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Questions for Tax Troll EA

Just starting a thread for anyone who has federal tax questions for me.

Note that I will ONLY check this thread - and the one from January about the Cliff legislation - at least once a day. Please do not post to any of the previous-year threads, or start a new one, as they won't appear in my Thread Watcher and I'll never see them. (The search function is pretty much useless at this point, so I can't look for mentions of my name as I did in past years.)

First, just an update: If your return contains certain forms, the more popular of which involve education credits, depreciation (on a business or rental) or passive activities (a rental or a partnership, usually), the IRS isn't yet ready to process your return, and such returns will sit until their computers are reprogrammed to do so. Their initial estimate was "late Feb to early March" ... but now they are saying it will more likely be mid February, for most of the forms they listed. I'll post a note when they give the all-cler ...

by TaxTrollEAreply 18807/04/2013

Hello TaxTrollEA.

My parent, both over 65 years (in case that matters), inherited money after my uncle's death. The estate is being split between the surviving siblings. They received $10,000 and then $40,000 from the sale of his home.

Do they need to claim this on their 1040 or was the taxes taken care of through the estate? Is there a specific 1040 form for this inheritance?

Thank you for your help.

by TaxTrollEAreply 102/09/2013

Inherited money is not taxable, but the earnings from it are (or any profit if you sell it.) You normally receive a stepped up basis to the fair market value of the property as of the date of death. If the $40,000 from the sale of the home exceeds the fair market value as of the date of death, there might be some taxable (capital gain)income. I'm not sure how the personal residence exclusion works after death. The executor/administrator of the estate should issue a 1041 Schedule K-1 if the estate filed an income tax return. (It's highly unlikely there were any estate taxes involved.)

by TaxTrollEAreply 202/09/2013

Previous response is not wrong, but let me try to clarify it a bit ...

An inheritance - whether property or money - is not usually taxable (exception: money that was in a sheltered account, such as a pension plan, 401K, IRA, annuity or certain types of US Savings Bonds with deferred recognition of interest income).

If you (or the estate's executor) sells property you inherit, either you (or the estate itself) pays tax on the profit (usually the excess received over the value at date of death). Obviously, there is no way for you to know this, so it is important that your parents be in touch with the executor of the estate, and find out what might reportable. In most cases, the executor will be filing an income tax return for the estate, on Form 1041, and they'll receive a Schedule K-1 from that form that shows what is reportable on their return, if anything. The bad news is that these forms might not be ready until close to the April 15 deadline (or even after, necessitating an extension be filed for their personal return). Be sure to find out before filing personal returns.

And, no, the exclusion of gain on a personal residence isn't available after someone dies. But the basis is generally stepped up to date-of-death value, so there should be little (if any) reportable gain. In many cases, the beneficiaries can even report a capital loss, based on the costs of selling the property.

by TaxTrollEAreply 302/09/2013

Thank you so much for your help about the house. I'll have to get in touch with my uncle about Form 1041, Schedule K-1.

I hope you don't mind a few follow up questions.

My father is one of six beneficiaries. Would he report 1/6 of the basis of the house (value at date of death) on Schedule D? Date acquired would be date of death?

It appears half of the $40,000 was from the sale of the house, I believe the other half is from his IRA.

Could you give me some guidance as to how my uncles IRAs should be treated on my parents tax return?

The IRA itself has not been inherited, but there has been partial distributions of the estate's assets.

Thank you again, Tax Troll EA for your invaluable help.

Thank you R2 for sharing your experience.

by TaxTrollEAreply 402/11/2013

R4, as I said in my previous response, the executor of the estate really calls the shots here ... he/she may be reporting the sale of the property on the estate's income tax return (1041) and your parents' share of the profit or loss on the Schedule K-1 that is prepared with that return. They need to find out whether a 1041 will be filed FIRST, before they report anything directly on their personal tax rteurn.

Ditto on the IRA and other items. If the estate was the beneficiary of the IRA, the estate must file a 1041, then apportion the taxable income to those who ultimately receive it. If the IRA just had the six of them as separate beneficiaries, each should receive a 1099R showing the amount reportable by that beneficiary.

If no 1041 is beling filed for the estate, and each inherits 1/6 of the house, they each pick up 1/6 of the selling price, costs of sale, and basis (date of death value). The holding period for something inherited is long term, regardless of how long it is sold after death.

by TaxTrollEAreply 502/11/2013

Thank you, TaxTrollEA!

by TaxTrollEAreply 602/11/2013

Hi Tax Troll, I'm kind of embarrassed to ask this simple question but here goes.

I was unemployed for 6 months from mid August 2011 - mid January 2012 and I collected unemployment off and on during that time. The last unemployment check that I received was for the period of Jan 1 - Jan 15 2012.

The only income I made in 2012 was from that unemployment check + wages from my current job. In past years, I just fill out a 1040EZ and was good to go.

This year, what federal forms do I need to fill out that will cover both my unemployment wages + my regular job wages. It looks like I need a 940 form to report unemployment wages.

So would I use a 940 form + a 1040 form?

I thank you in advance for any feedback you can offer.

by TaxTrollEAreply 702/13/2013

Hi TaxTrollEA! What you do here is amazing and I'm always grateful to read your answers. Even if your advice doesn't apply to my situation, it is still interesting to read.

I have a question this year: I purchased a Long Term Care insurance policy this year. Is it true that the premiums I pay are deductible? And if so, where do I enter them?

Many thanks. You are a mensch!

by TaxTrollEAreply 802/13/2013

R7, you would use Form 1040EZ. Line 3 of that form is for unemployment benefits received.

You do NOT file a Form 940. That is a return for employers who PAY unemployment taxes on their employees!

by TaxTrollEAreply 902/13/2013

R8, if you itemize deductions on Schedule A, you can deduct medical insurance you pay directly. That would include Long Term Care insurance (also called "Nursing Home" policies, although that isn't all that it covers), but NOT Long Term DISABILITY insurance, which is an entirely different thing (and doesn't pay medical or nursing bills, per se).

There is a limit - based on your age - on what Long Term Care premiums you can deduct. If you use tax software (and fill it in correctly) it should do the limits for you. Otherwise, suggest you get the instructions for Schedule A, where you'll find the table for the deductible portion.

by TaxTrollEAreply 1002/13/2013

Many thanks, TTEA!

Yes, it's definitely Long Term Care Insurance I bought, not Disability.

I'll leave it to TurboTax then.

by TaxTrollEAreply 1102/13/2013

I was the administrator of my sister's estate. I had to do the final tax return and the estate income tax return (1041) for 2011. On her individual (final) tax return, I itemized deductions and deducted state income tax. This year, I received a 1099-G for the refund I received on her return. (I was the only heir.) How can I report that if she doesn't file a return this year? (The 1099-G was issued under her SSN.)

by TaxTrollEAreply 1202/13/2013

Thank you for your help in advance.

I filed 1040ez in the past, making only about 20k a year. However, the new job (waiter) i had last year paid me off the books. I know that if you make over $400 as a independent contractor/self employed, you have to file. I was asked for a w9 by my boss.

What tax forms do I have to file this year?

I take the subway to work, how do i take deductions for that ($500)?

by TaxTrollEAreply 1302/13/2013

[quote]I was the administrator of my sister's estate. I had to do the final tax return and the estate income tax return (1041) for 2011. On her individual (final) tax return, I itemized deductions and deducted state income tax. This year, I received a 1099-G for the refund I received on her return. (I was the only heir.) How can I report that if she doesn't file a return this year? (The 1099-G was issued under her SSN.)

Technically, as "income in respect of a decedent," it is taxable to whomever inherited her estate. But if you are not doing another 1041, and don't report it, it is extremely unlikely the IRS will ever go crazy trying to trace it to beneficiaries.

by TaxTrollEAreply 1402/13/2013

[quote]I filed 1040ez in the past, making only about 20k a year. However, the new job (waiter) i had last year paid me off the books. I know that if you make over $400 as a independent contractor/self employed, you have to file. I was asked for a w9 by my boss. What tax forms do I have to file this year? I take the subway to work, how do i take deductions for that ($500)?

Let me answer the last question first: Commuting to your job, whether by subway, car or limo, isn't deductible.

Technically, a waiter working in a specific restaurant is - by definition - an employee, since he or she can't possibly satisfy the rules to NOT be considered an employee. That means your employer should have withheld taxes and issued you a W-2.

One option: You can turn in the employer to the IRS (which means you likely won't be working there anymore, and he can badmouth you to his fellow restaurant owners), by filing Form SS-9, answering the questions about your work for him, and asking for a ruling. In the interim, you'd report the gross pay you received as wages, and also file Form 8919 to pay the employee portion of the Social Security and Medicare taxes (5.65% for last year) you should have had withheld.

If you don't do what I said above, you would need a Schedule C and Schedule SE to report your income on Form 1040 as well as compute the self-employment tax (which comes to 13.3%, more than twice the amount above) in lieu of SS and Medicare tax.

Either way, YOU can't get in trouble here: the employer is the one with the problem.

by TaxTrollEAreply 1502/13/2013

Hi Tax Troll, Twice now I have initially worked as an independent contractor for a three month contract in which I was pretty much forced to change my filing status from a 1040 to a W9, meaning I would not withhold my own taxes. I was told by one employer I needed to incorporate with the state of California to file a 1040 (which sounded erroneous and shady - I didn't argue). The next employer sort of whined and begged, saying everyone else who works there files a W9, although no one was a full-time hire and no one received benefits, I believe. I know I didn't. I want to handle my own taxes and feel like I am being forced to file a W9 although I am short-term, freelance. I don't want to file a W9 as I owe on a student loan and the gov't takes the refund and I never see it!

by TaxTrollEAreply 1602/13/2013

Thank you so much for your reply! Much appreciated!

by TaxTrollEAreply 1702/13/2013

R17, you have LOTS of misconceptions in your post, and I strongly suggest you get the help of a local knowledgeable tax professional.

1. 1040 and W-9 are tax forms, not a filing status. And neither has anything whatsoever to do with determining if you are an employee or independent contractor.

2. Nothing in tax law ever requires an individual to form a corporation. If you did this in CA, you would be enduring a ridiculous amount of paperwork, paying yourself as an employee, paying unemployment taxes in case you ever fire yourself, and even a $800 annual corporate fee. I can understand why the employer wanted you to do that, since if you were your corp's employee, they could hire your corp and not face IRS challenges that you were THEIR employee ... which saves them lots of money and benefits.

3. Again, a W-9 DOES NOT determine that you are an employee or not. (There is a Form SS-8 you can file with the IRS for that determination. It takes time. And it likely could result in the employer being audited.) And whether or not you are an employee has absolutely nothing to do with whether you are full or part time, temporary/seasonal or "permanent" help.

Again, you should NOT be doing your own taxes, with all of those misconceptions spinning around in your head. You can dig yourself into a hole you'll never be able to get out of.

by TaxTrollEAreply 1802/13/2013

Sorry ... response above was obviously for R16, not R17. :)

by TaxTrollEAreply 1902/13/2013

Thanks for the tuff love - R16 here. Actually my contracted employer claimed I had to register as a corporation here in California if I wanted to do my own taxes - they seemed vested in having me file a W9. With the other client, I filed the W9 as asked, although I would have liked to keep the extra money withheld as tax. I definitely don't do my own taxes.

by TaxTrollEAreply 2002/13/2013

Thank you so much, Tax Troll. U R the best!

by TaxTrollEAreply 2102/13/2013

This is a tax question for next year...

I just started a new, second job. Both jobs combined, I will be making under $20,000.

At the first job, I have one exemption for federal and state. At the new one, which pays a little more, I put zero for both because I had heard there could be tax issues of not having enough taken out with two jobs. Is this right? Should I change my exemptions at the first job to zero as well?

I file a single return with no dependents.

Thanks.

by TaxTrollEAreply 2202/14/2013

[quote]my contracted employer claimed I had to register as a corporation here in California if I wanted to do my own taxes - they seemed vested in having me file a W9. With the other client, I filed the W9 as asked, although I would have liked to keep the extra money withheld as tax.

Again, a W-9 filing DOES NOT determine that you are an independent contractor. It is simply a form payors use to get your Social Security number for reporting purposes, as an employee (in lieu of W-4), non-employee or vendor. Filing it did NOT bind you to be an independent contractor.

As I explained, that employer who said you needed to incorporate was obviously doing that to safeguard himself from the IRS contending that you were his employee (You'd instead be an employee of your corporation.) Glad to hear you didn't fall for that.

by TaxTrollEAreply 2302/14/2013

[quote]At the first job, I have one exemption for federal and state. At the new one, which pays a little more, I put zero for both because I had heard there could be tax issues of not having enough taken out with two jobs. Is this right? Should I change my exemptions at the first job to zero as well?

Let me explain what all those ones and zeros represent.

You are entitled to a standard deduction (currently around $6,000 as a single person) and a personal exemption (around $3,900 for yourself and anyone you can claim.) For withholding purposes, you claim withholding "allowances" which are based on the number of people you claim +/- adjustments for excess itemized deductions, tax credits and other variations from the standard "one job, standard deduction" norm that the withholding tables were designed to accommodate. So, when you claim "Single, 1" you are telling the employer you are entitled to receive - free of tax - the first (apx) $9,900 you earn (sum of personal exemptions and standard deduction). They'll work your withholding based on you being able to subtract this sum from your taxable income.

