Frequently Asked Questions and Answers
**The questions and answers posted on this site are provided for informational purposes only and are not intended and should not be considered as tax advice. Each taxpayer's situation is different and the information provided here may not be relevant to or correct for your specific situation. You should contact your own tax professional for advice about your own specific situation. **
Q: I just received a phone call/email from the IRS. They said they are on their way to arrest me, what should I do?
A: First of all, do not panic. The IRS does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels. The IRS also does not ask for PINs, passwords or similar confidential access information for credit card, bank or other financial accounts. Recipients should not open any attachments or click on any links contained in the message. Instead, forward the e-mail to phishing@irs.gov.
How to know it's really the IRS calling
Q: What about a letter from the IRS?
A: Again, do not panic. Bring the letter to our office and we will help you with it.
Q: I got married/divorced this year. Do I file Single or Married?
A: The IRS considers your marriage status for the entire year on the last day of the year. If you are Married on December 31st, then you will file Married. If you are Single on December 31st, you will file Single or Head of Household depending on your situation.
Q: Can I email scanned copies of my forms?
A: If you forget one or two items or live out of the area, you are welcome to email information to us. Before you send the pdf's, please look at them to make sure they are readable and the entire page is scanned. Please do not send pictures taken with your phone as these are often hard to read. Please be aware that sending information via email is not secure, make sure that your Social Security number is obscured.
Q: Do I need bring you the original forms or can I just fill in the amounts on my organizer.
A: We need to see all forms that are official tax forms such as W-2, 1099-SSA's, 1099-DIV, 1099-INT, 1099-G, etc.
Q: I inherited an IRA this year. What should I do?
A: Call us immediately. This area is a minefield and can be costly if you take the wrong step.
Q: I received an inheritance this year. Do I have to pay tax on the money and property?
A: You do not have to pay Federal or State income tax on money or property that you inherit. You will most likely receive a 1041 K-1 from the Estate Personal Representative that may include income earned on the estate assets between the date of death and when you received the inheritance. Even if there was not income, there may be deductions that could reduce your income in the final year of the estate. If you inherit an IRA, contact our office immediately.
Q: I received a cash gift from my aunt this year. Do I have to pay tax on the cash I received?
A: No. The donor is responsible for filing a Gift Tax Return if the gift is over $15,000.
Q: How long should I keep my tax documents?
A: Keep records for 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later, if you file a claim for credit or refund after you file your return. Keep records for 7 years if you file a claim for a loss from worthless securities or bad debt deduction
Q: I don't have the money to pay what I owe. What should I do?
A: There are options but each case is individual so it is best that you call our office and one of our tax professionals will assist you in figuring out the best approach to your situation.
Can't pay the tax you owe?
Q: I forgot to make my estimated tax payment, what should I do?
A: Go ahead and make it now. There may be a small penalty for not paying it on time, but by paying it now, you will stop the interest/penalty charge.
Deductions
Q: Do I still get to claim my children as dependents in 2018?
A: The exemption deduction is now gone and you no longer will get a dependency exemption for your children or other qualified dependents.
Q: What....I don't get a tax benefit for my children???
A: The child tax credit for children under 17 has increased to $2,000. A portion of this credit ($1,400) is refundable, which means if your tax liability is zero, you can get up to $1,400 per child back as a portion of the child tax credit. There is also a new Family tax credit for other dependents, such as children over 17 or elderly parents that you claim on your taxes. The Family tax credit is $500 per dependent.
Q: I have heard that almost no one is going to itemize in 2018 due to the increased standard deduction. So that means you don't need any of my usual information, mortgage interest, property tax and charitable contributions, right?
A: It is true that many taxpayers who normally itemized on their Federal 1040 will no longer itemize because of the increased standard deduction. BUT, the standard deduction for Oregon has not changed. It is currently $4435 MFJ and $2215 Single. We still need to see your normal paperwork, mortgage interest paid, property tax and charitable contributions, to see if you will itemize for Oregon only.
Q: I have saved all of my medical receipts. Do you need to see them?
