2018 Tax Questions

[J.Inkslinger]

 :new_year: A new year means time for tax filings. 2018 brought a lot of new tax changes federally with the Tax Cuts and Jobs Act; some of the changes are amazing for business owners, while some others have outright wrecked carefully crafted tax plans from previous years.

If you have tax questions, feel free to put them here and I will try my best to answer them short of a full essay. I'm an Enrolled Agent (what is that?) with great knowledge of Federal Tax law and ok knowledge of Canadian, TN and WI tax law. Formerly a Forester before being a tax pro.

All answers are free, and in exchange for that price are theoretical positions that should not be relied on for your specific tax situation. (ie. I read it on the forestry forum is not a reliable defense against a tax investigation or audit)

[samandothers]

I'll start.  Interest paid on home equity loan is only deductible if money is used for home improvement?

If an equity loan is used while building a new home that interest is not deductible?

If this is not in the spirit of your offer then apologies and please disregard! :

Thanks!

[J.Inkslinger]

You are exactly in the realm of the questions I was looking for. The answers are:

• Home equity loans used for improvements on the home that secures it is deductible. That is also conditional on the loan plus any existing home mortgage debt not being more than the fair market value of the home
• The loan interest is not deductible if used for building a new, separate home. The key here is that the equity loan proceeds must be spent on the home that is used to secure the loan

Also keep in mind the new standard deduction amounts in 2018 when figuring this as well. If you are married you are starting out with $24,000 in deductions, $12,000 if single. If you are already not coming close to the $24,000 then you can just do what you wish with the HELOC loan and not worry about deductibility. However, if you are in a higher taxed state it may matter.

Good question!

[samandothers]

Thank you J Inkslinger!

[acsa3]

samandothers,
  What is considered an acceptable level of documentation for business expenses.  I am horrible at saving receipts so I just look through my credit card statement to find deductible expenses.  Do you think this going to get me into trouble with the IRS if I am audited?

[WV Sawmiller]

JInkslinger,

   Great service you are offering here. 

    My question is for those of use using gasoline for our mill, chainsaws, and related sawmill equipment - I have not found a source for off-road gasoline so can I document these fuel purchases and file to get my road taxes back for the gasoline I used for these off-road purposes like farmers, commercial fishermen (I think), and other do?

[terrifictimbersllc]

Yes, form 4136 federal fuels credit.

[WV Sawmiller]

TT,

   Thanks. I have been sending this info to my Tax preparer the last several years but did not remember seeing where they applied for it.

[Qweaver]

My cousin claims that he can take both the standard deduction and itemize. I have been doing this for many years and always one or the other....not both!.  Turbotax chooses  the one that gives the best return.   He is insistent he gets both?

[Qweaver]

This post got moved and now may not be seen.  I had a hard time finding it and I started it!

[Jeff]

Yes, and the admins and moderators will continue to do what and when they need to do, as you have been told more than once, (this time publicly) when your topics are put where we think they best belong, and not where you personally think they need to be.

[samandothers]

@J.Inkslinger can you review @acsa3 's post  above and respond.  I don't know  the answer.  

[acsa3]

Sorry about that @samandothers , I mixed you up with the original poster. 

[J.Inkslinger]

Thanks @SamandOthers,

I had this thread market to follow but the follow stopped when it got moved.

@acsa3 - for documentation of expenses there are some nuances. The first nuance is that if an expense is less than $75 you don't need to show a receipt for it. That is a trap though, as the follow up question is "how to you prove what it is for without a receipt?". In order to build a good set of books you need bank statements, credit card statements and invoices. That's the first level, the second level is that in order to justify all of those entries on the books in an audit, you need to have receipts showing what those bank statement transactions are for. A good example is if you have a credit card statement line showing $50 spent at fleet farm, the receipt is what shows that you bought a pair of gloves instead of a skid of cheeseballs.  My position is that you should come up with as good a system as possible and then accept losses from there. Its not worth losing sleep over a lost $30 fuel receipt as much as it is to lose the invoice for a brand new set of skidder tires.  The short version here is, just credit card statement lines are better than nothing, but not perfect. Its like a "B" for an accounting grade. There is a neat program called Shoeboxed that lets you stuff envelopes with receipts and just mail them off to have the company scan and sort them for you.

@WV Sawmiller - terrifictimbersllc got you covered for the fuel credit

@Qweaver - Your cousin's software program, like others does both the calculation for the standard deduction, and the itemized deduction when walking through the steps of generating the return. When it comes to finalizing the return though, you can only use one of the calculations (usually whatever is higher). That's what I'm going to assume your cousin means. The only way someone could erroneously take the two methods and add them together is if they did an override on a number of settings and put in some magic math on the itemized deduction lines.

- keep them coming! I'll set this thread to watch again.

[Qweaver]

Thanks J.  That's what I thought but my cousin has been entering both thinking both would reduce his tax.  I will offer to look at his past turbo tax forms to see which was used.  He may have enough to itemize in the past but not this year i'll bet.   I meant no disrespect...just could not find my post.
Quinton

[Jeff]

It is very simple to find your own posts. Go to your profile and click on the posts link. It displays only the posts you have made, which you can then click on and go right to the discussion in which it occurs

[acsa3]

Thanks J.inkslinger!

[terrifictimbersllc]

Note if the taxed fuel was expensed then the fuel credit you get needs to  be recorded as income. Don't get dizzy figuring that one out.

[WV Sawmiller]

TT,

   No in my case cost of the fuel is just another expense and not passed on directly to the customer like a metal damaged blade would be. Even that is shown as income and I just run all new blade replacement and sharpening as another expense. 

[terrifictimbersllc]

 I'm saying if taxed fuel cost is deducted on schedule C , and then the fuel credit comes out on form 1040 under credits, one needs to include the credit as income in the revenue section of schedule C. Nothing to do with the customer.

[WV Sawmiller]

TT,

   Thanks for the clarifications. I will be sure to mention that to my tax preparer and look for those on the return.

   I still remember the simplified IRS return as:

1. How much money did you make last year?

2. Send it in.

[J.Inkslinger]

Welcome to the 2020/2021 tax season. Ask questions if you've got them.

2020 tax law changes didn't affect timber taxes, but really messed up individual and business taxes. The relevant timber tax news is that the lone government person that maintained www.timbertax.org has either retired or transferred jobs and it's unlikely that the site will be updated in the future.

[Tom King]

Probably should start a new thread.  The lead in header still reads 2018 Tax Questions.