Serving up this steaming pile of
Celebrity Gossip
Gay Politics
Gay News
and Pointless Bitchery
Since 1995

TaxTroll EA Questions

It's going to be tough going without the "search" function working on DL, but maybe if everyone posts their questions to this one thread (and we'll set up new ones as the one fills up), it could be do-able. I'll go through and look for this thread manually when I log on, which is pretty much every day.

One caution up front: If you receive 1099 forms from a brokerage or mutual fund company, don't plan on doing your tax return until late February, at earliest. The IRS has given them an extra 15 days (until Feb 15) to send out their 1099-series forms to their customers.

by TaxTrollEAreply 18011/19/2013

"The IRS has given them an extra 15 days (until Feb 15) to send out their 1099-series forms to their customers."

Why TaxTrollEA? Was there a snowstorm on Patriots Day?

by TaxTrollEAreply 101/23/2012

Hi sweetheart,

If I took out and paid back in full a 401K loan last year will I have to pay anything or can I deduct any costs related to it?

I haven't received any forms yet from Fidelity.

Thanks, virtual hug

by TaxTrollEAreply 201/23/2012

Love you, TaxTroll EA.

by TaxTrollEAreply 301/23/2012

[quote]"The IRS has given them an extra 15 days (until Feb 15) to send out their 1099-series forms to their customers." Why TaxTrollEA? Was there a snowstorm on Patriots Day?

Broker reporting is expanding in the next three years, to include limited basis reporting (If you sell something purchased after 2010, they will eventually have to give you both the selling price and the cost basis for use in preparing your return), and they were complaining to Congress that it was too much work to have the statements out by Jan 31. So they have the extra 15 days, not just this year, but every year (unless they change it again.)

by TaxTrollEAreply 401/24/2012

[quote]If I took out and paid back in full a 401K loan last year will I have to pay anything or can I deduct any costs related to it?

If this was actually a LOAN (and not a withdrawal), there is no tax reporting required.

I'm not sure what "costs" you may be referring to. If you mean interest, it isn't generally deductible, but there could be exceptions if the loan was secured by a deed of trust on your residence. Unlikely, but possible.

by TaxTrollEAreply 501/24/2012

Bump ... to keep this reasonably close to current. (Otherwise, it will take too long to find it each day, without the search function available.)

by TaxTrollEAreply 601/24/2012

I love the tax troll!

by TaxTrollEAreply 701/24/2012

Bump

by TaxTrollEAreply 801/24/2012

Where's My Refund site has been down for a few days. What's going on?

by TaxTrollEAreply 901/24/2012

Can you get political for a moment and tell us what you think about where Shitt Romney is likely to be most vulnerable when it comes to his taxes?

Or is that another thread?

by TaxTrollEAreply 1001/24/2012

[quote]Where's My Refund site has been down for a few days. What's going on?

No news, since the IRS has never done internet sites very well.

You might rry calling tthe "Where's my refund?" line at 800-829-4477. You need your filing status (1 if single) and expected refund amount.

Part of the problem now is that the IRS has fully-implemented the new Mod E File (MeF) protocol, and has been tweaking it (or going back to the old - "Legacy" - system) when problems come up. A refund via direct deposit can take anywhere from 3-15 days, depending on what system ultimately is used for your return.

by TaxTrollEAreply 1101/25/2012

So I'm all done w/ my Fed and State stuff for 2011 (I like to get that shit out of the way). Other than my 401k, I have no real investments and own no property and my partner and I keep our stuff separate, so taxes are simple.

However, in a month we are moving to the UK for his job. Eek. I'm afraid my simple tax life that I've been able to manage is going to suddently get more complicated.

Do I now need to hire a person in the States for when I file next year on the 2 months of income I made here? I'm guessing I should get a UK person too for the income I'll make when working there?

TaxTroll - can you recommend any good resources for someone in my position? My googling has yet to find anyone in a similar situation.

by TaxTrollEAreply 1201/26/2012

So help me with this, Tax Troll. Because they were at the point of maximum interest and I got a letter from the feds telling me I'd be taxed on their interest whether I cashed them or not, I did in fact cash in a bunch of savings bonds my father left me. Roughly $6000 in interest, and I've paid tax on none of it. The bank said it couldn't handle taking out tax.

What can I expect to pay?

by TaxTrollEAreply 1301/26/2012

Hi Tax Troll EA. You are very kind.

I took a job in Europe this summer so won't have enough time to qualify for excluding foreign income for the year, so I assume I take the foreign tax credit or deduction.

If I hadn't earned this income in Europe, I overpaid taxes and would've gotten z refund on the US income/taxes. The refund would pay for the taxes I project that I'd owe on the foreign income even without the foreign tax credit.

The formula on the tax credit sounds confusing, but the way i understand it, unless i paid less taxes in Denmark than I would have in the US, the foreign tax credit should wipe out my US tax liability on that income. Or do I only get a percentage of the actual taxes i paid, or only to what's left of what i owe after applying the amount already withheld?

by TaxTrollEAreply 1401/26/2012

[quote]However, in a month we are moving to the UK for his job. Eek. I'm afraid my simple tax life that I've been able to manage is going to suddently get more complicated. Do I now need to hire a person in the States for when I file next year on the 2 months of income I made here? I'm guessing I should get a UK person too for the income I'll make when working there? TaxTroll - can you recommend any good resources for someone in my position? My googling has yet to find anyone in a similar situation.

Assuming you will not be renouncing your US citizenship, ALL of your income from ALL sources will continue to be reportable on a US tax return. If some of it is also taxed in the UK, you may be able to claim a credit for the lower of what you paid them or the amount it was taxed by the US.

Alternately, there is a Foreign Earned Income Exclusion - with a few additional limitations - that could allow you to exclude part/all of your income earned in the UK.

Your filing might also be affected by the provisions of the US' tax treaty with the UK. These can be complicated, sometimes varying based on the type of visa you have permitting you to work.

Yes, you can anticipate that your filings in the future will be a LOT more complicated. My advice would be to have someone in the UK handle whatever filings there are needed. For the US returns, you can look for a UK-based firm that deals with US taxation as well, or arrange for them to be done by a CPA or EA based in the US. If your employer has other Americans working there, they could provide leads on that.

Link below is to IRS Publication explaining filing requirements for US citizens living abroad.

by TaxTrollEAreply 1501/26/2012

[quote]Because they were at the point of maximum interest and I got a letter from the feds telling me I'd be taxed on their interest whether I cashed them or not, I did in fact cash in a bunch of savings bonds my father left me. Roughly $6000 in interest, and I've paid tax on none of it. The bank said it couldn't handle taking out tax. What can I expect to pay?

I have no idea. Your tax rate depends on everything on your return, not just this interest. It is taxed as ordinary income, nothing special like capital gains.

And you may have had tax withheld on income, but understand you still need to report that income on your return, and claim credit for what was withheld. You should receive a 1099-INT form showing taxes withheld.

One happy note: If you live in a state with an income tax, interest on US savings bonds is exempt from state tax.

by TaxTrollEAreply 1601/26/2012

[quote]The formula on the (foreign) tax credit sounds confusing, ...

Yes, it is, especially if you try to explain it the way you did.

It is calculated on Form 1116. I'd suggest you do your return, with all income and deductions on it, and figure the tax. Then plug the numbers into the Form 1116, and see what happens. If you simply follow it line by line, it is not that daunting.

FYI, if you itemize deductions, as an OPTION to the credit, you can simply deduct foreign income taxes on Schedule A. It is usually better to claim the credit, however, unless you are in a rather high tax bracket and not subject to the Alternative Minimum Tax.

by TaxTrollEAreply 1701/26/2012

Bumping for more questions ...

Please try to keep them to the two threads we have going now (They come up in a search for TaxTroll and TaxTrollEA - note, no spaces).

by TaxTrollEAreply 1801/28/2012

Thank you for answering. I apologize for the question. I took that description from an IRS publication and shouldn't have bothered you.

by TaxTrollEAreply 1901/28/2012

I've recently become an independent contractor. I work for two different companies. For the first company, I converted to "fee-for-service" after being an employee for several years because I could make more money per hour, since I didn't need the benefits. That company still "views" me as an employee and takes taxes out of my check. Is there any downside to this?

The second company is strictly fee for service and takes no taxes out of my check.

When I go to file, am I going to have problems?

TIA!

by TaxTrollEAreply 2001/28/2012

I signed a separation/settlement agreement with my former employer and they paid me general damages. The employer sent out a 1099 with the amount as nonemployee compensation but the 1099 does not indicate it is for general damages. Do I have to report this income on my income tax return? My understanding is that general damages are not taxable. I had health issues that arose from my employment also the settlement agreement states that the amount paid is for general damages. In other words, the amount was not a serverance.

by TaxTrollEAreply 2101/28/2012

Uh, isn't the Tax Troll also the unhinged Ron Paul troll named Eclectic Anarchist?

by TaxTrollEAreply 2201/28/2012

I doubt that, R22.

by TaxTrollEAreply 2301/28/2012

If not, R23, why "Tax Troll EA"?

EA?

by TaxTrollEAreply 2401/28/2012

Number one on acronym finder: Expert Advisor

by TaxTrollEAreply 2501/28/2012

I pay COBRA health insurance monthly. Can I claim the amount I pay on my taxes? I paid $535 per month in 2011, and am hoping I can claim this since my only income was unemployment compensation. Thanks!!!

by TaxTrollEAreply 2601/28/2012

EA is an enrolled agent - a federally licensed tax expert

by TaxTrollEAreply 2701/28/2012

Well, TaxTroll, are you a Ron Paul nut or what?

by TaxTrollEAreply 2801/28/2012

[quote]I signed a separation/settlement agreement with my former employer and they paid me general damages. The employer sent out a 1099 with the amount as nonemployee compensation but the 1099 does not indicate it is for general damages. Do I have to report this income on my income tax return? My understanding is that general damages are not taxable. I had health issues that arose from my employment also the settlement agreement states that the amount paid is for general damages. In other words, the amount was not a serverance.

All "damages" are taxable, except those for death, physical injuries or actual illness, or to compensate you for property you lost (and did not deduct).

If these "health issues" manifested themselves in actual illness that resulted in medical bills, and your doctor documents that your employment was the cause, you might be able to take a position that the damages are tax-free ONLY to the extent that you had medical bills you had to pay as a result (and, obviously, you can't deduct the medical bills as well).

However, the classification as NonEmployeeCompensation is likely wrong, since you were not being compensated for services you performed. You should inform them in writing that the form is incorrect, and it should be reissued showing zero in that box, and the damages instead in Box 3 as "Other income." (What's the difference? NonEmployeeCompensation is subject to both income tax and self-employment tax.) If they refuse to do that, attach an explanation to your tax return, as well as a copy of the letter you sent them asking for a corrected form. They can assess a penalty against the employer for filing an incorrect information return.

by TaxTrollEAreply 2901/28/2012

[quote]Number one on acronym finder: Expert Advisor

Actually, it stands for Enrolled Agent. I'm licensed by the IRS (but I don't work for them .. far from it! :) to represent taxpayers in audit situations. For tax purposes, it is similar to the status of a CPA or attorney. It's a distinction shared by fewer of 1% of tax preparers, and earned by passing an intensive two day exam in tax law and professional ethics.

To find an Enrolled Agent near you, you can check the website of the National Association of Enrolled Agents below:

by TaxTrollEAreply 3001/28/2012

[quote]I pay COBRA health insurance monthly. Can I claim the amount I pay on my taxes? I paid $535 per month in 2011, and am hoping I can claim this since my only income was unemployment compensation. Thanks!!!

The good news: Deductible as a medical expense on Schedule A.

The bad news: Note that you need to be able to itemize, or this won't do you any good. If you paid that all year, you have a good shot at doing so, so get the form and follow the instructions.

by TaxTrollEAreply 3101/28/2012

R21 here thank you for answering my question. I had to pay attorney fees from my settlement amount. Is that part taxable as well? The settlement check was made to may attorney for the full amount and they then deducted their fee and paid me the remainder. Should I report the entire amount or just the amount I actually received?

by TaxTrollEAreply 3201/28/2012

R21 again, do I have to prepare a 1099 for the fees I paid to my attorney?

by TaxTrollEAreply 3301/28/2012

Hi Tax Troll! Many thanks for all this help -- you're a mensch.