A: We do not need to see your receipts. You can simply total up the amounts and list them in the proper place on your organizer. You will need to save your receipts with your completed tax return in case you are audited.
Q: I heard there was a Special Medical deduction for Oregon. Can you tell me about it?
A: Oregon has a Special Medical deduction for taxpayers 64 and over who have a Federal Adjusted Gross Income of less than $200,000 MFJ, ($100,000 Single). It is a deduction of up to $1800 from your Oregon income. If you or your spouse is 64 or over, please list your out-of-pocket medical expenses for you and your spouse separately. We need to report them separately for each taxpayer.
Q: What exactly can I deduct as a non-cash contribution?
A: How much is the bag of clothes that you dropped off at Goodwill worth? We all think that our treasures are worth more than they really are. We have found that "It's Deductible" over values most items. The IRS states that you can deduct "fair market value". Take a quick trip around Goodwill or other thrift shops and see what similar items are sold for. Taking pictures of your items will be another step that you can take to show what you donated. We do not need to see the pictures. Keep them just in case the IRS wants proof of your donation.
Q: I just bought a bunch of stuff at the school auction. What can I deduct?
A: If you received a benefit as a result of purchasing items at a charity's auction, you can deduct only the amount of your purchase price that is more than the value of the item or service you receive. For example, if you pay $100 to go to the auction dinner and the dinner is worth $25 then you can deduct the amount over the cost of the dinner, $75. The same goes for items that you purchase at an auction. If you pay $30 for a gift certificate worth $50 then you can not deduct anything. If you paid $100 for the $50 gift certificate then you can deduct $50.
Q: What can I deduct if I make a political contribution?
A: Political contributions are not deductible as a charitable contribution on Schedule A. However, if you file an Oregon tax return and make a contribution (up to $50 single, $100 joint return) to a political candidate, political party or a PAC certified in Oregon, you may receive a credit equal to your contribution. This credit is available for Single taxpayers with an AGI of less than $100,000 and MFJ filers with AGI of less than $200,000.
Q: Is there a deduction for saving money for college?
A: Actually there is. If you put money away in the Oregon College Savings plan you can subtract up to $4750 for MFJ and $2375 for single filers, from your income. That would mean if you were filing jointly and were in the 9% OR tax bracket, you could save up to $428 on your Oregon taxes. Click here for more information.
Income
Q: I received a lot of statements from my brokerage firm this year. Which ones do you need to see?
A: Brokerages firms send a lot of statements. There are monthly, quarterly, and yearly statements. We do not need to see those. The one that we need to see will say something like "Year End 1099 Forms". We need to see this in its entirety. Often times there is important information hiding on a page that we need but you may not think is important.
Q: I received a 1099-MISC for some work I did this year. What is this form and why did I get it?
A: One of the most common reasons you will receive tax form 1099-MISC is if you are self-employed or did work as an independent contractor during the previous year. The IRS refers to this as “non-employee compensation.” Please include this form with your tax information.
Q: I have a rental property that is managed by a rental management company. What do you need?
A: The rental management company should give you a year end statement that lists your income and expenses. You can use this information to fill our your tax organizer. You may also have expenses that you paid out of pocket that didn't go through the management company. You need to also list these expenses but be careful to not list the same expenses twice.
Q: I cashed in some US Treasury Bonds this year. What do you need from me?
A: The bank where you cashed in the Bonds should issue a 1099-INT. If they didn't, you should contact them. If you did not report the increase in the redemption value of the bonds as interest annually and you did not report the interest in the year of maturity, you must report all interest in the year the bonds are redeemed.
Q: I sold my personal car this year. Do I have to report the sale?
A: It depends. Basically, the Internal Revenue Service (IRS) views all personal vehicles as capital assets. If you sell it for less than the original purchase price, it’s considered a capital loss that is a non-deductible personal loss. This means you do not have to report it on your tax return. However, if you sell it for a profit (higher than the original purchase price), this would be a gain to you and would result in you having to report this windfall on your income tax return and pay taxes on it.
Q: I cashed out an annuity this year, do I have to pay tax on the amount I received?
