Bottom Line
Tax Tips
Tax saving tips & strategies

You can take IRA distributions before age 59 1/2 and avoid the 10 percent penalty as long as the funds are used for a qualified purpose. One qualified distribution would be for a first-time home purchase. Ten thousand dollars may be used to buy or build a first principle residence for you, your spouse, your child or grandchild. You or your spouse must not have owned a home for the prior two years and monies must be used within 120 days of withdrawal. Another qualifying withdrawal would be for payment of qualified college costs. Qualified costs include tuition, fees, books and supplies as well as certain room and board expenses. This only applies for post-secondary expenses. Payments from an IRA due to disability of the participant are also considered a qualified withdrawal. The IRS is stringent in its definition of disabled. Partial disability does not qualify.

It is also considered a qualified distribution when you elect to take distribution as part of a scheduled series of substantially equal payments made over the life of the participant and the beneficiary. Be careful. Once the annuity form of payment is selected, you cannot change the payment method until you reach age 59 1/2 or until five years have elapsed, whichever is longer. If you do change the payment method prior to the allowable time, the 10 percent penalty will apply to all money received before age 59 1/2.

Be sure to take advantage of tax breaks for the sale of your principle residence. Single homeowners may exclude up to $250,000 of gain. Married homeowners may exclude up to $500,000, but they must file a joint tax return. To qualify, you must have owned and used the home as your principle residence for at least two of the five years prior to the sale; the two years do not have to be consecutive. This exclusion may be used on one sale every two years. If your principle residence is owned for less than two years you may qualify for reduced or prorated exclusion. 

FAQs

Can I deduct the miles I put on my car for business?

Yes. Many self-employed individuals do not realize they can deduct business-related car expenses. Be sure to keep track of all the business mileage you put on your personal vehicle, also keep track of tolls and parking. Business mileage would include business banking, picking up truck parts, office supplies, postage, etc. Also, keep track of mileage when out shopping for new equipment. 

I know I can hire my kids to help with the business but what are the rules?

You may hire your under-18-aged children to do work in connection with your trade or business. A child under age 18 who works for his or her self-employed parent in an unincorporated business is not subject to Social Security (FICA), and the parent is not responsible for paying the employer's portion of Social Security (FICA) taxes. Parents are allowed a tax deduction for the wages paid to the child, and the child's standard deduction can be up to $4,300 if all the income is earned. This means it's sheltered from tax and the parent is able to shift $4,300 of his or her income to each child, tax-free.

Remember, the child must actually perform a service for which the wages are paid and those payments must be reasonable in relation to the child's age and the services rendered. Be sure to maintain accurate records to reflect the wages paid and remember you must issue a W-2 Wage & Earnings Statement at the end of the year to your child.

This article has been presented by PBS Tax & Bookkeeping Service, a company that has been providing income tax and bookkeeping services to the trucking industry for more than 25 years. Contributions to this article were made by Shasta May, Director of Business Development for PBS. If you would like further information, please contact Barry, Howard or Shasta at 800-697-5153. See our web site at www.pbstax.com.

Aug/Sept Digital Edition