Here's my situation: My partner and I get health insurance from my union. To have him on my policy, they've had to count the value of his coverage as income to me and we had to make a check out to the union as 'withholding', if you will. I got a W-2 from the union today, listing what we paid divided among boxes 2, 4, and 6 and their computed 'value' of his coverage in boxes 1,3, and 5.

My question, do I count this as regular income? Is a W-2 the right form for this?

by TaxTrollEAreply 3401/28/2012

So TaxTroll. Do you support Ron Paul? Are you Ecelectic Anarchist?

Please just answer these questions and I'll leave you alone.

by TaxTrollEAreply 3601/28/2012

What's the latest on those of us who are in same sex marriages?

Do we still have to do several returns because we're forced to file together federally? Last year Turbo Tax couldn't even handle it, and told us to ask for an extension...

If my husband didn't work last year, can I put him down as a dependent on taxes?

by TaxTrollEAreply 3701/28/2012

[quote][R21] again, do I have to prepare a 1099 for the fees I paid to my attorney?

No, you do not issue a 1099 form. Only businesses do that.

Let me point out something you may not be aware: You have to report as income 100% of the lawsuit proceeds ... not just the NET amount you got after the legal fees.

But since the lawsuit was taxable, you can deduct the legal fees, but only on Schedule A as a Miscellaneous Itemized Deduction, subject to the 2% of AGI limit.

If you make the determination that some of the settlement was not taxable (because it was to reimburse you for medical bills, as I explained earlier), then that portion of the legal fees aren't deductible AT ALL. Example: Let's say your settlement was $10,000, attorney took $2,500, and you got $7,500. And let's say that $2,000 of the lawsuit was deemed to pay you for the medical bills. You report $8,000 (10-2 = 80%) on the front of Form 1040 as "Other income." On Schedule A, you deduct $2,000 only of the legal fees (80% of fee).

by TaxTrollEAreply 3801/28/2012

[quote] My partner and I get health insurance from my union. To have him on my policy, they've had to count the value of his coverage as income to me and we had to make a check out to the union as 'withholding', if you will. I got a W-2 from the union today, listing what we paid divided among boxes 2, 4, and 6 and their computed 'value' of his coverage in boxes 1,3, and 5. My question, do I count this as regular income? Is a W-2 the right form for this?

Correct. It is treated as additional wages.

Note: Is it possible that your partner can be considered your dependent for medical purposes? Criteria: You live together all year, you provide OVER 50% of his total support. His income doesn't matter, although logically is should be less than yours. If that is the case, you can't claim him as a dependent on the return (unless his total income is under $3,700), BUT you can consider him your dependent for medical purposes, so you can deduct the Box 1 figure that you are deemed to have "earned" from (and gave back to) the union for the insurance.

by TaxTrollEAreply 3901/28/2012

[quote]"It's a distinction shared by fewer of 1% of tax preparers, and earned by passing an intensive two day exam in tax law and professional ethics." Well, aren't you special?

Yeah, and my shit don't stink either! :)

by TaxTrollEAreply 4001/28/2012

I DO NOT want to get into politics here, but - just to shut up the Antichrist Troll - let me clarify: I'm a Democrat, and voted for Obama (and will again).

by TaxTrollEAreply 4101/28/2012

[quote]What's the latest on those of us who are in same sex marriages?

Nothing new from last year.

[quote] Do we still have to do several returns because we're forced to file together federally? Last year Turbo Tax couldn't even handle it, and told us to ask for an extension...

I assume you are in CA, OR, WA or NV, where you have to file federal returns under community property rules. You don't file jointly, but "together" is kind of a good description.

And, FYI, TurboTax announced they will have a special version available for CA RDPs this year, which will handle the joint CA return and the separate federal returns with allocations. Just be careful you mark community income/deductions properly.

[quote]If my husband didn't work last year, can I put him down as a dependent on taxes?

Yes, if: lived together all year, he's US citizen or legal resident, he's unmarried (to anyone else), you provide more than half of his support for the whole year, and his income, subject to tax, is less than $3,700 for the whole year. (Note: Unemployment benefits count as income subject to tax on federal.)

by TaxTrollEAreply 4201/28/2012

Can I write off Anthony Robbins/personal growth type seminars? They are not related to my job but help me do my job better.

by TaxTrollEAreply 4401/28/2012

I was unemployed last year. Basically lived by selling off various things but made barely enough to survive. Do I need to file taxes?

by TaxTrollEAreply 4501/28/2012

R21 again thanks so much for your advice. I was looking into deducting legal fees and it seems I can do an above the line write in deduction on line 36 as long as I code it as UDC (my underlying claim was employment discrimination)

by TaxTrollEAreply 4601/28/2012

Many thanks, TaxTroll! I will investigate naming my partner as a dependent for medical purposes -- great advice!!

You are one of my favorite things about DL.

by TaxTrollEAreply 4701/29/2012

[quote]Can I write off Anthony Robbins/personal growth type seminars? They are not related to my job but help me do my job better.

Probably not. Education must be specific to your job, and clearly meant to help you do it better. Robbins' sessions are more like a "personal life coach" type of thing, I understand. It would be unlikely to be allowed if you took it as work-related.

by TaxTrollEAreply 4801/29/2012

[quote]I was unemployed last year. Basically lived by selling off various things but made barely enough to survive. Do I need to file taxes?

First question: did you collect unemployment benefits? These ARE taxable, at least on federal.

As for "selling off things", it depends how you got those "things." If you bought stuff at flea markets or elsewhere and resold them, you're in business and must file a 1040 with Schedule C and Schedule SE, if your gross receipts were over $400.

But if you just had a yard sale or similar and sold off some of the junk you already owned, and - in every case - for less than you originally paid for it (If received as a gift, use the value at that time), there's nothing to report. Losses in such cases aren't deductible, but gains are reportable as a capital gain on Schedule D and Form 8949 (new this year).

For 2011, except for self-employment income, (but applicable to capital gains and unemployment, as well as most other types of income), the filing requirement is $9,500 for single people without dependents who are not being claimed by anyone else. If you had tax withheld, or had any earned income, you'll want to file anyway, as you likely will get money back.

by TaxTrollEAreply 4901/29/2012

Twenty-three countries now have, and five are considering a Flat Tax. Why is there such oppostion here?

by TaxTrollEAreply 5001/29/2012

[quote]I was looking into deducting legal fees and it seems I can do an above the line write in deduction on line 36 as long as I code it as UDC (my underlying claim was employment discrimination)

That is correct (You didn't mention that it was discrimination in your post.)

But so we are on the same page here, we're talking discrimination against you as part of a class protected under FEDERAL law. Age, race, religion, disabled, gender. NOT sexual orientation or "the boss didn't like me because I'm cute/smart/won't put out." :)

by TaxTrollEAreply 5101/29/2012

Did not collect unemployment and sold furniture and books that I owned and no longer needed.

Thank you for your help.

by TaxTrollEAreply 5201/29/2012

Hi, TT. I'm an artist. Last year I bought over $2500 worth of supplies but only made about $100 from my art. I don't want to get audited. What' are my options? Can I put off deducting my supplies and do so when I file my 2011 taxes, hoping I'll make money this year, or do I have to claim for for my 2010 taxes?

by TaxTrollEAreply 5301/29/2012

The anti-tax troll needs to shut the fuck up.

by TaxTrollEAreply 5401/29/2012

Thank you, TaxTroll.

by TaxTrollEAreply 5501/29/2012

R21 here - yes it was gender/racial discrimination so we are on the same page. thanks again.

by TaxTrollEAreply 5601/29/2012

[quote]I'm an artist. Last year I bought over $2500 worth of supplies but only made about $100 from my art. I don't want to get audited. What' are my options? Can I put off deducting my supplies and do so when I file my 2011 taxes, hoping I'll make money this year, or do I have to claim for for my 2010 taxes?

Uh, first, it's 2012, and we're doing our 2011 taxes now, and should have filed 2010 about a year ago. So I'll assume you just spaced out on the years ... :)

You say that you are an artist. That can mean you have a hobby or you have a business. Both are reportable on your return (assuming they generate income), but deductions as a hobby are limited to the income you have made from that activity during the same year.

On the other hand, if you are in business - meaning you are engaging in this regularly, if not actually full time, at least devoting enough time to have reasonable expectations of turning a profit - you file a Schedule C showing your income and related expenses. Any artwork you created, or the materials used to create it (such as canvas, paints, frames, etc.) would be considered inventory, and not actually deductible until you sell the painting (See Sch C, Part III). Otherwise, you can only deduct expenses in the year they were paid, except in the case of capitalized costs such as equipment which you depreciate.

A net loss on Schedule C would be allowed, and can offset other income, but the burden of proof would remain on you to prove you are indeed "in business." Generally, if you show a loss for more than two consecutive years, the IRS assumes it is a hobby and will seek to disallow the losses; that can be overcome if you can successfully argue that you have a business.

Keep in mind that, as a normal taxpayer who works for someone else, your chance of an audit is very small, just above a half percent. Add a small business to the mix, and you increase your audit odds to about 4%. If that business is an activity (such as art) that many people consider a hobby, the odds can be ever greater you will be audited with a loss. It's up to you, as to how comfortable you are convincing that you really believe this will become profitable.

by TaxTrollEAreply 5701/29/2012

If someone has been audited before (assume a normal taxpayer), what are the chances of being audited again?

by TaxTrollEAreply 5801/29/2012

[quote]If someone has been audited before (assume a normal taxpayer), what are the chances of being audited again?

Depends.

Generally, each year is looked at separately. But if you have something unusual in one year (say, high work-related expenses) that caused an audit, and it happens again, the same audit screening would likely pull it up a second time. That said, the IRS would then see that it was audited on that in the past and, if the return was accepted with no changes in the past, it might make them less likely to call you in again. They're very careful not to waste time on things that don't think will pay off.

by TaxTrollEAreply 5901/29/2012

From the "Rich people who get things for free" thread, about all the expensive products and services rained down on the rich and famous by high end companies:

[quote]i don't think the comps are "income." they're gifts. my question concerns the tax treatment on the donor side. should the donors treat the gifts as "expenses" or should they treat them as "gifts" and pay gift tax on them? or, does the gift tax only apply to gifts by natural persons? calling tax troll!

by TaxTrollEAreply 6001/29/2012

Hi TaxTroll, my questions is kinda piggybacking of two posts and mine is a combination.

Okay I got laid off and worked half the year with a W2, I got hired to do some work as an Independent Contractor (over $400) and I collect unemployment for the time I didn't work.

I am filing a 1040, Schedule C and SE. Now I paid for Cobra out of pocket but I spoke to someone at the IRS because I really didn't know what files to fill out and she told me that if my Cobra insurance was coming through my company I could not claim them. It was still the group rate but I was paying it completely no part was being paid by the job. The woman said I needed to have purchased my own insurance.

Above you told the guy on Unemployment he could claim his Cobra payments on a Schedule A. What about me?

by TaxTrollEAreply 6101/29/2012

I know this is Datalounge and all, but can we at least not be snarky, bitter cunts here? TaxTroll EA is doing a FREE service for us, answering our questions. If you can't be thankful, find another thread to shit in.

by TaxTrollEAreply 6201/29/2012

TaxTroll, you are great and thanks to you I was able to get my company to recognize my California husband as my medical dependent (he's a full time student right now) and my 2-person medical benefits were not calculated as imputed income. Many, many, thanks. This year, as his unemployment has run out, there is the possibility that he might earn less than $3,700. I can declare him a dependent? I thought that you couldn't have a spouse as a dependent. In addition, I am wondering whether there will be any advantage. We file Married in California and Single/Community Property splitting everything for Federal. My salary is approximately $150K and calculating 2 salaries at $75K seems like it would be better than $150K at one salary. But I might be missing something.

by TaxTrollEAreply 6301/29/2012

Okay...I realized that it means I'd file Head of Household and just played with the numbers and it still doesn't seem to my advantage. I'd rather just split income and deductions equally.

Let me know if I'm missing anything.

by TaxTrollEAreply 6401/29/2012

[quote]I am filing a 1040, Schedule C and SE. Now I paid for Cobra out of pocket but I spoke to someone at the IRS because I really didn't know what files to fill out and she told me that if my Cobra insurance was coming through my company I could not claim them. It was still the group rate but I was paying it completely no part was being paid by the job. The woman said I needed to have purchased my own insurance.