A: Most likely a portion of the amount you received is taxable income. The insurance agent or investment broker should be able to tell you what portion of the annuity is taxable.
Q: What if I inherited the Annuity?
You pay tax on the inherited annuity just like you would if it was your own annuity. This means a portion of what you receive when you cash out the annuity is taxable on your individual return in the year you receive the payout. Call us before you cash out the inherited annuity and we can help you determine what Federal and State taxes should be withheld.
Q: I have heard if I give away my Minimum Required Distribution from my IRA that it is not included in my income. Is that true?
A: If you are over 70 1/2 and are taking Minimum Required Distributions (MRD) from your IRA, you can have the IRA custodian disburse all or a portion of your MRD (up to $100,000) to a qualified charity. This is called a qualified charitable distribution. By contributing all or a portion of your MRD to charity, you will assure yourself of a tax benefit from the gift because the part that you contributed will not be taxed. This tool is even more attractive now that more taxpayers will be utilizing the larger standard deduction.
Q: I love this idea of giving my MRD to a charity. How do I go about doing this?
A: Call your IRA custodian and they can help you facilitate the transfer to the charity. Make sure you let us know you have done this so we can treat the distribution correctly on your tax return. Unfortunately there is no indication on the 1099R to tell us whether you took the distribution yourself or you gave it to charity.
Credits
Q: Can you tell me about the Oregon Cultural Trust tax credit?
A: If you donate to one of Oregon's heritage and humanities non profits, and then make a matching donation to Oregon's Cultural Trust, you not only will get a Federal charitable contribution for those donations, but you will also receive an Oregon Tax Credit for the donation to the Oregon Cultural Trust. For example, if you make a $100 donation to the Corvallis Public Schools Foundation and $100 to the Oregon Cultural Trust, Oregon will give you a credit of $100. That's a pretty good deal for a donation! See their website for limits and additional information.
Q: I received a scholarship. Is it taxable?
A: Generally, scholarships are tax free if they are used for qualified expenses (tuition and fees) and you are a degree candidate for a degree at a eligible educational institution. Scholarships used for Room & Board are usually taxable. Contact our office with your specific situation.
Q: I have a child in college, what kind of tax breaks are available?
A: The American Opportunity Tax credit is a credit of up to $2500 and is available for 4 years of undergraduate studies. This credit is available for taxpayers with Adjusted Gross Income of less than $180,000 for MFJ and $90,000 for all others. The maximum tuition per person that you can use for the credit is $4000. This $4,000 must be paid with non 529 college fund money. Please give us a call if you have specific questions on your situation.
Q: Can you expand on the Education credits?
A: Let's assume that you paid $10,000 for your child's tuition. The first $4000 is used for the credit. You get a 100% credit from the first $2000 paid for tuition and then 25% of the next $2000. This $4000 cannot be from 529 college saving money, but it can be loan money. If you are also using 529 for your child, you could use it for the remaining $6000 of tuition, room and board, and books.
Q: I sold my personal residence this year. Do I have to pay tax on the gain?
A: You may be able to exclude gain up to $250,000 ($500,000 for joint filers) from your income. You must have owned and used the home as your personal residence for 2 out of the last 5 years.
Q: I am thinking about buying an electric vehicle. Are there tax credits available?
A: There is still a Federal tax credit available for purchasing some electric vehicles. The credit is $2500 - $7500 for participating vehicles. If your purchase qualifies, please include your purchase agreement from the car dealership.
Electric Vehicle tax credits
Estates
Q: My buddy at the gym told me that the government is going to tax my estate when I die, what???
A: Yes, there may be a Federal and Oregon tax on assets that a decedent owned or had an interest in as of the date of death. For Oregon that limit is a low $1,000,000. For Federal, the 2018 limit is $11.180 million (2019 goes up to $11.4 million). An Oregon return is required to be filed if gross assets are over $1,000,000. Deductions for liabilities and expense are allowed in determining what portion of the estate that the tax is applicable to. However, you are required to file an Oregon Form 706 if the gross estate (before deductions) is over $1,000,000.
