The IRS Deductions Blog

Archive for June, 2009

Your insurance agent might recommend that you take a gap car insurance. Before you say yes right away, it helps to understand what the converages really mean.

What gap car insurance covers

Simply put, a gap car insurance covers total losses due to any reasons. These could include theft, fire, vandalism, accidents, floods, tornados and hurricanes. This means that your gap car insurance pretty much covers any total loss your regular car comprehensive and collision insurance cover. At the same time, getting a gap car insurance will also cover your insurance deductible.

What gap car insurance does not cover

On the other hand, with all the things your gap car insurance covers, you may think that it is already the ultimate insurance for your car. Before anything else, there are still some things that the gap car insurance won’t cover you for. The following exclusions:

1. Cars that are not covered by both comprehensive and collision insurance ¨C This means that you can only avail of gap insurance for your auto if you also get the two other insurances.

2. Any equipment on the car that was not factory installed ¨C If you bought your new car and found out that it does not have anti-theft devices, installing your own devices and any other gadgets is a personal choice. However, if something happens to them, they are not covered by your gap car insurance.

3. Money that was “rolled” into the car loan ¨C Also, the money you used for trade-in or lease will not be reimbursed or will not be covered. The gap car insurance will only completely cover the losses on new cars that were not leased or traded-in.

4. Costs for any other products added to the loan or lease such as extended warranties ¨C This is like the previous one, the gap car insurance will only cover the market value of the car, no other costs included.

5. Unpaid or overdue lease or loan payments ¨C If your new car was bought on lease or loan and you find difficulties handing over your payments on time or at all, you can’t expect your gap auto insurance to cover for you.

6. Financial penalties or security deposits on leased vehicles ¨C Finally, if your new car is still on a lease, you have to independently handle the costs of financial penalties you might acquire and even security costs.

These are just the common exclusions and coverages of gap car insurance. It is still advised that you check with your insurance agents about the particular gap insurance you may want to have.

Items on Amazon Right Now for High Deductible Pet Insurance:

News in brief

Here are a selection of brief news items from this week’s paper edition, and possibly a few news briefs that didn’t make it in the paper.

Question: Tax deduction on interest paid on debt investment?

If a person borrows money to invest in a debt instrument (e.g. debentures or FDs), can one set off the interest paid against the interest earned? e.g. if interest paid is Rs. 40 and interest earned is Rs 100, does one show Rs 60 as income to be taxed or does one show Rs 100 as taxable income?

Answer: If you are showing this income in “Income from Business or Profession”, then it is allowed.

If you are showing it in “Income from Other Sources”, then it is not correct to show the interest paid.

I know many persons who are showing interest (money lending) in “Income from Other Sources” are showing Interest received less interest paid. If the transactions are more, then it is better to show it in “Income from Business or Profession”.

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Tax changes of new year include IRA conversions

The new year brings many tax changes. Many tax breaks are phased out. The changes below are the current state of the law. It is always possible for Congress to act to extend or replace disappearing provisions.The House passed a bill that extended many of these provisions, but the Senate was unable t…

Tax Tips & Advice : How to Deduct Home Equity Loan Interest

Question: Real cost of mortgage loan calculator?

My parents are considering refinancing to a fixed rate mortgate. I need software that can take in the following info: quoted rate, initial fees including mortgate points, loan amount, loan period, Tax Deductions on mortgate interest. The software needs to output the following. Total payments minus tax break plotted against time.
If there is no such software, a webpage with step by step instructions to do the calculation would be helpful.

Answer: Look for an amortization table calculator. That will give you the run down on payments/interest. The tax amount is the interest paid.

Typically though, the amount of interest paid on the loan will be equal to, if not greater than, the original amount of the loan. Add the closing costs to it as well and that is the total cost of the loan.

Ex: a $120k note financed at 6% over 30 years would have a P/I payment of 719.49. Total interest paid over 30 years, $139k.

