TAX Talk: TIPS FOR SUMMER
A vacation home can be a house, apartment, condominium, mobile home or boat. If you own a vacation home that you rent to others, you generally must report the rental income on your federal income tax return. In most cases, you can deduct expenses of renting your property. Your deduction may be limited if you also use the home as a residence.
Usually rental income is reported and deductible rental expenses on Schedule E, Supplemental Income and Loss. Report deductible expenses for personal use on Schedule A - Itemized Deductions. These may include costs such as mortgage interest, property taxes and casualty losses. If the property is “used as a home,” your rental expense deduction is limited. If the property is “used as a home” and you rent it out fewer than 15 days per year, you do not have to report the rental income.
Travel for Charity Work
Some travel expenses may help lower your taxes if you itemize deductions when you file next year. Here are five tax tips the IRS wants you to know about travel while serving a charity.
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You must volunteer to work for a qualified organization. Ask the charity about its tax-exempt status – confirm that the organization is qualified per IRS.
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You may be able to deduct unreimbursed travel expenses you pay while serving as a volunteer. You can’t deduct the value of your time or services.
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The deduction qualifies only if there is no significant element of personal pleasure, recreation or vacation in the travel. However, the deduction will qualify even if you enjoy the trip.
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You can deduct your travel expenses if your work is real and substantial throughout the trip. You can’t deduct expenses if you only have nominal duties or do not have any duties for significant parts of the trip.
- Deductible travel expenses may include air, rail and bus transportation, car expenses, lodging costs, cost of meals and taxi fares or other transportation costs between the airport or station and your hotel.
Tax & Financial Records in case of natural disasters
- Backup Records Electronically. Keep an extra set of electronic records (bank statements, tax returns, etc.) in a safe place away from where you store the originals. You can use an external hard drive, CD or DVD to store the most important records.
- Document Valuables. Take pictures or videotape the contents of your home or place of business. These may help you prove the value of your lost items for insurance claims and casualty loss deductions.
- Get Copies of Tax Returns or Transcripts. Visit IRS.gov to get Form 4506, Request for Copy of Tax Return, to replace lost or destroyed tax returns.
Starting a New Business
If you plan to start a new business, or you’ve just opened your doors, it is important for you to know your federal tax responsibilities. Here are five basic tips from the IRS that can help you get started.
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Type of Business. Early on, you will need to decide the type of business you are going to establish. The most common types are Sole Proprietorship, Partnership, Corporation, S- corporation, & Limited Liability Company.
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Employer Identification Number (EIN). In most cases, a business needs to get a federal EIN for tax purposes. Check IRS.gov to find out whether you need this number.
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Types of Taxes. The type of business you run usually determines the type of taxes you pay. The four general types of business taxes are income tax, self-employment tax, employment tax and excise tax.
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Recordkeeping. Keeping good records will help you when it’s time to file your business tax forms at the end of the year. They help track deductible expenses and support all the items you report on your tax return.
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Accounting Method. Each taxpayer must also use a consistent accounting method, which is a set of rules that determine when to report income and expenses. The most common are the cash method and accrual method.
There are various limitations and thresholds for many of the tax deductions. Please consult your CPA/Tax attorney/or tax consultant for proper guidance with the above subject matter.
DISCLAIMER: In accordance with IRS Circular 230, the above information is not intended or written to be used, and cannot be used as or considered a "covered opinion" or other written tax advice and should not be relied upon for the purpose of avoiding tax-related penalties under the Internal Revenue Code; promoting, marketing, or recommending to another party any transaction or tax-related matter(s) addressed herein; for IRS audit, tax dispute or other purposes.
Suresh Kumar, CPA, MBA is the Principal of Kumar Consulting, PA, a CPA & Consulting firm licensed in the states of FL, KS, and MO and can be reached at (813) 421-5068, e-mail [email protected] or visit www.kumarconsultingcpa.com