You can deduct on Schedule A any medical insurance you pay for with after tax dollars (which would be everything except insurance taken out pre-tax from your current employer). I've never heard of COBRA being pre-tax, so I would assume it would be deductible on A.

What the IRS person *might* have meant is that COBRA doesn't qualify for the special above-the-line deduction (1040, line 29) for medical insurance by self-employed people, which generally isn't available to insurance "subsidized" by an employer, by virtue of the fact it is part of a group plan. Or, the IRS person could simply have been wrong, which is entirely possible. :)

by TaxTrollEAreply 6501/29/2012

[quote] thanks to you I was able to get my company to recognize my California husband as my medical dependent (he's a full time student right now) and my 2-person medical benefits were not calculated as imputed income. Many, many, thanks.

I am VERY glad to hear that. Folks, talk to your employers. Many are unaware of the concept of a "medical dependent," who CAN receive medical insurance through a partner's employer, without it being considered additional income to the employee. The employer also saves money on payroll tax, so it is a win-win.

[quote]This year, as his unemployment has run out, there is the possibility that he might earn less than $3,700. I can declare him a dependent? I thought that you couldn't have a spouse as a dependent.

Psst ... he's not your legal spouse. (And, actually, you can claim a legal spouse as a dependent, under certain circumstances, although it's usually better to file jointly ... which you can't on federal.) GENERALLY, if you live together all year, you provide more than half of his support, and his income (subject to tax) is under $3,700, he can be your dependent on page 1 of your return. But your living in one of those community property states complicates matters.

[quote]In addition, I am wondering whether there will be any advantage. We file Married in California and Single/Community Property splitting everything for Federal. My salary is approximately $150K and calculating 2 salaries at $75K seems like it would be better than $150K at one salary.

Actually, you don't have a choice. If this is earned income, he earned half of it, so I agree. You should split the income on federal, and file jointly on CA.

[quote[Okay...I realized that it means I'd file Head of Household

Uh, no. Claiming a partner as a dependent does NOT give you Head of Household status. It's more complicated than that.

by TaxTrollEAreply 6601/29/2012

My situation probably warrants a simple answer. I sold a home last year and took a huge capital loss - sold for much less than what I owed on the mortgage. Can I claim all of that loss as a deduction on my forms this year? Will I get any of that money back?

Thanks, TaxTrollEA!

by TaxTrollEAreply 6701/29/2012

[quote]I sold a home last year and took a huge capital loss - sold for much less than what I owed on the mortgage. Can I claim all of that loss as a deduction on my forms this year? Will I get any of that money back?

If this was a personal residence, the loss is personal as well, and not deductible.

Be on the lookout for Form 1099A (Abandonment of Real Property) and/or 1099C (Cancellation of Debt) from yoru short sale. If the forn indicates that you were responsible to pay the shortfall (difference between what you owed and what it sold for), you could have some other issues, and should see a tax professional. If it is checked No, than not to worry.

by TaxTrollEAreply 6801/29/2012

*Bump* for more tax questions.

I'll check back late Wed afternoon.

by TaxTrollEAreply 6901/31/2012

Bump for TaxTroll EA's late Wed afternoon return

by TaxTrollEAreply 7002/01/2012

Hi TaxTroll,

I need your help!

My daughter graduated from college last year. She was basically my dependent till she moved to California in August where she started a doctorate program w/ UCSF. The program gives her a salary.

I requested to claim her for the last time in 2011 as a dependent. She received a 1098 form in the mail and she told me that she has to file taxes because she doesn't want to get in trouble w/ her program.

Can she not file? Can I still claim her as a dependent?

Thank you!

by TaxTrollEAreply 7102/01/2012

If I simply report the income on my W-2, how am I to know whether my employer included imputed income for my domestic partner's medical insurance which is provided by the employer? More to the point, how is the IRS ever going to figure that out? Would it make any difference if my income for part of the year is a 1099-R for a pension? Why should I question the W-2 (and then the 1099-R) my employer, a large City which certainly is aware of my domestic partner's status, gives me? Why should the IRS?

by TaxTrollEAreply 7202/01/2012

R71, the rules to claim someone as a dependent (or whether or not someone has to file a return of their own) don't vary because someone is receiving financial aid from their school. However, a school might require proof that a student is self-supporting (evidenced by the fact that nobody else is claiming them as a dependent) before they grant such aid.

The rules for claiming your child as a dependent are spelled out in the 1040 instructions. In a nutshell, if the child lives with you (when not at school), is under 19 at the end of the year, and is not self-supporting (i.e., didn't pay more than half of his/her own support for the entire tax year), she is a qualifying child and is your dependent. If 19 or older, the above rules still apply, providing the child is a full time student for at least some part of five months out of the tax year. This is REGARDLESS of what the child earns from part-time or summer jobs, just so long as it isn't enough to provide most of her support for the year.

Furthermore, if you DO qualify to claim the child as a dependent, you can CHOOSE not to do so (by simply not listing her), but the IRS says that a child who COULD be claimed as a dependent - if they need to file a return due to income - must file as a dependent filer - the same as she would have if you did claim her. That means, among other things, that the tuition listed on her Form 1098-T cannot be used to claim the tuition deduction or the (worth more) American Opportunity Tax Credit, which can be worth up to $2,500 in refunds. In addition, of course, if you don't claim her, you lose out on the deduction for her dependent allowance ($3,700), and possibly the earned income credit, if your income is low enough. She doesn't gain anything by claiming herself.

Sounds like you would benefit by running all this by a local, knowledgeable tax professional, BEFORE either you or your daughter file a return.

by TaxTrollEAreply 7302/02/2012

R72, I am sure you receive a year-to-date paycheck stub, which should reconcile to the W-2 form. That is where you'll find the various amounts added and withheld from your wages.

Your employer would not be issuing you a 1099R, so that has nothing to do with your question. It would come from a pension trustee.

by TaxTrollEAreply 7402/02/2012

I have a blog that makes some money. Things like advertiser payments I understand I need to report as income on schedule c. But what about products I am given? A company might send me a computer program for free and ask me to try it and blog about it. Does that count as business income, other income or something else? Also what if it is something of low value? Do I need to add up all the .99 ebooks I received and report them?

Thanks for your help.

by TaxTrollEAreply 7502/02/2012

[quote]I have a blog that makes some money. Things like advertiser payments I understand I need to report as income on schedule c.

Correct. Also subject to SE tax on Sch SE.

[quote] But what about products I am given? A company might send me a computer program for free and ask me to try it and blog about it. Does that count as business income, other income or something else? Also what if it is something of low value? Do I need to add up all the .99 ebooks I received and report them?

If you received these solely to review them for the provider, it is not considered income to you. But if you manage to sell any of these freebies, 100% of the selling price is taxable to you, since your "cost basis" would be zero.

(FYI, this is something that I'm very familiar with, since I moonlight as a book reviewer for our local gay newsmagazine. :)

by TaxTrollEAreply 7602/02/2012

Bumping for more tax questions.

Please add to this thread (or the one other one going around) rather than post a new thread. Makes them easier to find. Thanks.

by TaxTrollEAreply 7702/04/2012

Hi Tax Troll, a few questions from IL: A lot happened with my partner and I this past year. We bought a house - although right now it's in his name (requirement from the lender in order to close - we are moving it to a trust). I left my job partway through 2011 and returned to college.

We are confused as to the difference between a dependent and a medical dependent, and how to quantify that. I was on his medical plan for the second half of the year. (I know I cannot qualify as his dependent because I made far more than the 3700.00 limit.) Based on your answer in [R39] he can deduct the amount that was added to his earnings?

I will be filing my own taxes separately - I received a 1098-T form and am confused how I report that - do I have to file a separate form to report that?

(thanks for any guidance)

by TaxTrollEAreply 7802/04/2012

[quote]We are confused as to the difference between a dependent and a medical dependent, and how to quantify that. I was on his medical plan for the second half of the year. (I know I cannot qualify as his dependent because I made far more than the 3700.00 limit.) Based on your answer in [[R39]] he can deduct the amount that was added to his earnings?

There are usually five requirements to claim an unrelated person as a dependent: (1) You must live together the entire tax year, (2) The dependent cannot be married to anyone else, (3) The dependent must be a US citizen or legal resident, (4) You must be providing MORE than half of their total support for the year, and (5) The dependent cannot have income (subject to tax) that exceeds the personal exemption amount for that year ($3,700 for 2011).

If he meets the first four requirements, but not the 5th (income limitation), he can still be considered a dependent ONLY for medical purposes. That means you can deduct any medical expenses you paid for him, or exclude benefits provided by an employer (if the employer cooperates by not adding it to your W-2 wages.)

To answer your question, so long as the employer took after-tax money out of his check for your medical insurance AND/OR charged you additional income for the amounts provided directly by the employer, he can treat both of those as amounts he paid for your coverage, and deduct on Sch A.

[quote]I will be filing my own taxes separately - I received a 1098-T form and am confused how I report that - do I have to file a separate form to report that?

Form 1040A and Form 8863. The latter is for the American Opportunity Credit (replaces the Hope credit for years 2010 and 2011, then ends) or the Lifetime Learning Credit.

by TaxTrollEAreply 7902/04/2012

Thank you! Appreciate your time.

by TaxTrollEAreply 8002/06/2012

I want to give my partner $50K. Can he avoid the gift tax if I put the money in the checking account that we share?

by TaxTrollEAreply 8102/07/2012

[quote]I want to give my partner $50K. Can he avoid the gift tax if I put the money in the checking account that we share?

First of all, there is no actual gift TAX, until you have used up your entire exclusion from combined estate/gift taxes, which covers up to $5,120,000 worth of stuff. All that happens, if you file a Gift Tax return (Form 709) is that you are reducing that figure by the excess over the annual gift tax exclusion (currently $13,000.) And don't forget that it isn't just large cash gifts that count, but the value of ANY gift given the same calendar year, so you would need to add in birthday and holidays gifts, for example.

As I previously stated, while I would never advise someone NOT to file a required tax return, be aware that the vast majority of people pretty much ignore the Form 709 filing requirements, and there really are no consequences, unless you do have enough in assets for the $5,120,000 exclusion at death to be an actual concern.

That said, the IRS would see this as a completed gift at the time your partner takes the money out of the joint account. So the filing requirement would stand.

Alternative: Offer to LOAN your partner the money instead, evidenced by a promissory note in the full amount, showing interest at 2% or so, and calling for annual payments that comfortably fit under the gift tax exclusion. Then annually you "gift" the amount of the payment due to your partner. Note that the interest is still taxable to you, even if you gift that as well. (Also, being realistic ... not all relationships last forever, even those which we believe will. This stretches out the gift to five years, just in case.)

by TaxTrollEAreply 8202/07/2012

Last year I visted a casino in another state for one day in August and won $1200. Their statement says my 2011 total Win was $1800. Now realize I left the card at a friend's house. Casino says card was used multiple times since August. How do we figure out how much tax each of us will pay?

by TaxTrollEAreply 8302/10/2012

[quote]Last year I visted a casino in another state for one day in August and won $1200. Their statement says my 2011 total Win was $1800. Now realize I left the card at a friend's house. Casino says card was used multiple times since August. How do we figure out how much tax each of us will pay?

The statements from those magnetic stripe "club cards" that casinos offer are not provided to the IRS. So you should each be free to report the amount of gross winnings you actually had, on Form 1040 on the "other income" line.

If not alreay on the statement, the casino should be able - on request - to provide a detail of wins and losses by date, which should allow you to determine which losses were yours and which ones were your friend's. The losses - not to exceed the amount of winnings you claimed - can only be deducted on Schedule A, if you itemize deductions.

Obviously, you won't be able to use the statement to prove losses to the IRS, since it will show you won more than you actually did (you say). If you haven't already figured it out, letting someone else use the card kind of defeats the purpose of having it to begin with, since it no longer accurately reflects the info you need to report on your return.

by TaxTrollEAreply 8402/10/2012

Hi there:

I have been offered a job to serve as an instructor for an online course for a school that is located overseas (UK). They do not take out any taxes and the yearly pay comes out as about 10000.

As a full time public school teacher, I currently make about 45K in regularly taxed income.

What will my tax liability be for this new income?

by TaxTrollEAreply 8502/10/2012

[quote]I have been offered a job to serve as an instructor for an online course for a school that is located overseas (UK). They do not take out any taxes and the yearly pay comes out as about 10000. As a full time public school teacher, I currently make about 45K in regularly taxed income. What will my tax liability be for this new income?

