BITS & PIECES OF TAX NEWS
AND OTHER ITEMS of INTEREST
ADA TAX PROFESSIONALS 9140 Ustick Road Boise ID 83704 377-4303
What is TAXABLE INCOME?
January 2007
January 2007
We often find that our clients are confused about what income is reportable and/or taxable. Many believe if
they do not receive an official statement from the payer, i.e., a W-2 or 1099, that the income is not
reportable. All income regardless of the amount is taxable unless specifically excluded by law. Income
can be in the form of cash or anything else of value --- bartered services or goods, or cancelled or forgiven
debt. The good news is that sometimes there are write-offs against the income or it is excludable under
specific provisions of the law.
Examples of taxable income:
Employer payments, tips, other benefits
Rent of property, including a part of your home
Barter
Investment earnings: interest, dividends, royalties
Canceled Debt
Money received (including “under the table”) for services
performed or goods sold
Alimony
VA disability payments (in certain circumstances)
Recoveries of previously deducted amounts
Foster care payments (only under certain circumstances)
Gambling winnings, prizes, awards
Gifts and inheritances (only under certain circumstances)
Insurance claims and lawsuits in many situations
Life insurance (rarely, but sometimes)
Examples of excludable income:
Rents from your principal residence or 2nd home, if less
than 15 days per year
Sale of principal residence, if the sale meets the exclusion
requirements
Gifts (most)
Free rent if for the convenience of the employer
Life insurance, if because of the death of the insured
Scholarships, if they qualify
VA disability payments, if not based on years of service
Fiduciary Fees, Director’s Fees
Prizes and awards if selected without any action on the
taxpayer’s part
Scholarships if not spent on qualified expenses
Canceled debt in a Title 11 bankruptcy (may adjust basis)
Profits on the sale of property, stock
Child support
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We welcome Yvonne Cegnar, our new year-around receptionist!
Check out our website at adataxpros.com for helpful links to federal and local government sites and to read our
current and past newsletters. Also, our Questionnaires and Appointment Checklists can be downloaded from our
website. In addition, you will be able to check on the status of your tax refund.
NOTES FOR OUR SENIORS
After retirement, or when planning for it, many of
our clients have questions about the taxability of
Social Security, how retirement distributions and
investment sales affect their taxes, and even if they
need to file a tax return at all. Below are guidelines
regarding some issues that may be of interest to you
or your parents. An IRS publication entitled "Older
Americans' Tax Guide" (Pub 554) covers various
topics applicable to seniors, and is available at
irs.gov.
Filing Requirement
The filing requirement for 2006 for a single person
over age 65 is $9,700. For a married couple filing
joint with one over 65, the filing requirement is
$17,900; with both over age 65, $18,900. This takes
into account a higher standard deduction for those
aged 65 and older. Note: Social Security benefits
are not a part of this equation.
Earned Income Credit (EIC)
If you work, and if you are low income and still
under age 65 at the end of the year, you may qualify
for EIC. If your income, not including Social
Security, is under $11,750 ($13,750 if married filing
joint) you may qualify.
Withholding
If you are working, your wages are subject to
withholding for income tax and Social
Security/Medicare tax even if you are receiving
Social Security benefits. Also, you may choose to
have income tax withheld from your Social Security
benefit payments.
Investments
Gain from the sale of investments, as well as interest
and dividends earned, may be taxed at a lower
Capital Gains tax rate. Even if you do not meet the
filing requirement for the year, if you have sales of
stocks or mutual funds it is highly recommended
that you report such sales by filing a tax return.
You may have losses to carry forward or need to
prove the gain to IRS.
Social Security
To determine whether any of your Social Security
benefits may be taxable, compare the base amount
($32,000 MFJ or $25,000 for other filing statuses) to
the total of:
½ of your benefits, plus your other income,
including tax- exempt interest.
If part of your benefits is taxable, how much is
taxable depends on several factors. Generally, 50%
of your benefits will be taxed if the calculation
above is over the base amount but under $44,000
MFJ or $34,000 for other filing statuses; above these
amounts, up to 85% of your benefits may be taxed.
Idaho Grocery Credit & Telephone Tax Credit
If you do not meet the filing requirement, you do not
need to file a tax return in order to receive Idaho's
Grocery Credit. Instead, you may file Idaho Form
24. For those age 65 and older, the grocery credit is
$35 per person. If you are not required to file a 1040
this year, there is also a form for receiving the new
credit for long-distance taxes paid in past years; give
us a call.
Medical Expenses
These include insurance premiums, including certain
long-term care insurance and Medicare premiums, as
well as most expenses for doctors, hospitals,
prescriptions, dental and vision care, etc. Nursing
home expenses are deductible in certain cases.
Reasonable costs to accommodate a home to a
person's disabled condition may be considered
deductible medical costs. Transportation costs,
including miles to medical appointments (deduction
= 22 cents a mile), also may be deductible. Check
with us if you think itemizing may be advantageous
and if you have questions about medical expenses
that can be included.
There are many other tax issues for older taxpayers,
but these are some that we thought would be helpful
for our clients. Please feel free to call us if you have
additional questions.
Recycling Tip…..
Major breakthrough in plastic recycling!
recycle codes 1-7 are now recyclable in the
containers and prescription drug containers
Plastic containers including lids with
blue bins. This includes cottage cheese
and much more.
