Tax Info Blog

2008 Standard Mileage Rates Released

The IRS released their long-anticipated standard mileage rates for 2008 today.  Here's the "good news":

• Business miles: 50.5 cents per mile
• Charitable miles: 14 cents per mile
• Medical miles: 19 cents per mile

Bottom line for standard mileage users is that about half your miles will equal your tax deduction.

Remember a couple of key things about using the standard mileage method:

1. You can only use it at all if you use it the first year a vehicle is placed into service.  If you start out using actual expenses, you can never go back
2. Only business miles are allowed--no commuting
3. Standard mileage replaces most actual expenses, with the exception of parking and tolls, which can still be claimed
4. Those with for-hire vehicles, car leasers, and those with fleets of vehicles cannot use standard mileage

Passive Losses Offsetting Portfolio Income?

Q: Can I use passive losses to offset capital gains income?  I am a passive participant in a trade activity, and receive an investment return.  Are capital gains also considered passive income?
Chris

A: Unfortunately not.  Passive losses can only be used to offset other passive income (with the notable exception of some real estate passive losses, which are discussed here).  Any unused passive losses carry forward until either the activity is disposed of, or passive gains arise to be offset.

Unfortunately, since passive income does not include portfolio income, passive losses cannot be used to offset this income.  Your passive losses will just have to roll forward (without even so much as interest paid).

More on this can be found in IRS Publication 925, Passive Loss and At-Risk Rules.

Another Potential "MFS" Situation: Foreign Income from One Spouse Only

Q: The new foreign earned income exclusion rules require that any income remaining on my return be taxed in the same bracket as if my foreign income had never been excluded.  I work overseas, and my wife is in the U.S.  Our taxes just went way up as a result.  Any advice?
Wayne

A: I would say you have three options available to you (and you would need to run the numbers all three ways to see which one works best for you each year): take the foreign earned income exclusion anyway, claim the foreign tax credit, and file as "married filing separately"...

Are Larger Business Gifts Taxable to the Recipient?

Q: I work for a large company that will be hosting a convention.  The gifts that will be given to convention attendees (all employees) exceed $600 in costs.  Does the company need to cut a 1099-MISC for these gifts?
Anthony

A: The first thing to say is that this comes under a gray area, since this expenditure could either be considered an "ordinary and necessary business expense" or a "fringe benefit," depending on the circumstances.  Let's delve into each to see how things end up...

Mortgage Interest Deduction and the AMT

Q: How does the mortgage interest deduction interact with the alternative minimum tax (AMT)?
Angie

A: Not much, unless you have a home equity loan.  For those who need to know about the general rules on the mortgage interest deduction, read my piece on it.  The AMT places one major disallowance on the deduction.  You are allowed to deduct up to $1 million in acquisition debt mortgage (debt used to buy or build your current home and a second home).  However, if you have any home equity debt that exceeds your acquisition cost of the home, the interest on that debt is disallowed by AMT.

First Year of Marriage Tax Considerations

Q: I recently got married.  My husband and I are trying to figure out which filing status makes the most sense for us: married, filing jointly or married, filing separately.  We were led to believe that perhaps for our first year of marriage for tax purposes, we should file separately because we don't own a house and my husband is subject to an obscene AMT which will also affect me, if we file jointly.  We can't seem to get a straight answer regarding which filing status makes sense.  TurboTax actually suggested that I keep my W4 at a "Single" status for the remainder of the year.  We are really confused by it all.
Amy

A: The first year of marriage involves a lot of transition, and people often forget about the tax side of this.  Let's review a few tax aspects of the marriage transition...

Corporate and Other Business Charitable Contributions

Q: Are business gifts of baseball uniforms charitable deductions to the business?
Shar

A: There are different rules depending on the form of the business entity.  Sole proprietors, partners, and S-corporation owners cannot take a business deduction for charitable contributions.  Rather, they are considered personal charitable contributions and taxed under those rules.  However, a corporation is allowed to make its own charitable contribution.  The contribution is limited to 10% of taxable income (taken without regard to the contribution or certain other allowances).  Unused contributions can be carried forward up to five years.

Filing a Joint Return with a Non-Resident Spouse

Q: What if you live in a foreign country, your spouse is a nonresident alien and does not have a SSN, and all your income was earned in that country and is less than the Foreign Earned Income Exclusion?  Would it still matter whether you filed joint or separate returns?

A: If you're married, your only option to file is as married filing jointly, or married filing separately.  Filing as single is no longer an option.  So how do you do that if your spouse doesn't have a U.S. tax I.D. number?  Simple--get one.  Form W-7 will take care of it, and can actually be filed with your 1040.  Lots of documentation is needed, so be prepared to make some copies of passports and the like.

You then have a choice of married filing jointly or married filing separately.  MFJ is only available if you choose to treat the non-resident spouse as a resident.  While this gives you full use of the standard deduction and other benefits, it also opens up the non-resident spouse's income to worldwide taxation.

If you choose MFS, the U.S. spouse may lose out on some tax benefits (like Roth IRA contributions).  However, if your foreign earned income exclusion cancels out all your income, this might be the best choice.