If you have two jobs and claim zero on the second, you may be short, since the employer is still assuming you can receive about $6,000 free of tax ... but you only get ONE standard deduction, which you used up with the first employer. In a 15% tax bracket (which it appears you are in, for federal), that could make a difference of about $900 in tax.

The good news is that there is some "leeway" included in the withholding tables, to allow for things like small amounts of interest income. If you don't have ANY other sources of taxable income, the amount you owe (claiming single zero on the second job) will likely be way under $900, especially if you only had the second job for part of the year.

But if you want to be on the safe side, I'd change withholding on your first job to Single zero as well, which should cut any shortfall by about 2/3rds.

Alternately, you can look at your withholding, and do a tax projection for yourself, annualizing the withholding amounts and using a 2012 form and rates to approximate what 2013 may look like. Then, for example, if you see you will owe $600 at the end of the year, you could adjust your W-4 withholding on your "main" job to have an extra DOLLAR amount withheld each paycheck, which could make up that difference. The IRS also has a withholding calculator on its website which can help with that.

by TaxTrollEAreply 2402/14/2013

Thanks TT. I think I'll change it to zero at both jobs to play it safe.

Good lord, there has to be an easier way to do this, especially for people making hardly anything at two jobs! Ugh. Single people really get screwed with taxes. I was looking at the EITC and couldn't believe the difference one child makes. It's something like a $13000 income limit to qualify if you're single and a $36000 limit if you have one kid. Ridiculous! *end rant*

by TaxTrollEAreply 2502/15/2013

Bump for tax time...

by TaxTrollEAreply 2602/16/2013

Just a "heads up" on a situation I see at least once or twice a year, when I get a new client who was not aware of some of the unique tax situations in which a gay or lesbian couple may find themselves. This includes many who used a tax preparer, but the person wasn't informed of such matters either.

Couple came in today to have their returns done. Since W-2 forms now show amount employer pays for your medical insurance (NOTE: It is NOT taxable, just an information entry!), I saw that one of them had nothing and the other had a very high amount. I asked, and they confirmed that one of them (who made twice as much money as the other) received domestic partner medical insurance for her partner. I had her download a year-end checkstub, and confiremd that she had paid - through amounts taken out of her check plus other amounts paid by her employer (and charged to her as income) - a total of just under $8,000! She was amazed to learn that, since they met the criteria for her partner to be considered a dependent for medical purposes, she could DEDUCT this amount as a medical expense on Sch A, along with any other medical bills she paid on her behalf (There were a few). The tax savings on her federal and state returns were over $2,300, and I am amending her two previous returns to do the same thing. Final total refund will definitely be over $5,000.

Reviewing again: Even though someone may earn too much to be claimed as your dependent on your return, you can consider them a dependent for MEDICAL purposes ONLY, if they would otherwise qualify if not for income. (In a nutshell, partner must be a US citizen or legal resident, not be married to anyone else, live with you all year, and you provide MORE than half of their total support for the year.)

Note: This won't work for a registed domestic partner (RDP) in CA, WA or NV, or a same-sex married couple in CA, due to community property allocations required on federal returns. Likewise, this can't be done if the employer's plan is SELF-insured (i.e., employer pays medical benefits directly), rather than through a commercial insurer.

by TaxTrollEAreply 2702/16/2013

I am mainly an actor, and voice-over artist, although I do have side jobs that are about one-third of my income. These tend to have only one or two work days per pay period, so the deductions are very small. I also this year got a 1099 for $5,000 for some narration gigs I did. I really want to just throw that 1099 in the trash, as I used all of the money for basic living expenses. Why do they need me to report all my income paltry as it is, if they already KNOW how much I make and how I made it!? My possible itemized deductions are also meager and come nowhere near the standard deduction. Grrr. Do people get caught under-reporting 1099 income when they have most of their income on a bunch of various payroll services?

by TaxTrollEAreply 2802/17/2013

R28, our far-from-perfect tax system is essentially one of "self-reporting," as are MOST income tax systems in the world. The alternative would be a "Big Brother"ish nightmare in which every dime someone makes, including kids who mow lawns or deliver newspapers, would require reporting to the feds, with frequent visits from "The Tax Man" to make sure everyone is complying. Nobody wants that either.

The concept is simple: The laws define what is NOT income, and you report everything else you receive during the year ... whether or not it is reported to you (and the feds) on a W-2 or 1099-series form. To intentionally not report something you have made can be prosecuted as a felony (if it results in a substantial difference in tax). But the IRS doesn't want to arrest people, and that power is used sparingly, simply to coax (scare) them into compliance with the reporting rules.

IMO, if you don't report something that was reported to you on a 1099-MISC, you're foolish, as you absolutely WILL get caught. In the past, it has sometimes taken the IRS a year or two to match up the forms and realize what you didn't report, but they're in no hurry, aince they can charge you interest and penalty up to the day you pay. Your future refunds are put on hold, and - with notice to you - they can levy your bank account, garnish you income from other sources, and place a lien on real estate or titled property (like a car) you own. You can't even discharge federal income taxes in bankruptcy, except in very limited situations.

FYI, the new MeF (Modern E-file) program that the IRS now uses to process e-filed returns was designed to speed up matching of tax returns with payor 1099 forms. It is eventually planned that tax returns will be screened for compliance with income that has been reported under your SS#, in real time while the return is being transmitted to them, and they'll reject any return missing reportable income. There are signfiicant bugs to be worked out, including the fact that most people file early, but 1099 forms aren't sent to the IRS until late Feb.

My advice is to include all reported income on your return. The income tax and self-employment tax on the $5,000 may be able to be reduced, somewhat, by taking legitiamte expenses related to earning that income, on the Schedule C on which you report such income.

by TaxTrollEAreply 2902/17/2013

Troll

What's the best way to hide assets from my wife in our divorce?

by TaxTrollEAreply 3002/17/2013

Hey Beloved Tax Troll

My question is about tax liability on accrued interest paid in connection with a life insurance death benefit.

In 2012, I received a very small death benefit on a previously unknown life insurance policy on my mother, who died in 1970. I know that isn't taxable, but the payout included >$5,000 in accrued interest. I assumed that was taxable as ordinary income, but have received no statement (1099-INT?) from Prudential indicating that it's reported, only Form 712 reporting the death benefit.

Is the interest taxable?

TIA and smooches.

by TaxTrollEAreply 3102/17/2013

Tax Troll...have they announced yet when they'll accept the depreciation forms? We did our taxes 3 weeks ago and they're still just sitting there.

by TaxTrollEAreply 3202/18/2013

R30, sorry ... not a tax question.

by TaxTrollEAreply 3302/18/2013

R31, the interest is reportable and taxable, whether or not they issued you a 1099-INT form. (Sometimes they just disclose the interest on an other paper they send you, and include words like "This is in lieu of Form 1099-INT") Likely they did report it to IRS.

by TaxTrollEAreply 3402/18/2013

R32, of the forms that had been delayed, the IRS has announced that they are currently processing rgese previously-delayed forms:

4562 Depreciation & Amortization 8863 Education Credits

There are no dates set for any other form, though the IRS says that all will be available by the end of the first week in March.

by TaxTrollEAreply 3502/18/2013

TaxTrollEA,

I am curious - why the delay in some of these forms?

I know, it's the Government. But shouldn't they be prepared by filing time?

by TaxTrollEAreply 3602/18/2013

[quote]I am curious - why the delay in some of these forms? I know, it's the Government. But shouldn't they be prepared by filing time?

As I explained in earlier posts, the forms delayed are those that were affected by retroactive changes made by the "cliff legislation" ... the bill that Congress didn't get around to passing until Jan 2, 2013, which largely affected LAST year's taxes. Usually, the IRS has their computers ready to take on tax returns by Oct or Nov before tax filings starts, but had to make changes for the forms that became obsolete due to the late legialation (This is a two part process: first, the forms themselves must be drafted, then their computer systems must be programmed to handle the revised forms.)

That said, it is a bit ridiculous for the IRS to claim they need up up to two and a half MONTHS to make the necessary changes. With some effort, they likely could have done this all by the end of January. It's more likely there are POLITICS at work here, as they are claiming that budget cuts have made them unable to function as efficiently as they should.

by TaxTrollEAreply 3702/18/2013

My friend is having a hard time getting disability which she certainly qualifies for. She also hasn't filed her taxes in 8 years. She of course wants to pay this off (altho many years if not all she would've gotten a refund). Should she just go to an attorney to get the disability checks and pay it off that way? How should she even approach the IRS? Besides with her tail between her legs?

by TaxTrollEAreply 3802/18/2013

[quote]Should she just go to an attorney to get the disability checks and pay it off that way? How should she even approach the IRS? Besides with her tail between her legs?

The IRS is actually quite cooperative with people who have not filed for years ... but are coming forward to do so. And that is especially true if there are entenuating circumstances, which her disability situation likely would be. They'll provide printouts showing what income was reported by payors, provide blank forms and instructions, etc. She may even qualify for a free tax prep program in the community. I'd suggest she contact them ASAP.

It's sad that many people with justifiable disabilities must resort to hiring an attorney to get the Social Security Disability they are entitled to get. The fees are not cheap, and may or may not be tax deductible, depending on the individual's tax situation. But it is often the only alternative out there.

by TaxTrollEAreply 3902/18/2013

R36 here again. I did my taxes per usual with with Taxactonline. Since these changes were so late, is the software current?

by TaxTrollEAreply 4002/18/2013

R40, I have no way of knowing anything about your software or online filer. Ask them.

by TaxTrollEAreply 4102/18/2013

Quick question for next year:

I keep seeing this when I look up how the health insurance mandate is going to work.

"tax credits would be provided for the purchase of insurance through an exchange"

I will make under $20,000 this year and for the forseeable future unless my pot of gold shows up. I make too much to get on Medicaid and the quote above is what they use to explain what will be required of those who make between 150-450% poverty level but I don't understand it.

Even if they credit ALL of my income taxes back to me, it still won't be enough to cover the health insurance policies I've seen. Is that what they mean by 'tax credits' or will they actually be giving me more money back like the EITC now?

I just have a feeling I'm going to get really screwed because I make barely over the 150% poverty level. Do you have any insight into this?

Thanks.

by TaxTrollEAreply 4202/19/2013

R42, there are no current answers to your question, as these "insurance registries" willbe a combination of federal and state organizations, most of which will be operational by Oct 2013, to provide coverage starting in 2014. Whether you sign up by state or fed, the credit available to low income taxpayers is supposed to be through the feds, but there is no framework currently in place for that.

Likely, this will work kind of like the Earned Income Tax Credit does on federal taxes ... possibly even be an addition to that very program. And under the EITC, taxpyaers can get a credit that not only zeros out their tax for the year, but actually refunds MORE than that, returning to them considerably more than they paid in. There is also a way that those who are sure they will be entitled to these payments can request their employer pay them an advance during the tax year, which the employer claims credit for with the IRS, and then the advances are subtracted from the amount due to the taxpayer at the end of the year.

The exact framework as to how this will work will have to be hashed out by Congress this year. Fingers crossed.

by TaxTrollEAreply 4302/19/2013

Thanks Tax Troll, she will be relieved to hear the news. 78//

by TaxTrollEAreply 4402/19/2013

Thanks, TT. I just can't seem to get ahead to the point that I'm already worrying about 2014! Semi-poverty sucks just slightly less than full poverty.

by TaxTrollEAreply 4502/20/2013

R22 LOL time to get a better job. It takes more than $20,000/year to make it in NYC.

by TaxTrollEAreply 4602/20/2013

R46, I'd rather live in a sewer than live in New York, so thanks so much for the input. I really feel sorry for people like R46. Imagine what their lives must be like when they have to try to shit on people anonymously on message boards to make themselves feel good.

TaxTroll, what's up with the 1040 instruction books? It's the most commonly used form, right? I wonder how much interest the government is making on the money that should have been being refunded right about now. Bastards.

by TaxTrollEAreply 4702/21/2013

[quote]TaxTroll, what's up with the 1040 instruction books? It's the most commonly used form, right? I wonder how much interest the government is making on the money that should have been being refunded right about now.

Not sure what you mean by the above. There's nothing new/unusual about the 1040 instruction booklet.

There are only really two things unusual about this filing season:

1. Delay in certain forms. Not really the IRS' fault, but because Congress did not see fit to address 2012 tax laws until the very last minute, actually passing the bill retroactively on Jan 2, 2013. IRS needed time to revise the forms that had released in Oct, and then more time to re-program their computers to handle the changed forms. As I mentioned earlier, there is some procrastination involved in the latter, and I *do* fault them on that. They should have been able to complete the job on all forms by now, but there are still over a dozen that they say may not be available for processing until mid March.

2. Conversion to MeF (Modern E-File). They've been testing this new processing platform for at least five years, and have had problems with it, but made the decision to roll it out 100% this year, having scrapped the old (Legacy) system. Of course, there were growing pains as problems arose early on, complicated by the fact that some forms were not available, and this significantly delayed returns filed in January, and up to about a week ago. (States also had problems, since many of them "piggyback" on federal files, so had to learn to process the new formats.) However, as of now, MeF is delivering processing significantly faster than the old system (I used to have to wait 12-24 hrs for acknowledgements, and now I get them within about 30-60 minutes!), and refunds are also going out faster, with direct deposits and checks mailed three times a week, instead of the old weekly schedule. I've had clients get their direct deposits in as little as four days after their return was accepted!

