The IRS Deductions Blog

Posts Tagged ‘federal’

Question: What is the difference between a 401 IRA and a 403 IRA? Is there a tax deductible IRA for the self employed?

If a person is considered self employed in a sales position and will receive a 1099, is there a tax deductible account you can invest in? Other than a Traditional IRA or Roth IRA with the fixed limit?

Answer: You would have to set up a retirement plan such as a SEP, SIMPLE, or solo 401k. These plans may have increased contribution limits. Contact a financial institution such as the large mutual fund families, and they will assist you in setting up such a plan.

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Question: I just got married this year. Would it be more advantageous (tax wise) to file jointly. My husband and ?

I don’t have any Tax Deductions (don’t own property) and I make a considerable amount more than him. Obviously my goal is not to be ‘eaten alive’ by CA state and federal taxes. I am also getting a bonus in the next couple of weeks which will put be in a higher tax bracket. What kind of tax-deferred options are out there? I’m wary about where I should put my money during the financial crisis.

Answer: For the vast majority of couples, it is preferable to file jointly. An IRA is an excellent option for you to look at for tax deferred income, but it is certainly true that in the current shaky economy you want to look carefully at how the money is invested and the financial stability of firm holding your IRA.

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Question: Can IRS treat homes purchased for investment purposes as personal residences?

A taxpayer has 4 homes. The mortgage interest on homes 1 and 2 is deducted on Schedule A subject to the limitations. The additional interest paid above that allowable is personal interest. The taxpayer bought homes 3 and 4 strictly as investments due to the economic housing downturn. The houses are not rentals nor does the taxpayer live there or spend any time there. He is deducting investment interest expense only up to the amount of his investment income which is $15,000. The remainder is being carried forward. The IRS claims the interest on homes 3 and 4 is non-deductible personal interest and not investment interest. I cannot find anything on point in either Court Cases, Pubs, the Code or the Regs. Has anyone out there seen this issue and can you guide me to where I can find support for homes 3 and 4 being investment properties?

Answer: IRS treats them they way the taxpayer treats them regardless of what the taxpayer says.

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Question: Cashed savings bonds taxed as income if I used it for tuition?

In May 2006 I cashed in about $950 worth of savings bonds some family gave me when I was young (27-30 years ago).

I took this money and put it in my checking account and immediately used the proceeds (and then some…) to pay off my outstanding college tuition bill.

Do I need to pay income taxes on this amount? Because the bank sent me an income statement for the $950 and the school has sent me nothing. I know that higher education tuition is normally tax deductible for an unlimited number of years, which is different than when I first started college.

Thanks!

Answer: You will have to pay the interest on the savings bonds because you can not exclude them for FEDERAL taxes because you were under 24 when they were issued to you. However, you can write off some of the school expenses (tuition and fees) with either a Hope Credit, Lifetime Learning Credit, or Tuition and Fees Deduction.

You should not report the bond interest on your state tax return.

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