Q: You are kidding me right? What do I need to include in determining whether or not I am over the $1,000,000?
A: No, sadly we are not kidding you. The answer to your question, like most tax questions is not completely straightforward. However the common assets that are included in determining the $1,000,000 threshold are life insurance, real estate, personal property, bank accounts, investment accounts and retirement accounts. Oregon will expect a tax return if your gross assets are above $1,000,000. So even if your taxable estate is below $1 million, you will be required to file the Oregon Transfer Tax return (OR 706).
Q: How can I avoid or limit this tax?
A: Good Estate planning can reduce, eliminate or at least defer the Oregon Estate Transfer Tax and Federal Estate and Gift Tax. We recommend you see an attorney that has experience with Estates and Trusts and fortunately there are several good attorneys in Corvallis and Albany.
Rentals
Q: I rent out a room in my house to a student. Do I need to report the rent that I receive?
A: Yes, the rent that you receive is considered income and should be reported on your tax return
Q: I have a rental and I am wondering what is deductible. Where can I find help?
A: Follow this link to Schedule E Rentals Instructions
Q: I have a home in Sunriver that I use for personal as well as rental. Can I deduct my expenses of owning the Sunriver rental?
A: Well you have stepped into the quagmire of IRC Sec 280A....This is a complicated area of the tax law and is best handled by your tax professional. The general answer is, depending on how many days you use the rental, you can deduct some of your expenses to offset income and you may or may not be able to take a deduction for the excess expenses. It all depends....Aren't you glad you asked???
Q: Is rental income considered net investment income for the purposes of the net investment tax?
A: Unless you are an active real estate professional, the net rental income is considered net investment income and is subject to this tax. Ouch!
Q: Help, I am confused. Does my rental property qualify for the new 20% Qualified Business Income (QBI) deduction?
A: Join the club. You are not the only one that is confused. This issue is helped a little bit by the issuance of a recent IRS Notice (January 2019) that provides a safe harbor. This means if you pass the tests, you are safe in claiming your rental as a QBI and taking the 20% deduction (subject, of course, to the other limitations). The safe harbor provisions are (1) you must maintain separate books and records for each rental (2) you must perform 250 or more hours of work on each rental and (3) contemporaneous records must be maintained, (translation - you can't create records after the fact). If you meet all three tests for your rental, it can be considered QBI. However there are exceptions to this safe harbor and your property may still qualify as a QBI even if you fail these safe harbor tests. This is an easy area to get lost in and you need to talk to someone that is familiar with the new QBI provisions and how they apply to your specific situation.
Business
Q: What expenses are deductible against my business income?
A: Any ordinary and necessary business expenses are allowed as a deduction against your business income. Here is an IRS link to Schedule C instructions.
Q: My friend Joe and I opened a juice bar this year. How do we report our business on our tax returns?
A: Well, my friend, you have just created a Partnership. Whenever two or more people enter into a business for profit they have just created a partnership for tax purposes and you are required to file an informational return that will report the partnership income and expenses. This return will generate a form K-1 that will tell each partner how much of the total profit or loss should be reported on their 1040. This activity will be reported on Schedule E.
Q: I opened a taco shack and I am the only owner. How do I report that activity on my personal tax return?
A: The taco shack will be considered a sole proprietorship and is reported on Schedule C of your 1040.
Q: I have heard that under the new tax law, I can deduct 20% of my profit and not pay tax on it---cool!
A: Whoa! It's not quite that simple. The new IRC Sec 199A deduction is probably the most complicated section in the new tax code. This is definitely an area that you will need our help with.
Q: How much can I deduct using the IRC Sec 179 deduction?
A: The new tax law substantially increased the deduction to $1,000,000. But remember that if you sell as asset within two years of claiming this deduction, you will need to recapture (put into income) all, or a portion of the amount you expensed.
Q: What is the mileage rate for 2018 and 2019?
A: The mileage rate for 2018 and 2019 is 54.5 cents per business mile driven. In addition to the calculated mileage deduction you can also take a portion of your automobile interest as a business deduction.