If you filed earlier in the year, and did NOT have any of missing forms in the return, you can check the IRS website at the link below. It has a utility that will look up the status of your return.

by TaxTrollEAreply 4802/21/2013

TT, there are no 1040 instruction books anywhere, even at the IRS office. I work in a library and everyone keeps asking us. The 1040 EZ and the 1040A forms and booklets are available but no 1040s.

by TaxTrollEAreply 4902/22/2013

[quote]TT, there are no 1040 instruction books anywhere, even at the IRS office. I work in a library and everyone keeps asking us. The 1040 EZ and the 1040A forms and booklets are available but no 1040s.

Actually, they do exist, but they came out late (1040 instr came out mid Jan, and one including the various schedules didn't come out till the end of the month) due to the changes that Congress passed Jan 2. People can call 1-800-TAX-FORM to have them mailed to them.

Or you can access or print them out online. See link below.

by TaxTrollEAreply 5002/22/2013

Suggestion for those doing their own returns, or looking to file the most "EZ" return that will do the job ... Make sure the "EZ" choice doesn't turn out to be more expensive, in terms of paying more taxes than you have to pay!

Had a new client this past week, who had called for a fee quote on "Just the EZ forms." When she came in, I saw that she also had a 1098-T (Tuition statement) that she didn't intend to do anything with, because she wanted to file the EZ form, which doesn't accommodate the education credit or deduction. Heeding her insistence that she would only pay for an EZ form, I did that form, but also put in the education info to see what would happen if she instead filed a 1040EZ with an education credit form. I then told her she could either file the EZ forms she had requested, and get back about $300 ... or she can pay abut $20 more in fees to me and file a 1040A with the credit form, and get back $2,300. Funny, she decided the EZ wasn't such a good choice after all. :)

by TaxTrollEAreply 5102/24/2013

I have a question. I owe a hundred dollars and don't want to pay it.

Can I just take charity deductions, till I get down to zero owed? Or like where I owe one or two dollars?

Do you think they'd catch on?

by TaxTrollEAreply 5202/24/2013

[quote]I have a question. I owe a hundred dollars and don't want to pay it. Can I just take charity deductions, till I get down to zero owed? Or like where I owe one or two dollars? Do you think they'd catch on?

Charity contributions can be claimed ONLY if you file a Federal 1040 with Schedule A, and your itemized deductions exceed your standard deduction (which is $5,950 for a single person for 2012. So if ALL you have is a few charity donations, and no medical (over 7.5% of your AGI), state and local taxes, real estate tax, mortgage interest or (over 2% of AGI) employee or investment expenses, you won't make a difference in your tax.

Also, be aware that, if you are audited, you must be able to "document" any deductions you claim. This doesn't necessarily mean you need a receipt for everything (but do, for charity donations of $250 or more, and the receipt must also state you didn't get goods or services in exchange for your donation), but - in the very least - have a written record of the name of the charity or church, date on donation and amount.

If you did your return on your own, on paper, I'd suggest you try it online or with tax software, and see if they come up with suggestions you may have missed. Similar to the last reply I added, sometimes people overlook credits or deductions that can significantly reduce their tax, in their haste to "get it over with" and file a simple return.

by TaxTrollEAreply 5302/24/2013

BUMP for more tax questions!

by TaxTrollEAreply 5402/26/2013

Surprised this thread is so quiet! :)

If any of you have tax-related questions for me, please add to this thread rather than start a new one. Thanks!

by TaxTrollEAreply 5503/01/2013

TaxTrollEA

what type of caftan should I wear when I visit my accountant today, the floral one - it's almost Spring! or a more winter-styled one?

by TaxTrollEAreply 5603/01/2013

[quote]TaxTrollEA what type of caftan should I wear when I visit my accountant today, the floral one - it's almost Spring! or a more winter-styled one?

The tshirt at the link would be perfect. Buy it big enough to wear as a caftan. :)

by TaxTrollEAreply 5703/01/2013

Hi, TT. This is R12 again. Thanks for your earlier help. I have another estate-related question. I inherited my sister's house. In 2011 (the year of death), it was owned by the estate until 12/31 (the close of probate; I asked the attorney to make it on that date so that I wouldn't have to deal with rental income on two different tax returns for 2011.) It was rented from August through December of 2011; the rental income and expenses were reported on the estate's 1041.

The house was mine for all of 2012, and was rented for the full year. I know how to prepare a Schedule E and everything is fairly straightforward except for one thing: I know I should begin with the partially depreciated basis from the 2011 estate tax return (i.e., the FMV as of the date of death minus the depreciation claimed on the 1041), but I'm not sure how to show that on my 2012 return. It was not really placed into service in 2012, but I didn't have it in 2011. What's the least confusing way to show this?

Thanks again for your invaluable assistance!

by TaxTrollEAreply 5803/01/2013

R58. assuming you were your sister's primary beneficiary, you can take the position that the estate was just holding it for you. Simply pick up the figures as they were reported on the 1041 ... both the cost basis and previous depreciation. Show it as placed in service in 2011, which is the case.

In the odd event it gets questioned (I've never heard of that happening), you explain it exactly the way you did here.

by TaxTrollEAreply 5903/01/2013

Hey Tax troll,

When can we do our taxes if we have mutual funds? They said we should wait to make sure they are correct? When do we have to wait until?

by TaxTrollEAreply 6003/01/2013

Tax Troll, I had a car accident in 2012 that totaled my car. No insurance. Can I claim this as a loss?

by TaxTrollEAreply 6203/01/2013

[quote]When can we do our taxes if we have mutual funds? They said we should wait to make sure they are correct? When do we have to wait until?

Check with your broker or the mutual fund family. In many cases, I am seeing statements marked by them as "final" ... meaning that any adjustments have already been made. Most are already at this point but, if you want to be super-sure you won't get "corrections" later, March 15 is probably safer.

And, speaking of mutual funds, a reminder to anyone in invests in them to be sure to save the year-end enclosures that they send you, showing the percentage of income that comes from US Treasury obligations ... those are usually tax-free on your state return, but require a computation. And if you invest in municipal (tax-free) obligations, check with your state on what might be taxable on the state return (In AZ, we are taxed on any muni interest that doesn't come from AZ or a US possession such as Puerto Rico, Virgin Islands, or Guam.)

by TaxTrollEAreply 6303/02/2013

[quote]I had a car accident in 2012 that totaled my car. No insurance. Can I claim this as a loss?

Are you saying you didn't have ANY insurance, or just not collision coverage that would fix your car.

If the latter, an auto accident would qualify as a "casualty" for reporting on Form 4684, but ONLY if you were NOT the one at fault. If you caused the accident, it's not something that was "beyond your control," so no deduction.

Before you look at the form, let me also point out that Form 4684 computes the deductible portion, which is the difference between the value of your car before AND AFTER the accident (NOT necessarily the cost of getting it fixed!), then subtracts from that 10% of your adjusted gross income and subtracts another $100. You also have to subtract any insurance settlement you did receive from your own or the other driver's policies (Or, you COULD have received if you had reported it.) Only the end result of all this actually goes to Schedule A, and you need to itemzize in order to claim it. So it may not make a difference. Sorry.

by TaxTrollEAreply 6403/02/2013

We seem to have given the "thread Watcher" a nervous breakdown!

For the past several days, it keeps telling me there is a 65th reply here, but there were just the 64 I saw last time. Wonder if it will count this as #65 or #66? :)

Anyhow, if any of you have questions while doing your taxes, feel free to post here, and check back the next morning for a response.

by TaxTrollEAreply 6503/04/2013

Hi TT! I checked out my local unclaimed funds website and found that my deceased mother had two accounts. I'm filling out the paperwork and one paragraph stopped me. The form is called "Small Estates Affidavit" and there's this statement: "In consideration of the payment of this claim, I will reimburse to the office of the state comptroller the amount due to any additional persons who are entitled to these funds".

I know my mother had some issues with money (divorce, non-filing of taxes for some years). Does that statement mean that if the IRS/creditors is owed money by my mother, that I'm taking responsibility for it and will be obligated to pay her debts or will they take the funds that were unclaimed?

by TaxTrollEAreply 6603/05/2013

I stopped working in 2008 and never filed my taxes, as I usually get a refund, I didn't worry about it too much. I received unemployment benefits in 2009, and found out that I had to pay taxes on it. I pushed everything into a drawer and forgot about it.

I went to get everything squared away this year. The preparer did my 2008 return and found that I was entitled to $2K refund but also owed about $3k in 2009 taxes, penalties and late fees. She also dropped the bombshell that there is a 3 year grace period on refunds and that I probably won't receive credit for the 2008 $2K amount. She said there are always exceptions though.... What do you think the chances are that I'll get credited for 2008?

by TaxTrollEAreply 6703/05/2013

R66, sorry, but that is a legal issue, unrelated to taxes. You need to ask an attorney.

by TaxTrollEAreply 6803/06/2013

R67, the IRS generally is very strict about the three year statute of limitations (FYI, some states have longer periods for their income tax, such as my home state AZ has four years. If you are filing a state return showing a refund, you might be entitled to that, depending ...)

The only times I have seen the IRS waive the statute for late filing is when it is very clear it was not the taxpayer's fault (due to illness, being out of the country for several years, getting grossly wrong info from a professional you hired who told you to file so late, etc.) Since none of those apply in your case, I think you're just out of luck here.

If I was your preparer, I'd prepare the 2008 return showing you wanted the overpayment "applied" to 2009. Then I'd file the 2009 return about two weeks later. Technically, the IRS should refuse to apply the 2008 overpayment ... but the IRS is having a really BAD year, and anything is possible. Good luck! :)

PS: Realize that the statute on the 2009 return will expire 4/15/2013. Your return must be RECEIVED by the IRS by that date (not just have it postmarked), or you'll lose any refund for that year as well.

by TaxTrollEAreply 6903/06/2013

I will bump a few times if you are not.

The IRS withheld my tax return because I had missed filing for one year.

It was a year I was essentially unemployed. I picked up a few jobs, had about 6 1099's but precious little income.

I had done a turbo EZ for free and something went wrong when I tried to e file.

I ended up moving for a real job and cannot locate the 1099's or W-2's.

I know your employer can provide them.

The problem.

I don't remember who my employers were.

I signed up with a ton of temporary services and cannot recall who gave me the work.

I have a paper copy of the return ( no idea what happened to the other forms) but the paper copy was missing information. I was married at the time and did not have my wife's SS number, and could not locate her so that must be why I never filed, or it did not go through.

Is there any way to file...big return this year being held up because of the not filing that year.

by TaxTrollEAreply 7003/10/2013

[quote]When can we do our taxes if we have mutual funds? They said we should wait to make sure they are correct? When do we have to wait until?

First of all, let's explain why it is often a good idea to wait: Most mutual funds invest in stocks, receiving dividends on behalf of the taxpayers who buy shares of the mutual fund. But many companies that issue stock don't classify distributions until the early part of the following year, after they see their financial results. They may consider part of the distributions to be a (nontaxable) return of capital, or somthing other than an ordinary, qualified or capital gain distribution. It also takes time, in some cases, to determine whether a dividend is "qualified" (for preferred tax treatment) under federal tax law.

Most mutual funds are able to take care of this in a month to six weeks, which is why the IRS doesn't require they report 1099DIV info to shareholders until Feb 15th. But some may take longer, and should specifically notify you if information they sent is subject to change.

If you have been advised that the classifications may change, the choice is yours as to whether you will file now (and possibly have to amend, if the eventual changes have a material effect on your tax liability) or wait until they say their results are "final."

So there is no "one size fits all" answer to your question. You are best calling the mutual fund company and asking them if they anticipate any changes.

by TaxTrollEAreply 7103/10/2013

R70, you can call the IRS (1-800-TAX-1040) and request a printout of your payor statements for the year in question. Figure this will take at least 4-6 weeks (Meanwhile, file an extension for your 2012 return). They won't actually send you 1099 or W-2 forms, but they will send you a listing of who sent in reports that they paid you income, how much it was, and what form it was reported. It will include federal tax withheld, but not state tax. You can then contact each payor and ask them for a copy of the original statement, if you need one.

Keep in mind that, if you worked for someone as a non-employee (income reported in Box 7 of Form 1099-MISC), that is subject to both income tax AND the separate Self-emoloyment tax. The latter kicks in on only $400 of such income, so you could owe SE tax, even if you made too little for income tax.

Also, unemployment compensation is taxable, on federal returns.

If you worked as an employee, and had taxes withheld, for part of the year, it is more likely that they overwithheld for that shorter period of time, so you could have an overpayment coming. But be careful: If you file MORE THAN 3 YEARS after the due date of that year's return, the IRS gets to keep the overpayment.

by TaxTrollEAreply 7203/10/2013

Dear Tax Troll:

I refinanced my home with a Harp loan last year. Didn't pay any points, and not a whole lot in fees. Is there anything from that refinance I can deduct from my taxes this year?

Second question - I was paid directly for some contract work, no taxes were deducted. I'll be getting a 1099 (if I can pry it out of the employer - he says a copy of the check is good enough). I assume the income goes on line 21 of the 1040 form, but what do I put down for "type"? What sort of wording are they looking for? There's isn't room for more than a couple of words - is "contract work" good enough? It was voice-over work - should I write that? Any suggestions?

by TaxTrollEAreply 7303/10/2013

[quote]I refinanced my home with a Harp loan last year. Didn't pay any points, and not a whole lot in fees. Is there anything from that refinance I can deduct from my taxes this year?