They're paying you as an independent contractor, which is likely allowable, given the basic facts you presented. This means you are treated as being self-employed with regard to this income.

You would report the income on Form 1040 Schedule C, and can deduct any expenses you incur for that specific work. If you will maintain a space in your home that is EXCLUSIVELY used for that purpose ONLY, you may be entitled to claim expenses for business use of the home on Form 8829.

Your NET income from Schedule C will be subject to both regular income tax and the extra (usually) 15.3% self-employment tax calculated on Schedule SE. For example, if your wages as a teacher already put you in a 25% bracket, your moonlighting income will actually be taxed at a rate of more than 40% (25 + 15), not counting what your state will add to that. Consider carefully whether the net (after tax) you'll get is worth your efforts and the additional tax complexity.

by TaxTrollEAreply 8602/10/2012

Hi again:

Some followups re: moonlighting teacher.

Even though my tax bracket is at 25% -- my effective tax rate ended up being about 13%.

So for this additional job I would have to apply the higher 25% rate and 15%?

If I convert an extra room into an exclusive office would I be delusional to think I could lower this rate via deductions?

Finally, if the company is simply sending out a check and not reporting to the IRS -- what stops me from simply not reporting the income at all?

This seems crazy that I would face such a ridiculous tax rate for actual work. Would I face a lower rate if I incorporated? There's nothing I can do?

by TaxTrollEAreply 8702/10/2012

[quote]Even though my tax bracket is at 25% -- my effective tax rate ended up being about 13%. So for this additional job I would have to apply the higher 25% rate and 15%?

Your "marginal" tax rate is the rate at which the next dollar of income would be taxed. If that is 25%, then that's what the additional income will be subject to (or higher, if it is sufficient to put you in the 28% bracket, which starts at $85,650 of taxable incone for 2012). Plus, of course, the separate 15.3% SE tax.

Your "effective" tax rate is simply the average ... total tax divided by total income ... and is pretty much meaningless for planning purposes.

[quote]If I convert an extra room into an exclusive office would I be delusional to think I could lower this rate via deductions?

You can prorate utilities, rent (or interest/taxes if you own, plus depreciation deductions), using the guidelines in IRS Pub 587.

[quote]Finally, if the company is simply sending out a check and not reporting to the IRS -- what stops me from simply not reporting the income at all?

Look directly into the tiny camera that is embedded in the upper right hand corner of your monitor (It only looks like a scratch, but it is really a tiny lens), which just saw you suggest committing tax fraud. The IRS is sending out its flying monkeys as we speak ... :)

OK, I'm kidding. Yes, some people do get away with not reporting income. And many others don't get away with it, and regret having done it, since the penalties and fines the IRS can come up with (not to mention the hassles) can come to several times what the original tax would have been. I do not recommend it.

[quote] Would I face a lower rate if I incorporated?

First of all, unless they agree to hire the corporation instead of you (which is unlikely), it would not be the corporation's income, but still your personal income.

Also, corporations cost money to form, to maintain (in some states, as much as $800 a year, BESIDES whatever income tax it pays), and to close when you no longer want it. You would become an employee of the corp, and would have to pay federal and state employment taxes, including unemployment taxes, in case you ever decide to fire yourself. It creates many layers of complexity and additional (and avoidable) costs that will NEVER (in most cases) be justified by any kind of savings. Bad idea.

Consider that, on your current job, you are paying income tax at a 25% marginal rate (you said), plus they are taking out (usually) 7.65% in employee Social Security and Medicare taxes, for a total of 32.65%%. All that happens if you are self-employed is that 7.65% tax doubles, since you are considered both employer/employee. That's the cost of making money, paying taxes on it. Many people out there right now wish they had that opportunity.

by TaxTrollEAreply 8802/10/2012

Bumping for more tax questions ...

I'll check in each evening.

by TaxTrollEAreply 8902/16/2012

I never thought I'd be writing you, Tax Troll, but ...

I am the beneficiary of a small family trust which made a distribution this year. The tax guy for the Trust says he is also distributing some tax liability by via K1s. He hasn't yet done so, and now says via the (useless) Trustee that it will be a few more weeks. He hasn't even indicated what the amount of the liability will be.

Do I have any recourse, or must I just wait until he gets around to it?

TIA

by TaxTrollEAreply 9002/16/2012

Tax troll,

I'm having a really hard time filling out a 709 form. Any tips? Are there computer programs that do this? recomendations? It is very confusing to fill out.

by TaxTrollEAreply 9102/16/2012

[quote]I am the beneficiary of a small family trust which made a distribution this year. The tax guy for the Trust says he is also distributing some tax liability by via K1s. He hasn't yet done so, and now says via the (useless) Trustee that it will be a few more weeks. He hasn't even indicated what the amount of the liability will be. Do I have any recourse, or must I just wait until he gets around to it?

Nope, you just have to wait for the Form 1041, Schedule K-1, which the trustee will provide. That form will include instructions as to what forms the income from the trust gets reported on. It may include Schedule E, Schedule B and Schedule D, possibly others.

There is no deadline by which he has to get these to you. Technically, he can go all the way to April 15 (17th, this year), or even later with an extension. You simply need to wait.

by TaxTrollEAreply 9202/16/2012

[quote]I'm having a really hard time filling out a 709 form. Any tips? Are there computer programs that do this? recomendations? It is very confusing to fill out.

This may sound simplistic, but I have found from past experience it needs to be asked: Did you also get the separate instructions for that Gift Tax return?? If not, download those before you go further.

IMO, it is not really a difficult form, but it is definitely not intuitive. You need to follow the line by line instructions.

I assume you are preparing this because you (or whomever you are preparing for) gave gifts to an individual that total over $13,000 for the year. If not, it isn't required.

If the instructions don't help (and they do assume you have some basic ideas about the underlying tax laws, so they may indeed still be somewhat confusing), probably a good indication that you should have it prepared professionally.

by TaxTrollEAreply 9302/16/2012

TaxTroll, my husband lost his job last year, and before being rehired, cashed out his 401(k). We've been waiting and waiting for the 1099-R, we're now mid-way through February without having seen it. Ameriprise, of course, does not make it available online. I remember that you said there were some kinds of investment statements that didn't have to be sent out until around this time, but the Ameriprise website was saying they'd be in the mail by the end of January.

Any advice?

by TaxTrollEAreply 9402/19/2012

[quote]TaxTroll, my husband lost his job last year, and before being rehired, cashed out his 401(k). We've been waiting and waiting for the 1099-R, we're now mid-way through February without having seen it. Ameriprise, of course, does not make it available online. I remember that you said there were some kinds of investment statements that didn't have to be sent out until around this time, but the Ameriprise website was saying they'd be in the mail by the end of January.

Brokerages and mutual fund companies have until Feb 15 (every year) to send out payee statements, typically 1099-DIV and 1099-B forms. My clients who use Ameriprise were still waiting for statements as of the end of last week.

Technically, 1099-R forms should not be delayed, but this is a new rule for everyone, so there could be some confusion.

If I were you, I'd wait until Wed or Thu this week, giving enough time for mail sent out on the 15th to reach you anywhere in the US, and then call them if it is still missing. It wouldn't hurt if you mentioned that your "tax person" told you that payors can be held for fines of $500 or more for not timely sending out each of these forms.

by TaxTrollEAreply 9502/19/2012

Thanks for the response. I'll make sure he leans on them if we don't see it this week.

This is kind of awful, but I have to have surgery, and we need to refund to help pay my deductible.

by TaxTrollEAreply 9602/19/2012

What is the minimum amount you have to earn to pay estimated tax? I got a refund from the federal but owed the state $33. Do I have to send quarterly payments totaling that 33 bucks?

TIA

by TaxTrollEAreply 9702/23/2012

[quote]What is the minimum amount you have to earn to pay estimated tax? I got a refund from the federal but owed the state $33. Do I have to send quarterly payments totaling that 33 bucks?

Each state makes its own rules, so there is no "one size fits all" answer to your question.

For example, my state (AZ) requires estimates if your unpaid tax liability will be $1,000 or more, but exempts singles whose AZ AGI is under $75K (twice that for married joint). Some states have stricter rules.

If you are interested, federal requires estimates if your unpaid liability will be the over the greater of $1,000 or 10% of your total tax for the year. You can generally avoid a penalty by paying in an amount that at least equals 100% of your PREVIOUS year's total tax (Make it 110% if your AGI is over $150K).

Note that estimates generally must be paid in evenly, over the four payment due dates (usually 4/15, 6/15. 9/15 and 1/15); you can't just "catch up" by making an estimate toward the end of the year, as the penalties for the earlier due dates will remain. However, if you instead increase your tax WITHHELD from your job (or anything else), be aware that those payments will be treated as if paid evenly throughout the year, even if they aren't.

by TaxTrollEAreply 9802/23/2012

I am going throug a short sale of my primary residence and trying to prepare for tax consequences. Am I reading correctly that the Debt Foregiveness Act, valud through 12/12 means that the amount forgiven by the lender will NOT be taxed as extra income? Thanks!!!

by TaxTrollEAreply 9902/23/2012

[quote]I am going throug(h) a short sale of my primary residence and trying to prepare for tax consequences. Am I reading correctly that the Debt Foregiveness Act, valud through 12/12 means that the amount forgiven by the lender will NOT be taxed as extra income? Thanks!!!

That is generally correct, but not necessarily automatic.

First of all, some states (including mine, AZ) treat mortgages used to buy a primary residence to be "nonrecourse" debt by default. That simply means that, in the event that you default or sell when the value of the house is less than you paid, the lender can't collect the difference. That may change (as it does in AZ) if the loan is refinanced or you pull out additional equity for something else.

But if the loan doesn't have that automatic protection, and it is only acquisition debt (meaning, money was only used to buy or add capital improvements to the home), the lender might report that you are liable for the remaining debt, when the transaction is reported on Form 1099-A. When the lender cancels the remaining debt, he issues Form 1099-C showing the amount involved.

In order to take advantage of the special protection you mentioned, you must reconcile Form 1099-C to a Form 982 in your tax return for that year, which goes through the steps necessary to avoid paying tax on the remaining debt. The form is a bit complicated, so I recommend professional preparation with this one.

By the way, the tax-free debt forgiveness does NOT apply to equity loans, secured by the home but used for other purposes. But there could be other situations, detailed on Form 982, that could help.

by TaxTrollEAreply 10002/23/2012

If my employer gives me a W-2 that understates my income, and I rely on that to prepare my tax return, is there any realistic way that the IRS would ever discover the error? (Assume that the employer reported the same to the IRS and that the error is not so egregious that I am patently living above my means....)

Thanks!

by TaxTrollEAreply 10102/23/2012

[quote]If my employer gives me a W-2 that understates my income, and I rely on that to prepare my tax return, is there any realistic way that the IRS would ever discover the error? (Assume that the employer reported the same to the IRS and that the error is not so egregious that I am patently living above my means....)

I usually avoid "Can I get away with filing a false tax return?"-type questions, but yours has an interesting twist, in that you are simply reporting what the employer told you to report.

Of course, that is not good enough. Legally, you are required to report all of your income, whether or not it is evidenced on a W-2 or 1099-series form. Technically, you should make your employer aware that they need to correct the W-2 form and, if they don't, call the IRS to log a complaint. They will send you a form you can use to substitute for the W-2 form, and explain the situation,

Now, back to your original question: No, likely they won't catch it. Unless, of course, the employer later files a corrected form (W-2C) with the IRS, and the IRS goes after you for the additional tax, plus interest (plus penalty, if they believe you should have been aware of it and reported it originally). That would likely happen after the business is having their tax return prepared for the year, and their tax advisor notices that the W-2 forms don't reconcile with what they actually paid the employees (Been there, seen that, MANY times. :)

by TaxTrollEAreply 10202/23/2012

An unsolicited tax tip, for those of you who are reporting gambling winnings and losses ...

The basics: Gambling winnings are reportable in full on page one of Form 1040 (the "other income" line), and you can deduct losses (but not more than the winnings you declare) as an itemized deduction on Schedule A. If you don't itemize, your winnings remain fully taxable.

