Monday, December 21, 2009


+ The Self Employment tax, the equivalent of the FICA (Social Security and Medicare) Tax for the self-employed, will only be assessed if your net earnings from self-employment x 92.35% is $400 or more – or $433 and over. But it is an “all or nothing” tax. If your net earnings are $425 you pay no self-employment tax. But if your net earnings are $450 you pay self-employment tax on the entire $450. So a deduction of $2 could save you between $51 and $57, depending on your income tax bracket.

+ Most tax credits, like the Child Care Credit, the Retirement Savings Credit, the Energy Credits, and the HOPE and Lifetime Learning Credits, can be taken only against income tax. If the total of these credits is more then your tax liability, then you lose the tax benefit of the excess credit. Only “refundable” credits like the Additional Child Tax Credit, 40% of the American Opportunity Credit, the Earned Income Credit, and the Making Work Pay Credit can be applied against other taxes, such as the self-employment tax and the 10% penalty for premature distributions from a pension plan.

+ The Tax Court, in Singleton-Clarke, TC Summary Opinion 2009-182, provided another “yes” example to add to my popular post “Is An MBA Deductible?”. The obvious correct answer to that question is “it depends”, as it is to most tax questions.

In this recent example an experienced nursing qualify control coordinator acquired an MBA in Health Care Management. She showed the Court that the courses improved the skills needed in her current position, and, upon graduation, she continued in the same line of work. In this situation the purpose of obtaining the MBA was not to qualify her for a new trade or business.

+ As the end of the year fast approaches I just want to remind you of the rules for claiming a tax deduction in 2009 for a qualifying item that was charged to a credit card in 2009, with the charge being paid in 2010.

If you use an American Express, Discover, VISA or MasterCard, any bank credit card, you can claim the deduction in 2009. What you have done is borrowed the money from the “bank” to purchase the item. The vendor from whom you purchased the item received payment from the bank almost immediately.

The same is true if you use a bank debit card, as the money for the purchase is withdrawn from your account at the time of the purchase. It is the same as if you paid cash for the item.

If you use a retail store credit card, a Sears or Macy's card for example, to purchase the item from Sears or Macy's you can claim a deduction when you pay Sears or Macy's for the charge. What you have done is made an installment purchase directly from the vendor. The vendor gets the money when you make your credit card payment.