Refinancing your personal residence doesn't give rise to any deductions, with the possible exception of prorated taxes paid at closing (deductible in full in year paid) and any "points" (loan origination fee and/or loan discount). The latter can't be deducted in full on a refi, but can be amortized and deducted over the life of the loan (Example: 30 years, you get 1/360th per month to claim.)

[quote] I was paid directly for some contract work, no taxes were deducted. I'll be getting a 1099 (if I can pry it out of the employer - he says a copy of the check is good enough). I assume the income goes on line 21 of the 1040 form, but what do I put down for "type"? What sort of wording are they looking for? There's isn't room for more than a couple of words - is "contract work" good enough? It was voice-over work - should I write that? Any suggestions?

Your "employer" (not really accurate, since you aren't an employee) is correct that he doesn't have to issue you a 1099 if the amount is under $600. Otherwise, he does, and it will likely be shown in Box 7 of Form 1099MISC as nonemployee compensation. That means you are consdiered self-employed with respect to that income, which means you have a duty to keep track of what you are paid and report it on your return, whether OR NOT you get a 1099 form.

It also means you are subject to BOTH income tax AND the separate self-employment tax (13.3% for last year, computed on Schedule SE.) There is no SE tax if your total self-employment income is under $400 (not just from one place you worked, but in total.)

Line 21 is where you'd report the income, unless you had some expenses of earning it (No, you can't count commuting to the place where you worked.) ... in which case you would use Schedule C, and only the NET amount would carry to Schedule SE. For some ideas of what is deductible, look at IRS Pub 334 at irs.gov.

by TaxTrollEAreply 7403/10/2013

I received a royalty check (for a commercial done and paid for several years ago) in the four figure range. The originating agency sent a check for the gross amount to my agent, who deducted their 10% commission and sent me a check for the balance.

This was a one-time thing. Do I report this using Schedule E? And do I write the gross amount on line 4 then deduct the commission my agent took on line 8, or do I just put the net amount on line 4? Or should I use a different schedule altogether?

by TaxTrollEAreply 7503/11/2013

Hi,Tax Troll!

Long time reader; first time poster.

My brother is doing some work for a company. He grossed just over $3k in 2012 and received a 1099 form. The wages were reported to the IRS and I (e-filing for him) reported the income. The income was reported in Box 7 but I told my brother to talk to the guy he does the work for and have him move to Box 3 (I think, can't remember). My brother has a full-time job at another company so he's not self-employed. Is he subject to the SE tax? Did I file the form incorrectly?

by TaxTrollEAreply 7603/11/2013

[QUOTE]I received a royalty check (for a commercial done and paid for several years ago) in the four figure range. The originating agency sent a check for the gross amount to my agent, who deducted their 10% commission and sent me a check for the balance. This was a one-time thing. Do I report this using Schedule E? And do I write the gross amount on line 4 then deduct the commission my agent took on line 8, or do I just put the net amount on line 4? Or should I use a different schedule altogether?

Schedule is used for extraction royalties (oil, gas, timber, etc.) What you have is a "creative arts" royalty, which gets reported on Sch C. Show the gross amount and the amount retained by the agent as an expense. The resulting net, if over $400, is also reportable on Schedule SE for self employment tax purposes.

by TaxTrollEAreply 7703/11/2013

[quote]The income was reported in Box 7 but I told my brother to talk to the guy he does the work for and have him move to Box 3 (I think, can't remember). My brother has a full-time job at another company so he's not self-employed. Is he subject to the SE tax? Did I file the form incorrectly?

Yes, you did.

If you seek out work and provide services to someone, and not as an employee, you are - by definition under tax law - self-employed. Having a "full time job" doesn't change that.

by TaxTrollEAreply 7803/11/2013

Dear Tax Troll,

Why can't I get my TD Ameritrade info to import to my H and R Block return? I was able to get other companies to import but TD just won't go through...any ideas?

by TaxTrollEAreply 7903/12/2013

[quote]Tax Troll, Why can't I get my TD Ameritrade info to import to my H and R Block return? I was able to get other companies to import but TD just won't go through...any ideas?

Sorry, but TaxTrollEA is not also "Tech Support Troll." I have no clue on techy matters. That's why I hire techy folks when I have computer issues.

Sorry.

by TaxTrollEAreply 8003/12/2013

If I have gas and really, I mean REALLY have to relieve my self at the tax audit, should I?

by TaxTrollEAreply 8103/12/2013

[quote] If I have gas and really, I mean REALLY have to relieve my self at the tax audit, should I?

Best go before your audit appointment.

Then again, if you shit your pants DURING an audit, the auditor would likely consider it a compliment to his ability to intimidate taxpayers. :)

by TaxTrollEAreply 8203/12/2013

Is there any reason that my federal withholding would have gone up by over 1.5% in the first March pay period? Nothing changed on my end.

I'm single and have 0/0 for both federal and state (because it's a second job) and make a bit over $400 every two weeks.

I basically just got a 1.5% tax increase in federal withholding and was told it was due to new tax tables for March. What's going on?

Thanks.

by TaxTrollEAreply 8303/15/2013

R83, first of all, I'm assuming you really mean federal withholding tax, and not Social Security, which we know went up 2% this year after the expiration of the temporary decrease in that tax.

Federal income tax is not based on a flat percentage, but an annualization of what the computed, graduated income tax would be on your wages, then divided by the number of pay periods involved. In other words, if you make $XXX every two weeks, the tax tables figure 26 times that $XXX, subtracts your standard deduction as a single person, subtracts the amount for the number of exemptions (withholding allowances you claimed on Form W-4) and then computes the federal income tax on the remaining income. It then divides this tax result by 26 to find the biweekly amount to be withheld.

Therefore, any of these variables can result in an increase or decrease in tax. For 2013, most people won't see any significant increase in federal tax, unless they are in the 35 or 39.6% marginal rates (that's taxable income OVER $183,250 for a single person.) If that is your situation, then that is the reason why: the temporary suspension of those higher tax rates has expired, and Congress allowed the higher rates to come back, although at a higher income level than they were during the pre-GWBush era.

If your earned income will be over $200K, there is also the new .9% Medicare surtax which employers are supposed to withhold. However, since Medicare for most people is a flat 1.45%, some employers might show that additional federal withholding, which is allowed but not entirely correct.

For the average (under $183,250 of taxable income) wage earner, federal income tax may actually go down a bit (unlikely more than 1%) due to the higher standard deduction (up $150) and personal exemption (up $100).

by TaxTrollEAreply 8403/15/2013

In 2012, my employer gave each employee $1000 for health care (in addition to health insurance coverage). I also asked them to withhold $2500 from my pay for an FSA account to pay for prescriptions, co-pays, etc.

I used all of the funds--except for $56--by March 20, 2012 which was my last date of employment.

My ex-employer says I must either pay them the almost $3500 or they will include that amount on my W2 for 2012. I was going to take the hit, but heard part of a discussion on this sort of thing on NPR--that a person can use all of their FSA funds, leave employment, and not owe the employer.

I tried looking it up on the IRS site, but...I am very confused. The correct amount would mean either a nice (but not sizeable) federal and state refund or a federal and state tax payment.

Help, Tax Troll EA!!

by TaxTrollEAreply 8503/17/2013

R85, your question is one of law, not taxes.

When you elect to participate in an employer plan, such as an FSA, your rights depend on the exact provisions you agreed to by making that election. While federal employment law does somewhat limit what an employer can/can't do, within a qualified employee welfare plan such as this, there is no "one size fits all" answer to your question.

I'd suggest that - perhaps with the aid of an attorney, if it is the only way they'll listen - you insist they provide IN WRITING the governing provision to the plan that allows them to do what they are saying they will do. If it isn't spelled out, likely they can't do it.

Assuming the FSA was funded with your own elective deferrals (and not an advance from the employer), you likely will prevail in your argument. But it is a legal matter, and has to be approached as such. Good luck!

by TaxTrollEAreply 8603/17/2013

Thanks, Tax Troll EA. I will talk to a lawyer. I'll have to get an extension on my taxes. If I pay what I think I owe when I file by 4/15 and later have to pay more, will I get in trouble?

by TaxTrollEAreply 8703/17/2013

(For R87 and others)

HOW TO FILE FOR AN EXTENSION

You can apply for an extension online, by mail, or (with a balance due paid through a third party credit card agent who will charge you a fee) by phone. See the instructions that accompany the form, at the link below.

If mailing, the form must be POSTMARKED no later than Monday, April 15, 2013.

Besides filling in your name, address and SS#, you are required to estimate how much your tax will be for the year, subtract what you already paid, and show your likely overpayment or underpayment.

Note that AN EXTENSION TO FILE IS ***NOT*** AN EXTENSION TO PAY. You are required to pay what you reasonably think you will owe, along with the extension form.

What happens if you don't pay a balance due, or if it turns out to be a lot higher than you estimated? Technically, if you clearly misrepresented what your tax situation was, the IRS can retroactively disallow the extension, and you'd owe late filing penalties (5% a MONTH or part, maximum of 25%) plus interest on the balance due. However, in 30 years doing returns, I have NEVER seen this actually happen.

What is more likely to be the case: If the amount you still owe (after April 15) turns out to be more than THE GREATER OF 10% of your total tax OR $1,000, you'll be assessed a late payment penalty of a HALF percent a month (or part) plus interest. If the balance due is less than that, no penalty applies, and you are just charged interest from April 15th to the date they got the rest of the money.

If you miss the April 15 deadline, don't bother filing an extension, as it will not be allowed. It is suggested (but not mandatory) that you keep some proof of mailing (No need to send certified, but post office can provide a proof of mailing).

If mailed by the due date, you have a six month extension, through October 15, 2013,

by TaxTrollEAreply 8803/17/2013

I purchased a rental property 15 years ago for $150k and now has an est. value of 400k. I want to tear it down and build 4 townhomes on it one of which I would own and move into. Est. value of each townhome of approx. 475k. Would I have to pay a capital gain of any type and how would it be figured. Thanks for your help..

by TaxTrollEAreply 8903/17/2013

Hi Troll,

I haven't completed my taxes yet, but I'm expecting that I'll owe $2,500-3,000 for emptying out my 401K after I lost my job. I have absolutely no money now and can't pay that much. What should I do? Ask from a payment plan or extend until October?

Thank you

by TaxTrollEAreply 9003/17/2013

Hi Tax Troll,

It's been over 21 days since the IRS has accepted my return. I was scheduled to get a small refund of 1000. I was just notified by mail that my 2012 return is "still being reviewed" and my refund is being withheld until I complete an "identity theft" affidavit. I attended school last year and there was a delay in them accepting my return for an education credit. I have all my paper work in order if I need to send anything in.

Should I be concerned about an audit?

by TaxTrollEAreply 9103/18/2013

[quote]I purchased a rental property 15 years ago for $150k and now has an est. value of 400k. I want to tear it down and build 4 townhomes on it one of which I would own and move into. Est. value of each townhome of approx. 475k. Would I have to pay a capital gain of any type and how would it be figured. Thanks for your help..

The act of tearing down the current rental property and building the townhomes won't be a taxable event ... obviously ... since you are spending money. not making some. Neither will the act of moving into the one townhome as your principal residence. Selling the other three townhomes will result in a taxable gain, part of which will be a capital gain and part of it may be comsidered a Sec 1250 gain (taxed at a higher rate than a long term capital gain).

The computations will be complicated, with the cost of destruction and building the townhomes capitalized (NOT deductible until you sell) as an addition to the original basis of the rental, and I strongly suggest you seek out a local, experienced tax professional to work on it with you. This is NOT a job for a storefront seasonal tax preparer! :)

Good luck on your plans!

by TaxTrollEAreply 9203/18/2013

[quote]I haven't completed my taxes yet, but I'm expecting that I'll owe $2,500-3,000 for emptying out my 401K after I lost my job. I have absolutely no money now and can't pay that much. What should I do? Ask from a payment plan or extend until October?

As I said in my blurb above about extensions, they do NOT extend the time to pay the tax. Any interest and penalty will likely be retroactive to April 15, so you'd just be putting off the inevitable ... which only makes sense if you will have the money available at that time.

There are several ways you can go here ...

1. You can file and pay what you can with the return, even if it is only a few dollars. That eliminates the (otherwise 25%) late filing penalty. You'll get a notice from the IRS about five weeks later, assessing interest on top of what you didn't pay (plus a half percent a month late payment penalty, if the tax left unpaid is more than 10% of your tax for the year). Again, pay what you can, and wait another five weeks to get another notice similar to the first. Generally, the IRS lets you go through this three times before they will insist you go on an installment agreement, explained below.

2. You can charge the tax you owe to a credit card, through one of the agents that the IRS approved to handle such payments. The agent will add a fee to the amount charged to your card, and will pay the tax debt. Then you simply pay off the credit card bill, as you usually would, over time. Info on this can be found at the link below.

3. You could apply for an installement agreement, using Form 9465 as part of your return (or filed separately later). The IRS will generally grant you a year or so to pay off a debt that size, providing you allow monthly payments to be direct debited from your bank account. YOU pick the date of the month that they'll be due. The IRS will add applicable interest, and charge you $52 to set up the arrangement (About twice that, if you insist on sending in checks.)

You'll owe income tax plus the 10% surtax on premature distributions from retirement plans. However, keep in mind that penalties (late payment and late filing) can be waived for reasonable cause. so don't pay those until you have attempted to get a waiver by writing to the IRS and explaining your situation. In the current economy, the IRS has been very understanding in waiving penalties in such circumstances.

