to boost the size of her boobs, to the eye-popping size of 56-FF (this is huge by the way and the only time I’ve ever seen boobs this big was on a 6’3″ drag queen in Cleveland and yes, they were actual implants.) She figured it would get her more tips and you guessed it, the write-off was allowed, being considered a stage prop essential to her act. (Imagine the exhibits at that trial)…
  5. Prostitution expenses – NO  - Maybe in Amsterdam or at the Bunny Ranch in Nevada, but you can’t deduct expenses of illegal professions. Trying to deduct 4000 condoms and a case of flavored lube isn’t going to work if you put down “prostitute” as your career. Similarly, drug dealers can’t deduct the cost of baggies or claim the drugs they buy to resell as costs of goods sold.
  6. Cat food – YES  - Junkyard owners set out bowls of pet food nightly to attract wild cats. The wild cats also took care of their nasty snake and rat problem, making the junkyard safer for customers and providing a useful business service. Yep, you guessed it…the pet food is a business expense and was allowed.
  7. Your own racehorse – NO  - I can see how this would be a business expense to some people. But if you just go out and buy your own prize-winning horse, name it after yourself (the ego on some folks) and then take clients out to see your horse run, you cannot deduct this. It’s not a business expense, it’s a personal expense. But hey, if you can afford a racehorse and stables, why are you worried about the deduction in the first place?
  8. A fabulous African Safari – YES  - If the IRS considers a business trip “ordinary and necessary”, you can take it as a deduction. For the owners of a dairy business, this included a wonderful African Safari, because many of the activities on the trip were focused on wild animals.
  9. The costs of moving… the family pet – YES  - Whether you’ve got a Great Dane or a Great White Shark, your pet is considered a personal effect. And that’s great news for you. When it comes to any expenses relating to any kind move associated with a job, Uncle Sam says yes. But I suspect hiring a Hummer Limo to move your gerbil across the state may not be looked upon favorably.
  10. A Trip to Bermuda – YES, YES, YES  - I love this one! ANY business convention held in Bermuda can be written off without even showing there was a special reason to hold your business meeting in paradise. And it’s not the only place. Barbados, Costa Rica, Dominica, the Dominican Republic, Grenada, Guyana, Honduras, Jamaica, Saint Lucia, Trinidad and Tobago, Canada, Mexico and all U.S. possessions also fall into this special tax treatment. But outside the U.S. is a different story.
  11. Body Oil – YES  - If you’re a regular Joe, body oil is a once in a blue-moon splurge. Maybe something to spice up an evening with your partner, but certainly not a write-off. However, if you’re a pro bodybuilder and need gallons of body oil to make your muscles glisten, then it is a genuine tax write-off. I personally have a few celebrity clients  and these clients deduct their makeup, their facials and occasionally, if they can prove its necessary for a movie or other job, even their nose jobs! Models have similar options with their deductions.
  12. A trip to the Super bowl – NO  - I’d like to put this one in the ‘nice try’ category. Someone decided to take clients and their spouses to the Super bowl, but just could not prove that the shindig was in any way related to business. And even if it was, it’s an extravagant expense for a meeting and would have been disallowed anyway. Sorry bud.
  13. A Private Airplane – YES  - A couple with a rental condo didn’t fancy the hassle of driving up to 7 hours to check on it. They didn’t want to be stuck to the schedule of the only daily flight available. So, they did what you or I would do… they bought their own jet! They were allowed to deduct all expenses on the jet relating to the condo, including the high costs of fuel. That must have been some condo!
  14. A Mink Coat – NO  - fur… it’s so tacky these days. One man tried deducting a mink coat claiming that it was a conversation piece when visiting clients with his wife (what was the topic? tackiness?) Fortunately, he was denied.
  15. Babysitting costs – YES  - Believe it or not, you can deduct the cost of a babysitter as a charitable deduction, if the mother of the child is leaving the house to do volunteer work for a charity. Which, of course, we all do on a daily basis.
  16. A ‘Playmate’ Party – YES  - The owner of a nightclub promotions firm decided that a regular party wasn’t good enough for his clients. So, he brought in a bunch of scantily clad “bunnies” as decoration. The tax man said sure, it’s a valid expense. Whether or not pictures of the bunnies were attached to the return is unknown at this time.
  17. A Nuclear Fallout Shelter – NO  - This one bombed (sorry… bad pun). Yep, way back in the days of the cold war and the threat of nuclear meltdown, one clever man built a nuclear fallout shelter on his property and then decided to list it as “preventative medicine.” The IRS gave that one a big thumbs down. Wow, didn’t see that one coming!
  18. A beautiful swimming pool – YES  - This one’s a great example of lateral thinking. After being told by his doctor that he needed to exercise (after developing emphysema), the smart fella put in a swimming pool. The deduction was put down as a necessary MEDICAL EXPENSE and was allowed, along with the various chemicals, heating, cleaning and general upkeep of the pool. Now that’s using your head.
  19. Dancing lessons – NO  - Dancing With The Stars may be popular, but it’s not going down well with the IRS as the subject of a deduction. You CANNOT take dancing as a deduction for medical expenses, and the following reasons are outlawed – dancing to relive varicose veins, dancing to cure arthritis and finally, dancing to alleviate nervous disorders. Try any of these and you’ll be dancing all the way to the tax courts.
  20. Sperm donation as a loss – NO  - Okay, I saved the best (or worst) one for last. It’s one thing to make a little extra cash as a sperm donor. It’s quite another to try and claim a depletion loss on the aforementioned sperm. Hey, I’m just glad I wasn’t the tax preparer who had to deal with this client. It amazes me every year when I hear the crazy ideas clients have regarding their deductions.

