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When you itemize your deductions (fill out a long form),
one of the items you can deduct on your federal return are
the total amount of state taxes you paid during the year.
You can pay these taxes either through withholding on
your pay or by paying estimated taxes. Either way, what
you paid was only an estimate of what you thought you'd
owe at the end of the year. When you have your taxes
prepared and find out what you actually owed the state,
often you find you have overpaid and are due a refund.
Since you are getting money back that you already
deducted as an expense, you need to pick up the amount
that you get back from the state as income on your federal
return and pay taxes on it.
We’ve heard people say, “they get you coming and
going.” In reality, most people are consistent in their
withholding strategies. The people who declare Single/0
all year and then make deductions and get large refunds
to pay tax on also get big deductions for their state tax
withheld. Those who have less withheld usually have
smaller refunds to claim. As such, we tend to refer to the
state tax refund income in our office as the revolving
door.
You deduct everything you paid in withholding taxes, pick
up the excess as income the next year while deducting the
withheld taxes, pick up the excess, but deduct the taxes
withheld..
The 1099-G you received is the state’s way of
communicating to you and the federal government the
amount of the refund that must be claimed as income on
your tax return. Sometimes, it is slightly different than your
actual refund. Credits the state gives, like for educational
or child care expenses, are not a part of the tax refund
that
must be declared.
So, if you got the form, put it in with your other tax
information. If you forget it, don’t worry. Our computer
system tracks it from year to year. Click here for a picture
of the form.
The Alternative Minimum Tax was actually created more
than thirty years ago to ensure that paying taxes could
not be avoided through the use of deductions and
loopholes. In the past, its effects had been felt mostly by
high income individuals. However, in recent years, more
of the middle class has been swept up by the Alternative
Minimum Tax because the Alternative Minimum Tax
brackets and exemptions are not indexed for inflation, as
the regular tax system is. In order to compute AMT, you
have to recompute taxes at a slightly different rate,
eliminating many deductions. If the tax computed this
way is higher than the tax computed using the normal
method, the Alternative Minimum Tax is the difference
between the two.
Although tuition, dependent-care and EIC credits are still
usable against the Alternative Minimum Tax, deductions
for many items are not allowed: Standard Deduction,
state and local taxes, some medical expenses and most
miscellaneous itemized deductions.
Congress has extended the higher Alternative Minimum
Tax exemption amounts for 2005: $58,000 for joint filers,
$40,250 for single and head of the household filers.
than thirty years ago to ensure that paying taxes could
not be avoided through the use of deductions and
loopholes. In the past, its effects had been felt mostly by
high income individuals. However, in recent years, more
of the middle class has been swept up by the Alternative
Minimum Tax because the Alternative Minimum Tax
brackets and exemptions are not indexed for inflation, as
the regular tax system is. In order to compute AMT, you
have to recompute taxes at a slightly different rate,
eliminating many deductions. If the tax computed this
way is higher than the tax computed using the normal
method, the Alternative Minimum Tax is the difference
between the two.
Although tuition, dependent-care and EIC credits are still
usable against the Alternative Minimum Tax, deductions
for many items are not allowed: Standard Deduction,
state and local taxes, some medical expenses and most
miscellaneous itemized deductions.
Congress has extended the higher Alternative Minimum
Tax exemption amounts for 2005: $58,000 for joint filers,
$40,250 for single and head of the household filers.
Beginning in 2005, charities accepting vehicles for
donation must give the donee a written
acknowledgement which includes the following
information.
1. The donor's name and taxpayer identification
number.
2. The vehicle identification number or similar
number.
3. A statement certifying the organization sold the
car in an arm's length transaction between
unrelated parties.
4. The gross proceeds from the sale.
5. A statement that the donor's charitable
contribution deduction may not be more than the
gross proceeds from the sale.
6. The date of the contribution.
However, if the charity plans to use the vehicle or
materially improve it, the acknowledgement does
not have to include the information in items 3, 4,
and 5 above. Instead, it must contain a certification
of the intended use of or material improvement to
the car and the intended duration of that use and a
certification that the vehicle will not be transferred
in exchange for money, other property, or services
before completion of that use or improvement.
This acknowledgement must be provided within 30
days of the sale of the car or, if there is significant
intervening use or material improvement of the car
by the organization, within 30 days of the
contribution. The organization also must provide
this information to the IRS.
donation must give the donee a written
acknowledgement which includes the following
information.
1. The donor's name and taxpayer identification
number.
2. The vehicle identification number or similar
number.
3. A statement certifying the organization sold the
car in an arm's length transaction between
unrelated parties.
4. The gross proceeds from the sale.
5. A statement that the donor's charitable
contribution deduction may not be more than the
gross proceeds from the sale.
6. The date of the contribution.
However, if the charity plans to use the vehicle or
materially improve it, the acknowledgement does
not have to include the information in items 3, 4,
and 5 above. Instead, it must contain a certification
of the intended use of or material improvement to
the car and the intended duration of that use and a
certification that the vehicle will not be transferred
in exchange for money, other property, or services
before completion of that use or improvement.
This acknowledgement must be provided within 30
days of the sale of the car or, if there is significant
intervening use or material improvement of the car
by the organization, within 30 days of the
contribution. The organization also must provide
this information to the IRS.
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- The Section 179 deduction for heavy SUVs has been
capped at $25,000. - Remember to save your appointment book if you are
planning to make deductions on business expenses,
such as travel, meals, and automobiles.
Eve Loren Munsky CPA PC
New Tax Information
| Newest Tax Information: |
Alternative Minimum Tax:
Car Donations:
IRA Minimum Distribution Schedule:
Tax Tidbits:
Go here to check out some of the
very latest tax changes!
very latest tax changes!
Statement of Overpayment (Form 1099-G):
The IRS sends out its refunds!
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