Good luck!

by TaxTrollEAreply 9303/18/2013

[quote]It's been over 21 days since the IRS has accepted my return. I was scheduled to get a small refund of 1000. I was just notified by mail that my 2012 return is "still being reviewed" and my refund is being withheld until I complete an "identity theft" affidavit. I attended school last year and there was a delay in them accepting my return for an education credit. I have all my paper work in order if I need to send anything in. Should I be concerned about an audit?

The IRS is being much more careful this year on returns that contain certain items (Earned Income Credit for unmarried individuals with a kid, Education credits, Energy credits, Rentals or new businesses showing a loss, etc.) which experience has shown are often claimed improperly. If you have any of those, it may be why the delay.

But it sounds like the IRS may have information that someone tried to use your Social Security number (or one very close to it) for tax purposes, which sometimes happens (in sutuations ranging from intentional fraud by people to do-it-yourselfers who simply transpose a couple of digits while filing online.) They are very aggressive in going after those who commit identity theft, and protective of potential victims. That may all that is happening here.

In either case, I doubt there would be any audit happening, other than for the items I mentioned above. The IRS is simply having an unusually bad year (actually, several in a row), with late release of many forms for processing, budget cuts, and a high turnover of employees, some of whom have the common sense (and matching personality) of plant life. I *almost* feel sorry for them. :)

by TaxTrollEAreply 9403/18/2013

Beloved Tax Troll, I'm getting laid off in June. I took out a loan from my 401K a few years back and have $24,000 still repay. I'll be 53 when I file 2013 tax returns next year.

I'm anticipating not being able to pay back the loan after my lay off. I'll be collecting unemployment after June. (I've been looking for a job NOW but I can't seem to get arrested!)

Appropriately, what is the percentage I'll need to pay on that amount come next year's taxes? From my google search - seems it's upwards to 30%. UGH!

by TaxTrollEAreply 9503/18/2013

We did our taxes; my partner and I both owed taxes in NY (filed seperate). We never owed state before. We moved to NY in the middle of the year last year. I did our taxes on TaxAct, and was careful with the dates that we lived in both states, so it's not as though they think we lived in NY the whole year but only paid taxes for part of it. Any idea why we owed in NY but not the state we moved from? (Or Federal?)

by TaxTrollEAreply 9603/18/2013

Dear Tax Troll:

r75 here. You said I need to file a Schedule C and Schedule SE for the self-employment tax. But in looking at the instructions on the back of the 1099, it says (in part) for like 7: "If you are not an employee but the amount in this box is not SE income (for example it is income from a sporadic activity or a hobby) report it on Form 1040, line 21".

The check I received was a one-time thing, it never happened before and will never happen again. Does/can that line 7 instruction apply to these earnings (which are over $400)?

The amount on the 1099 I got shows the gross amount, before my agent took their commission. I think that means I still have to file a Schedule C, but since it's a one-time payment, is there a way around the Self-Employment tax on Schedule SE?

by TaxTrollEAreply 9703/18/2013

R95, can't conclude what your tax bracket would be, since that depends on ALL of your income, not just the "deemed distribution" because of the defaulted 401K loan.

My best guess would be you're likely in the 15 or 25% regular bracket, PLUS the 10% surtax on the 401K money, so 30% total is probably a pretty good estimate. Unfortunately, with the info you provided, I can't see any way around he 10% surtax.

by TaxTrollEAreply 9803/18/2013

R96, I'm only guessing, but NY has pretty high tax rates (I know ... I moved from there to AZ years ago, and occasionally get clients who have moved from there as well.) NYC and Yonkers also have their own city tax. Compared to most other states, the NY tax is simply higher on the same income.

One possible thing to check: Any moving expenses you claimed are to be deducted on NY, since that is the state you are moving INTO. It might help a bit.

Beyond that, you said you already checked and are sure you didn't double up reporting income to both states. You should be using Form IT203, which is the form for part year residents. The instructions are actually pretty easy to understand, compared to most.

by TaxTrollEAreply 9903/18/2013

R97, the fact that you HAVE AN AGENT suggests that you are indeed "in business" for what you were paid for. The fact that you don't make money at it most of the time doesn't matter, providing you are actively (occasionally) looking for income in that area.

If you think you can avoid the SE tax, I wish you luck. But the payor reporting it in Box 7 (Nonemployee compensation) pretty much told the IRS "This person is being paid for services and is not an employee." The IRS' default conclusion would be it is self-employment. It's tough, but not impossible, to fight.

Link is to IRS Pub 334, which explains filing for small businesses.

by TaxTrollEAreply 10003/18/2013

Tax troll, when I say I have an "agent" it's actually the agency who repped the commercial when it was done over 20 years ago. My "agent" was contacted by the ad agency simply because they were the agency of record.

As I said, it was a one time thing then, was never repeated, and only a one-time usage now (the deal memo I signed stated it wouldn't be used again) and I am most definitely NOT actively looking for work in that area and actually never have. Not then or now. That's why that line in the instructions for Line 7 of the 1099 caught my eye, because it did qualify as a "sporadic activity".

Would the IRS accept the fact that I have never before received a royalty check in my entire life (as shown on nearly 40 years of tax returns) as proof of "sporadic activity" and waive the self-employment tax?

by TaxTrollEAreply 10103/18/2013

R83 here again.

Thanks for answering, TT. I was talking only about fed withholding, not the SS uptick.

I earn very little. At this job, less than $11,000 this year. My federal withholding went from about 6.3% for the first three paychecks of the year to 7.75% for this last paycheck, the first one for March. For as little as I make, that makes a difference and I can't, for the life of me, figure out why it went up now.

They said something about updated tax tables for March or something. But, really, I now have to pay almost 8% making less than 11K a year? Does that seem strange? Do you know why it would have gone up now all of a sudden?

I just can't afford for them to be taking the wrong amount out but I'm at an impasse.

Thanks in advance.

by TaxTrollEAreply 10203/19/2013

[quote]Would the IRS accept the fact that I have never before received a royalty check in my entire life (as shown on nearly 40 years of tax returns) as proof of "sporadic activity" and waive the self-employment tax?

Maybe. But it will be an uphill battle. As I said, the default for "non-employee compensation" is "self-employed" according to them. But you argue it well, and I wish you luck on it.

by TaxTrollEAreply 10303/19/2013

R102, tax tables were revised in March, based on the new rates for 2013 (They had been using 2012 rates before that, since the cliff legislation passed so late).

But there is NOTHING in the new 2013 rates that would increase federal withholding (or taxes) for someone who makes just $11K a year. Actually, the tax would have DEcreased a bit, due to a higher standard deduction and personal exemption. Something else is going on, meaning you either changed your withholding choices, or the employer is simply making a mistake. You should check with them. Your withholding should NOT have gone up on its own.

by TaxTrollEAreply 10403/19/2013

Please advise. I have 2 accounts with an investment company one of which is a 401K and the other is a smaller investment account. I recieve a 1099 for each account, but the 1099 does not specify the 401K account. How do I let the IRS that one of these is a 401K? Must I list it on Form 8949 and check box B ?

by TaxTrollEAreply 10503/19/2013

[quote]I have 2 accounts with an investment company one of which is a 401K and the other is a smaller investment account. I recieve a 1099 for each account, but the 1099 does not specify the 401K account. How do I let the IRS that one of these is a 401K? Must I list it on Form 8949 and check box B ?

Form 1099-eries is used to report information that is reportable by a taxpayer on his tax return. Activity WITHIN a 401K plan is NOT reportable, so you do not get a 1099 for such activity.

You may get an annual statement from the 401K plan, showing the dividends, sales, etc., but this is NOT a 1099 form, and is NOT reportable on YOUR return.

(Yes, I know ... it may LOOK like a 1099-type form, but it isn't. Unfortunately, the IRS allows payors to use pretty much any format they want in issuing 1099 information, and many use statements that look similar to year-end summaries of non-reportable accounts. You're not the only one who gets confused by this.)

The only thing that is reportable on your return from a 401K plan is money you put into it (which is automatically deferred on your W-2 form, with Code D in Box 12 - you DO NOT enter it anywhere else), and money you WITHDRAW from the plan (which is reported on Form 1099-R).

by TaxTrollEAreply 10603/19/2013

Thanks again, TT. I definitely thought there was something screwy going on with the fed taxes. I got my check for my second job earlier today and the tax rate is the same on it as it was on all the previous checks.

I'll talk to them some more. I'll wait and see what happens on my next check, next week and then question it again. Basically, they don't have an accountant doing payroll. They have the office manager do it. I've only been working there for a few months and this is the second time my check has been screwed up. Ugh.

by TaxTrollEAreply 10703/20/2013

Thank you Tax Troll. Taxes are complicated enough and investment firms certainly dont't make it easier.

by TaxTrollEAreply 10803/20/2013

Hi TT. Thanks in advance for any help you can give me.

State of NC seized over $6000 from our bank account in error when doing an audit for the 2006 tax year. They returned all but about $80 of it within the same year. We now received a 1099-G and am unsure how to report this. I don't think I should have to pay taxes on this as "income" when it was mine to start with. Thanks! Jan

by TaxTrollEAreply 10903/21/2013

[quote]State of NC seized over $6000 from our bank account in error when doing an audit for the 2006 tax year. They returned all but about $80 of it within the same year. We now received a 1099-G and am unsure how to report this. I don't think I should have to pay taxes on this as "income" when it was mine to start with.

If you were audited for 2006, they thought you owed $6,000, and they took it in payment, then you technically had a deduction for that $6,000 allowed for the year of payment (if you itemize deductions). The refund would then be taxable in the year you received it, which would be 2012.

However, if you didn't itemize in the year the money was first seized to satisfy the audit assessment, or if it didn't provide a tax benefit to you in any way, you can essentially ignore the 1099G. It's simply an information return of what MIGHT be taxable, but it also might not. I'd suggest attaching a statement to your 2012 return, explaining why you are not reporting the 1099G info. Use the words as I did above: "did not provide a tax benefit"

Hope this helps!

by TaxTrollEAreply 11003/21/2013

Bump for more tax questions!

by TaxTrollEAreply 11103/26/2013

If Prop 8 is overturned by the Supremes and then they overturn DOMA, can we file joint federal returns next year?

by TaxTrollEAreply 11203/27/2013

[quote]If Prop 8 is overturned by the Supremes and then they overturn DOMA, can we file joint federal returns next year?

If the Court does indeed invalidate federal prohibitions against same sex marriages, it would mean that those who are actually married under state law (not just "registered domestic partners" but married) would be treated the same as any married couple from that point forward. And federal tax law considers a taxpayer who is "married" as of December 31 of a year as eligible to file a joint return with his/her spouse.

However, if they elect to file separately, their status would be "married filing separately" ... which is not the same as "single" filing status and generally results in a higher tax than that filing status. Actually, some same-sex couples who are/become married - especially in non-community-property states - may see their combined taxes go up, even if they file jointly. You lose the flexibility of claiming joint income and deductions where they do the most good. (Of course, this is a welcome trade-off for the other benefits they were denied as unmarried couples.)

Some have asked if those who are recognized as domestic partners (or RDPs) in their state would be "upgraded" to married by operation of law. I really doubt that would happen, as marriage carries a lot of additional responsibilities and consequences than RDPs. I would think it would be an individual decision as to whether or not to take it to that level.

by TaxTrollEAreply 11303/27/2013

Tax Troll,

I read an article today about turbo tax's influence over free tax services.

Like 98% of the US, I do not know enough about tax law and use an almost free service (Express 1040, $12 or something)

I'm a 1040 filer w/just student loan interest and standard deduction; however, this year, I will have an IRA/mutual fund cash out.

What is your feeling about these low cost sites for "regular" people? The website I used last year was easy. I'm not working now.

Thanks!

by TaxTrollEAreply 11403/27/2013

If gay marriage becomes legal in California, and DOMA is overturned, can we file joint federal returns next year?

by TaxTrollEAreply 11503/27/2013

R114, it is said that "there is no such thing as free," and I believe that applies here. These "free" sites exist primarily to get you onto their site so they can: 1. Get you to pay for the "optional" (but not really) state return, which is overpriced to recoup their costs of the "free" federal one, AND/OR 2. Sell you other services, such as financial planning or loans, AND/OR - MOST OF ALL - 3. Get your name, address, e-mail address and some basic information (though not actual tax data, which is forbidden by federal law), which they then make money by SELLING it to others who want to contact people like you. Everyone I know who has used one of these sites reports a deluge of spam and junk mail as a result. And you can't "opt out" since this is a condition of your enrollment at the "free" site (Read the ridiculously fine print you are clicking "OK" to ...)

On the mutual funds, make sure you have an "average cost basis" statement from the mutual fund company, which you'll use to determine the gain or loss on the sale. And report the sale date and proceeds exactly the way it appears on Form 1099-B, since the IRS gets a copy of that and will reconcile it to your return.

by TaxTrollEAreply 11603/27/2013

R115, I answered your question the first time you posted it. Redundant much? :)

by TaxTrollEAreply 11703/27/2013

Thank you so much for the mutual fund info.

I use a "spam email" for ordering and companies I want little contact with.

Other than the obnoxious spam and overpriced state sell, do you have any opinion about these sort of services?

Is there private info here that should be concern for stealing identity, etc?

I can use your helpful advice on the mutual funds and you have addressed IRA and student interest deduction; obviously, I want to have more easy direction as I go through the forms.

