My CFO on the Go!

Beginning Jan. 1, 2008, the standard mileage rates for the use of a car (including vans, pickups or panel trucks) will be:

• 50.5 cents per mile for business miles driven;
• 19 cents per mile driven for medical or moving purposes; and
• 14 cents per mile driven in service of charitable organizations.

The new rate for business miles compares to a rate of 48.5 cents per mile for 2007. The new rate for medical and moving purposes compares to 20 cents in 2007. The rate for miles driven in service of charitable organizations has remained the same.

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile; the standard rate for medical and moving purposes is based on the variable costs as determined by the same study. Runzheimer International, an independent contractor, conducted the study for the IRS.

The mileage rate for charitable miles is set by law.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS), after claiming a Section 179 deduction for that vehicle, for any vehicle used for hire or for more than four vehicles used simultaneously.

Revenue Procedure 2007-70 contains additional information on these standard mileage rates.

Many people don’t realize the income they earn from auctions and consignment sales may be taxable.
What’s Taxable
All income from auctions, traditional or online, and consignment sales is generally taxable unless certain exceptions are met. This income is usually considered either “business” or “ordinary” income. Read more…

How can someone steal your identity? Identity theft occurs when someone uses your personal information such as your name, Social Security number, or other identifying information, without your permission, to commit fraud or other crimes. Read more…

Income

Contractors, subcontractors, and workers must pay taxes on income received for all work, including side jobs and work that is paid for with cash. This includes work in exchange for credit on a bill. It also includes work that is done in exchange for goods or services in a barter exchange. You are required to report your income even if a Form 1099 or a W-2 is not issued to you.

Read more…

Rental Income

In the simplest terms, rental income is any payment received for the use or occupation of property. Most landlords operate on a cash basis. That means they count payments as income in the period they are received and deduct expenses in the period they are paid.

Landlords also need to be aware of other forms of rental income that may need to be declared. Rental income may also include:

• Advance rent payments
• Early-termination fees on lease agreements
• Expenses paid by tenant for the landlord (These may also be deductible as rental expenses.)
• Property or services received in lieu of money (This is based on the fair market value of the property or services.)
• Lease payments with option to buy (These payments are usually counted at rental income. If the tenant buys the property, payments received after the sale date are generally counted as part of the selling price.)
• Payments for renting a portion of your home may or may not be taxable income depending on certain thresholds. See IRS Publication 527, Residential Rental Property.

Security deposits are not counted as income if they are to be refunded at the end of a lease period per an agreement. Landlords sometimes retain portions of security deposits because tenants don’t live up to the terms of a lease. Any funds withheld from a deposit are counted as income in the year they are retained. Deposits used as final lease payments are considered advance rents and counted as income in the period they are received.

Rental Expenses

Landlords can deduct the ordinary and necessary expenses for managing, conserving, and maintaining their rental property. Ordinary expenses are those that are common and generally accepted in the business. Necessary expenses are those that are deemed appropriate, such as interest, taxes, advertising, maintenance, utilities and insurance.  

Other deductible expenses may include:

• Expenses incurred from the time a property is made available for rent and is actually rented.
• Some or all of the original investment in the rental property may be recovered through depreciation using Form 4562, Depreciation and Amortization. Subsequent improvements may also be depreciated.
• The cost of repairs may also be deductible. This may include the cost of labor and materials. However, landlords cannot deduct the value of their own labor.

Improvements that add to the value of a property or prolong its useful life are considered capital expenses and generally must be depreciated. Discussion about whether an expense is an improvement or a repair is included in Publication 946, How to Depreciate Property.

Expenses may be deductible on rental property also used for personal use, but only on a proportional basis. Landlords are permitted to use any reasonable method for calculating what portion of a property should be considered rental. Using square footage is a common method and frequently the most accurate.

Some property is rented out at times and used for personal use other times, such as a beach house. In this case, deductible expenses must be calculated based on the number of days the property is used for each purpose. Deductible rental expenses can not exceed gross rental income for property used for both personal use and as a rental in a given year.

Expenses incurred while property is vacant but available for rent may be deductible. Lost rental income while a property is vacant is not deductible.

Information on other rental expenses and reporting requirements is available in Publication 527.