**The questions and answers posted on this site are provided for informational purposes only and are not intended and should not be considered as tax advice. Each taxpayer's situation is different and the information provided here may not be relevant to or correct for your specific situation. You should contact your own tax professional for advice about your own specific situation. **
Q: I just received a phone call/email from the IRS. They said they are on their way to arrest me, what should I do?
A: First of all, do not panic. The IRS does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels. The IRS also does not ask for PINs, passwords or similar confidential access information for credit card, bank or other financial accounts. Recipients should not open any attachments or click on any links contained in the message. Instead, forward the e-mail to phishing@irs.gov.
How to know it's really the IRS calling
Q: What about a letter from the IRS?
A: Again, do not panic. Bring the letter to our office and we will help you with it.
Q: I got married/divorced this year. Do I file Single or Married?
A: The IRS considers your marriage status for the entire year on the last day of the year. If you are Married on December 31st, then you will file Married. If you are Single on December 31st, you will file Single or Head of Household depending on your situation.
Q: Can I email scanned copies of my forms?
A: If you forget one or two items or live out of the area, you are welcome to email information to us. Before you send the pdf's, please look at them to make sure they are readable and the entire page is scanned. Please do not send pictures taken with your phone as these are often hard to read. Please be aware that sending information via email is not secure, make sure that your Social Security number is obscured.
Q: Do I need bring you the original forms or can I just fill in the amounts on my organizer.
A: We need to see all forms that are official tax forms such as W-2, 1099-SSA's, 1099-DIV, 1099-INT, 1099-G, etc.
Q: I inherited an IRA this year. What should I do?
A: Call us immediately. This area is a minefield and can be costly if you take the wrong step.
Q: I received an inheritance this year. Do I have to pay tax on the money and property?
A: You do not have to pay Federal or State income tax on money or property that you inherit. You will most likely receive a 1041 K-1 from the Estate Personal Representative that may include income earned on the estate assets between the date of death and when you received the inheritance. Even if there was not income, there may be deductions that could reduce your income in the final year of the estate. If you inherit an IRA, contact our office immediately.
Q: I received a cash gift from my aunt this year. Do I have to pay tax on the cash I received?
A: No. The donor is responsible for filing a Gift Tax Return if the gift is over $15,000.
Q: How long should I keep my tax documents?
A: Keep records for 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later, if you file a claim for credit or refund after you file your return. Keep records for 7 years if you file a claim for a loss from worthless securities or bad debt deduction
Q: I don't have the money to pay what I owe. What should I do?
A: There are options but each case is individual so it is best that you call our office and one of our tax professionals will assist you in figuring out the best approach to your situation.
Can't pay the tax you owe?
Q: I forgot to make my estimated tax payment, what should I do?
A: Go ahead and make it now. There may be a small penalty for not paying it on time, but by paying it now, you will stop the interest/penalty charge.
Deductions
Q: Do I still get to claim my children as dependents in 2018?
A: The exemption deduction is now gone and you no longer will get a dependency exemption for your children or other qualified dependents.
Q: What....I don't get a tax benefit for my children???
A: The child tax credit for children under 17 has increased to $2,000. A portion of this credit ($1,400) is refundable, which means if your tax liability is zero, you can get up to $1,400 per child back as a portion of the child tax credit. There is also a new Family tax credit for other dependents, such as children over 17 or elderly parents that you claim on your taxes. The Family tax credit is $500 per dependent.
Q: I have heard that almost no one is going to itemize in 2018 due to the increased standard deduction. So that means you don't need any of my usual information, mortgage interest, property tax and charitable contributions, right?
A: It is true that many taxpayers who normally itemized on their Federal 1040 will no longer itemize because of the increased standard deduction. BUT, the standard deduction for Oregon has not changed. It is currently $4435 MFJ and $2215 Single. We still need to see your normal paperwork, mortgage interest paid, property tax and charitable contributions, to see if you will itemize for Oregon only.
Q: I have saved all of my medical receipts. Do you need to see them?
