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Tax

Social Security On Self-Employed Is Burden At First Look

I just filled out my tax return and find myself in a state of shock. I started my own consulting business last year. My net income on my Schedule C is approximately $50,000. I itemize my deductions to the tune of about $11,000. I'm single with no dependents. The way I see it, my income tax is about $6,000. But when I fill out the forms on my computer, I keep getting something called self-employment tax which is even more than the income tax! What's going on here? Surely this can't be right? C.K., Indianapolis
Tax

IRS Publication Provides Answers To Tough Tax Questions

In a recent column regarding the Barrett Law ("Cost of switching from septic to sewer system is deductible," December 1, 1997), you said that the interest expense relating to a switch from septic to sewer is deductible as real estate taxes. The IRS telephone representatives I spoke with weren't knowledgeable about this rule. Can you point me in the direction of IRS documentation for this deduction? M.D., Indianapolis Information regarding deductions for interest paid on
Tax

IRS Has Strict Rules For Figuring Home Office Deductions

I split my bedroom between office space and sleeping quarters. It's the only place where I work. I've been told I have to use the room for business only if I'm going to try to take a home office deduction. Is this true? K.S., Carmel, IN. It's okay to claim a home office deduction for the part of your bedroom that qualifies as office space, you don't have to set aside an entire room for your workspace. There must, however, be a clear definition of what space is used for work and what space is used for personal purposes.
Tax

Stock Spin-Offs Get Unusual Tax Treatment

I have owned 1200 shares of "Company A" stock for several years. I bought this stock for $26 per share. Last May there was a spin-off, and I received 600 shares of stock in the new company, "Company B." On the day of the spin-off, Company A was quoted at $31 per share and the new company at $17.50 per share. If I should want to sell my shares in the Company B stock, what would be my acquisition cost for determining capital gain or loss? W.H., Indianapolis
Tax

Lawmakers Cut Gains Taxes, But They Didn't Make It Easy

This week's column features a multiple choice question. If you own stock and sell the stock at a gain, at what rate will the gain on the stock be taxed? 10%, 15%, 20%, 25%, 28%, 31%, 36%, 39.6%, If you guessed any one of the above rates, you may have the right answer. That's right. Depending on factors such as the amount of non-capital-gain income you earned and the date on which you sold your stock, any one of the above rates might be the one for you.
Tax

Symphony Tickets Provide No Deductions Due to Benefit Of Music

I own season tickets to the Indianapolis Symphony. If I donate money to the Symphony I can take a tax deduction. Does part of the cost of my tickets qualify as a tax deduction too? The person I called at the Symphony office said, no, but I thought I'd check with you before foregoing a deduction. T.A., Indianapolis
Tax

Tax Law Limits Contribution To $500 For Education IRA

A new, little-advertised feature of the tax law this year is the Education IRA. Here's how this little baby IRA works. Starting in 1998, you can contribute up to $500 per year to an IRA established for the benefit of a child who will eventually attend college. Sounds simple, right? No way. The establishment of this new IRA raises nearly as many questions as there are picky rules accompanying this tax "break."
Tax

Here Are A Few Suggestions For Eleventh Hour 1040 Filer

Several years ago I was a participant in a bizarre conversation in which a friend asked me if I had picked up my new license plate yet (this must have been the year the "Amber Waves of Grain" plates were unleashed), and I replied that my plates weren't due for renewal until March. My friend asked when I expected to get my plate, and I continued to insist that I didn't need to get my plate until March.
Tax

Amount not covered by car insurance may be deductible

I was in a car accident recently and my insurance only paid for part of the damage. Does the casualty loss deduction apply to this situation? B.P., Crawfordsville
Tax

Last minute rush to post office is party for tax procrastinators

Were you at the post office on April 15th? Those long midnight lines seem to get longer each year, and our Indianapolis post offices, along with the Indianapolis policemen and sheriffs who provide traffic control, just take it all in stride.The downtown post office as well as the Nora and Southport branches, provided convenient curb service for tax procrastinators on the 15th, greeting taxpayers as they drove by and collecting the envelopes from the street."We were extremely busy.
Tax

Save charitable giving receipt, and salvage your tax bill

We always donate our giveaway items to Goodwill, Salvation Army, and other such organizations. However, I've never really known how to calculate the charitable cash value for tax deduction purposes. Are there any rules regarding this type of charitable giving? J.S., Indianapolis
Tax

IRS and states provide tax information & forms online

Do you know if there is a web-site where I can get IRS publications? B.B., Indianapolis As backwards as the IRS sometimes seems, they are right up there in the world of high technology when it comes to a presence on the Internet. You can download tax forms, publications, and recent tax news from the IRS' s own web site at http://www.irs.ustreas.gov/prod/cover.html.
Tax

You can work more hours, but you'll share more with Uncle Sam

I have an opportunity to work a lot of overtime this year, which will generate more money for me. If I shoot into a new tax bracket (over $50,000 in income), should I go ahead and work the overtime and get more money, or would I get taxed so much that it wouldn't be worth my while? S.P., Indianapolis
Tax

Medical insurance reimbursement shows up on next year's return

We took a deduction for medical expenses on our 1997 tax return. This Spring we received a medical insurance reimbursement and part of the money we received was for medical expenses we deducted. Should we amend last year's tax return? L.S., Zionsville You don't have to amend your 1997 tax return, leave it filed as is. However, you're not completely off the hook.
Tax

Entertainment expenses must pass tax tests of the IRS

With Race season upon us once again, it's time to consider the tax status of the business-related purchases of seats to the Indy 500, NBA playoffs, and like events. Purchasing event tickets under the guise of a business expense falls into the category of entertainment, an area of the tax law that piques the interest of many a hungry IRS agent.
Tax

Avoid audit causing errors when planning taxes

It's never too soon to start planning for your next tax return. Now that your 1997 tax return is behind you (unless you decided to drag out the agony a bit further and filed for an extension), you can start planning your strategy for your 1998 tax return. Before you get too creative, however, take a look at this list of tax situations that are notorious for attracting the attention of the IRS.
Tax

Only part of a broker's fee is tax-deductible

I pay my broker a fee for managing my investments, making trades for me, and giving advice. Am I correct that all of this fee is allowed as an itemized deduction on my tax return? D.P., Avon Yes and no. If part of your fee is for managing assets which produce tax-free income, you are expected to prorate the fee so that your deduction is only for the part of the fee that relates to taxable income. Also, if you pay a custodial fee for an IRA account, that fee is not deductible.
Tax

Owners decide expense vs. asset treatment of purchases

I own a little business. When I purchase tools and equipment for the business, I make kind of arbitrary decisions about when to depreciate the items and when to expense them. What are the rules for deciding if something is expensed or depreciated? A.H., Greenwood
Tax

IRS will likely let you slide on minor tax form errors

When I was looking over my 1996 taxes (while I was doing the 1997 one), I noticed I put my Schedule C income on the wrong line (alimony line I think) on the 1040. Do you think they will figure out the mistake since they have the Schedule C, or do you think I need to send them a letter or an amended return, or just let well enough alone? P.H., Indianapolis
Tax

You must itemize to deduct gambling losses

I recently won a lump sum gambling out of state. Must I itemize my taxes next year to be able to deduct my gambling losses? Also, does it matter from which state my gambling losses come? S.B., Indianapolis Yes and no.

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