Tax Info Blog

Tax Info Blogger Ryan Ellis Appears on CNBC

A little self-indulgence every now and again isn't awful.  On Friday, I appeared on CNBC to discuss corporate income tax reform.  Look at the way Maria Bartiromo is flirting with me when I discuss personal retirement accounts for Social Security.  Oh, yeah:

Click here to see the video.

As a reminder, there are five easy pieces on corporate reform:

1. Lower the top rate from 35% to 25%.  This would bring us closer to the OECD average.
2. Only tax corporate income earned territorially in the United States.  Other countries tend to have greater border-adjustability.
3. Bring the individual tax rate on qualified dividends and corporate source capital gains to 0%.  These destructive taxes result in a second bite at the tax apple, disadvantaging equity to debt financing and labor income.
4. Lower the corporate capital gains tax rate from 35%, ideally to 0%.  Having a full 35% corporate capital gains tax rate leads to trillions of dollars of locked-up assets.  While they're at it, policymakers should increase the dividends-received deduction to 100% for corporate-source dividends.
5. Replace long depreciation lives and amortization tables with full expensing for business assets.  Why should a stapler, a computer, a mailing list, and a building all be written off over different time periods?

Make Sure You're Prepared: Changes in Foreign Income Exclusion

Q: Has the foreign earned income exclusion of $85,700 been made official by the IRS?
J.A. Shields, Bagram (Afghanistan)

A: First, J.A. thanks for the good work you are doing over there.  Second, you're correct that there has been a lot of changes to the Foreign Earned Income Exclusion, and it goes a lot deeper than just the level of the exclusion...

Mortgage Interest Deduction:What If It's a Foreign Home?

Q: Can I deduct mortgage interest on a second home if that home is outside the United States?
Ardy

A: Yes, assuming you meet all the tests.  The first and most obvious point is that you must itemize your deductions.  It must be a mortgage, meaning a loan secured by your title to the home.  All money must be denominated in dollars.  The two-home limit and the $1 million of acquisition indebtedness rules apply.  Pease can phase you out.  If you're claiming home equity loan interest on this foreign home, the $100,000 and AMT disallowance rules apply.  If none of this makes any sense to you, you should read my longer post on the mortgage interest deduction.  It applies for foreign homes just as much as domestic ones.

Losses on an Annuity

Q: What happens if I cash in an annuity at a loss?
Amy, Woodbridge VA

A: This is actually a disputed question within tax practice, albeit one that does not come up often.  Some tax preparers suggest taking this as negative income in "other income."  Others would consider this to be a "miscellaneous itemized deduction," subject to the limits...

Alimony Is Taxable, Even If It's Not Deductible

Q: I receive alimony, which is obviously taxable to me.  My ex-husband pays for the alimony from his sole source of income, non-taxable Social Security benefits.  Therefore, he cannot deduct the alimony (since his income is already so low he has no tax liability).  Does this mean my alimony isn't taxable?
Donna

A: Alimony is taxable when earned and deductible when paid.  The two are not at all dependent upon each other...

Partnership Expenses Borne by Partners

Q: How do partners get to deduct the expenses they incur that are unreimbursed by a partnership?
Lisa, Abingdon MD

A: Partners are generally able to deduct partnership expenses they incur under certain circumstances and based on their relationship with the partnership.  Much depends on the activities involved, as well as the liability of the partner...

Parents Can Be Employees, Too

Q: I live with my mother, and she babysits and home-schools my child.  I am divorced and live with her and my child.  She directs the home-schooling herself and provides her own supplies.  Is she considered my employee, is she self-employed, or neither?
Al, New Bedford MA

A: The answer is "no" and "self-employed."  Your mother could be what would be termed a "household employee" when she babysits (but an exception applies), and a self-employed teacher when she teaches. The former is probably not taxable income, but the latter is...