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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

Mariners Beware – Sailor Credits and other bogus Magic Deductions

2
by on November 16, 2010 at 7:08 pm

Too good to be true?

#1 – I went to another preparer and they got me an extra $4,000 back…

Red Flag!!! Short of the original preparer missing a very obvious deduction/deductions/credits this doesn’t happen.

#2 – My tax preparer discovered this deduction – so others don’t know about it…

Just remember – the IRS won’t likely know either…

#3 – Mariners cannot E-File because “special paperwork” needs to be attached to the return

Serious snake oil. Luckily most preparers have jumped off of this band wagon after a lot of insistence. Truth is these preparers felt there was better presentation for their high fees if the returns were mailed in with the unnecessary attachments. Virtually all preparers will be required to E-File in the upcoming years. There’s fewer eyes looking over your private information. You get your refund quicker. And you’re generally informed of errors and issues quicker.

#4 -The IRS called because I owe back taxes and say I have to pay up

Possibly not a scam. But beware… A slick person pretending to be an agent can steal your private information. If they need to verify it’s you, so they want your social, date of birth, address, maiden name, red flag… Even if you did have issues with the IRS I would be wary. There are ways to acquire lists of individuals in financial difficulty. Personally I would insist on calling back on one of the published IRS numbers.

#5 – “payments made by the taxpayer through EFTPS have been rejected”

You’re sent this message in an email. It looks as though it’s linking back to the IRS. It’s actually a shell site looking for your financial information. Again, I’d call.

#6 – “I work with the charity, you can sign the title over to me”

Yes this happens… Folks pretend to be a non-profit and drive away with your car. Go to the charity you’re donating to. Sign the title to the charity. Make sure you have their non-profit info.

#7 – Energy Credits – salesmen aren’t accountants

“But the salesman said I could get it”… Almost as common as the real estate broker saying you probably won’t owe taxes on that vacation property you sold. Many… Actually most boilers (especially oil) that are “energy efficient” do not qualify for the energy credit. You need a very high fuel vaporization efficiency rate to qualify. If the plumber is giving you the deal of the century on the new boiler, you probably don’t qualify.

#8 – The Sailor Tax (luckily this has moved down the list)

We know merchant seamen are different. They have different tax treatment than others regarding specific definitions. First they are generally liable only to their State of residence for State income taxes. Second, they have to pay into California and Rhode Island SDI programs even though they are often considered ineligible for benefits under the Jones act and denied. (Can you tell that one’s personal???) Third, they are generally not considered transients for tax purposes. This lowers certain documentation requirements with respect to employee business expenses.

There is no law that says mariners get deductions for expenses they never had – PERIOD

You have to incur an actual expense in all cases. A preparer stating otherwise is flat out wrong.

No Brainer – FSA Dependent

1
by on June 18, 2010 at 1:21 am

Easy tax money

If deciding between the dependent care credit and using the FSA is keeping you up at night – I’ve got great news for you!!! It’s bedtime. 99.999% of the time it makes way more sense to use the FSA account.

What is a Dependent FSA?

The Dependent FSA is similar to the medical FSA in that you are allowed to circumvent Federal, State, and payroll (social security and medicare) taxes. You can allocate $5,000 into your FSA. One dependent will generally produce effective tax savings in the range of $1,000-$1,400. There aren’t any pesky phase out limitations to worry about as well.

VS Dependent Care Credit

The dependent care credit allows for a credit offset of $600 per child (with limitations). Cash credits are generally king. But in this instance we’re able to circumvent several taxes while lowering our AGI (these deductions are usually after AGI is calculated “known as from AGI”).

What are the drawbacks?

This is essentially a no brainer as far as tax maneuvers go. The biggest drawback is that you have to offset dependent care eligibility with the FSA offset. Still, 99.999% of the time it’s better.

Advantages?

Besides the obvious tax savings you’re lowering your AGI. This can reduce the impact if you’re in one of those pesky phase out positions where you are losing child or other tax credits. It can also effect AMT phase outs and exemption allocations.

Unfortunately…

Well I have to add this in… Even though we almost always effectively save more, there’s an issue. We as taxpayers tend to base our savings on our refund. Problem being that payroll will lower your withholding when you contribute to your FSA. Meaning your refund will most likely not be better (it actually might be less)….

FSA factors for Mariners to consider

First – there are unfortunately very few maritime employers who have implemented flexible spending accounts. And if they’re not available, there’s no option.

Second – Multiple States… Say you live in New Hampshire. You sail foreign. Your spouse works in Massachusetts. Both employers offer FSA’s. Who Pays in? THE SPOUSE DOES… Not because we’re mean. Simply because your spouse has to file a non-resident return in Massachusetts every year. Meaning they’ll be able to offset that pesky State tax where you will not.

Third – State Employees… Flashback – (My dad had a sign that said “A Taxpayer is someone who doesn’t have to pass a civil service exam to work for the government….”) Joking aside, many State employees aren’t required to pay into Social Security and Medicare. Meaning if one spouse does, you’re losing a 7.5% offset. Always determine what Federal and State retirement systems you are paying into.