How do you prove losses? One of the best ways today, if you gamble at casinos, is to use one of those magnetic stripe "club" cards they offer, which plugs into the slots and other machines, and monitors your activity. Then, if you have winnings to declare at year end, ask for a printout of your wagering for the year, and you have proof of your losses.

One problem: While the IRS only insists that casinos issue you a W-2G form (report of gambling winnings) above a certain amount (I believe it is $1200 on slots), ALL winnings are reportable, not just those big ones evidenced by the slips. And all of them will appear on the printout from the casino!

Got a new client who called me after she went in for an audit, and gave the auditor the printout to evidence the losses she had claimed. Unfortunately, it also listed a total of $4,000+ in numerous additional wins, which she did not include as income on her return. The auditor would have never known she under-reported her income ... except that she gave him written proof she did! Not much that I can do about that. And it's not the first time I have seen that happen.

PS: Keep in mind that ANY gambling losses can offset winnings, not just the same kind of wager. Lottery tickets, raffles, racetrack slips, etc. They all count. Keep your losing tickets until year end, in case you win something.

by TaxTrollEAreply 10302/23/2012

Hello Tax Troll,

Inheritance question for you: I was my dad's only beneficiary. I received about $9,000 cash (he owned no property or stocks; the money came from what was in his bank account at the time of his death, his 2009 tax refund, and return of various things like rental deposits, overpaid bills, etc.) during 2011 from the estate and then it was closed. The estate obviously did not have to file any estate tax returns nor did it have to file any estate income returns.

Do I need to report the payouts as income?

Thanks, Tax Troll!

by TaxTrollEAreply 10402/25/2012

[quote]Inheritance question for you: I was my dad's only beneficiary. I received about $9,000 cash (he owned no property or stocks; the money came from what was in his bank account at the time of his death, his 2009 tax refund, and return of various things like rental deposits, overpaid bills, etc.) during 2011 from the estate and then it was closed. The estate obviously did not have to file any estate tax returns nor did it have to file any estate income returns. Do I need to report the payouts as income?

Assuming none of the money was in an annuity, IRA, other retirement plan, or US savings bonds, it is not reportable as income when inherited.

But if stocks were sold AFTER his death, you need to report those sales, although your cost basis would be adjusted to the value at the date of death, so it is unlikely there would be any gain to tax. There might even be a small loss, if there were fees on the sales.

by TaxTrollEAreply 10502/25/2012

The money was all cash on hand. He had no stocks, IRAs, annuities, or savings bonds.

Thanks, Tax Troll!

by TaxTrollEAreply 10602/26/2012

Hi Tax Troll, I received a distribution from a living trust this year, how is that taxed?

Thanks!!

by TaxTrollEAreply 10702/28/2012

[quote]Hi Tax Troll, I received a distribution from a living trust this year, how is that taxed?

Not enough info to give a definitive answer.

Is it YOUR living trust? If so, and if it is a "revocable" living trust, it is generally ignored for tax purposes during your lifetime. If that is the case, you treat it as you would any other similar income you receive, based on the nature of the income (dividends, capital gains, etc.)

If not your trust, and the person who created the trust is still alive, and it is a revocable trust, you need to contact them to find out what this represents. It may simply be a gift, which would not be taxable to you.

If not your trust, and the person who created the trust has an IRREVOCABLE trust, OR the person has passed away, the trustee should be sending you a Schedule K-1 (Form 1041) which will contain the reportable portion of the distribution you received. The latter might be partially or totally not taxable. You should verify this with them, and wait for the K-1 before you file your tax return; it can take all the way to April 15, or even later if they extend the trust's tax return.

by TaxTrollEAreply 10802/29/2012

I was due a refund last year that I did not receive due to a misunderstanding with my taxes. I took the letter from the IRS to my accountant onnthe dayitvwa received and he said that he would take care of it at thevend of tax season. He never took care of the matrter and it had to be dealt with within 60 days. I spoke to a family member that deals in tax lawandhe said that could go to court with the IRS but I don't want o do that. I had called my accountant bat this again after speaking to the lawyer and still nothing was done. Do I have a lawsuit? It is a refund of 1500.00 but he definitely dropped the ball.

by TaxTrollEAreply 10902/29/2012

[quote]Do I have a lawsuit?

It is impossible for me to give you any definitive advice, knowing nothing about the notice, your preparer's possible role in causing it, etc. First and foremost, I have no idea if the original notice was correct, or if the IRS is wrong. That makes a world of difference on how this should have been handled.

You did learn that you cannot assume that a tax notice will be handled by someone else you designate, and that you still have primary responsibility to reply to it within the time period stated on the notice. Legally (unless you had a written contract with him, stating otherwise), that's not your preparer's fault, but yours, for not following up on it in a timely manner. If you don't, it can cause some irrevocable consequences, simply because of the delay, which can cause you to lose your right to appeal it through regular channels, often leaving Tax Court as the only alternative ... an extremely expensive one.

You need to get the notice back from your preparer, if possible. (For the record, if a client ever provides me with a notice they received, I insist they only give me a copy, and keep the original. Things do get lost sometimes, even in a well-organized office.) If that isn't an option, another copy must be obtained from the IRS. That can be done under a Power of Attorney, if you go to a local EA, CPA or attorney who deals mostly with taxpayer advocacy (representation work), which is where you should go at this point. Tax Court may still be able to be avoided, as the IRS usually cooperates in situations like this, since they don't want to waste time in court either. But you procrastinated on this too long already, and need to get this taken care of without any further delay.

by TaxTrollEAreply 11003/01/2012

@ 110 I was due to receive a heat credit for 1500.00 but the accountant failed to put in child support ( non taxable) so I received a letter from the treasury stating that I did not show enough income to receive the credit. I had a certain of time to file to receive the money after receiving the letter. I went by the accountants office the day I received the letter and hecsaid that he would take care of it. Never heard back. I went to a family member that doestax law a few months later and he said that since I did not file a paper with the treasury within the required time, my only recourse wasto go to court with the IRS which I don't want to do ( cost more than it's worth) we called the accountant from the office and he was madtha I spoke to a lawyer. Said he would take care of it and never did. Called him this week to see if he did anything and never heard from him.

by TaxTrollEAreply 11103/03/2012

R111, I have no idea what you are talking about. There is no such thing as a federal "heat credit," and child support payments are not taxable income, so would never appear on a regular tax return. Also, federal income tax returns can be amended anytime up to three years after the original due date.

If this is some kind of state or local utility credit or rebate for low incomes, which perhaps might consider nontaxable income in the computation, I can't help you. I deal with income tax matters only.

Sorry.

by TaxTrollEAreply 11203/03/2012

Bumping for more tax questions ...

Anyone?

by TaxTrollEAreply 11303/09/2012

Hello TaxTroll. A couple of questions:

1. I'm in a RDP in California. My parner is 100% dependent on me, and has no income. I use Turbo Tax. I have declared him as dependent in my federal filing and do a joint return for the California filing. Do I have to worry about the community property requirements? Last year I ignored this in My Turbo Tax filing and didn't have any consequences. The only thing we have in common would be the principal residence which is in my name, and the checking account whic is funded by me but si name is on it.

2. During the 90's my partner worked and had a 401K wich was rolled into an IRA when he stopped worked. The current IRA value is around $20,000. If he withdraws this money and pays the 10% penalty, can I still declare him as a dependent in my federal filing? Is there a way to withdraw the money, not pay the 10% penalty, and for me to be able to declare him as a dependent? He's 50 yrs old now.

I appreciate your answers.

by TaxTrollEAreply 11403/17/2012

[quote]1. I'm in a RDP in California. My parner is 100% dependent on me, and has no income. I use Turbo Tax. I have declared him as dependent in my federal filing and do a joint return for the California filing. Do I have to worry about the community property requirements? Last year I ignored this in My Turbo Tax filing and didn't have any consequences. The only thing we have in common would be the principal residence which is in my name, and the checking account whic is funded by me but si name is on it.

This is one of those "gray areas" which the IRS has not yet ruled upon for federal purposes, and it is a doozie ... :)

Bottom line: According to federal tax law, as an RDP couple subject to community property allocations, your partner is deemed to have received half the income you did (I assume there is nothing from sole and separate property. Most investment income, and all earned income, would be considered community property by default.) That would make his income over the $3,700 limit for a dependent, so he can't be your dependent on a federal return.

And, obviously, the fact that you can't claim him as a dependent makes your second question moot. Any income on a federal return over $3,700 ($3,800 will be the figure for 2012) means he can't be claimed as a dependent. It doesn't matter what kind of income, or whether it is his directly or allocated under community property laws of your state.

However, this development is not as bad as you would think. If you claimed your partner as a dependent, you'd get a deduction of $3,700 on your return, that's all. If you instead get to subtract HALF of your total income, since your partner will be reporting it, obviously your tax liability will be cut significantly lower. At "Single" rates, assuming your withholding was sufficient to cover your income if you reported it all, there should be more than enough there to more than cover the tax on both returns (the withholding gets allocated, along with the income) to get you a nice refund.

By the way, when your partner eventually does tap into his IRA, CA community property laws would consider that as separate property, assuming you were not RDPs at the time he made those deferrals into the 401K. In absence of some exception (none obvious in your post), he would owe the 10% surtax on federal, as well as the separate 2.5% similar tax assessed by CA.

by TaxTrollEAreply 11503/18/2012

A PS to R114 ...

[quote] Last year I ignored this in My Turbo Tax filing and didn't have any consequences.

This is all very new to the IRS (as well as us), and they are just now gearing up to look more closely at RDP returns with community property allocations. You're definitely not safe in concluding that you got away with it in the past.

The IRS has at least three years to propose changes to returns, and (since it will collect interest + late payment penalties) it has no incentive to move quickly. And that three years can be extended to 10 years in cases where there is a "significant" understatement of tax, which likely exists in this situation, depending on your marginal tax rate.

by TaxTrollEAreply 11603/18/2012

Thank you Tax Troll.

Since this is a gray area and the IRS hasn't 'ruled' about it, doesn't it mean that they couldn't force us to ammend past-year returns and pay penalties if any? I doubt there would be any penalty since my income would be split in half.

Filing separate would complicate things. The company I worked for computes imputed income because of my partner's health benefits, but by the end of the year, they ask me to certify that my domestic partner is my dependant, and they take the imputed income away from my W2. If we had to file separate, it would mean he's not my dependant, so I would be surprised that my company being a well established California Corporation is not aware of this. If we file separate, would we need to add the imputed income to my or his return? Very confusing and contradictory. Also, all the itemized deductions would be split between the two? Everything would be split in two or there are any exceptions?

Thanks again.

by TaxTrollEAreply 11703/18/2012

Hi Honey,

Help, I'm having a hot flash!

I did my taxes myself and it said I owed about $100 both federal and state. I decided to try Turbo Tax and it is saying I owe $20,000 for AMT (Alternative Minimum Tax)!!! I made about $80,000 last year, but had $77,000 in W-2 gambling winnings, but I lost more than 77K gambling so they calculated my itemized deductions as $84K. I had $20,000 in taxes taken out (federal, state, and state SDI). Can it be true that I would still owe $20,000? I can't seem to change this screen calculation in Turbo Tax.

Also, why would my W-4/W-2 have my exemptions as 2 (single), but the tax form 1040 only has 1 exemption for single people?

Thanks as always

by TaxTrollEAreply 11803/18/2012

[quote]Since this is a gray area and the IRS hasn't 'ruled' about it, doesn't it mean that they couldn't force us to ammend past-year returns and pay penalties if any?

It was a bit misleading for me to call this a "gray area." Sorry 'bout that.

Although it's true that there is nothing specific in the regs about RDP's claiming each other as dependents, the answer I gave you would apply to married couples filing separately. And the default here, since the IRS has said CA RDPs have to file the same way married couples would on federal, except for the "Single" filing status - as opposed to Married Filing Separately, is that you could not claim your partner, since he is deemed to have received half of your income. And someone who has income subject to tax that exceeds the personal exemption amount ($3,700 for 2011) can't be a dependent.

They can indeed make corrections on this for past years (at least back to 2010, which was the first year that RDPs were required to allocate income using community property laws; before that, it was optional back to 2007.) And, as I suggested above, the fact that this was likely a "substantial" omission means that they have up to ten years to go after you for it.

As for your company not knowing, keep in mind that not all domestic partners have RDP status, because they simply haven't registered as such in their state. There is no community property allocation required on federal returns for unmarried couples EXCEPT RDPs in CA (and WA and NV).

