Dollars & Sense
TAX TIP: make IRA and pension-plan contributions now
It is a good idea to make IRA and pension-plan contributions now. Donâ€™t delay making contributions for the year. Deposit the full amounts now, AND START EARNING TAX-DEFERRED INCOME SOONER.
For 2009, you can contribute $5,000 to a deductible or Roth IRA ($6,000 if you are age 50 or older by year-end). These amounts might be increased by the end of the year.
If you have your own business and do not have a pension plan, consider opening a Simplified Employee Pension (SEP) plan, savings incentive Match Plan for employees (Simple), or qualified retirement plan now, to get the tax deduction and start your tax deferrals. However, donâ€™t overlook the â€œone-person 401(K) plan. If you have no full-time employees with the exception of your spouse, you are eligible for an owner-only 401K regardless of whether you operate as a sole proprietor, a partnership, a corporation or a limited liability company. Multiple owners also qualify. The plan offers the advantage over traditional retirement programs for the self-employed in that it enables you to put more money toward your retirement.
FREQUENTLY ASKED QUESTIONS
If I move in with a man to whom Iâ€™m not married, and contribute to the mortgage payments on his house, can I deduct the share of the mortgage interest I pay?
To be able to deduct mortgage interest, you must be legally obligated to pay the
mortgage. Unless your name is on the mortgage, the answer is no.
What about deadhead miles?
A common misconception concerns deadhead miles. There are many owner-operators and tax preparers who think that income lost as a result of deadhead miles is a deductible item. That is not the case. Only the cost to operate the truck, i.e. fuel, repairs, and maintenance covering those deadhead miles is deductible. Additionally many truckers often ask whether doing their own maintenance is a deduction. You cannot deduct your time for working on the equipment. Even though youâ€™re not able to deduct your time the benefit is that you are saving the cost of having someone else do the work.
Some owner-operators do take a deduction for deadhead miles as well as a deduction for doing their own repairs. However, if they are audited, those deductions will be disallowed and they will be paying not only the tax owed, but penalties and interest as well.
I just completed my tax return and found that I owe the IRS money. What should I do? You should file the return even if you cannot pay the entire amount of taxes that you owe. By paying something, you can reduce the amount of interest and penalties that you will owe. Can I ask to make installment payments on the amount that I owe? Yes. But before requesting an installment agreement, you should consider less costly alternatives such as a bank loan. I am unable to pay delinquent taxes. Will the IRS accept an offer in compromise? The IRS accepts an offer in compromise to settle unpaid accounts for less than the amount owed when doubt exists that the liability can be collected in full and your offer reasonably reflects the potential collection amount. The IRS will not seriously consider an offer that does not at least equal the total amount of the equity shown on the taxpayerâ€™s financial statements. I got audited and the IRS wants me to sign a â€œsettlementâ€ agreement. What should I do? Before signing a settlement with the IRS, be sure you are satisfied with it. Youâ€™ll be bound by it even if the IRS gives others in the same situation a better deal. If you handled the audit yourself, you might want a CPA or other tax professional to review it. May I deduct my home improvements and repairs to my home? Home improvements can add to the value of your home and prolong its useful life. You add the cost of improvements to the basis of your property. Examples of improvements include putting a recreation room in your unfinished basement, adding another bathroom, or bedroom, putting up a fence, putting in new plumbing or wiring, putting on a new roof, or paving your driveway. Repairs maintain your home in good condition. They do not add to its value or prolong its life, and you do not add their cost to the basis of your property. Some examples of repairs include repainting you house inside or outside, and fixing gutters or floors.
This article has been presented by PBS Tax & Bookkeeping Service, a company which has been providing income tax and bookkeeping services to the trucking industry for over a quarter century. If you would like further information, please contact us at 800-697-5153. Visit our Web Site at www.pbstax.com.
â€œEveryoneâ€™s financial situation is different. This article does not give and is not intended to give specific accounting and/or tax advice. Please consult with your own tax or accounting professional.â€