Do you think they're worse than a taxpayer attempting their own return? That Turbo Tax is a necessary evil if I want more hand-holding?

Thanks again.

by TaxTrollEAreply 11803/27/2013

I just saw this on the Dionne Warwick thread and believe you only check "your" thread regularly.

Curious to know this answer too!

"TaxTroll:

Will Miss Warwick still owe her back taxes despite declaring bankruptcy?

I certainly hope so!"

by TaxTrollEAreply 12003/27/2013

Question: My partner makes all the dough. We are not married or registered. Should he list me as a dependent on state and fed returns? If so, does that hurt or harm me as an individual if he does? Any advice in this area is helpful - aka maybe we sould be RDPs? etc.

by TaxTrollEAreply 12103/27/2013

[quote]Do you think they're worse than a taxpayer attempting their own return? That Turbo Tax is a necessary evil if I want more hand-holding?

Turbo Tax and HR Block are probably the two most popular (and most established) consumer tax software products out there right now, and their online versions are likewise regarded as good. Obviously, better than tackling it without software, but don't lose sight of the fact that it is only as accurate as the info you feed it. Also, consumer software is designed for MOST tax situations, and likely can't deal with unusual ones, such as EDPs in a community property state. (I believe TT has a version for that, but not online.)

I'd be leery about the other, newer players in tax software or online filing. There are horror stories every year about ripoffs and compromised private information, and those are more likely to be the newbies.

And ALWAYS print out a full paper copy of any return you prepare online or with software, and keep it for your records. Don't depend on being able to print it later, if you need it!

by TaxTrollEAreply 12203/27/2013

R120, obviously, we don't know the details of Ms. Warwick's BK. In general, back taxes are not discharged in simple bankruptcy filings. But there are exceptions.

by TaxTrollEAreply 12303/27/2013

[quote]My partner makes all the dough. We are not married or registered. Should he list me as a dependent on state and fed returns? If so, does that hurt or harm me as an individual if he does? Any advice in this area is helpful - aka maybe we sould be RDPs? etc.

If you mean he literally makes ALL of your combined incomes, and you don't yourself have income in excess of $3,800 (2012 personal exemption amount), maybe. Other conditions: You lived together ALL year, and he is clearly providing more than half of your support. If so, he can claim you as a dependent on his federal (and most state - the rules may vary somewhat) return. It doesn't affect you, if don't have to file a return for yourself (If you do, you just follow the instructions as a "dependent filer.")

By the way, I was recently asked to review a new book in the "for Dummies"-series, called "Same Sex Legal Kit for Dummies." To my surprise, it has some glaringly WRONG information about raxes and other matters, and I do not recommend it in any way. For example, it stated that, if you can claim your partner as a dependent, it means you get Head of Household filing status, which is definitely incorrect. You must have a qualifying CHILD (or parent for whom you provide a home) to claim HOH. Your filing status would remain as Single.

by TaxTrollEAreply 12403/27/2013

Some myths about EXTENSIONS:

1. "If you want to lessen the chance of an audit, file right at April 15. They're so busy then, they don't really have time to look closely at an audit. Or, better yet, file an extension and file later, when they have already chosen all of the audits for the year."

FALSE. Filing at the deadline or an extension does NOT make you less likely to be audited. Audit criteria is screened solely by computer these days, and the program takes the same time to screen returns every day of the year.

2. "If you owe, you can file an extension to pay it six months later."

FALSE. In filing an extension, you are required to make an estimate of what you owe, and pay it with the extension (Form 4868). Anything you pay after April 15th is subject to interest charges. In addition, if it is in excess of $1,000 AND 10% of your total tax for the year, it is subject to a half percent per MONTH (or part of a month) penalty for late payment.

3. "If I forget and don't file my extension by April 15, I can file it late and just pay interest or penalties for those few days I missed."

FALSE. The IRS will only honor an extension request if filed on time. Otherwise, your return is simply late, and subject to interest and penalties as indicated above.

However, be aware that the IRS is waiving some late filing/payment penalties this year, for those who have to use forms that were not available until early March (such as the passive activity loss form, educational credits, energy credit, etc.) See IRS.GOV for full info.

4. "Since late filing penalties are based on a balance due, if you don't owe anything, you can file late with no negative effects."

FALSE. While it is true that penalties and interest are only assessed on a balance due, failing to file on time can limit the availability of certain elections, deductions and credits, which may only be available on "timely filed returns." While not likely to affect most filers, it is something to consider. Furthermore, intentionally NOT filing a timely return is technically a violation of federal law, and can be prosecuted ... though this is highly unlikely to happen, unless you are caught by the IRS many years later ... or you decide to run for public office. :)

Extension form is at link below.

Note: Each state has its own rules. Some (like my home state of AZ) accept a federal extension as applying to state as well, although they do require payment of any tax due. CA grants an "automatic" extension (whether or not you extend federal), but wants the balance due paid by 4/15. Check your local state's rules.

by TaxTrollEAreply 12503/29/2013

BUMP for more tax questions!

by TaxTrollEAreply 12604/01/2013

Dear TaxTroll-

In 2012 I exceeded income limits for Roth IRA account contributions. It's the first time it ever happened and I really didn't expect it would, so I made a $400 contribution in the first half of 2012.

Vanguard, my Roth IRA holder, suggested I made a recharacterization of my Roth IRA. So, I opened a Traditional IRA and made an after tax contribution of $400 by moving that amount from my Roth IRA account.

The nest step is to convert those $400 back to my Roth IRA, which I may do tomorrow.

I shall be filling out an IRS 8606 form for 2012, and another one next year for 2013 - both for this same recharacterization/contribution.

It seems a lot of fuss over not a lot of money. Was it smart of me to do this?

Thanks.

by TaxTrollEAreply 12704/01/2013

R127 here.

I live in NYC.

by TaxTrollEAreply 12804/01/2013

Hello Tax Troll, you are a life saver and I really appreciate your time and effort you put into answering our questions. I really appreciate it.

I think I may owe $ this year, around $600. However, I am not sure. Yes, I am a moron and I may actually have IRS do the return for me, I think there's a box for me to check for that option.

Anyways, if I owe $615 and send in only $600, do they send me a bill for $15 and a penalty fee of some sort (percentage)? What if it turns out that I don't owe? What do they do with the check? do they return it or do they apply it towards the following year?

Can I not send them any money and wait for them to bill me?

Thanks for answering my stupid questions, I really appreciate it!

by TaxTrollEAreply 12904/01/2013

[quote]Vanguard, my Roth IRA holder, suggested I made a recharacterization of my Roth IRA. So, I opened a Traditional IRA and made an after tax contribution of $400 by moving that amount from my Roth IRA account. The nest step is to convert those $400 back to my Roth IRA, which I may do tomorrow. I shall be filling out an IRS 8606 form for 2012, and another one next year for 2013 - both for this same recharacterization/contribution.

You do a 8606 for 2012 to indicate you are making a non-deductible (after-tax) contribution to a Traditional IRA. Once you make a non-deductible IRA contribution, you will continue to have to file Form 8606 EVERY year in which you either contribute to a deductible IRA, take money out of one, or convert a traditional to a Roth.

One caution: Do you have any other Traditional IRA accounts, at Vanguard OR anywhere else? Be aware that your 2013 conversion of the Trad IRA to a Roth is TAXABLE in the ratio of pretax to total funds on ALL Traditional IRAs in your name at that time.

For example, let's say I have exactly what you have ... a $400 nondeductible contribution in one account, which I want to convert to an IRA. Howeverm I also have a rollover IRA at another bank, containing $27,000, which was my 401K plan from my last job. The total balance in ALL Traditional IRAs at the time of conversion is $27,400, of which $27,000 is pretax. Therefore, the taxable portion of the conversion is 27,000/27,400 x $400 = $394.

Bottom line: ALL traditional IRA accounts are considered as if ONE account, even if there are dozens of them. The computation of taxable portion of a withdrawal or conversion is based on the sum of ALL acconts, and how much of it was pretax.

by TaxTrollEAreply 13004/01/2013

R129, you can wait for them to bill you. But be aware that anything paid after April 15th will be subject to interest. No penalty, so long as you filed the return on time, and the amount owed past the deadline was less than 10% of the total tax or less than $1,000.

by TaxTrollEAreply 13104/01/2013

THANK YOU SOOOOO MUCH!!!!!!!

by TaxTrollEAreply 13204/01/2013

Tax Troll! I'm dissolving an LLC I started in 2012. It earned no money. Do I need to file anything on it?

by TaxTrollEAreply 13304/01/2013

[quote]Tax Troll! I'm dissolving an LLC I started in 2012. It earned no money. Do I need to file anything on it?

An LLC isn't a tax entity, but a legal entity governed by state law. Just like you had to file paperwork to create it under state law, you likely will need to do something to dissolve it. But that varies by state, and you have to inquire locally.

As far as taxes go, it depends on other factors: how many "members" it has, and whether you filed an election for it to be taxed as something other than a "disregarded entity" (Generally a Form 1065 for multi-member LLCs, or a Sch C on your personal return for a single member LLC.) If this is a single member LLC, you never filed an election to be taxed as somthing like a corporation, and the business simply never got off the ground, you don't need to include anything on your personal return to indicate that. (If the LLC was issued an EIN - federal Employer ID number - then you might later get a letter asking about it. Simply say what you said here, and that will suffice.)

by TaxTrollEAreply 13404/01/2013

PS on my last reply, for R133 ...

If your state imposes an annual fee on having an LLC (For example, CA assesses $800), you might get stuck paying it, since you did create the LLC ... even though you didn't use it for anything. Check locally.

by TaxTrollEAreply 13504/01/2013

Thank you Tax Troll! r121

Where would you recommend gay couples to get Marriage, RDP and related info?

by TaxTrollEAreply 13604/01/2013

[quote]One caution: Do you have any other Traditional IRA accounts, at Vanguard OR anywhere else?

Good question. No, I don't have any other IRA accounts of any kind.

I feel much better now. But, just out of curiosity... what if I hadn't done this? What would my penalty be?

Your advice and information is greatly appreciated!

by TaxTrollEAreply 13704/01/2013

P.S.

How would IRS even know if one went over income limit on RothIRA?

by TaxTrollEAreply 13804/01/2013

Tax troll, it's a Delaware based LLC, even though I am in CA. Does that matter? Again, it earned no revenue in either state.

by TaxTrollEAreply 13904/01/2013

[quote] it's a Delaware based LLC, even though I am in CA. Does that matter? Again, it earned no revenue in either state.

Have no idea what Delaware's rules are. But if you were starting an LLC for a business in CA, even if you organized it in DE, you would have to apply to CA to have it licensed to operate in that state, and you'd owe the $800 tax. Since it never operated there, perhaps you can slip away unnoticed. :)

by TaxTrollEAreply 14004/01/2013

R137-138, there is a 6% penalty for excess contributions to a Roth, if the amount not allowed isn't withdrawn (with whatever money it also earned) no later than April 15th, the due date of that year's return.

And IRA trustees notify the IRS of all contributions via Form 5498, so they would indeed find out about it.

by TaxTrollEAreply 14104/01/2013

[quote]Where would you recommend gay couples to get Marriage, RDP and related info?

Obviously, this is something that is in constant transition, especially with the new states coming on board to allow same sex marriage.

The only hassle is in community property states, with either gay marriage or Registered Domestic Partners ... so far the IRS says only CA, WA and NV, but any other community property state that adds that will likely end up on the list. Even though federal law doesn't (so far) recognize those unions, you are still required to make community property allocations on your separate "single" returns, same as married couples have to in those states. It's a tax filing nightmare, and can easily double (or more) the time or cost of doing your returns.

I have a couple of client who were married in MA years ago, but now live in AZ, where they are considered unmarried under both federal and state law. If gay marriage passes through the court, it is likely that states (as well as the feds) would be required to consider them married. The problem? They haven't been together for a couple of years, and hate each others' guts. Folks, don't enter into a marriage (or RDP) lightly ... and ... if it doesn't work out, do the legal work to get it dissolved.

by TaxTrollEAreply 14204/01/2013

REMINDER: Please post any tax questions for me to THIS thread. I don't look for any other threads, since Search function is now pretty much worthless.

by TaxTrollEAreply 14304/04/2013

Dear Tax Trool, EA. Thank you for being an important part of The DL.

My question is regarding the deduction of medical expenses. Am unemployed and have been paying for health insurance under HIPPA, which was $9,000 for 2012. I'm in my 50's. Also paid $7,000 out of pocket for some dental work and to beat cancer. My question is: Are those items deductible?

My understanding is that if medical expenses exceed a percentage of gross income, they are deductible.

My sole income for 2012 was $110K early distribution from my 401K.

I own a home in CA and paid $15K in mortgage interest and $6K in property taxed.

I have no other deductions.

My second question is this: Can I deduct BOTH medical and property-related deductions, or just the higher of the two?

I plan to use TurboTax, follow the instructions, and hope that Mr. Hunky TurboTax will magically do the right thing (clearly, I am a bottom).

TIA!

by TaxTrollEAreply 14404/05/2013

[quote]My question is regarding the deduction of medical expenses. Am unemployed and have been paying for health insurance under HIPPA, which was $9,000 for 2012. I'm in my 50's. Also paid $7,000 out of pocket for some dental work and to beat cancer. My question is: Are those items deductible? My understanding is that if medical expenses exceed a percentage of gross income, they are deductible. My sole income for 2012 was $110K early distribution from my 401K. I own a home in CA and paid $15K in mortgage interest and $6K in property taxed. I have no other deductions. My second question is this: Can I deduct BOTH medical and property-related deductions, or just the higher of the two?

