The IRS Deductions Blog

Archive for January, 2010

Question: To be an employee or a subcontractor?

my husband has been working for his mothers cleaning business for over two years..it was an under the table type of thing..he has asked her several times to make him a legal employee due to things such as our credit, buying a house, etc. so finally we asked her again..we now of course, she decides she wants him to sign a subcontractors agreement…
why do we feel screwed all of a sudden? i’m not an idiot, i get what she is doing here..so basically this means, she pays him and its a deduction for her when tax time comes around…and he has to pay his own taxes? am i right on this, or totally off base? is this something we should involve our lawyer in or an accountant?

i know its her business but we have been asking her about him being her employee since the beginning and all of a sudden it seems like she ways to cut corners.. an unbiased opinion would be nice anything is better than nothing..i have to talk to her tomorrow about it and i need some back up..thank you..

Answer: If he is being treated like an employee his wages and taxes should be treated like an employee too. Signing a subcontractor agreement is meaningless unless a real subcontractor relationship exists–you can not contract to violate the law. In any case he should be getting some kind of paper document showing his earnings be it a W-2 or 1099.

Items on Amazon Right Now for Employees Tax Deduction Tables:

Don’t Overlook These Valuable Tax Breaks

SAN FRANCISCO — From the expiring estate tax in 2010 to the various Obama administration proposals, including a bigger child-care tax credit and small-business breaks, there’s no shortage of tax-rel…

Question: Can gifts to business associates be a tax deduction in Canada?

I run a small business, I have bought gifts to my suppliers and customers. Can I use these expenses as a tax deduction? (Canada)

Answer: yes, its an allowable tax deduction as long as the gift is under $750 in value, and not taxable in the hands of the recipient.

Items on Amazon Right Now for Tax Deduction Gifts:

The Tax Deductions most often overlooked

Every year, the Internal Revenue Service dutifully reports the most common blunders that taxpayers make on their returns. And every year, at or near the top of the “oops” list is forgetting to enter their Social Security number at the top of the tax form — or making a mistake when entering those…

Make a Year End Tax-Deductible Gift at ARCW.org

Question: College Savings Plan OR Additional Mortgage Payments?

OK, I have a 6-month old daughter and I am trying to decide whether to put extra money into a 529 account or if I should use that money to pay down and eventually pay off my mortgage (thus freeing up more money for college). Here are my stats followed by my comments on the options I have:
Age: 27
Marital Status: Married
Income: $100k/yr
Retirement: $46k
Savings (incl. Emer.): $35k
Primary Residence: $150k (Left on Mortgage: $100k [15yr fixed@6.00%])
Rental Property: $112 (Left on Mortgage: $60k [15yr fixed@4.875%])

I have health insurance for all my family and life insurance for both my wife and myself.

From what I have seen, the tax savings on 529 plans are really not that great. On the other hand, the tax benefits of my mortgage are minimal because I will probably be taking standard deduction in the coming years.

Please include reasons for your choice. Thank you for you answers.

Answer: It’s really great to read a question from someone who is trying to decide between two GOOD options! It’s refreshing to see someone who has enough extra cash to pay down debt and SAVE some money (rather than maxing out every dime they earn toward a house they can’t afford or a fancy car).

The interest rate on your mortgage is a good one. Additionally, your loan is being amortized over 15 years so you’re putting money toward the principal balance more aggressively.

On the other hand, the cost of a college education is much more volatile. If you put money aside now, then it’s more likely to have a greater payoff in the future (in terms of reducing the hugely inflated cost of a college education). I think the 529 and other college savings plans “lock in” the tuition rate, so you’re hedging a volatile risk.

The VALUE of an overly inflated college education is something I question, but that’s another question altogether.

I suggest putting extra cash toward the 529 plan. Your mortgages will be paid off relatively soon anyway. If you begin earning more money over the next few years, then you can put the extra toward retiring your mortgage debt (the higher interest rate mortgage first). Again, you can’t really go wrong either way.

Congratulations for being such a wise steward of your finances!

Items on Amazon Right Now for Mortgage Tax Deduction Savings:

Reporting Your Interest Income

Find out how your accounts are taxed and which forms you need.

Finance & Investment Tips : 401k Plan Benefits

Question: Does insurance deductible apply for buying lenses or spectacles?

My health insurance says $150 is deductible and Spectacle allowance is $100. Does it mean I have to pay the optometrist $150 for some thing first to get the $100 allowance?

Answer: that usually means that after you pay $150 towards the eye exam $100 is allowed towards the glasses/frames

Items on Amazon Right Now for Deductible Insurance:

Obama issues rules on mental-health coverage

Advocates for mental-health and substance-abuse patients have long lobbied for a “level insurance field,” asking for the same kinds of coverage offered for physical ailments.

Aero-TV: Penalty-Free Deployment – Insurance Adjusts CAPS Deductible

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Haiti tragedy touches Vicksburg families

Two weeks ago, Sage Jackson Robinson of Vicksburg didn’t know if her mother, former Vicksburg police officer Darlene Jackson, who had been living in Haiti since 2008, had died along with many others.

Peru Earthquake: Hands On Disaster Response Update 1