A: We do not need to see your receipts. You can simply total up the amounts and list them in the proper place on your organizer. You will need to save your receipts with your completed tax return in case you are audited.
Q: I heard there was a Special Medical deduction for Oregon. Can you tell me about it?
A: Oregon has a Special Medical deduction for taxpayers 64 and over who have a Federal Adjusted Gross Income of less than $200,000 MFJ, ($100,000 Single). It is a deduction of up to $1800 from your Oregon income. If you or your spouse is 64 or over, please list your out-of-pocket medical expenses for you and your spouse separately. We need to report them separately for each taxpayer.
Q: What exactly can I deduct as a non-cash contribution?
A: How much is the bag of clothes that you dropped off at Goodwill worth? We all think that our treasures are worth more than they really are. We have found that "It's Deductible" over values most items. The IRS states that you can deduct "fair market value". Take a quick trip around Goodwill or other thrift shops and see what similar items are sold for. Taking pictures of your items will be another step that you can take to show what you donated. We do not need to see the pictures. Keep them just in case the IRS wants proof of your donation.
Q: I just bought a bunch of stuff at the school auction. What can I deduct?
A: If you received a benefit as a result of purchasing items at a charity's auction, you can deduct only the amount of your purchase price that is more than the value of the item or service you receive. For example, if you pay $100 to go to the auction dinner and the dinner is worth $25 then you can deduct the amount over the cost of the dinner, $75. The same goes for items that you purchase at an auction. If you pay $30 for a gift certificate worth $50 then you can not deduct anything. If you paid $100 for the $50 gift certificate then you can deduct $50.
Q: What can I deduct if I make a political contribution?
A: Political contributions are not deductible as a charitable contribution on Schedule A. However, if you file an Oregon tax return and make a contribution (up to $50 single, $100 joint return) to a political candidate, political party or a PAC certified in Oregon, you may receive a credit equal to your contribution. This credit is available for Single taxpayers with an AGI of less than $100,000 and MFJ filers with AGI of less than $200,000.
Q: Is there a deduction for saving money for college?
A: Actually there is. If you put money away in the Oregon College Savings plan you can subtract up to $4750 for MFJ and $2375 for single filers, from your income. That would mean if you were filing jointly and were in the 9% OR tax bracket, you could save up to $428 on your Oregon taxes. Click here for more information.
Income
Q: I received a lot of statements from my brokerage firm this year. Which ones do you need to see?
A: Brokerages firms send a lot of statements. There are monthly, quarterly, and yearly statements. We do not need to see those. The one that we need to see will say something like "Year End 1099 Forms". We need to see this in its entirety. Often times there is important information hiding on a page that we need but you may not think is important.
Q: I received a 1099-MISC for some work I did this year. What is this form and why did I get it?
A: One of the most common reasons you will receive tax form 1099-MISC is if you are self-employed or did work as an independent contractor during the previous year. The IRS refers to this as “non-employee compensation.” Please include this form with your tax information.
Q: I have a rental property that is managed by a rental management company. What do you need?
A: The rental management company should give you a year end statement that lists your income and expenses. You can use this information to fill our your tax organizer. You may also have expenses that you paid out of pocket that didn't go through the management company. You need to also list these expenses but be careful to not list the same expenses twice.
Q: I cashed in some US Treasury Bonds this year. What do you need from me?
A: The bank where you cashed in the Bonds should issue a 1099-INT. If they didn't, you should contact them. If you did not report the increase in the redemption value of the bonds as interest annually and you did not report the interest in the year of maturity, you must report all interest in the year the bonds are redeemed.
Q: I sold my personal car this year. Do I have to report the sale?
A: It depends. Basically, the Internal Revenue Service (IRS) views all personal vehicles as capital assets. If you sell it for less than the original purchase price, it’s considered a capital loss that is a non-deductible personal loss. This means you do not have to report it on your tax return. However, if you sell it for a profit (higher than the original purchase price), this would be a gain to you and would result in you having to report this windfall on your income tax return and pay taxes on it.
Q: I cashed out an annuity this year, do I have to pay tax on the amount I received?