Your deductions are obviously way over the $5,950 you'd ordinarily be allowed as an standard deduction, so you will be itemizing deductions on Schedule A.

You should put together whatever deductions you have in all categories on that schedule: Medical, Deductible taxes (property taxes, state income tax, personal property taxes), Mortgage interest, Charity contributions, etc.

Medical expenses you paid (doctors, prescriptions, co-pays, medical insurance paid directly, lab fees, x-rays, necessary medical equipment, mileage for medical care) add into Schedule A to the extent that they, as a total, exceed 7.5%* of your adjusted gross income (bottom line of Form 1040, page 1). *Note: Starting for 2013, that figure goes to 10%.

Medical expenses will be important for you for another reason this year, besides deducting them on Sch A. To the extent that your medical expenses become deductible (i.e., they are over that 7.5% of AGI), you can exclude your 401K distribution from the extra 10% surtax/penalty for early distribution from a qualified retirement plan.

Or ... If you were 55 or over when you left that employer, or if you are considered disabled under Social Security criteria ... even if NOT collecting SS disability at this time ... you may be able to exclude ALL of your 401K distribution from the EXTRA 10% surtax on federal. See Form 5329 and instructions.) Also, you mentioned you are in CA, which also has a separtae surtex on early retirement distributions, with the same exceptions.)

by TaxTrollEAreply 14504/05/2013

I'm 51, but that's all great news!

[quote]Medical expenses will be important for you for another reason this year, besides deducting them on Sch A. To the extent that your medical expenses become deductible (i.e., they are over that 7.5% of AGI), you can exclude your 401K distribution from the extra 10% surtax/penalty for early distribution from a qualified retirement plan.

Will TT recognize this situation once I enter all the parameters on Sch. A?

Thanks, again! Sending you a virtual neck and shoulder massage for Tax Season.

by TaxTrollEAreply 14604/05/2013

Dear Tax Troll:

What percentage of returns get audited? And if the IRS looks at my return and decides I miscalculated something, does that bring on a full audit, or will they just send you a letter and a bill? And if that's going to happen, how soon is it likely to occur?

by TaxTrollEAreply 14704/05/2013

[quote] Will TT recognize this situation once I enter all the parameters on Sch. A?

Probably not. You likely have to do the input for the Form 5329 exceotion manually.

by TaxTrollEAreply 14804/05/2013

[quote]What percentage of returns get audited? And if the IRS looks at my return and decides I miscalculated something, does that bring on a full audit, or will they just send you a letter and a bill? And if that's going to happen, how soon is it likely to occur?

Good questions.

Overall, the chance of an individual return being audited is less than one quarter of a percent, which is pretty much the lowest it has been in history. But add certain variables, schedules and situations, and the odds can go up quickly.

Audit potential is determined by a computer program that "scores" the return for potential variations from a "normal" return based on your AGI level, city of residence, marital status, etc. It also looks closely at certain things, such as the Earned Income Credit by a single parent, a rental schedule with a very low gross rent (compared to expenses), a small business losing money for someone with a well-paying "day job," shared custody arrangements for children, high gambling winnings with matching losses, etc. They also compare your return to what was reported by payors, and see what items don't match. Last, and truly least, mathematical errors might add to the mix, but these are generally just corrected by the program without any other action taken.

In most cases, each variation from an "average" return is assigned points, and when the total reaches a certain undisclosed number, the program selects it to be looked at. The auditor chosen to do that might decide it merits an audit, or he/she might not. They are looking for audits that can potentially bring in a lot of money, not just a few bucks because you inflated an expense by fifty bucks.

But don't think they are necessarily looking for high income people exclusively; they know lower income taxpayers are less likely to have professional guidance, or attorneys to fight them in tax court. They'd rather get $500 each from 100 people quickly, then go after a rich person for a possible $50,000 payoff that could involve a lengthy fight in court.

The match with payor info is the part of that you can best control. If you are required to file Schedule B (interest and dividends) or Sch D/8949 (stock sales), make sure the information as well as dollar figure matches. Example: You have an account at Merrill Lynch, which has only stock from your former employer, Xerox, in it, and it paid $200 in dividends. You report "Xerox $200" on Sch B. Unfortunately, the dividends were reported to the IRS under "street name", which is the brokerage itself, so they are looking for "Merrill Lynch" and that amount. They'll assume you received $200 from Merrill Lynch AND another $200 from Xerox. Ditto on stock sales: if you sold 100 shares of stock on 3/3/2012, and another 50 shares a few days later, you should NOT combine them.

If you have a 1099R, make sure it is reported on the proper line as Pension or IRA. If you have a 1099MISC for non-employee compensation, it gets reported on Schedule C or (if you have no expenses against it) on Form 1040 Line 21 as "Misc Earned Income" and also carried to Schedule SE. Don't list something as wages that is NOT wages (Yes, I know, the short form doesn't have a spot for misc income. That's why you should NOT be using the short form, if you have such income.)

by TaxTrollEAreply 14904/05/2013

Hi, TT. No question this time (although you answered a couple of mine up near the beginning of the thread.) I just wanted to echo everyone's thanks and more specifically to thank you for being evenhanded when discussing the IRS. I worked for the IRS for 37 years (retired a couple of years back. And I haven't worked in the income tax area since 1982, so my knowledge of income tax issues is pretty much out-of-date.)

Anyway, I wanted to compliment you for pointing out that a lot of the problems that exist in today's tax system are the fault of Congress, and not the IRS. It was often very frustrating to work there, especially when Congress was constantly demeaning us and cutting back our budgets in order to score political points.

And I wanted to chime in with a possible helpful hint for California residents like myself. Unless you have certain types of income, you can use the Franchise Tax Boards's free CalFile system to file your state taxes. I've used either TaxAct (free) or H&R Block (paid) to do my federal taxes for the past five or six years, but as you correctly pointed out, they want to charge you more to either prepare or e-file your state return. But doing your California return once your Federal return is completed is fairly easy, and CalFile works pretty well. (I wasn't able to use it this year because I had rental income for the first time.) Anyway, hope that helps someone, and thanks again for your valuable service!

by TaxTrollEAreply 15004/05/2013

Hey, just a quick "FYI" for those of you e-filing for 2012 in the final days before April 15th ...

The IRS has made no secret of the fact that they are NOT having a good year, in terms of systems problems. Part of that is the fact that the IRS' new e-file protocol is in full use now, for the first time, with NO backup system available in case it fails. There have been many problems that have actually caused the IRS to voluntarily shut down the e-file system for adjustments, up to 36 hrs at a time, including TWO times in the past six days.

Bottom line ...

1. If possible, do NOT wait till the last minute to e-file. The IRS e-file system is near gridlock on most April 15ths under the best of circumstances, and this is far from that. Getting your return transmitted a day or two earlier can mean getting your refund MANY days faster than it could happen if you waited.

2. When you e-file, you are given a response by the software or website, advising you of the date/time stamp they received your return, and either a DCN (Document Control Numvber) or one of the new IRS Submission ID numbers. KEEP THAT INFORMATION, in case it is ever challenged that you didn't file on time. DO NOT THROW IT AWAY or fail to print it out, or assume you will be able to recover it later.

3. If you are paying a balance due by direct debit, make sure the money is in your account on the MORNING of April 15th ... and REMAINS in that account until they actually debit it out of there (which, depending on the backlog, could be several days later.) You'll still be credited with a timely payment, if you filed the return by April 15 and indicated that date for the debit.

4. If you need to pay by credit card, access one of the payment agents (see IRS website for authorized websites and phone numbers) that will allow you to charge your taxes FOR A FEE paid to that private company, Keep in mind that most people will do this at the very last minute, so DO NOT assume you will be able to get through on the 15th. Do it earlier.

Despite the caveats above, be assured that - if you do have proof of a date/time stamp by the software company/website, and a DCN or Document Submission ID for your filing - you will be treated as having timely filed the return, even if the IRS system melts down completely before accepting your return. The system allows the Electronic Return Transmitter (usually software company or website) to document timely filing, and will honor their records in this respect.

by TaxTrollEAreply 15104/13/2013

A question regarding State income taxes paid in 2012 to the state for taxes owed from a previous year:

I'm assuming this is deductible, perhaps minus penalties and fines. Do I just add this figure to the 1040 (long) form box for state taxed paid, or is there a separate form to fill out. This figure is not reflected on my W-2.

Thanks a thou$and!

by TaxTrollEAreply 15204/13/2013

R152, I assume you are itemizing deductions on Schedule A, and want to know if you can includes state income taxes paid for prior years on that schedule. The answer is yes.

And a reminder: You can deduct the HIGHER of state income taxes paid during 2012 - OR - state/local sales taxes paid, whichever is greater. Generally, you get the sales tax deduction from an IRS table built into most software (or from the Schedule A instructions), and can add to the table amount any sales tax paid on purchase of a vehicle.

Example: Benny paid a $100 balance due on his 2011 CA return in 3/12. His 2012 state and SDI withholding came to $1100. When he filed his 2012 tax return in 3/2013, he had to pay another $150 he owed to CA. His deduction on the 2012 Sch A is limited to $1,200, what he actually paid IN 2012 (The $150 is deductible on his 2013 return.)

by TaxTrollEAreply 15304/13/2013

I'm doing my 1040 now and in LINE 41, my number is a negative number, do I write that down or put 0? it doesn't matter right?

sorry to bother you with this stupid question!

by TaxTrollEAreply 15404/14/2013

I am permanently in love with Tax Troll and Poll Troll, our election season friend. They are both an indispensible part of DL. My thanks to you both.

by TaxTrollEAreply 15504/14/2013

Clicking "like" @ r155.

by TaxTrollEAreply 15604/14/2013

Tax Troll, as long as it's postmarked by April 15, I'm OK right? I'm gonna be one of those procrastinators standing in line at the post office tomorrow!

Thank you Tax Troll for all the info in this thread, i've learned so much!!!

by TaxTrollEAreply 15704/14/2013

[quote]I'm doing my 1040 now and in LINE 41, my number is a negative number, do I write that down or put 0? it doesn't matter right?

Both 41 and 43 can be negative income figures.

Obviously, your tax can't be less than zero. :)

by TaxTrollEAreply 15804/14/2013

[quote]The only hassle is in community property states, with either gay marriage or Registered Domestic Partners ... so far the IRS says only CA, WA and NV, but any other community property state that adds that will likely end up on the list. Even though federal law doesn't (so far) recognize those unions, you are still required to make community property allocations on your separate "single" returns, same as married couples have to in those states. It's a tax filing nightmare, and can easily double (or more) the time or cost of doing your returns.

Since this is discriminatory against gay couples (penalizing us for marrying by forcing us and only us into a federal "tax filing nightmare" but not giving us any of the federal benefits and rewards str8 couples get), you don't hear one right wing nut complaining that it violates DOMA....not one. If it were giving gay couples spousal benefits the right wing nuts would be suing the hell out of Obama.

by TaxTrollEAreply 15904/14/2013

I have a question for fellow tax preparer Tax Troll EA:

Do you ever get frustrated with self employed idiots when you've told them repeatedly they have to file quarterly estimated tax payments, they never do, then freak out when they get hit with a large tax bill.

Do you ever get tired of idiots who seem to think that because they're retired they're retired from paying taxes on their non-contributory, 100% union funded pension plan?

Do you ever get tired of people with six figure incomes with every electronic device known to man, new cars and SUV's in the driveway in front of their fully paid off house bitching about how they don't have money to pay their taxes?

I know I sure am.

by TaxTrollEAreply 16004/14/2013

Hello Tax Troll, This is a question for next year's taxes, but I've been trying to find an answer for some time. It has to do with figuring capital gains on residential real estate that has been used both as a personal residence and a rental. Quick facts: I bought the house in 1986 and lived in it for 9 years and 7 months before renting it out. It has been rented ever since. I take a depreciation deduction every year. It has appreciated greatly in value over the years. I know I have to take the purchase price plus improvements minus depreciation taken to arrive at the adjusted basis. My question is, do I have to pay capital gains on the gain in value incurred while it was my personal residence or just pay capital gains for the period it was held as a rental? Which form is used to report this sort of gain. And, yes, I know that if I occupy it again for 2 out of the last 5 years the first 250000 of gain is excluded from capital gain tax, but as of right now, that is not going to happen. Thanks so much!

by TaxTrollEAreply 16104/14/2013

Hi Troll,

You responded to my 401K removal question earlier, but I'm doing my taxes now and see that I removed $23,392.44 and the federal tax withheld was $4,678.49 and $467.85 state. I wrote a note that the Fidelity person told me that I would owe 10% of $23K at the end of the year for taxes. Is that true or was that covered in the $4,678 that they withheld?

Hugs

by TaxTrollEAreply 16204/14/2013

R160, have experienced it all. It goes with the territory of being a tax professional. It is as depressing as you let it be.

