| Danta,
Chase & Co.
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Professional Accounting, Tax Preparation, and Payroll Services. Serving Puget
Sound Businesses and Individuals Since 1988.
Danta, Chase and Co., CPAs, PS is a respected member of the Snohomish County
business community. Founded on a principle of hard work and dedication to our
clients, we strive to perform our services professionally and expeditiously.
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Alimony Deduction
Timing is Everything
Ray, TC Summary Opinion 2006-110
Alimony is deductible by the payer and income to the
recipient. Non- alimony payments generally aren’t deductible. Payments to an
ex-spouse must meet several tests to be considered alimony for tax. Once of
those tests requires that the payments be made under a divorce or separation
instruction.
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Individual Retirement Accounts
Early Distribution Penalty
Gee, 127 TC No.1 (2006)
In the June 2006 issue of Tax Tips we provided a table of
exceptions to the Section 72(t) 10% penalty for the IRA and qualified plan
withdrawals before age 59 ½ . The Tax Court’s recent Gee decision covers one of
these penalty exceptions - for distributions made after the death of an IRA
owner – from an angle not previously litigated (i.e., an issue of fist
impression).
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Business Expenses
Children’s Wages Nondeductible
Alexander, TC Summ. Op. 2006-127
Paying wages to a child is usually a good way to reduce
family’s income tax bill, if the child’s tax rate is lower than the parents’.
For a child under age 18, FICA tax is avoided too. But, wages must be
reasonable for the work performed to be deductible—and family member wages are
especially scrutinized. The Alexander case is a roadmap for “how not to do it”
for taxpayers who want to pay deductible wages to their children.
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Business Recordkeeping
Lost Records Open Door for IRS
Irving, TC Memo 2006-169
When taxpayers can’t substantiate income and expenses, the IRS can use the bank
deposits method, which assumes that all deposits are taxable, to compute
taxable income.
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Installment agreements. The IRS currently charges $43
for entering an installment agreement and $24 for restructuring or reinstalling
an installment agreement that is in default. Under proposed amendments...
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Energy credit for homeowners. Notice 2006-26 provided
guidance on the new tax credit for nonbusiness energy property, including rules
for eligible building envelope component (see Tax Tips April 2006). As reported
in Tax Tips Quick Hits for July 2006, the IRS subsequently...
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