Mike's weekly post usually concentrated on tax saving strategies.
For the last few years we had a reminder in our tax organizers about paying your share of California's sales tax on out-of-state purchases - or better known as Use Tax. There is a updated (read, BETTER) news about this subject.... read on...
The IRS is clear on their point of view. If you barter you must include the barter activity's fair market value as income on your tax return in the year the barter activity is performed. But is it really that simple? Here are some things to consider if you barter.
What is fair market value? The classic definition is the price someone is willing to pay and someone is willing to receive for the exchange of goods or services. But we all know this requires a level of judgement. What if an item is on sale when the barter activity is performed? Are prices always the same for a similar item or service? Prior to establishing the value of a barter item, shop around and take the lowest defendable value possible for your bartered item.
Example: You barter dog grooming for accounting work. If you offer a range of prices from $20 to $60 for your grooming service and a dog owner can readily get the same service done for $15 somewhere else…what is the fair market value? If you can reasonably substantiate the $15, this lower amount could become your fair market value.
The IRS is clear on their point of view. If you barter you must include the barter activity's fair market value as income on your tax return in the year the barter activity is performed. But is it really that simple? Here are some things to consider if you barter.
What is fair market value? The classic definition is the price someone is willing to pay and someone is willing to receive for the exchange of goods or services. But we all know this requires a level of judgement. What if an item is on sale when the barter activity is performed? Are prices always the same for a similar item or service? Prior to establishing the value of a barter item, shop around and take the lowest defendable value possible for your bartered item.
Example: You barter dog grooming for accounting work. If you offer a range of prices from $20 to $60 for your grooming service and a dog owner can readily get the same service done for $15 somewhere else…what is the fair market value? If you can reasonably substantiate the $15, this lower amount could become your fair market value.
Remember you have until you file your tax return to make a contribution to a Traditional IRA or Roth IRA for the 2011 tax year. The annual contribution amount is $5,000 or $6,000 (if you are age 50 or over). Prior to making the contribution, if you (or your spouse) are an active participant in an employer's qualified retirement plan, you will want to make sure your modified adjusted gross income (MAGI) does not exceed certain income thresholds. There are also MAGI (income) limits to qualify to make Roth IRA contributions.
In response to a questions as to when you can avoid early withdrawal penalty on an IRA for Higher Education:
Beginning January 1, 1998, a taxpayer may make withdrawals from an individual retirement account (IRA) to pay the qualified higher education expenses for the taxpayer, the taxpayer's spouse, or the child or grandchild of the taxpayer or taxpayer's spouse at an eligible educational institution. The taxpayer will owe federal income tax on the amount withdrawn, but will not be subject to the 10 percent early withdrawal tax that applies when amounts are withdrawn from an individual retirement account before the account holder reaches age 59-1/2.
