Tax breaks can help when disaster strikes

Recent events here and abroad are reminders that disasters can occur at any time - often with staggering human and financial costs. If you're a victim of disaster, you may receive insurance and federal disaster aid. But the tax code also offers some relief. You may be able to take an itemized deduction for part of your loss. In tax terms, it's a "casualty loss," and it can also apply to events such as a car crash, a house fire, or theft. Here are the basics.

•  The loss or damage must be due to an unexpected and sudden event. Losses due to slow deterioration over the years, such as rot, rust, or insect damage, don't qualify.

•  Your tax deduction won't equal your total loss. You must subtract any insurance or other reimbursement. Then you must also deduct $100 for each loss and 10% of your adjusted gross income.

•  Your loss may also be limited by your adjusted basis in the property. That's generally what you paid for it, plus or minus any improvements or previous losses.

•  In a widespread disaster, the area may be classified a "Presidentially declared disaster area." If that happens, you have a special option. You can claim your casualty loss against the current year's taxes. Or you can amend the previous year's return and claim your loss against that year's taxes. That usually generates a faster refund, but it may change the amount of your deduction.

If you suffer a casualty loss, please contact us. We'll explain the rules and help you claim the maximum possible tax benefit.

Maris & Associates CPA's
10512 19th Ave SE #101
Everett, WA 98208
425-338-0414
info@mariscpa.com

www.mariscpa.com

Will the dreaded AMT affect you?

With the attention surrounding the alternative minimum tax (AMT) year after year, you may be wondering if you'll be snared by it in 2011. What can cause you to owe the tax?

The answer lies in items that are treated differently when calculating the AMT than they are when figuring your regular tax. Certain itemized deductions fall into this category. For instance, under the regular federal income tax computation, you can claim an itemized deduction for medical and dental expenses in excess of 7.5% of adjusted gross income.

For the AMT, these expenses must exceed 10% of your adjusted gross income, which means your deduction is limited even more.

Another example: Taxes, including real estate taxes, state income taxes, and sales taxes, are not allowed under the AMT calculation.

The same restriction applies to miscellaneous itemized deductions such as investment expenses and employee business expenses.

Your mortgage interest deduction may differ for AMT purposes, too. Why? Interest you pay on home equity loans is generally not deductible unless you use the loan proceeds to buy, build, or improve your primary or second residence.

Don't itemize? The standard deduction is also not allowed for the AMT calculation. That's one reason it can sometimes make sense to itemize even when your standard deduction is higher.

In addition to the items mentioned here, the IRS form used to compute your AMT liability includes other adjustments that may affect you. Give us a call for an AMT review. We can help with planning suggestions and strategies you may be able to implement before year-end.

Maris & Associates, CPA's

10512 19th Ave SE, Suite 101

Everett, WA 98208

425-338-0414 

info@mariscpa.com

www.mariscpa.com