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Educational Savings Bonds Tax Exclusion – Paul Gaulkin CPA

education definition

A tax exclusion is provided for interest earned on U.S. savings bonds used to finance the higher education of the taxpayer, the taxpayer’s spouse, or dependents according to Code section 135. Timing of Purchase The bonds must have been purchased after December 31, 1989, and the exclusion is available only to the individual who purchased the bonds. The purchaser of the bonds must have reached the age of 24 and be the sole owner of the bonds. The bonds must … Read more

IRS Tax Assessment Process Defined – Paul Gaulkin CPA

Keys spelling taxes

Area Directors have the authority to immediately assess tax due on a properly filed tax return without issuing a Notice of Deficiency. However, the mere act of the taxpayer filing or the IRS receiving the tax return does not constitute an assessment of tax. The IRS must follow the appropriate assessment procedures before the tax will be considered to be assessed against the taxpayer. Common Assessment Procedure For most taxpayer, the assessment process begins when a tax return is filed … Read more

Federal Estate Tax Credits – Paul Gaulkin CPA

picture of property

Below we are going to discuss two tax credits that are available against the federal estate tax. Foreign Death Taxes A foreign death tax credit is provided for United States citizens and residents. The credit applies to property that is subject to both federal and foreign death taxes in order to prevent double taxation. Taxes paid to possessions of the United States are regarded as foreign death taxes according to Code Section 2014. The foreign estate tax credit allowed against … Read more

Gambling Loss Deduction Guidelines – Paul Gaulkin CPA


Losses sustained during the year on gambling transactions are allowed as an itemized deduction but only to the extent of the gains during the year from gambling. In the case of a husband and wife filing a joint return, the combined gambling losses of the spouses are allowed to the extent of the combined gambling gains. Professional Gambler The Supreme Court has ruled that a professional gambler is entitled to deduct gambling losses as a trade or business expense. The … Read more

Vacation Home Tax Deduction Explained – Paul Gaulkin CPA

water front vacation home

Special rules limit the amount of rental expense deductions that may be taken by an investor taxpayer on a residence that is rented out for part of a year and used for personal purposes during other parts of the year according to Code Section 280A. Number of Days in Use If a personal residence is rented out for less than 15 days during the year, any rental income received is excluded from gross income and no rental expense deductions are … Read more

Deduction of Hospital Care Expenses – Paul Gaulkin CPA

hospital sign

The cost of inpatient hospital care which requires an overnight stay, including the cost of meals and lodging, is deductible as an itemized deduction. The extent to which expenses for care in an institution other than a hospital(nursing home, home for the aged, ect.) qualify as a deduction for medical care depends on the situation, condition of the individual and the nature of the services received. Specific Situations If the availability of medical care in an institution is the principal … Read more

Health Reimbursement Arrangement Guide – Paul Gaulkin CPA

looking at medical papers

A health reimbursement arrangement is an employer established benefit plan for employees, which is different from an MSA or HSA. Under the plan, an employer reimburses a participating employees qualified medical expenses up to a maximum dollar amount specified in the HRA plan agreement for the coverage period. Unlike an MSA or HSA which require contributions and distributions to be reported on employee’s federal tax returns, there is no tax reporting requirements for an HRA. Health Reimbursement Arrangement Benefits HRAs … Read more

Hobby Deduction Code Section 183 – Paul Gaulkin CPA

someone doing a hobby

Deductions for hobby activities are claimed as itemized deductions on Schedule A, Form 1040. These deductions must be taken in the following order and only to the extent stated in each of the following three level categories. Level 1 Deductions Deductions that a taxpayer may claim for personal expenses, such as home mortgage interest, taxes, casualty and theft losses, bad debts, worthless securities, tax related expenses, qualified residence interest, medical expenses, charitable contributions, etc. may be taken in full. However, … Read more

Dependent Care Credit Rules & Guidelines – Paul Gaulkin CPA

picture of coins and cash

A tax credit is available for taxpayers who have incurred employment related expenses for the care of a qualifying individual. The amount of credit available is equal to an applicable percentage of the expenses paid by the taxpayer during the taxable year. Credit Filing Requirements In order to qualify for the dependent care credit, a taxpayer must have incurred employment related expenses for the care of a qualifying individual who resides in the taxpayer’s household for more than one half … Read more

Statutory Requirements Regarding Alimony – Paul Gaulkin CPA

alimony judgment money

There are basically five statutory requirements for a taxpayer to claim money transferred to them as alimony payments. If divorce or separate instrument characterizes a payment as “alimony” but fails to satisfy the five requirements under Code Section 71, the payment will not be treated as alimony for federal income tax purposes, regardless of what it is considered under state law. These fix requirements include: 1. Payment must be made in cash 2. Paid to or on behalf of spouse … Read more