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Tax Q & A

Tax Questions Answered by Your San Francisco Tax accountant

August 2017

Trade in|Multi-state returns|Education expenses|In-laws as Dependents

Trade-in for sell the business car?

trade in auto

Question: We are considering replacing all our old business vehicles. Should we trade-in or sell the old ones?


Answer: If you sell a vehicle that was used for business, the resulting gain or loss is reported on your tax return. As a result, it is generally better to sell a vehicle if the disposition of the vehicle will result in a loss. If, on the other hand, the disposition will result in a gain, it would be better to trade it.  Since trade-ins are treated as a tax-deferred exchange and any gain or loss is absorbed into the replacement vehicle’s depreciable basis, it is generally better to trade in a vehicle that would result in a gain.


For example, if you bought a truck 2 years ago and took bonus and section 179 depreciation, the resulting basis of the truck is 0, it is better to trade in the vehicle. Otherwise, any proceeds
 from the sale of the truck will be taxable income.

Multi-State returns on rental properties

Question: I have rental properties in several different states. Do I need to file multi-state tax returns?

Answer: Depends. Each state has it's own filing requirements for non-resident. for example, for California,  if you have California source income, you need to file; but for Illinois, you only have to file if you earned enough taxable income from Illinois sources to have a tax liability. You will need to check every state's latest filing requirement to make sure you comply. In addition, not every state has the same filing/extension deadline either.

Are computers and internet costs qualified college expenses?


Question: Can I deduct costs of the computer and monthly internet fee as qualified college expenses?



Answer:  Recent tax regulations have acknowledged the fact that computers, printers, certain software, Internet access and related services are essential for postsecondary education. Thus, when those items are used primarily by a beneficiary of a qualified state tuition (Sec 529) plan, the cost of the items can be reimbursed from the plan’s funds, tax-free.


In addition, the regulations for the American Opportunity Tax Credit (AOTC) have been modified (effective in 2016) to clarify that the AOTC’s definition of qualified tuition and related expenses includes books, supplies and any other equipment that is required for enrollment or attendance at an eligible institution. For this purpose, the materials must be needed for “meaningful attendance or enrollment” in a course of study; they can be purchased from the institution or an outside vendor. Computers are not specifically listed in the new AOTC regulations, but the wording certainly implies that a computer qualifies as long as it is required for meaningful attendance.

In-laws as dependents

Question: My in-laws live in Japan and come to California to live with us 4 months of every year. We pay for all their living expenses in Japan and US. Can I claim them as dependents?


Since your in-laws are relatives of yours, they do not have to live with you to qualify the exemption but each of them needs to have less than $4,050 of gross income. In addition, they need to be a U.S. citizen, U.S. resident alien or a resident of Canada or Mexico.  Therefore, if your in-laws are not citizens or not having a green card, they do not qualify.   However,  If your in-laws stay the majority of the years with you in the US, they might meet the "substantial presence test" to qualify as a resident alien.

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Circular 230:The articles are for general information only. In accordance with IRS Circular 230 they are not considered tax opinions for purposes of relying on such statements in any challenge of the reporting of the above transaction by the IRS. If a full tax opinion is required certain procedures must be met . Also there is a significant cost for a full tax opinion to meet the requirements of Circular 230.

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