Effective for your 2006 personal income tax return, Massachusetts allows a deduction against income for tolls paid through a Fast Lane account or for weekly or monthly transit commuter passes for Massachusetts Bay Transit Authority bus, commuter rail or commuter boat commuting. You may not deduct costs for which you are reimbursed by your employer or any other party. For single, married filing separate or head of household filers, this deduction applies to costs exceeding $150. The total deduction shall not exceed $750. For married couples filing a joint return, this deduction applies to costs exceeding $150 per spouse. The total deduction cannot exceed $750 per spouse, for a potential maximum combined deduction of $1,500. One spouse cannot transfer his or her excess deduction to the other spouse.

1.   MBTA Passes eligible for the Commuter Deduction.

Any MBTA commuter pass or Charlie Ticket that is designated to be a monthly or weekly pass is eligible for the commuter deduction. The MBTA commuter rail "Twelve-Ride" pass and the MBTA express bus or commuter boat "Ten-Ride" pass qualify as weekly passes. A "Stored-Value" Charlie Ticket does not qualify for the commuter deduction.

2.   Double Tax Benefits Not Allowed.

The new commuter deduction is allowable only if the amount is not otherwise deducted. Where transportation costs are deductible both as a commuter deduction and any other provision of law, the same expenses cannot be deducted twice.

3.   Employer Provided Pass.

For tax year 2006, where an employer pays for an MBTA pass, the amount by which the value of the pass exceeds $105 a month is included in the employee's income, and reported as wages on Form W-2. To calculate the commuter deduction in these circumstances, first deduct $105 a month or $1,260 a year from the cost of the pass; the remainder is the amount of the qualifying expenses. The amount of the commuter deduction is the portion of the qualifying expense exceeding $150, The total amount deducted cannot exceed $750.

4.   Employee Payment by Payroll Reduction.

Where an employee pays for an MBTA pass through payroll reduction, the total cost of the pass is eligible for the Massachusetts deduction, assuming all other requirements are met.

5.   Dependents.

The deduction is allowed where an individual purchases an MBTA pass for a dependent claimed on that individual's tax return, provided the dependent does not also claim the deduction. However, the total amount deducted cannot exceed $750 for each individual taxpayer who is filing a return. In the case of married taxpayers filing a joint return, the total amount deducted cannot exceed $750 per taxpayer; thus, the maximum deduction for a joint return is $1,500.

6.   Recordkeeping.

Monthly passes, FastLane reports, credit card statements, bank statements, pay stubs, and similar records will serve to substantiate this deduction.

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Effective January 1, 2007, the standard mileage rates for the deductible costs of automobile (including vans, pickups, or panel trucks) use are as follows:

• 48.5¢ per mile for business use of an automobile (up from the 2006 rate of 44.5¢ per business mile)

• 14¢ per mile for automobile use in providing services to a charitable organization (unchanged from 2006)

• 20¢ per mile for automobile use for medical reasons (up from the 2006 rate of 18¢ per mile)

• 20¢ per mile for automobile use for moving (up from the 2006 rate of 18¢ per mile)

The IRS said that parking fees and tolls attributable to deductible use may be deducted as separate items.

Both employees and self-employed individuals who own or lease their cars may use the optional rate for business taxpayers, according to the IRS. If the car is leased, the IRS said, the standard mileage rate must be used during the entire lease period, including renewals.

For owned automobiles placed in service for business purposes, and for which the business standard mileage rate has been used for any year, depreciation is considered to have been allowed at the rate of 16¢ per mile for 2003 and 2004; 17¢ per mile for 2005 and 2006; and 19¢ per mile for 2007 for the years in which the business standard mileage rate was used, the IRS said.

BNA Daily Tax Report, 11-06-06

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The IRS announced revised dollar limitations for pension plans and related amounts for calendar-year 2007. Some amounts change due to cost-of-living adjustments, while others are Code-required changes.

For instance, the (1) benefit limit for defined benefit plans increases from $175,000 to $180,000; (2) defined contribution plan limit goes up from $44,000 to $45,000; (3) compensation limit for determining benefits and contributions increases from $220,000 to $225,000; but (4) definition of a highly compensated employee stays at $100,000.

Furthermore, the (1) SEP contribution threshold increases from $450 to $500; (2) compensation amount for defining a control employee for fringe benefit valuation purposes goes up from $85,000 to $90,000; and (3) limitation for SIMPLE retirement accounts increases from $10,000 to $10,500.

News Release IR-2006-162.

RIA Five Minute Update, October 24, 2006, No. 2006-20

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In a news release dated 10/18/06, the Social Security Administration announced that the wage base for computing the social security tax (OASDI will rise to $97,500 in 2007 from $94,200 in 2006, an increase of about 3.5%. As in prior years, there is no limit to the wages subject to the Medicare tax, and the FICA tax rate stays at 7.65% (comprised of the social security tax rate of 6.2% and the Medicare tax rate of 1.45%). Therefore, the maximum social security tax for employees and employers will be $6,045, and the maximum social security tax for the self-employed will be $12,090.

RIA Five Minute Update, October 24, 2006, No. 2006-20

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January 2007
	Short Term	Mid Term	Long Term
Annual	4.88%	4.58%	4.73%
Semi annual	4.82%	4.53%	4.68%
Quarterly	4.79%	4.50%	4.65%
Monthly	4.77%	4.49%	4.64%
Adjusted AFR for Original Issue Discount (Code Sec. 1288(b))	3.39%	3.54%	4.03%
Code Sec. 382 Adjusted Federal Long Term Rate			4.03%
Long Term Tax exempt rate			4.15%
Low income Housing Credit (Code Sec. 42(b)(2))
70% present value			8.08%
30% present value			3.46%
Valuation Tables (Code Sec. 7520)			5.60%
Deemed Rate of Return for Transfers to Pooled Income Funds (Code Sec. 642(c)(5))			4.80%

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If you are an online auction seller, you may have tax responsibilities. You may be subject to liabilities for income tax, self-employment tax, employment tax, or excise tax. Your sales may result in capital gains, nondeductible personal losses, or you may have ordinary business income.

Did You Have an Online Garage Sale?

If your online auction sales are the Internet equivalent of an occasional garage or yard sale, you generally do not have to report the sales. In a garage sale, you generally sell household items you purchased over the years and used personally. If you paid more for the items than you sell them for, the sales are not reportable. Losses on personal use property are not deductible, either. However, see Did You Sell Appreciated Assets at an Online Auction for gain reporting.

Did You Start a Home-Based Online Auction Seller Business?

If your online garage sale turned into a business and/or you have recurring sales and are purchasing items for resale with the intention of making a profit; you may have started an online auction business.

Are Your Online Auction Sales a Trade or Business?

If you are operating a viable online auction seller business, you may be entitled to deduct business expenses.

Do you have an established business and you are augmenting your sales with online auction sales?

Then, remember to include the online auction sales in your business income.

Did You Sell Appreciated Assets at an Online Auction?

Examples of appreciated assets often include art, antiques and collectibles. If you have online auction sales of property where the sales price is more than your cost or other basis, you usually will have a reportable gain. These gains may be business income or capital gains.

Did You Sell Depreciated Business Assets?

If you sell business assets or close your business you may have capital gains, ordinary gains and depreciation recapture to report. An example is the sale of an automobile used for business.

Don’t Be A VICTIM OF A TAX SCHEME!

Some promoters are targeting home-based businesses including online auction sellers for abusive tax schemes.

More at the IRS Website: Online Auction Sellers

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