TRY TO REMEMBER . . .

The summer is almost over – and year-end tax planning time will soon be here.

Just thought I would provide some 1040-related reminders –

MORTGAGE INTEREST

Basically there are two types of mortgage debt –

1) Acquisition debt - debt acquired after October 13, 1987, that was used to buy, build, or substantially improve a main residence or a qualified second home. A “substantial improvement” is one that adds value to the home, prolongs the home’s useful life, or adapts the home to new uses.  And

2) Home equity debt – debt acquired after October 13, 1987, that is secured by a main residence or a qualified second home that is not used to buy, build, or substantially improve the property.  There is no restriction or limitation on what the money can be used for; you can use it to buy a car, to pay for college, or to pay down credit card balances. 

You can deduct interest on acquisition debt principal of up to $1 Million.  But you can only deduct interest on home equity debt principal of up to $100,000.  When you refinance a mortgage, or consolidate mortgage debts, any closing costs that are added to the principal of the loan are considered to be home equity debt.

It is very important that you keep good records of their separate acquisition debt and home equity debt so that the correct amount of mortgage interest is claimed on Schedule A. 

ALTERNATIVE MINIMUM TAX

Speaking of home equity interest - in calculating the dreaded Alternative Minimum Tax (AMT) only interest on acquisition debt – mortgage loan proceeds used to buy, build, or substantially improve a primary and one secondary residence - is deductible.  Interest on home equity debt is not deductible. 

It is very important that you keep good records of their separate acquisition debt and home equity debt so that the correct amount of mortgage interest is claimed on Form 6251. 

{FYI - my “Mortgage Interest Guide” - available from my DOLLAR STORE - includes worksheets, with complete instructions and detailed examples, for keeping track of acquisition debt and home equity debt.}

ADDITIONAL STATE TAX DEDUCTION

You can deduct mandatory employee contributions to a state unemployment (SUI), disability (SDI), and/or family leave fund (FLI) which are withheld from your paycheck, as is the practice in Alaska, California, New Jersey, New York, Pennsylvania, Rhode Island, and Washington, as state income tax on Schedule A. 

The amount of the withholding is usually reported on your W-2 in Box 14.  If not you can find the amount on your year-end cumulative paystub.

I deduct these withholdings as “other tax” on Line 8 of Schedule A to separately identify them.

If you elect to deduct state and local sales tax instead of state and local income tax you cannot deduct these withholdings.

CHARITABLE CONTRIBUTIONS

If the total amount donated to a church or charity is more than $250.00 you must have a “contemporaneous” written acknowledgement from the organization with its name and address, the date of the contribution, and the amount donated.   

To be able to claim a deduction for the full amount of your contribution the acknowledgement must state “No goods or services were provided in exchange for the donation”.  It is very important that this statement is included on your receipt or acknowledgement.  And the receipt or acknowledgement must be received from the church or charity before the earlier of the date the original tax return is filed or the extended due date of the tax return.

{FYI – my DOLLAR STORE also has a “Charitable Contributions Guide” with worksheets.  Order any 2 guides from the Dollar Store by September 15^th and receive “Surfing USA” free!}

BUSINESS TRAVEL

If you use your car for business you must keep “contemporaneous” records of your business mileage. This means that you should record the information on the day the trip occurs.  Record each individual business trip separately. Enter the date, location, business purpose and miles driven for each trip in some kind of diary, account book, or expense log. If you do not have EZ Pass you should also note any toll expenses. If you do have EZ Pass, you can identify tolls for business trips on the monthly statement.

I use a pocket date book as my travel log.  I also enter in my travel log the quarter I put in the parking meter while visiting a client.

{You guessed it – the DOLLAR STORE also has a “Business Expense Guide”.}

TTFN