A: Most likely a portion of the amount you received is taxable income. The insurance agent or investment broker should be able to tell you what portion of the annuity is taxable.
Q: What if I inherited the Annuity?
You pay tax on the inherited annuity just like you would if it was your own annuity. This means a portion of what you receive when you cash out the annuity is taxable on your individual return in the year you receive the payout. Call us before you cash out the inherited annuity and we can help you determine what Federal and State taxes should be withheld.
Q: I have heard if I give away my Minimum Required Distribution from my IRA that it is not included in my income. Is that true?
A: If you are over 70 1/2 and are taking Minimum Required Distributions (MRD) from your IRA, you can have the IRA custodian disburse all or a portion of your MRD (up to $100,000) to a qualified charity. This is called a qualified charitable distribution. By contributing all or a portion of your MRD to charity, you will assure yourself of a tax benefit from the gift because the part that you contributed will not be taxed. This tool is even more attractive now that more taxpayers will be utilizing the larger standard deduction.
Q: I love this idea of giving my MRD to a charity. How do I go about doing this?
A: Call your IRA custodian and they can help you facilitate the transfer to the charity. Make sure you let us know you have done this so we can treat the distribution correctly on your tax return. Unfortunately there is no indication on the 1099R to tell us whether you took the distribution yourself or you gave it to charity.
Credits
Q: Can you tell me about the Oregon Cultural Trust tax credit?
A: If you donate to one of Oregon's heritage and humanities non profits, and then make a matching donation to Oregon's Cultural Trust, you not only will get a Federal charitable contribution for those donations, but you will also receive an Oregon Tax Credit for the donation to the Oregon Cultural Trust. For example, if you make a $100 donation to the Corvallis Public Schools Foundation and $100 to the Oregon Cultural Trust, Oregon will give you a credit of $100. That's a pretty good deal for a donation! See their website for limits and additional information.
Q: I received a scholarship. Is it taxable?
A: Generally, scholarships are tax free if they are used for qualified expenses (tuition and fees) and you are a degree candidate for a degree at a eligible educational institution. Scholarships used for Room & Board are usually taxable. Contact our office with your specific situation.
Q: I have a child in college, what kind of tax breaks are available?
A: The American Opportunity Tax credit is a credit of up to $2500 and is available for 4 years of undergraduate studies. This credit is available for taxpayers with Adjusted Gross Income of less than $180,000 for MFJ and $90,000 for all others. The maximum tuition per person that you can use for the credit is $4000. This $4,000 must be paid with non 529 college fund money. Please give us a call if you have specific questions on your situation.
Q: Can you expand on the Education credits?
A: Let's assume that you paid $10,000 for your child's tuition. The first $4000 is used for the credit. You get a 100% credit from the first $2000 paid for tuition and then 25% of the next $2000. This $4000 cannot be from 529 college saving money, but it can be loan money. If you are also using 529 for your child, you could use it for the remaining $6000 of tuition, room and board, and books.
Q: I sold my personal residence this year. Do I have to pay tax on the gain?
A: You may be able to exclude gain up to $250,000 ($500,000 for joint filers) from your income. You must have owned and used the home as your personal residence for 2 out of the last 5 years.
Q: I am thinking about buying an electric vehicle. Are there tax credits available?
A: There is still a Federal tax credit available for purchasing some electric vehicles. The credit is $2500 - $7500 for participating vehicles. If your purchase qualifies, please include your purchase agreement from the car dealership.
Electric Vehicle tax credits
Estates
Q: My buddy at the gym told me that the government is going to tax my estate when I die, what???
A: Yes, there may be a Federal and Oregon tax on assets that a decedent owned or had an interest in as of the date of death. For Oregon that limit is a low $1,000,000. For Federal, the 2018 limit is $11.180 million (2019 goes up to $11.4 million). An Oregon return is required to be filed if gross assets are over $1,000,000. Deductions for liabilities and expense are allowed in determining what portion of the estate that the tax is applicable to. However, you are required to file an Oregon Form 706 if the gross estate (before deductions) is over $1,000,000.
