Can anyone help me?

Question

Mr X, a Insurance Agent (Self Employed)
-Earnings from Non employee compensation 85000.
-Drove for business 26000 miles, his commute was 1200 and personal miles were 3000 . (what is the code section)
-Actual auto expenses is 500. Where will this deduction go? and how
-Used Ford focus worth 20000, He bought it in 1st january. what is the depreciation. Where will it go?
-He has following assest bought on 1st of January.
a. Computer for 1000
b.Furnitur for 2000
-he also paid health insurance for 1400. where will it go?

Which forms will be used and how to calculate all the above items.

Answer 1

Non employee compensation - Schedule C income
auto mileage - form 4562, page 2, which carries over to the schedule C - under auto expenses. mileage for 2006 was 44.5 per mile. Unless he drove two different cars, Mr X has to chose either mileage or actual expenses, he cannot take both for the same vehicle. And with the actual he is limited to the business %. The only expenses that he can take whether he is taking actual or mileage is auto excise taxes and auto loan interest, but only for the % that is business. If the Ford focus is the only car that he drives, once again he can take either mileage or actual (gasoline, repairs, insurance, registration, auto excise, auto loan interest, etc) and the cost of the car would be part of the actual expenses. Computer and Furniture would be also reported on Form 4562, and more than likely his better benefit would be to expense them in the year of purchase using sec 179 deprection. Health insurance of 1400 will be reported on page 1 under the adjustments sections on the line for Self-Employed Health Insurance (SEHI).

Answer 2

When taking actual expenses (inclusive of depreciation) for a vehicle with business use, it is important to take into account an annual auto deduction ceiling amount, which is multiplied by the percentage of business use. What must be factored into the consideration whether to take actual expenses or mileage is not only which will yield the higher deduction currently, but also over the projected life of the vehicle in addition to the likely way in which the vehicle will be disposed of. A good accountant can figure all these things in his head in a matter of seconds, after many years of practice.

As a tax accountant for 27 years, I must in good conscience advise against attempting to do your own taxes. (1) The commecially available software (even the professional stuff) is full of errors--some as to tax treatments and others simply programming errors. If you don't know tax law you can't spot these errors and correct them. (2) The IRS wants people to do their own taxes for two reasons, both favoring the IRS: a) DIY filers end up screwing themselves out of legitimate deductions (which save the government billions); b) The IRS is counting on DIY filers making mistakes so the IRS can bill them for penalties and interest, thus boosting revenues for their efforts.

As I see it, the IRS and software producers have got together to scam the American public. Then you have my collegues in the tax industry who promote such disgraceful things as electronic filing and refund loans---all to generate higher fees.

Never---I repeat NEVER---put your bank routing information on your tax return for direct deposit purposes. The IRS will hold on to this information and use it to remove funds from your account in the event the IRS believes you owe them money.

The scenario you propose indicates to me that "Mr X" may also be liable for Alternative Minimum Tax, which means any depreciation calcalutations must be done under both MACRS and the AMT rules, with the resulting depreciation adjustment treated as a tax preference item for Alternative Minimum Tax purposes.

Mr X may also have been using part of his home or apartment for business. This involves yet additional complexities.

Do you really think you are qualified to do your own taxes, or that you can get enough good and reliable guidance in this manner to produce a competent return?

My advice to Mr X is, that he knows only enough to get himself in trouble, and that he should shell out the few hundred it will cost to hire a professional tax preparer; the cost will be more than offset by the savings.

Indeed, "Mr X" did not even think to include which tax year he was talking about.

Turbo-tax is more a toy that a serious piece of tax prep software. The good stuff costs many thousands.

Answer 3

I could give you a detailed answer but instead do what I did. I have been doing my own state and federal income tax for years. I now have turbotax online and on my computer. get the business and personal versions. It will answer all your questions and save much more than it costs.

Best,

Fred

Answer 4

Doing your own homework will help you learn more.