Comments on: Ask Me (Almost) Anything: CPA Answers Your Tax Questions

By: ARLnow.com

ARLnow.com — Tue, 12 Feb 2013 21:35:35 +0000

Thank you for a great conversation, everybody. We’re closing the comments at this time.

By popular demand, Bobby will be joining us for another tax chat next month.

By: Bobby Grohs

Bobby Grohs — Tue, 12 Feb 2013 21:32:39 +0000

State tax refunds may be taxable on your federal return in the year received. They are not taxable on your state return. For example a 2011 state tax return is filed in 2012, thus the refund is received and potentially taxable in 2012. Depending on if you itemize deductions and are subject to AMT will generally determine if the refund is taxable or not.

By: PQ

PQ — Tue, 12 Feb 2013 21:22:15 +0000

Phew!
And thanks for providing a very valuable afternoon of community service today.

By: Greg

Greg — Tue, 12 Feb 2013 21:21:55 +0000

Hi Bobby, in 2012 I received a tax form that listed my state income tax return from 2011 and instructed me that I had to report this as income for my 2012 return. I had not received that form prior to 2012 and did no receive on this year. Where did that come from, and why I have to report a tax return as income? I don’t view it as income, it’s money that was returned that I should not have had to pay in the first place.

By: Bobby Grohs

Bobby Grohs — Tue, 12 Feb 2013 21:16:22 +0000

The re-instituted phase-out limitation on itemized deductions cuts the amount of deductions you can take by 3% of adjusted gross income (AGI) above the specified thresholds but you cannot lose more than 80% of the affected itemized deductions. This means that tax payers whose AGI is greater than the specified income thresholds won’t be able to take all of the deductions associated with items like home mortgage interest, charitable donations and state/local income tax payments. While a lot of itemized deductions are affected by the 2013 itemized deduction limitation, some such as medical expenses, investment interest and gambling losses are not subject to the limit.

For an example of the above consider a married couple with income of $400,000 who file their tax return with $50,000 in itemized deductions. This couple is $100,000 above the itemized deduction AGI threshold ($400,000 – $300,000) meaning that their allowed deductions would be reduced by about $3,000 to $47,000—potentially adding to their tax liability by about $1,000.

Personal Exemptions

You are allowed to deduct the personal exemption for yourself, your spouse, and your eligible dependents. The IRS estimated the personal exemption was worth $3,800 on average under 2012 rules. But with the new Personal Exemption Phase-out (PEP) the value of each personal exemption is reduced from its full value by 2 percent for each $2,500 above the above specified income thresholds. So using the example of the above couple, the couple would see a $2000 cut [(0.02*2500) * ($100,000/$2500)) in their personal exemption claims.

By: Bobby Grohs

Bobby Grohs — Tue, 12 Feb 2013 21:13:42 +0000

You might be better of filing separately. I am almost certain you can split the mortgage any way you like.

By: Bobby Grohs

Bobby Grohs — Tue, 12 Feb 2013 21:13:26 +0000

You might be better of filing separately. I am almost certain you can split the mortgage any way you like.

By: PQ

PQ — Tue, 12 Feb 2013 21:10:15 +0000

What does it mean when we read (as above) that itemized deducations and personal exemptions *BEGIN* to phase out at certain incomes? Where can i get the details? My spouse and I both work multiple jobs and I have a side consulting business (4 W2s and a whole bunch of 1099s), with a total combined income of about $360K to $420K each year. But we normally have over $80K in deductions. We don’t want to work 75 hours a week only to have LESS in the bank than if we only worked 50.

By: Fred

Fred — Tue, 12 Feb 2013 21:01:49 +0000

Thanks for doing this, Bobby.

My wife and I have always filed jointly, but she had some large out-of-pocket medical expenses in 2012 and I’m fairly certain that because of the 7.5% cutoff, we’d be better off filing separately. My question is about how we deduct expenses like mortgage interest. It was paid out of a joint account, so does that mean we should (have to?) split it evenly?

By: Bobby Grohs

Bobby Grohs — Tue, 12 Feb 2013 20:53:11 +0000

1) They should not include reimbursements on 1099, however, since they did, reflect the $8,000 as “reimbursed expenses included in 1099″ as an other expense at the bottom of Schedule C.
2) Yes it can – I allocate a portion of the tax prep fee to Schedule C.