missouri employer mutual insurance company

J.K. Lasser Daily Tax Tip brought to you by TaxACT
Everyone wants to get as much back in their tax refund as possible, but tax laws are constantly added, changed, or updated. The J.K. Lasser Daily Tax Tip, brought to you by TaxACT, provide some insight into complex tax situations and offers helpful advice and guidance. Now that's something everyone can use!

The Daily Tax Tip content is provided by America's all-time best selling tax guide, J.K. Lasser's™ Your Income Tax Guide 2006 by John Wiley & Sons, Inc. Tax advice provided by The Daily Tax Tip shall not be construed as a substitute for the advice obtained or given by a certified tax professional.

• Wage Limitation
  For S corporations, only wages allocable to a shareholder (and not the shareholder's personal wages) are taken into account for the limitation on the domestic production activities deduction. For both partnerships and S corporations in tax years beginning after May 17, 2006, wages for the W-2 limit include only amounts paid to determine qualified production activity income.
• Domestic Production Activities Deduction and NOLs
  The domestic production activities deduction (40.23) cannot create or increase an NOL carryback or carryforward (with very limited exceptions).
• Advantage of Relinquishing the Carryback
  You will generally make the election to relinquish the carryback if you expect greater tax savings by carrying the loss forward. You might also make the election if you are concerned you might be audited for earlier years if you carry back a loss for a refund. You make the election by attaching a statement to this effect to your return for the year of the loss, which must be filed by the due date plus extensions. The IRS refuses to allow a late election and received court approval for its position.
• Adjustment for Capital Losses
  A net nonbusiness capital loss may not be included in a net operating loss. If nonbusiness capital losses exceed nonbusiness capital gains, the excess is an adjustment that reduces your loss on Schedule A of Form 1045. In figuring your loss, you may take into account business capital losses only up to the total of business capital gains plus any nonbusiness capital gains remaining after the adjustment for nonbusiness deductions.
• Substantiating the Sideline Business
  In claiming home office expenses of a sideline business, it is important to be ready to prove that you are actually in business; see 40.10. In the case cited in the Example in 40.16, the Tax Court held that the doctor's personal efforts in managing the six units for tenants were sufficiently systematic and continuous to put him in the rental real estate business. In some cases, the rental of even a single piece of real property may be a business if additional services are provided such as cleaning or maid service.
• Carryover Allowed
  Expenses disallowed because of the income limitation may be carried forward and treated as home office expenses in a later tax year (Part IV, Form 8829). The carryover as well as the expenses of the later year are subject to the income limitation of that year. For example, tentative profit for 2006 on Line 29 of Schedule C is $1,000. Expenses allocated to the home office are $2,000. Only $1,000 of the expenses are deductible; $1,000 is carried over to 2007.
• When To Figure Depreciation on a Home Office Using 27.5 Year Recovery
  While depreciation of a home office usually is figured using a 39-year recovery period, a 27.5 year recovery period can be used by an on-site landlord of a building in which at least one dwelling unit is rented out and 80% or more of the gross rental income is rental income from dwelling units within the building. In applying the 80% test, the rental value of the entire landlord's unit is treated as gross rental income and the rental value of the landlord's residential space (but not the home office) is treated as rental income from a dwelling unit.For example, where a landlord lived in one unit of his eight-unit building and used a room in his unit for a home office, the IRS allowed the home office to be depreciated over 27.5 years as residential rental property.
• If You Rent Your Home
  If you rent rather than own your home, and you meet the home office tests in 40.12, enter the rent you paid during the year on Column (b) of Line 20 (Other Expenses) of Form 8829.
• Form 8829
  You must report deductible 2006 home office expenses on Form 8829. Part I is used for showing the space allocated to business use (40.14); Part II for reporting deductible expenses allocated to business use (40.14); Part III for figuring depreciation on the business area (40.13); and Part IV for carryover to 2007 of expenses not allowed in 2006 because of income limitations applied in Part II (40.15). A sample copy of Form 8829 is on page 638.
• Principal Place of Business Test
  The tests for deducting office expenses will generally not present problems where the home area is the principal place of business or professional activity. For example, you are a doctor and see most of your patients at an office set aside in your home. A tax dispute may arise where you have a principal place of business elsewhere and use a part of your home for occasional work or administrative paperwork. Occasional use is not sufficient. If your deduction is questioned, you must prove that the area is used regularly and exclusively to meet with customers, clients, or patients or that the home office is the only place where administrative/management activities for the business are conducted. Have evidence that you have actual office facilities. Furnish the room as an office-with a desk, files, and a phone used only for business calls. Also keep a record of work done and business visitors.
• Using a Home Office for Administrative Tasks
  A home office deduction may be claimed if you regularly and exclusively use part of your home as the only place for conducting the administrative or management activities of your business, or if only minimal administrative work is done outside your home. The home area qualifies as your principal place of business even if you spend most of your working time providing services at outside locations.
• Nonqualifying Costs
  You may not deduct or amortize the expenses incurred in acquiring or selling securities or partnership interests such as securities registration expenses or underwriters' commissions.
• Hobby or Sideline Business
  The question of whether an activity, such as dog breeding or collecting and selling coins and stamps, is a hobby or sideline business arises when losses are incurred. As long as you show a profit, you may deduct the expenses of the activity. But when expenses exceed income and your return is examined, an agent may allow expenses only up to the amount of your income and disallow the remaining expenses that make up your loss. At this point, to claim the loss, you may be able to take advantage of a profit presumption discussed in 40.10, or you may have to prove that you are engaged in the activity to make a profit.
• Penalties and Fines
  Penalties or fines paid to a government agency because of a violation of any law are not deductible. You may deduct penalties imposed by a business contract for late performance or nonperformance.
• Doctor's Malpractice Insurance
  A self-employed doctor may deduct the premium costs of malpractice insurance. However, a doctor who is not self-employed but employed by someone else, say a hospital, may deduct the premium costs only as a miscellaneous itemized deduction subject to the 2% of adjusted gross income floor. Whether malpractice premiums paid to a physician-owned carrier are deductible depends on how the carrier is organized. If there is a sufficient number of policyholders who are not economically related and none of whom owns a controlling interest in the insuring company, a deduction is allowed provided the premiums are reasonable and are based on sound actuarial principles.In one case, physicians set up a physician-owned carrier that was required by state insurance authorities to set up a surplus fund. The physicians contributed to the fund and received nontransferable certificates that were redeemable only if they retired, moved out of the state, or died. The IRS and Tax Court held the contributions to the fund were nondeductible capital expenses.In another case, a professional corporation of anesthesiologists set up a trust to pay malpractice claims, up t