I let my clients have a little fun while I am doing their return. I have a CaSEA dartboard with fields saying "deductible", "nondeductible" and "deductible until audit. I have a 4'x3' bulletin board full of cartoons poking fun at the IRS. I give out Tootsie Roll Lollypops (All of my clients love them, especially gay male ones, for obvious reasons. :) I have a small metal statue of a flock of vultures, which is labeled "The IRS Audit Team." I have a "Magic 8 Ball" they can ask for tax planning advice. I have a jar on a shelf, clearly labeled "Ashes of Former Problem Clients." And my business clients in the gay community have a business card rack, so clients can "go shopping" while they wait. Plus, we make awesome coffee (Starbucks Sumatra Blend) and ice cold bottles of spring water. If they're really lucky, our office cat (who has his own business cards, identifying him as a CPA .. that's Contently Purring Animal) may stop by to be petted. Tomorrow (tax deadline), we're having our annual informal "Thank God It's Over" gettogether, with lasagna and salad for staff and selected clients.

It is NOT your "tyoical" tax office. :)

by TaxTrollEAreply 16304/14/2013

[quote]I bought the house in 1986 and lived in it for 9 years and 7 months before renting it out. It has been rented ever since. I take a depreciation deduction every year. It has appreciated greatly in value over the years. I know I have to take the purchase price plus improvements minus depreciation taken to arrive at the adjusted basis. My question is, do I have to pay capital gains on the gain in value incurred while it was my personal residence or just pay capital gains for the period it was held as a rental? Which form is used to report this sort of gain. And, yes, I know that if I occupy it again for 2 out of the last 5 years the first 250000 of gain is excluded from capital gain tax, but as of right now, that is not going to happen

And it would not do much good, as that "loophole" was closed a few years back. It depends on the exact numbers, but it is likely that you'd only really be able toe exclude the appreciation in value that happened AFTER you moved back in.

The sale of a rental property isn't a capital gain, per se, except perhaps the land. The rest is taxed under several sections of tax code, primarily Sec 1250 and Sec 1231, and possibly Sec. 1245. You have to separate the cost/selling price of the land, real property (building and improvements) and personal property (carpets, appliances, window coverings, furniture, etc.) and calculate the gain separately. This can be complicated, and I STRONGLY recommend you get local professional guidance from a knowledgeable tax professional. (And that is especially important if you will be carrying the loan for the buyer and receiving payments over time, since you have to plan carefully so that you will be receiving enough money to pay the taxes!)

by TaxTrollEAreply 16404/14/2013

R162, I suspect you didn't listen carefully. He likely said you'd owe 10% EXTRA in tax ... above the amount that would ordinarily be due on such income.

For example, let's say you make about $50K. That would put you in a 25% marginal rate. A premature distribution from a 401K would be taxed at 25% + 10%, or a total of 35%. Ouch.

by TaxTrollEAreply 16504/14/2013

That sounds unbelievable to me.

I took out a 401K loan of $8567 I had $15,076.85 lett that I took out when I was laid off from my job. Total: 23643.85

They took out $4,728.77 for federal and $472.88 for state, plus a few other fees and I ended up only getting $9,875.20.

Now, you're saying I might owe another 35% on the $23,000 which would be $8,275 in additional taxes. So, out of $23,000 saved I end up only getting $1,600?!

by TaxTrollEAreply 16604/14/2013

[quote]Now, you're saying I might owe another 35% on the $23,000 which would be $8,275 in additional taxes. So, out of $23,000 saved I end up only getting $1,600?

As Judge Judy would say, "Put on your listening ears!" :)

I did NOT say you would owe 35% ADDITIONAL. I said your federal tax would possibly (depending on your OTHER income, not just the 401K distribution) be around 35% in TOTAL.

Take 35% of the total distribution, then subtract the tax that was actually withheld. The remainder is what you would possibly owe.

But you won't know the actual amount until you do the computation on the return. Suggest you find out the actual amount, before you bitch about it being too much.

PS: Keep in mind that you SAVED (probably around) 25% when you deferred this income from your pay to begin with. So all that is happening here is that you are repaying that savings, plus a 10% penalty tax because you cashed it out before retirement.

by TaxTrollEAreply 16704/14/2013

Hi Tax Troll,

I'm late I know and apologize if you have answered this question already. I'm confused about how much of my traditional IRA can be deducted from income. I turned 50 in 2012, have a 401k at work that I contribute to and earned 54K this year. No other complications. I contributed $6000 to Traditional IRA. The IRS instructions and worksheet are confusing but it looks like they allow 3600 as deduction. Yet every other place I look ( turbotax, bank websites) tells me I can deduct the full $6000. Which is it? TIA

by TaxTrollEAreply 16804/14/2013

R168, two sets of rules apply here.

First is the one that determines if you can have a traditional IRA, and, if so, how much. If you are under age 70½ at year end, and have earned income (wages or self-employment), you can have an IRA that is the lesser of your earned income OR $5,000 ($6,000 if you are age 50 or over at year end.)

Next is the rule that determines what part of your traditional IRA you can deduct, if any. If you are unmarried, and were NOT a participant in a retirement plan for ANY part of the year (even one day), you can deduct the full amount. But if you had employer plan coverage at all, and your AGI (Note: NOT just your wages. AGI is the bottom line of page 1 of Form 1040, including all income, but before the deduction for an IRA) is $68,000 - 78,000, your deduction will be limited ... actually phased out to zero over that income range. So, for example, if your AGI (before IRA) is $72,000 (40% through that $10K range), you lose 40% of the deduction. That means if you made a $6,000 contribution, your allowable deduction is $6,000 - .4(6,000) = $3,600. Does that number sound familiar? :)

By the way, you can still DO the entire $6,000 contribution, if you want. But you need to file Form 8606 with your return (this year, and EVERY year from now on), to track the non-deductible portion of your IRA contributions, which you will recover ratably (proportionally) over the time you take distributions (No, you can't choose to take them all out at once.) If you put in $6K and do not want to put in more than the $3,600 deductible portion, bad news: You would have to arrange with the IRA trustee to change the reportable 2012 contribution AND writhdraw the excess $2,400 plus whatever it earned from your IRA BY TOMORROW, APRIL 15TH. (Moral of store: Don't make your IRA oontribution until you know what you can deduct!)

Yes, apparently TurboTax gave you the wrong answer ... but I am betting you perhaps forgot to indicate you were a pension plan participant? If not, that is food for thought for anyone using Turbo Tax tonight. :)

by TaxTrollEAreply 16904/14/2013

PS to previous post: The numbers given apply to 2012 ONLY. Everything changes next year. Welcome to my world. :)

by TaxTrollEAreply 17004/14/2013

Thx Tax Troll,

My AGI is $54000. Many things I have read indicate that under $58000, IRA deduction is fully deductible. That is where my confusion comes in. The IRS worksheet contradicts everything else I have read.

by TaxTrollEAreply 17104/14/2013

Here is an example of what I have read:

IRA Deduction Reduced or Eliminated based on Income Phaseouts

Contributions to a traditional IRA might be fully deductible, partially deductible or entirely nondeductible, depending on factors such as your age, total income, marital status, filing status and whether you or your spouse are covered by a retirement plan through your employer. If you are covered by a retirement plan at work, such as a 401(k) or a 403(b) plan, then your IRA contributions might be fully deductible, partially deductible, or not deductible at all. The answer depends on your income level for the year (as measured by a modified adjusted gross income formula).

For 2012 the phaseout range for deducting an IRA contribution when you are covered by a retirement plan at work are as follows:

For single filers: $58,000 to $68,000 For head of household filers: $58,000 to $68,000 For married couples filing jointly: $92,000 to $112,000 For married couples filing separately: $0 to $10,000

by TaxTrollEAreply 17204/14/2013

Addendum:

If your income for the year is below the phaseout limits, your IRA contribution is fully tax-deductible. If your income falls within the phase out range, your IRA contribution will be partially deductible. If your income falls above the phase out range, none of your IRA contribution will be deductible.

by TaxTrollEAreply 17304/14/2013

R168, et al ...

I'm entitled to an Arpil 15 boo-boo, and sorry I made it in giving your answer. :)

The phase out range for unmarrieds is indeed $58-68K ... NOT $68-78K as I said above! Don't know where that came from, but I apologize.

Rest of the info is correct ... including, unfortunately, the fact that you are limited in what you can deduct. You can either file Form 8606 to allow the rest to remain as nondeductible, OR you can have the trustee reduce the 2012 contribution to just the $3,600 you can deduct. If you do the latter, you either have to withdraw the excess and its earnings TODAY, - or - (ONLY if you made the contribution for 2012 in 2013) possibly have it reclassified as an early 2013 contribution to your IRA. - or - (and this again requires you communicate with your IRA trustee quickly) reclassify (NOT "convert") the excess to be a contribution to a Roth IRA.

by TaxTrollEAreply 17404/15/2013

I am so confused.

Again, my AGI is $54,000 - well under $58,000.

So I can take the full $6000 deduction - right? The phase-out starts at $58,000.

I don't understand the whole need to change anything about the IRA since I am under the limit.

Something else I found: "For single filers (or heads of household) that are covered by a retirement plan at work, you can deduct your entire contribution if your modified AGI is $59k or less. Between $59k and $69k you can claim a partial deduction. And above $69k, you can’t deduct your contributions at all. Note: In 2012, the traditional IRA deduction phased our between $58k-$68k."

Again, what am I missing

by TaxTrollEAreply 17504/15/2013

Okay, one LAST comment on this...

Earlier, you told us that your wages were $54K. Now you say that is your AGI. That means that there is NO other income whatsoever on your return, correct??

If that is the case, then you obviously did something wrong on your return, if it came out with the limit that would have applied if you had AGI of $62K. If you are using software, call their tech support. If you did it manually, redo the worksheet in the instructions, since you obviously did something wrong.

Finally, the last article you quoted is obviously referring to 2013 levels, since it is referring to the 2012 ones as an afterthought. You need to not read things out of context.

by TaxTrollEAreply 17604/15/2013

Dear R168:

It's not nice to fuck with accountants/tax preparers on 4/15.

Any other day is fair game, just not today.

by TaxTrollEAreply 17704/15/2013

Yes, my wages and AGI are the same - $54,000.

I am not using tax software to do my return but just pulling calculators and info off the web. Much of this info conflicts with the stupid worksheet the IRS makes you do.

I have a 401k. I put $6000 in a Traditional IRA and deducted the full $6000 from my income so we'll see what happens. I turned 50 in 2012.

I thought my initial post at r168 was fairly clear but I guess not.

I wasn't trying to fuck with anyone, just looking for a clear response.

I appreciate everyone's time and trouble.

by TaxTrollEAreply 17804/15/2013

Man, this must have taken a lot of work. Making fake responses and talking to oneself.

by TaxTrollEAreply 17905/03/2013

Dear Tax Troll,

My final question to you is: What do you do to relax after after the main tax season crunch is over? Do you always take a tropical vacation of some sort? Get multiple, all-over body oil massages? Climb mountains?

by TaxTrollEAreply 18005/12/2013

EA, I turn 70 this year. Was told I must start removing money from my IRA. Is there a recommended percentage?

by TaxTrollEAreply 18105/12/2013

[quote]I turn 70 this year. Was told I must start removing money from my IRA. Is there a recommended percentage?

You must begin Required Minimum Distributions (RMDs) from your IRAs and any other shelterred accounts (employer plans, most annuities, etc.) no later than the year in which you turn 70½ (Note: NOT 70. So if your 70th birthday is July3, 2013, you won't be seventy-and-a-half until 2014, so that is the year you must start taking RMD!)

The amount you take out must be no less than than the percentage mandated in life expectancy tables provided by the IRS, which you can access in Appendix C of IRS Pub 590 (see link below). The percentage may vary based on the age and relationship of your designatured beneciciary.

Confusing? Yes, it is. If you only have an IRA with one company, find an advisor here to do the calculation for you, and set up the required annual distributions. This is very important, because, if you FAIL to take out the RMD, you can be hit with a penalty equal to HALF of the amount you failed to take out!

Some additional info to be aware of:

1. The RMD does not apply to Roth IRAs or any other kind of Roth arrangement.

2. For purposes of computing your RMD, all of your IRA accounts (including SEP and SIMPLE IRAs, but not Roths) are treated as if ONE account. You compute the RMD on the total value at the end of the previous year, but can take the required dollar amount out of one or more accounts as you see fit. You do not have to take an amount out of EACH account.

3. If you have any other type of sheltered accounts, such as an former employer's 401K or retirement plan, you must determine your RMD for each of those separately, and take those amounts out of the specific account involved. (Exception: If you are STILL working, and contributing to an employer plan, you do not have to take distributions from THAT plan only until you cease employment.)

4. You can postpone the first RMD (in the year you turn 70½) to the the first three months of the next calendar year (i.e., before April 1 of that following year). However, if you do, that means you must take TWO distributions that year, one that you postponed and the second for that year itself.

by TaxTrollEAreply 18205/13/2013

r181 here. Thanks for the detailed reply and link, EA.

by TaxTrollEAreply 18305/13/2013

Hey Troll,

Happy 4th.

I've gotten two notices in the mail from some company that says they are Debt Relief Bureau approved. They somehow know the total of the outstanding balances on my 3 credit cards and I'm really pissed that they know it and are contacting me. How can some company find out that information and my address if I never gave them permission?

Thanks

by TaxTrollEAreply 18407/04/2013

R184, they can find this information by pulling your credit report.

by TaxTrollEAreply 18507/04/2013

That sounds ridiculous that any company can find out how much money a person owes without them giving permission to look up that data.

by TaxTrollEAreply 18607/04/2013

NOW you're worried about privacy, R186? A little too late. Check the reams of small print that came with your credit cards.

Don't want corporations/people to know your biz? Pay cash.

by TaxTrollEAreply 18707/04/2013
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