December 2004 Newsletter

IntraScope Accounting Solutions, LLC

December 2004 Edition

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New Rules for Donating Old Cars

Starting in 2005, the rules for supporting your car donation to a charitable organization and the amount your can deduct for the value of the car will change. If the donation is greater than $500, the Charity must now give you a written acknowledgement with your name and social security number in the letter and the VIN number of the vehicle. If the organization in turn sells the car (which most of them do) your donation will be limited to the gross proceeds the Charity receives -- NOT the fair market value of the car. Many of these Charities wholesale these vehicles at low prices, so your donation could be quite a bit lower than you expected.

Recommendation: If you are considering donating an old car, do it this year.

State Sales Tax Deduction -- How it will work.

For 2004 you can elect to deduct sales tax instead of claiming a deduction for state income tax. The amount of sales tax you can deduct will be determined by using IRS tables or you can accumulate your receipts and deduct the actual sales taxes paid. If you purchase a car during the year and use the tables, you are allowed to add the sales tax for the car to the table amount.

The bad news: the IRS won't be releasing the tax tables until late March. So if you want to decide which deduction will be most beneficial, we will have to wait to prepare your income tax return until the final weeks of the filing season.

The question to answer is: assuming a 7% sales tax, have you spent more on taxable items than 5% of your gross income. If you purchased large items this year such as a car, you may want to consider deducting sales tax instead of income tax.

One approach that will give you an idea of the amount of sales tax you have paid over the year is to take your credit card purchases for the year and assume a 7.2% sales tax rate. Add to that sales tax for large purchases. We can then compare that number to your Colorado State Withholding to see which deduction will be more beneficial.

Can I still Deduct Losses from my Business if I haven't Shown a Profit for a Couple of Years?

I get this question several times a year. The answer is maybe. The IRS looks at each situation to determine if you have a profit motive. Are you engaging in the activity for an actual and honest objective of making a profit? Keeping good business records, especially mileage logs, maintaining a separate bank account, and operating like a "real" business all work in your favor. The IRS also looks at the expertise of the taxpayer or advisors, the time and effort expended in the activity, the history of income or loss, and whether elements of personal pleasure are involved. Interestingly enough, the wealthier the taxpayer, the more often the activity is considered a hobby and the losses are not deductible.

There is no rule that you must show income after a certain number of years. Those are the hobby loss rules that usually apply when you are breeding pets, ie dogs, horses, etc.

Recommendation: Operate your business in a professional manner to ensure that you are able to deduct the losses. Ask yourself, would a business professional make the same decisions I am? Am I doing this to make money or because there are personal pleasure aspects of the business?

Please call me with any concerns you may have in this area.

Cell Phone Directory

A directory of cell phone numbers will soon be published for all consumers to access. This will open the doors for solicitors to call you on your cell phones. Now we can get solictors calling us wherever we are.

The Federal Trade Commission has set up a "do not call" list. It is called a cell phone registry. To be included on the "do not call" list, you must call from the number you wish to register. The number is 1-888-382-1222 OR you can go to their https://www.donotcall.gov/default.aspx and add your number to the do not call list. You can also do this for your "land line."

Do You Need an Income Tax Organizer?

I have the ability to send you an organizer that will help you summarize your income tax information. If you would like to receive the organizer in January, just let me know and we will sent it to you.