Figure closing costs of 6k. Total cost for a 120k loan is $145k.

If you make $1k/mo payments, loan will be paid off in about 15.3 years and only pay about $64k in interest. Total cost: $70k. Savings of $75k. That is money in their pocket, not money that is taken off at the end of the year (which would at the 35% bracket, only save about $25k in taxes spread out OVER the additional 15 years).

Note: I am not a tax person so that number is an estimate.

Items on Amazon Right Now for Tax Deduction Calculator Mortgage:

Simple Solutions

Before borrowing money, use this guide to work out which type of loan is right for you.

Mortgage Help Tax Help Nationwide

Question: I am using Turbo Tax and trying to claim tuition & fees as a deduction in Wisconsin, but it asks for Sched. I?

I am using Turbo Tax. I am claiming a tuition and fees deduction on my federal, but when filing state taxes for Wisconsin, I am prompted to complete a Schedule I adjustment form–what do I need to adjust? Do I need to change a figure? Am I unable to claim tution and fees federally? What is happening here?

Answer: If you claimed the deduction for tuition and fees on your federal return, you must complete Wisconsin Schedule I before you are able to claim a subtraction for up to $5,114 of qualified tuition and mandatory fees on your state return.

See page 15, Instructions for State of Wisconsin Income Tax Return

http://www.dor.state.wi.us/forms/2008/08i-111.pdf

Schedule I is used to convert your federal adjusted gross income (line 37, form 1040) to the amount allowable for Wisconsin State Income Tax purposes.

Instructions Wisconsin Schedule I

http://www.dor.state.wi.us/forms/2008/08i-128.pdf

Schedule I

http://www.dor.state.wi.us/forms/2008/08i-028f.pdf

From Instructions, page 6, #56 says that the up to $4000 federal deduction for tuition and fees does not apply in Wisconsin and can not be claimed. You must use Schedule I to remove the federal deduction to your Adjusted Gross Income amount reported on your state return.

You may still qualify for a tuition deduction on your Wisconsin return once the federal amount is removed. You must follow Wisconsin law regarding the deduction on your state return to determine if you qualify.
(Or probably Turbo Tax software will figure this for you if you follow the steps properly).

See page 15 and 16 of the Instructions

http://www.dor.state.wi.us/forms/2008/08i-111.pdf

On Line 5 (Other Adjustments) of the Schedule I form, put the amount of your federal deduction in column A as a negative number. Put the amount allowed under Wisconsin law in column B as a positive number. The difference should appear in column C. Adjust your AGI by the amount in column C.

Good luck. Hope this helps.

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School tax-credit deadline Thursday

Individual taxpayers can contribute as much as $200 to extra-curricular or character-education programs at public charters and unified school districts for a dollar-for-dollar tax deduction on their state income taxes.

Question: Should I get my taxes done professionally or do them myself?

I’ve been doing my taxes myself for almost 10 years, but that was when I was only working part-time and before I owned a home. It was a quick EZ form without any deductions or anything. I now work full-time and I’m salaried. I purchased a home about a year ago and have spent money on renovations and appliances and such. I just want to make sure I get the maximum refund possible and I’m not sure if I would get more paying someone to do it (ie – H&R Block or Jackson Hewitt). I don’t know if it makes any difference, but I purchased my home with my boyfriend (we are not married) so it’s really only half mine even though the loan is completely under my name. Will this cause any complications?
If I should get them done professionally, should I go with H&R Block or Jackson Hewitt? Or someone else?

Answer: If you are not comfortable doing them yourself, then dont.

Go to someone else.

Items on Amazon Right Now for Tax Deduction Appliances:

End of the year brings bonanza for charities

At the Goodwill donation center on Leetsdale Drive, a steady stream of vehicles dropped off items such as appliances and furniture Thursday, the last day of the year to collect a tax write-off for charitable donations.

The Junkluggers on NBC