Will the IRS find out and correct your return? I have no idea. But I know the IRS and states regularly exchange info on how their residents have filed. On your CA return (which I assume you will file as joint, since it definitely had advantages over just filing as single and claiming him as a dependent), you would be marked as an RDP, along with the name and SS# of your partner. It would be a simple matter for the IRS to cross-reference this with federal returns, and you'd have a problem. The good news is that the IRS is having severe budget problems, and perhaps can't afford the extra efforts needed.

by TaxTrollEAreply 11903/18/2012

[quote]I did my taxes myself and it said I owed about $100 both federal and state. I decided to try Turbo Tax and it is saying I owe $20,000 for AMT (Alternative Minimum Tax)!!! I made about $80,000 last year, but had $77,000 in W-2 gambling winnings, but I lost more than 77K gambling so they calculated my itemized deductions as $84K. I had $20,000 in taxes taken out (federal, state, and state SDI). Can it be true that I would still owe $20,000? I can't seem to change this screen calculation in Turbo Tax.

It can't be right.

My suspicion: Look at Schedule A and see where your deduction for gambling losses is shown. If it is on Line 27, that's wrong (and why you have AMT). It should be on Line 28, which is NOT added back for purposes of computing AMT. (If that isn't it, then there is something else causing it not apparent in your post. Look at Form 6251 and see what is added back, causing the AMT to kick in.)

[quote]Also, why would my W-4/W-2 have my exemptions as 2 (single), but the tax form 1040 only has 1 exemption for single people?

One has nothing to do with the other. On W-4, you don't claim exemptions, but "withholding allowances" which are based on things like filing status, amount of your deductions, whether you have more than one job, etc. See the worksheet that accompanies Form W4 for specifics.

by TaxTrollEAreply 12003/18/2012

Hi TaxTroll, I have a complex question.

I began the year living in MA, marital status was single. Earned MA income from Jan-April. Moved to NY in May, new job, earned NY income from May-Dec. Got legally married (same sex) in NY in Sept.

Lots of changes in one year. My partner and I are sorting thru the tax implications and requirements. We think we understand it and are preparing our stuff now for filing next week, but I thought I'd run it past you. We believe:

- We need to each file Single for our Federal taxes (DOMA etc, Feds see us as single)

- I need to file in both MA and NY as Part-Year Resident of each state; I have corresponding W-2 forms to match (4 months in MA, 8 in NY)

- I plan to file in MA as Single because I was single when I lived there, and my actual Fed return will be Single to match. Hoping to glide through and keep it simple (MA is my ex-state of residence and I am not married on MA state records). I figure if MA catches that my NY marital status changed after I moved out of MA, and if they'd then want me to file as married/separately, then MA will contact me to let me know.

- For NY, the website indicates I need to file as a Part-Year Resident for 2011 (as I became a NY resident in May), but my spouse is a regular full-year resident same as ever. Thus I think we need to file "married filing separately" in NY for this year. We would each need to attach a dummy 'as if married' Federal return to our NY state return. However, I also need to attach my actual Federal return (single) to my NY state return. I plan to enclose a letter of explanation with my contact info.

Does it sound like we are doing the best we can with this complex situation? Any advice/caution? Thanks!

by TaxTrollEAreply 12104/04/2012

R121, sorry, but most of your question is regarding state tax filings, and I am not an expert at every state's rules, especially whatever new rules NY now has for its married same-sex couples.

Of course, you are correct that you file as Single for federal purposes, since they don't recognize same-sex marriages.

However, the general rule for couples that are married during a given year is that their marital status, for tax filing purposes, is determined on the last day of the year. So, even though you were not married during your MA residency, I believe you are considered married for the whole year. That is IF (and it is a BIG "if") MA recognizes NY same sex marriages, and I haven't heard anything on that as yet. My guess is that they will, but I have no authority to base that on.

As far as filing in NY goes, you may have the option of filing a joint return, as if you were both full year residents, and then claim a credit for the tax you pay MA on your earnings there. And I would only attach the joint "dummy" federal return they request, rather than any separate returns.

Keep in mind that this is "Version 1.0" for NYS, in dealing with couples who are married under state law, but not federal, They're likely making a lot of this up as they go along, and don't be too surprised if there are screwups on their part.

And you are going to tackle this, on your own, with just 12 days left till the tax deadline? I'd suggest you file for extensions, so you don't have to rush through it. It can take a lot more of your time trying to straighten out problems later, than if you slow down and make sure it is being done correctly.

by TaxTrollEAreply 12204/04/2012

If you paid accrued interest when buying a tax exempt bond, are you allowed to subtract it from other interest earned on investment?

Thanks

by TaxTrollEAreply 12304/04/2012

Hello TaxTroll,

I rolled over part of an traditional IRA to a new Roth IRA. The amount was $10k. So I have a Roth IRA in a mutual fund(10K) and a reg IRA(18K). I'm aware I have to pay taxes on the rollover. My problem came up when I entered a $500 contribution I made to reg IRA. The H&R Block website claims I was not allowed to deduct that. Something to the effect that I had contributed the max. Also stated I had till April 17 to "uncontribute" the $500.

Does this sound correct? I can usually deduct my reg IRA contributions. Is this due to my rollover? I earn about $55K/yr.

Thank You

by TaxTrollEAreply 12404/05/2012

TaxTroll, thanks so much for your reply. I think we do need an extension!

by TaxTrollEAreply 12504/05/2012

[quote]If you paid accrued interest when buying a tax exempt bond, are you allowed to subtract it from other interest earned on investment?

Yes, you are.

And, to make sure the IRS knows what you are doing, I'd suggest forcing Form 1040, Schedule B (even if you aren't otherwise required to file it, based on amount of investment income), and show the gross amount reported on 1099INT, then, on the very next line, show "Less Accrued Interest Paid" and the accrued interest shown as a negative number. Doing it that way can save you having to deal with a notice, since the total interest you report won't match the 1099-INT.

by TaxTrollEAreply 12604/05/2012

[quote]I rolled over part of an traditional IRA to a new Roth IRA. The amount was $10k. So I have a Roth IRA in a mutual fund(10K) and a reg IRA(18K). I'm aware I have to pay taxes on the rollover. My problem came up when I entered a $500 contribution I made to reg IRA. The H&R Block website claims I was not allowed to deduct that. Something to the effect that I had contributed the max. Also stated I had till April 17 to "uncontribute" the $500. Does this sound correct? I can usually deduct my reg IRA contributions. Is this due to my rollover?

First of all, a terminology correction: Taking traditional IRA money and making it a Roth is called a "conversion," not a rollover. A rollover is a transfer from one IRA to another, an employer plan to an IRA, or a Roth to another Roth.

I have no way of knowing how you reported the Roth conversion on your return, but I strongly suspect you erroneously showed the converted amount as a CURRENT year contribution to the Roth. That would explain why it is telling you that you contributed too much, since your conversion was $10K and the maximum current year contribution (unless you are over 50) is $5K.

The conversion should have been reported on a 1099-R form from the IRS trustee, showing the amount converted as the gross distribution, with a distribution code of 2 (Early distribution, but 10% surtax does not apply). If you NEVER made any non-deductible contributions to your traditional IRA, the taxable amount would equal the gross distribution; otherwise, you use Form 8606 to calculate the taxable portion of the conversion. Form 8606 is also used to track the amount of funds contributed (or converted) to your Roth.

As far as your regular $500 contribution to a traditional IRA, there should be no limit on being able to deduct that, even if you are in an employer pension plan, assuming your AGI is under $56K.

by TaxTrollEAreply 12704/05/2012

A big THANK YOU!!!!

by TaxTrollEAreply 12804/05/2012

"The conversion should have been reported on a 1099-R form from the IRS trustee, showing the amount converted as the gross distribution, with a distribution code of 2 (Early distribution, but 10% surtax does not apply). If you NEVER made any non-deductible contributions to your traditional IRA, the taxable amount would equal the gross distribution; otherwise, you use Form 8606 to calculate the taxable portion of the conversion. Form 8606 is also used to track the amount of funds contributed (or converted) to your Roth"

Hello TaxTroll, I looked on my 1099-r and the distribution is 1 not 2.

by TaxTrollEAreply 12904/06/2012

[quote]I looked on my 1099-r and the distribution is 1 not 2.

1 is a premature distribution that is subject to the 10% surtax. That is not the way a Roth conversion would be coded.

Did you actually arrange with the current IRA trustee to simply CONVERT the account to a Roth IRA? Or did you WITHDRAW the money from the IRA, and simply deposit it in a new (or existing) Roth IRA? If you did the latter, then you did not do a conversion. And that's why you're having problems.

by TaxTrollEAreply 13004/06/2012

TaxTroll,

My handle (IRA Dummy) is appropriate. I withdrew the $10K from an existing IRA and deposited into a Roth. I trust my financial advisor and my new Roth has earned more than the traditional IRA, but you are correct, I am having problems. He wants me to invest another 10K from the same traditional IRA. After this mess, I think not.

Goodbye simple filing, hello tax advisor.

Thanks!

by TaxTrollEAreply 13104/06/2012

TaxTroll,

I inherited about $4,000 from a death of a relative last year. I don't believe it's taxable but do I still need to report it?

Thanks

by TaxTrollEAreply 13204/07/2012

No but you do have to report any income you have on it. The current taxable lower limit for estates is $5 million.

by TaxTrollEAreply 13304/07/2012

R132, it depends how you got the money.

Was this just a bank account of the deceased, that the money was withdrawn from, or put in your name? If so, it is not taxable income, except perhaps for whatever interest was earned on it after the date of death.

If you inherited stock or property and it was sold, the sale is reportable on your return, with the cost basis generally being the property's value at the owner's death. If the value dropped since then, or it cost you money to sell it, you might have a capital loss. Reportable on Form 8949 and Schedule D.

If the money was in a 401K, other type of retirement plan, an IRA or was in US Savings Bonds, there could be some taxable income, depending on what income the deceased deferred during his/her lifetime. You need to discuss with the executor.

PS: So we don't muddy the waters with R133's response, let me explain he was talkng about ESTATE tax, not INCOME tax. Two very different concepts. As a beneficiary, you would only need to be concerned with the latter.

by TaxTrollEAreply 13404/08/2012

Dear TaxTroll EA,

Last year I had zero income. For tax year 2011, I paid $15K in mortgage interest, $4,000 in San Francisco & CA property taxes, $5K, and $7K for healthcare insurance, all from savings from having cashed in IRA's, 401K's, etc., from previous years.

Need I file a return? Would I get any kind of refund? Can I somehow claim it as a "loss" for next year?! (stupid question, but can't hurt to ask:)

Meanwhile, I got a 1099G form stating $18K income from the California Unemployment Dept for tax year 2011, with no Fed taxes taken out (I realize this would be Fed taxed income) yet I got that money in 2009-2010. Am trying to straighten that out with the CA Unempl. Dept. office. Will need to look back to prior tax returns to see if I claimed it correctly.

If it happens that income is correct for whatever reason for 2011, what kind of scenario am I looking at given that deductions would exceed income?

Have never been in this weird situation before. Am age 50. Taxes for those past 65 and/or in early retirement must be bizarre!

I love you, TaxTroll!

Thanks in advance.

by TaxTrollEAreply 13504/11/2012

R135, I can't begin to estimate how a tax return would look, without having all of the amounts and details (which we obviously won't go into here). Plus, you seem to be contradicting yourself, saying first that you have "no income" but then talking about income from IRA distributions (which may not just be taxable, but likely also subject to a 10% surtax, which deductions such as you mention may not be able to reduce or eliminate) then that unemployment pay, which is generally fully taxable (at least on federal) in the year received.

Keep in mind that the requirement to file a tax return is based on GROSS income ... not the net remaining after you claim deductions to which you may be entitled. You clearly are required to file a return for 2011. And I suggest that you have it done professionally, since you seem to have some serious misconceptions about how the process works.

by TaxTrollEAreply 13604/12/2012

Thanks TaxTroll, I clearly do need to file for an extension and sort this and out later after tax day.

The main point I was trying to make is that I made no income last year, but using savings earned in prior years, I paid a lot of money on things that I would normally have itemized as deductions.

PS, I'll bet once your eye glasses and calculators are put away, you're a craven animal in bed.