Never dismiss a deduction…

Secret Tax Deductions…

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by on January 6, 2011 at 6:36 pm

You just never know

Here are three unique deductions you’d think the IRS would laugh at — but instead they approved.

  1. The “significant other” deduction. When a man hired his live-in girlfriend to manage some of his rental properties, the Tax Court allowed him to deduct $2,500 of the $9,000, which he paid her as a business expense. Her duties included finding furniture, overseeing repairs and, of course, running his personal household.
  2. The moving the family pet deduction. Whether your pet is a dog, a bird or even an Oriental Yeti, it’s OK to deduct the cost of moving said pet from your old residence to your new abode if you can pass a couple of simple tests.
  3. The body oil deduction. Just as carpenters can’t be expected to work without their tools, bodybuilders can’t be expected to compete without their … body oil. While the Tax Court balked at letting a pro bodybuilder write off buffalo meat and special vitamin supplements, it did allow him to deduct his ample supply of body oil as a business expense.

Lesson learned…

Never dismiss a deduction, no matter how silly it may seem.

Homeowners Penalized

0
by on January 6, 2011 at 4:29 pm

Mid February for Schedule A Filers

Imagine this…

Your boss comes in. Says “we’re going to make some adjustments to one form”. The adjustments were finalized in mid December. The “adjustments” are essentially repeating what you did last year. You tell your boss “yeah it’ll take me about 2 months…” This is what happened. We have essentially a carbon copy schedule A, and the IRS is anticipating mid February for implementation.

According to the IRS, itemized deductions on Schedule A “include mortgage interest, charitable deductions, medical and dental expenses as well as state and local taxes. In addition, itemized deductions include the state and local general sales tax deduction extended in the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 enacted on Dec. 17.”

Ask your preparer if they can take you before the forms are finalized. My office will have no issue with this. Some software platforms won’t be able to produce returns until the finalization date.

What if I prepare my taxes beforehand

If you’re e-filing you’ll need to wait until the forms are approved. Your return will be e-filed once this happens. I would anticipate some backlogging at that point as there will be a lot of returns beaming in that day.

Bottom line is we’ll see :)

in Hot Press