Q: You are kidding me right? What do I need to include in determining whether or not I am over the $1,000,000?
A: No, sadly we are not kidding you. The answer to your question, like most tax questions is not completely straightforward. However the common assets that are included in determining the $1,000,000 threshold are life insurance, real estate, personal property, bank accounts, investment accounts and retirement accounts. Oregon will expect a tax return if your gross assets are above $1,000,000. So even if your taxable estate is below $1 million, you will be required to file the Oregon Transfer Tax return (OR 706).
Q: How can I avoid or limit this tax?
A: Good Estate planning can reduce, eliminate or at least defer the Oregon Estate Transfer Tax and Federal Estate and Gift Tax. We recommend you see an attorney that has experience with Estates and Trusts and fortunately there are several good attorneys in Corvallis and Albany.
Rentals
Q: I rent out a room in my house to a student. Do I need to report the rent that I receive?
A: Yes, the rent that you receive is considered income and should be reported on your tax return
Q: I have a rental and I am wondering what is deductible. Where can I find help?
A: Follow this link to Schedule E Rentals Instructions
Q: I have a home in Sunriver that I use for personal as well as rental. Can I deduct my expenses of owning the Sunriver rental?
A: Well you have stepped into the quagmire of IRC Sec 280A....This is a complicated area of the tax law and is best handled by your tax professional. The general answer is, depending on how many days you use the rental, you can deduct some of your expenses to offset income and you may or may not be able to take a deduction for the excess expenses. It all depends....Aren't you glad you asked???
Q: Is rental income considered net investment income for the purposes of the net investment tax?
A: Unless you are an active real estate professional, the net rental income is considered net investment income and is subject to this tax. Ouch!
Q: Help, I am confused. Does my rental property qualify for the new 20% Qualified Business Income (QBI) deduction?
A: Join the club. You are not the only one that is confused. This issue is helped a little bit by the issuance of a recent IRS Notice (January 2019) that provides a safe harbor. This means if you pass the tests, you are safe in claiming your rental as a QBI and taking the 20% deduction (subject, of course, to the other limitations). The safe harbor provisions are (1) you must maintain separate books and records for each rental (2) you must perform 250 or more hours of work on each rental and (3) contemporaneous records must be maintained, (translation - you can't create records after the fact). If you meet all three tests for your rental, it can be considered QBI. However there are exceptions to this safe harbor and your property may still qualify as a QBI even if you fail these safe harbor tests. This is an easy area to get lost in and you need to talk to someone that is familiar with the new QBI provisions and how they apply to your specific situation.
Business
Q: What expenses are deductible against my business income?
A: Any ordinary and necessary business expenses are allowed as a deduction against your business income. Here is an IRS link to Schedule C instructions.
Q: My friend Joe and I opened a juice bar this year. How do we report our business on our tax returns?
A: Well, my friend, you have just created a Partnership. Whenever two or more people enter into a business for profit they have just created a partnership for tax purposes and you are required to file an informational return that will report the partnership income and expenses. This return will generate a form K-1 that will tell each partner how much of the total profit or loss should be reported on their 1040. This activity will be reported on Schedule E.
Q: I opened a taco shack and I am the only owner. How do I report that activity on my personal tax return?
A: The taco shack will be considered a sole proprietorship and is reported on Schedule C of your 1040.
Q: I have heard that under the new tax law, I can deduct 20% of my profit and not pay tax on it---cool!
A: Whoa! It's not quite that simple. The new IRC Sec 199A deduction is probably the most complicated section in the new tax code. This is definitely an area that you will need our help with.
Q: How much can I deduct using the IRC Sec 179 deduction?
A: The new tax law substantially increased the deduction to $1,000,000. But remember that if you sell as asset within two years of claiming this deduction, you will need to recapture (put into income) all, or a portion of the amount you expensed.
Q: What is the mileage rate for 2018 and 2019?
A: The mileage rate for 2018 and 2019 is 54.5 cents per business mile driven. In addition to the calculated mileage deduction you can also take a portion of your automobile interest as a business deduction.