Thanks again!

by TaxTrollEAreply 13704/12/2012

Hi Tax Troll,

My CA RDP and I have about $4k in foreign currency exchange (forex) trading losses. We have not made a section 1256 election and want to report this (each claiming half) as an ordinary loss, not as a capital loss on Sched. D. Is that proper? Where would that be claimed on the 1040? And how can this be done using Turbo Tax? Would it be entered as a loss on Line 17 ("Other Taxable Income") on the "Other Income Statement" supporting Line 21 on the 1040?

Thanks!

by TaxTrollEAreply 13804/12/2012

R138, let me see if I understand: You make money in trading foreign currencies ... one of the most complicated of all investment options out there ... and you are planning to do your own return, with Turbo Tax???

Uh ... NO! TT is designed for the "average" simple return. It is not meant to handle such reporting.

Please do yourself a favor, file an extension, and then find a local knowledgeable tax professional who deals with foreign currency traders as a significant part of his/her practice. (I don't, and won't take on such clients, since I am not that familiar with all of the rules. And I do taxes for a living.)

On the matter of splitting the investment between your returns, that would depend on whether the money used for the investment came from sole-and-separate sources before you were RDPs, or not.

by TaxTrollEAreply 13904/12/2012

I appreciate the caution and the advice, TT. My partner (an LLM) is actually researching the substantive question of how the loss should be treated (ordinary/capital). I, not being a tax lawyer, just thought I'd seek your insights as well, particularly as to the mechanics of how it should be reported on the 1040 and supporting schedules. Aside from this one issue ("Other than that, Mrs. Lincoln..."), our taxes are actually quite straightforward.

(And, yes, the investment was with community assets, so the even split is valid.)

Thanks again.

by TaxTrollEAreply 14004/12/2012

Hi Tax Troll,

Can I do a 1035 Exchange from a UL to an annuity? What about whole life to an annuity?

Thanks!

by TaxTrollEAreply 14105/03/2012

[quote]Can I do a 1035 Exchange from a UL to an annuity? What about whole life to an annuity?

IRC Sec 1035 is a rather complex list of rules that governs the tax-free exchange of insurance contracts, which otherwise would be transactions in which gain or loss would be realized.

It is possible to trade SOME life insurance policies for annuity contracts, and vice versa. I have never seen Universal Life contracts involved in a 1035, but that is not to say it isn't possible, I don't know.

Bottom line: This is something for the insurance company's tax attorneys to determine, since they are ultimately responsible as to whether something is reported to the IRS as a 1035 exchange. This is not something you can do on your own, such as an IRA rollover.

by TaxTrollEAreply 14205/04/2012

Hi Troll,

I've entered a raffle where the prizes are a $2 million home, or $1.5 million cash (annuity)/$1.1 million lump sum. I wouldn't want the home if I won, but I'm curious if it is better to take the home and sell it and hope that it would be worth more than the $1.1 million cash ($700,000 after taxes?).

I've never owned/sold a home so I'm not sure what costs would be involved in the sale other than 6% or so for realtor.

Thanks sweetie

by TaxTrollEAreply 14305/11/2012

TaxTroll, just a word of thanks again. We overrode your better judgement at R122 and filed on our own, just in the nick of time, despite the layers of complexity. But your advice was very helpful. So far neither Fed nor State has gotten in touch to say we did anything wrong. And our payment checks have been cashed.

by TaxTrollEAreply 14405/11/2012

[quote]I've entered a raffle where the prizes are a $2 million home, or $1.5 million cash (annuity)/$1.1 million lump sum. I wouldn't want the home if I won, but I'm curious if it is better to take the home and sell it and hope that it would be worth more than the $1.1 million cash ($700,000 after taxes?).

Keep in mind that, if you take the home, you're paying tax on $2,000,000, which will come to MORE than twice the tax than is on $1.1mil. Add to that the costs of sale (commissions, closing costs, maybe transfer taxes), and the possibility that you may not be able to sell the house for the full $2mil (If someone is paying that much for a home, likely they'll want to buy it directly from the builder), and it seems obvious you would be better with the cash alternative.

And consider that, if you choose the annuity payments instead of the lump sum, you may be able to pay significantly less tax over the course of the years you receive the money, since you are taxed only on what you actually receive. You don't hit the highest (under current law, but likely to increase in 2013) rate of 35% until you are in excess of $388,350 of taxable income for the year.

by TaxTrollEAreply 14505/12/2012

[quote]filed on our own, just in the nick of time, despite the layers of complexity. But your advice was very helpful. So far neither Fed nor State has gotten in touch to say we did anything wrong. And our payment checks have been cashed.

Hope that works out for you, but - FYI - it is highly unlikely you would have received any corrections on a 2011 return yet, especially one filed just before the April 17 deadline. Except for certain automated mathing items, it usually takes a good 3-8 months for the IRS to complete screening of returns, and send out correction notices. Likewise, they cash checks as soon as received, but that doesn't mean they accept that's all you owe.

Keep the fingers crossed a while longer. :)

by TaxTrollEAreply 14605/12/2012

A "Heads Up" for anyone who receives a "correction" on their return from the IRS this year ...

Take the time to read the notice, and doublecheck what they said was wrong. And, if it makes no sense to you, don't pay the additional tax until you CHALLENGE IT and they explain why it is correct. (If you just pay it, it will be a LOT tougher to try to get it back, since IRS-mindset is "Hey, he must have owed it, or he wouldn't have paid it!")

Bottom line: The IRS is making A LOT of mistakes this year, and are sending out notices that are often laughable. I've seen "late filing" notices that contain dates that prove the return was actually filed early, a notice that says a payment wasn't received - but also shows the same dollar amount as an overpayment credited to the return, and several on which direct-deposited estimates were not properly credited.

And, while you can handle most notices by phone, keep in mind that you are depending on an overworked (and undertrained) IRS employee to document what you are saying. Better to send a letter with a copy of the notice, and keep a copy for your records.

PS: On that subject, the IRS is soon going to be doing a test program of "virtual audits" ... where you logon to a website and converse with an auditor by webcam. Now, if the auditor was really hunky and only partially clothed ... :)

by TaxTrollEAreply 14705/12/2012

[quote]Bottom line: The IRS is making A LOT of mistakes this year

In case anyone doubted my words above, you may have seen an item in the news past couple of days, about a waitress in Ohio who received an unexpected tax refund check ... for $435,000. She laughed, showed it to co-workers and friends, and then brought it to an IRS office, where they made her wait to speak to several people, show a photo ID and fill out a form, before they would agree to take the check back. (Not at all surprising to me.)

By the way, she was still waiting for her 2011 refund from the IRS, since April, but it would only be $754. No word when she'll get that.

by TaxTrollEAreply 14806/03/2012

Hello again, Tax Troll.

Recently ended a long relationship. Now I have to buy out his share of the house, which is $100,000, if I am able to re-finance.

Will he have to pay taxes on that? I guess it would look like a "gift".

If you were my therapist (you would hate your job) you would say: "Stop being a miserable co-dependent and let him figure out his own tax responsibilities". But you are the beloved Tax Troll.

Should I have to sell the house, what is my tax liability if I do not purchase another property? I am age 52. The real estate market in my town has been very kind to me and I have loads of equity. The title is now in my name only. Would I have to pay Capital Gains tax?

by TaxTrollEAreply 14906/06/2012

[quote]Recently ended a long relationship. Now I have to buy out his share of the house, which is $100,000, if I am able to re-finance. Will he have to pay taxes on that?

Except that you say - later on - that the house is currently just in YOUR name. Unless you also have some kind of a "living together" contract that forces you to do this - there is NO legal requirement for you to "buy" something that doesn't belong to him to begin with.

I'd strongly suggest you discuss this with an attorney who deals with lesbian and gay couples, who can advise you of your rights and what assurances you should be getting in return (For example, if you do decide to do this - simply because you think it is the right thing to do, which I don't debate - I'd recommend that you have him execute paperwork that binds him to the agreement as the TOTAL compensation he has on any claims against you or your property. Otherwise, he can theoretically come back and say you owe him more.)

You should not just cut him a check, but have the attorney draft an agreement making it clear what the money is for. If it is worded that he is selling whatever rights he may have later claimed to the house, based on amounts he paid, you may be able to consider this additional cost basis to be used when you eventually sell the property. Review that with your tax advisor.

You mention having to refinance, which I assume is to get out some equity, since the house is ALREADY just in your name. Be aware that if your equity debt (above the amount of the mortgage left) exceeds $100K, you may not be able to deduct the mortgage interest on the excess. I would also suggest you insist that the amount due to him be reduced by half of the cost of refinancing, since that is why it is being done.

In effect, this is a property settlement, similar to what would happen when a married couple divorces. Such settlements are not taxable to the recipient, and not deductible by the payor.

by TaxTrollEAreply 15006/06/2012

Thanks for your response. Already had an excellent gay attorney draw the appropriate documents.

Sounds like the ex will not have to pay taxes, but I would have to pay capital gains tax on profit from a sale. Is it my imagination, or is there some law that allows for a one-time exemption for those over 55 who sell a home? Perhaps that is a law specific to my state. Will check with an accountant.

by TaxTrollEAreply 15106/06/2012

[quote]Sounds like the ex will not have to pay taxes, but I would have to pay capital gains tax on profit from a sale.

You're not selling anything. He had no legal ownership rights, and you're simply giving him a nontaxable property settlement. No tax effect on you.

IF you later actually SELL the property, you don't have to pay tax on the gain provided the gain is $250K or less, and you lived in the property at least two years before that date.

FYI, the one time "over 55" exclusion of gain, and the requirement to reinvest gain otherwise, went out of tax law fifteen years ago. It is replaced by a simple exclusion of gain up to $250K (per owner) if used as primary residence for at least two of five years ended on date of sale. The exclusion can be used any number of times, but no more than once every two years.

by TaxTrollEAreply 15206/06/2012

Is it true that the new ObamaCare tax for insurance is not Income Tax, the government can not take legal action for failure to pay?

by TaxTrollEAreply 15306/29/2012

[quote]Is it true that the new ObamaCare tax for insurance is not Income Tax, the government can not take legal action for failure to pay?

No, that is not true. The federal government has legal rights to enforce and collect any type of tax it assesses.

by TaxTrollEAreply 15406/29/2012

That bus lady who was harassed by the kids on Youtube has now received over $600,000 in donations. No taxes, right?

by TaxTrollEAreply 15506/29/2012

Hey Tax Troll

Anyway to access an employer funded pension plan from a company you no longer work for before you are 55?

by TaxTrollEAreply 15606/29/2012

[quote]That bus lady who was harassed by the kids on Youtube has now received over $600,000 in donations. No taxes, right?

USA Today said it is. And they were wrong.

The money wasn't compensatory in any way. It was simply a gift from people who felt bad for her. Gifts are not taxable to the person who receives it ... ever.

by TaxTrollEAreply 15706/30/2012

[quote]Anyway to access an employer funded pension plan from a company you no longer work for before you are 55?

Non-tax answer: When you participate in an employer plan, you are bound by the agreement you signed or ratified to have that participation. That can limit your right to employer contributions ("vesting") and even limit the time period each year in which you may be able to get your own contributions back. In some cases, you may not be able to take out contributions while you are still employed there, or may have to stop participation in the plan when you do. Each one is different, so there is no "one size fits all" answer.

Tax answer: If you are able to get the money, it is taxable at your marginal rate, plus an additional 10% as an early distribution, unless you meet some exception Inot apparent in your question) to the latter. As far as age 55 goes, the only tax exception there is if you take the money out AFTER separating from service with that employer.

by TaxTrollEAreply 15806/30/2012

[quote]has now received over $600,000 in donations.

A PS to the above reply: These are not really "donations." Charity donations are given to a recognized charity, and not earmarked to benefit any specific individual. Obviously not the case here. These are gifts, nondeductible to the giver, not taxable to the recipient.

by TaxTrollEAreply 15906/30/2012

Hi Tax Troll,

I was executor for my father's estate. All assets were distributed and final tax returns filed in 1998. This year the estate received a payout from a small, previously unknown life insurance policy (on my mother, who died in 1970, naming my father as beneficiary). The payout included more than $5k in interest, which I assume is taxable as ordinary income at both the state and federal levels.

Can the taxable income be distributed as K1s to the beneficiaries rather than paid by the estate? Must I prepare full filings for both state and federal just to deal with this small amount?