So – You want to be a corporation!
Are you ready to …..
See an attorney
Properly capitalize your company (leave money in it)
Issue stock
Write and follow the bylaws
Have meetings and record minutes
Do double entry bookkeeping
Have payroll and file quarterly payroll reports
Creating a corporation can have advantages --- like being president of a company and having liability
protection. You are creating another entity that is separate from yourself. This is what gives you personal
liability protection. But you need to be prepared to treat your business like a different entity to keep someone
from piercing that corporate shell. Activities like paying for personal expenses out of the corporate account
or transferring money back and forth are indicators that your corporation is not a separate entity.
A corporation has shareholders, directors, officers and employees with different functions --- even if they are
all the same two people! The duties must be kept separate and decisions made at separate meetings. The
incorporating papers and bylaws regulate the corporation, and minutes are crucial. There are a lot of
ramifications (legal, financial, recordkeeping and tax) to incorporating, and it should not be done lightly.
ALWAYS check with your tax practitioner and attorney if you are considering forming a new
corporation or partnership.
A NEW CORPORATION!
Gribskov, Inc. dba (doing business as) Ada Tax Professionals
What does this mean? It just means that Elke and her husband David created a corporation.
Instead of Elke Gribskov, dba Ada Tax Professionals, the new corporation is Gribskov,
Inc., with Elke as President. Our business name remains the same, Ada Tax Professionals.
.
Ustick Road Widening ---The Continuing Saga!
When is construction starting? How is our access and parking affected? The construction is
slated to start February 5, but the contracts aren’t awarded yet! When construction begins they
will first need to move utilities, tear down a few homes, trees, fences, etc. It appears likely
that we will make it through all or most of the tax season before the road is actually cut. We
are close to acquiring the neighboring property as an answer to the parking issue. It will be
an adventure! Meanwhile, watch for parking opportunities in front of our building and the one east of us.
BEGINNING JANUARY 29, WE WILL BE OPEN FROM 8:30-6:30 M-TH, 8:30-6:00 FRI, & 10:00-2:00 SAT.
NO SUBSTANTIATION = NO DEDUCTION!
Beginning in 2007, all cash donations must have written documentation with the charity’s name, date and amount of
donation. Diaries, notes, or personal check registers will no longer be enough. The IRS says you now need your
bank record or written communication from the charity. Cancelled checks, bank or credit card statement and payroll
stubs are acceptable.
Noncash donations of clothing and household items must be in "good condition or better." Household items include
furniture, furnishings, electronics, and appliances. No deduction for worn out and broken items. You may want to take
pictures to verify condition. These new rules become effective for most of our clients beginning in 2007. The old
substantiation rules are still in effect. Cash gifts of $250 or more need a written receipt from the charity. Noncash
charitable donations exceeding $500 requires filing form 8283 with your tax return. Donations of vehicles, boats and
airplanes require a 1098-C from the charity.
DON'T LET THESE RULES DISCOURAGE YOU! These are still some of the best deductions out there!
RESIDENTIAL ENERGY CREDITS
You may be able to take a new energy credit on your 2006 tax return. This credit is for making the following
improvements to your main home, or purchasing qualified energy property:
A) Qualified insulation systems that reduce heat gain or loss, exterior windows or doors, and metal roofs.
B) Qualified air circulating fans, hot water boilers, water heaters, heat pumps, central air conditioners, and
furnaces.
C) Qualified solar panels, solar water heating equipment, and fuel cell power plants.
Of course they could not make this credit straightforward or simple! There are limits:
The credit for property in the above A list is limited to 10% of the cost. The credit for property in the above B list is
limited to between $50 and $300 for each item. The total credit for property in the A and B lists combined is limited to
$500, but only $200 can be for windows. For property in the above C list, the limit is 30% of the cost, but a maximum
of $2000 for solar panels and solar water heating systems. Fuel cell power plants are limited by a maximum credit of
$500 for each .5 kilowatt of capacity.
Solar systems cannot be used to heat a pool or hot tub. Leave it to the IRS to take all the fun out of everything! :-)
Visit www.energystar.gov for a helpful chart of qualifying property.
Spotlight… on AMY
Amy Young, our capable receptionist and newest tax preparer, will be back for her third tax season. Though she is
quick to say that her first and foremost role is that of mom and wife, she has been a great asset here at Ada Tax
Professionals. Her "words to live by" are "Invest in people, not things," and she has demonstrated her
philosophy in her work environment as well as with her family. Amy comes from Flagstaff, Arizona, and also lived in
Minnesota, which is evident in her speech! She came to Boise with her husband, Blain, and two girls, Bekah and Tori,
about 10 years ago. Her family has a dog named Taxi. In addition to her high school education in Arizona, she took art
and architecture classes at Northern Arizona University, and has had tax education as well. She is especially interested
in areas of the tax law that help people invest in themselves, like the Savers' Credit.
Quilting and reading are Amy's hobbies….she loves reading kids' books with Bekah and enjoys humor (Dave Berry!)
and biographies (her recent favorite is by Christopher Reeves).
Amy's husband is a contractor, and is interested in travel. One of Amy's life goals is to travel through Russia with
Blain. She would also like to help her daughter Tori (who is a wonderful artist) to reach her goal of starting a
remodeling business one day, as well as encouraging Bekah, an animal lover, to start a veterinary clinic.