And while I know you never advise anyone to ignore tax obligations, in your experience is it likely that a state (in particular) will come looking for a tiny payment from a long-dormant TIN?

TIA for any wisdom. Mwuah TTEA.

by TaxTrollEAreply 16006/30/2012

[quote]I was executor for my father's estate. All assets were distributed and final tax returns filed in 1998. This year the estate received a payout from a small, previously unknown life insurance policy (on my mother, who died in 1970, naming my father as beneficiary). The payout included more than $5k in interest, which I assume is taxable as ordinary income at both the state and federal levels.

The interest is taxable to whomever received the proceeds, which I assume would be you and any other relatives who were beneficiaries of your father's estate.

[quote]Can the taxable income be distributed as K1s to the beneficiaries rather than paid by the estate? Must I prepare full filings for both state and federal just to deal with this small amount?

The estate is closed, and would no longer be filing estate income tax returns (Form 1041) with its accompanying K-1 forms.

I'm assuming that the insurance company is sending out a 1099INT for the interest, showing either your father's SS#, or his estate's (or your mother's estate's) federal ID number. Once you receive that, you should issue "nominee" 1099-INT forms, from the entity that was issued the original form, and showing the allocation to each person/ID number who has to declare the interest.

You can order the forms now: You'll need 2012 Form 1099-INT, Form 1096 (the transmittal form that must accompany all 1099-series forms) and the instructions. Call 1-800-TAXFORM to order. The forms must be mailed to the IRS by Feb 28, 2013, though the recepients' copies should be given to them by the end of January, where possible.

What if you don't do the 1099 forms? Then likely the IRS will send a notice to the person/entity who got the original 1099-INT form. A letter of explanation, and names/addresses/SSNs of those who picked up the interest should suffice to eliminate any penalty. But it is better if you avoid it completely, by doing the forms.

[quote]And while I know you never advise anyone to ignore tax obligations, in your experience is it likely that a state (in particular) will come looking for a tiny payment from a long-dormant TIN?

First of all, if it is a "dormant" TIN, the IRS will likely return it to the payor, and they'd likely reissue it. An EIN for an estate generally remains available forever, so that would not be the case there. The payor might also send a W-9 form to the recepient, asking for a better ID number to use.

As for your question about whether states will "catch" such things, it depends on the state. Few will directly match income reported on a return to 1099-series forms issued, except for 1099-MISC forms issued to people who claim to be a non-resident. More likely, if you don't report the income on your federal return, the IRS will also report that fact to your state, and the state will then go after you for its share. (What if you report to the feds but not the state? Depends. If the state tax calc starts with federal income, the state usually matches those up first.)

by TaxTrollEAreply 16107/02/2012

Hey Tax Troll - I've been thinking about the Edie Windsor legal case. She supposedly paid about $325K in estate taxes upon the death of her spouse (or the deceased spouse's estate did, presumably). Without the federal marriage exemption,(or NY State, at that time), how big would that estate have been?

by TaxTrollEAreply 16207/12/2012

R162, this has been discussed in the thread linked below, and I replied to it there.

First of all, federal estate taxes don't even kick in until the gross estate exceeds an indexed amount ($5.12 million for 2012). So, for the vast majority of couples, this is NOT an issue.

Beyond that, federal estate tax law allows an unlimited exclusion from tax for assets transferred to a legal spouse at death. That means there would be no federal estate tax if everything went to a surviving spouse. This is not available a couple whose marriage isn't recognized under federal law (and, no, the recent decisions not to enforce DOMA don't change that.)

NY does have its own inheritance tax, and I am not familiar with how it works. I would assume that, for couples married under NY law, there would be some kind of exclusion. Also, any state inheritance taxes paid are treated as a deduction on the federal estate tax computation.

by TaxTrollEAreply 16307/13/2012

If you live with your parents and you have an outstanding tax bill, can the IRS somehow force your parent/relative to pay the tax? I have no income and am an adult who lives at home, I don't want my father saddled with my bill and if they look into our accounts they may try to get the money from my father and he can't afford to pay either.

by TaxTrollEAreply 16407/16/2012

bump

by TaxTrollEAreply 16507/16/2012

Hi TaxTroll. I teach online for schools in Indiana and Illinois although I live fulltime in Utah. I never go to Indiana or Illinois. To which state(s) do I pay state income tax?

Thank you. Even our payroll department is confused.

by TaxTrollEAreply 16607/16/2012

Paging Tax Troll!

by TaxTrollEAreply 16707/17/2012

TaxTroll, I couldn't find a decent job in FL, so I moved back to PA to look for one. How soon do I have to find a job to be able to take my moving expenses off my taxes? And BTW, I rented out my house in FL, so I have to file the "long form" anyway.

TIA!!

by TaxTrollEAreply 16807/17/2012

Tax Troll where are you?!

by TaxTrollEAreply 16907/17/2012

[quote]If you live with your parents and you have an outstanding tax bill, can the IRS somehow force your parent/relative to pay the tax?

Quick answer: No, they cannot.

More detailed answer: Still no, but that assumes that there has been no arbitrary transfer of funds from you to your parents, since the tax debt arose. For example, if you gave them money that they have in a bank account, the IRS could sic their attorneys on that, since it could be assumed you gave it to them to avoid paying your taxes with it.

by TaxTrollEAreply 17007/17/2012

[quote]I teach online for schools in Indiana and Illinois although I live fulltime in Utah. I never go to Indiana or Illinois. To which state(s) do I pay state income tax?

Obviously, you'll need to pay tax to Utah, your state of residence.

Beyond that, you'd have to check with Illinois and Indiana if they somehow have the power to tax people with only an "online" presence in the state. The answer to that question used to be "Of course not," but some states are getting desperate and being very aggressive about such matters. The rules keep changing, and I can't stay current on them all. A quick bit of research on the states' respective websites should give you the info you need.

If you do owe tax to one of the other states, likely Utah will credit you for that tax, to the extent it doesn't exceed what you are paying them on the same income. In effect, you pay tax at the higher of the two states' rates.

by TaxTrollEAreply 17107/17/2012

[quote]I couldn't find a decent job in FL, so I moved back to PA to look for one. How soon do I have to find a job to be able to take my moving expenses off my taxes? And BTW, I rented out my house in FL, so I have to file the "long form" anyway.

In order to deduct moving expenses related to a change in employment, you must be "gainfully employed" at least 39 of the 52 weeks following the move. This requirement is waived if your employment is terminated involuntarily before the 52 week period ends.

And a question you didn't ask: Even though your rental house is in Florida (which has no state income tax), you'll have to pay PA income tax on any rent collected after you became a PA resident. Suggest you check out IRS Pub 527, which provides info you need to know when reporting a rental activity on Schedule E. You'll be declaring depreciation on the house, which is based on the LOWER of what it cost you OR what it was worth at the time you converted it to a rental. Any personal property (appliances, carpet, furniture, etc.) rented with the house should be depreciated separately.

by TaxTrollEAreply 17207/17/2012

Thanks so much for your help TaxTroll!

by TaxTrollEAreply 17307/17/2012

Tax Troll - I found the attached link online: "Hidden Tax Advantages for Same-Sex Couples." I seems to me couples who LIKE each other wouldn't much use these strategies. I'm a little confused about the real estate example "..if you try to sell property that has risen in value, you must report the entire gain to the IRS. But if a woman in a same-sex union first buys the property from her partner using a genuine bank note, she can then sell the property to a third-party buyer for cash, pay off the debt and walk away completely even, without having to pay tax on any of the appreciated value. For large property transactions, this can save same-sex couples a fortune", as it seems to me BOTH transactions would be taxable events. The childcare loophole "if you have a same-sex partner, you can essentially hire him to care for the children, and claim a small percentage as a tax credit" would provide a write-off for one spouse, but then would the other have to claim the income (and pay taxes on it)? Do you have any insight on these points? I'm thinking the book this guy authored is a lot of BS.

by TaxTrollEAreply 17407/17/2012

Thanks, TaxTroll!

by TaxTrollEAreply 17507/17/2012

[quote]I found the attached link online: "Hidden Tax Advantages for Same-Sex Couples." I seems to me couples who LIKE each other wouldn't much use these strategies.

I don't understand where you come up with that. It is not hurting them in either way as a couple, although it may cost the first partner some money that is more than made up in tax savings by the second partner. That's the nature of tax planning for unmarried couples ... you're looking at the COMBINED bottom line. So it obviously isn't appropriate for couples who desire to keep all finances 100% separate and never color outside of the lines.

I've been doing tax planning for unmarried (primarily gay and lesbian) couples for over 20 years, and it is more an art than a science. I have clients today who are very conservative and don't want to do anything the slightest bit "creative" (even though technically legal). And they pay a lot more in taxes .,.. often thousands more ... than those who agree to do planning and preparation as a couple.

[quote] I'm a little confused about the real estate example

Good catch, since it doesn't make any sense, the way it is written. If the original owner of the house sells it to his new partner for a profit under $250K ... and has been in the house more than two years ... the gain is excluded under current tax law. If the partner then resells it to someone else for the same $250K, there's no gain, and it pays off the bank loan for the first sale. But there is no clue why the original owner didn't do the sale to the third party on his/her own, since it would have been excluded gain. There could be other factors involved (such as a prior sale, or possibly title issues) that might apply, but the writer doesn't say. (Likely it is explained in his original source material, but he didn't understand what was applicable.)

[quote] The childcare loophole "if you have a same-sex partner, you can essentially hire him to care for the children, and claim a small percentage as a tax credit" would provide a write-off for one spouse, but then would the other have to claim the income (and pay taxes on it)?

Generally correct. If the tax owed by the one who babysits comes to more than the amount of the credit (which maxes out at 20%) allowed the parent, it KIND of makes sense. But not when you also consider that the babysitter is considered the EMPLOYEE of the parent, and the latter has to make payments of federal and possibly state taxes on the wages, almost certainly negating any tax benefit.

The bit about the debt relief is also problematic. The IRS can randomly choose to negate any transaction that has no "economic substance" other than tax avoidance. But this would likely simply be considered a loan or gift from one person to another, which the recipient uses to settle the debt. No tax implications, and could have been done by anyone, not only a same-sex spouse.

[quote]I'm thinking the book this guy authored is a lot of BS.

Would it surprise you to know that I find factual errors or misleading guidance in about half of the tax-related articles I read online or in non-tax publications? This one at least provides an accurate basic concept (i.e., same sex couples, though not married under federal law, can do creative planning to lower their combined taxes as a couple), though the examples cited absolutely sucked. :)

by TaxTrollEAreply 17607/18/2012

A "PS" to my reply yesterday.

I found the original source paper, downloaded it and skimmed it briefly. It does, indeed, give more comprehensive examples than the "out of context" conclusions made by the author of the linked article that referred to it.

However, also note that the paper is seven years old, which is an eternity when dealing with tax laws that change pretty much every year. It predates considerable case law on issues that can affect same sex couples, and also predates the ruling by the IRS affecting married or RDP couples in certain community property states. Therefore, anyone reading it (and, no, I don't expect many of you will choose to do that anyway :) should do so in that context.

by TaxTrollEAreply 17707/19/2012

Tax Troll,

From your previous response about COBRA, are you saying we cannot take standard deduction if we take deduction for COBRA?

Also, I've incurred a lot of medical bills this year. Are co-pays considered for deductions? How should I track medical expenses this year? COBRA = checks. Are receipts from medical providers/CVS sufficient? I want to be ready next year.

I never thought medical expenses would be worth it and didn't know COBRA -- a significant expense for me -- eligible. I don't receive UB

by TaxTrollEAreply 17804/11/2013

R178 This is LAST year's thread. There's a new TaxTrollEA thread for 2013.

by TaxTrollEAreply 17904/11/2013

Just stumbled on this thread ... sorry.

R178, all of the items you mentioned are deductible, assuming you can itemize on Sch A. Note that total medical expenses used to be reduced by 7½% of AGI, before actually being counted as itemized deductions (which have to total more than the standard deduction - $6,100 for this year for a single person - before they do you any good.) That percentage goes up to 10% for 2013, unless you (or your spouse if filing jointly) is 65 or older.

Obviously, CVS sells a lot of stuff. I assume you are talking about prescriptions or possibly immunizations.

by TaxTrollEAreply 18011/19/2013
Loading
Need more help? Click Here.