4th Annual Tax Thread - 2006

[EagleKeeper]

Well boys and girls it's that time of year again. While at times the thousands of regs and tens of thousands of cumbersome forms, worksheets and pages of codes seem infuriating, deep down you all know you love it. Whether it's keeping things in order all year for a quick mid-February filing or a knuckle-clenching, bullet sweating hte current April 16th* midnight filing, when you've finally filed it's better than sex! So, without further delay, we give you:

The 4th Annual Anandtech Tax Time Thread!!!

First order of business, the legal mumbo jumbo:

All responses to questions (primarily from myself and CPA along with some other valued contributers) are based on our knowledge and understanding of the current tax code. That said, we do not expressly give permission to use our opinions and responses as sole binding measure for any user, the intended or not. Seek out a local expert and a second opinion with any tax inquiry. We will not be held liable for any audit, fine, penalty or other consequence due to any user basing a filing primarily on our responses. In other words, you're on your own.

Please understand that the service provided here is not to be considered as the final say in any tax related question or issue. We advise everyone to take caution with accepting the answers posted here and seek a good tax accountant or tax lawyer when necessary, especially those pesky complicated questions. Additionally Anandtech nor Anand have endorsed myself or the other benevolent responders in this thread. So please don't complain to them if you feel like you got a bogus answer. Finally, this thread is NOT meant to offer advice nor do your taxes for you. It is solely to help clear up questions, concerns or misunderstandings that you may have concerning the 2006 Tax Code. None of the responders take responsibility for your final tax preparation. You do!


Secondly, this is important people:

Please post all tax questions in this thread! I will NOT, I repeat, WILL NOT, respond to other threads. Additionally, we strongly encourage all members to post your questions here for the benefit of others. Unless I know you and I like you, I will NOT respond to PMs (that's right, I discriminate - sue me!). And finally, please, for the love of all that's good in the world, read through the thread, there is a good chance your question has already been asked and answered.

Questions that have been answered, will be indicated as such ? you will have to dig through the thread anyhow to find it.

Now, if you're an ambitious one, you can always trudge through the IRS website for help

Oh, and please, try not to PM me or any of the other responders unless you are asked to. Instead, post your question here for all to see, because chances are there is another member with a similar issue. The Mods have been requested to lock any/all other threads that show up dealing with tax issues.

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Okay, moving on. This thread is NOT intended to:

-Answer state tax questions. Sorry folks, states are their own beasts. They all have different rules and regs, heck 7 states don't even have income taxes. We are not about to keep up with 43 different state codes. Therefore, we won't be answering state questions. The best way to get an answer for a state question is to call up the State Treasury or Revenue Dept.

- Endorse any tax software. We can safely say that most of the software does it's job well. Without recommending any particular one, you can choose TaxAct, TaxCut, or TurboTax. Additionally, these and many more sites you actually do your taxes online. Even the IRS website has the ability for you to file online with simple filings.
-Help propagate any illegal tax schemes. Some of us do not appreciate the hospitality of the Federal Government. So keep your schemes out of this thread. Thanks for understanding.

- Start any arguments between the current system, flat tax, national sales tax or any other tax opinion. The thread is to help people, not debate, flame or troll.

Sales tax is still allowed as an itemized deduction this year. While it can be a little complicated, the main points of this deduction are:
a. Publication 600 is the main reference for this deduction and contains the tables for those of us who didn't keep our receipts all year long.
b. Anyone who itemized can take it, regardless of what state you are in, BUT, if you live in a state with local/state income tax you have to choose to use the sales tax or income tax deduction. You CAN'T have both.

Special items/Credits
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There is an energy tax credit for installing enegery efficient fixtures/appliances.

During 2006, individuals can make energy-conscious purchases that will provide tax benefits when filling out their tax returns next year. The credit will also be available for purchases in 2007. Manufacturers offering energy efficient items such as insulation or storm windows can assure their customers that their energy efficient items will qualify for the tax credit if certain energy efficiency requirements are met.

A recent tax law change provides a tax credit to improve the energy efficiency of existing homes. The law provides a 10 percent credit for buying qualified energy efficiency improvements. To qualify, a component must meet or exceed the criteria established by the 2000 International Energy Conservation Code (including supplements) and must be installed in the taxpayer?s main home in the United States.

The following items are eligible:

Insulation systems that reduce heat loss/gain
Exterior windows (including skylights)
Exterior doors
Metal roofs (meeting applicable Energy Star requirements).

In addition, the law provides a credit for costs relating to residential energy property expenses. To qualify as residential energy property, the property must meet certification requirements prescribed by the Secretary of the Treasury and must be installed in the taxpayer?s main home in the United States.


The following items are eligible:

$50 for each advanced main air circulating fan
$150 for each qualified natural gas, propane, or oil furnace or hot water boiler
$300 for each item of qualified energy efficient property.

The maximum credit for all taxable years is $500 ? no more than $200 of the credit can be attributable to expenses for windows.


Additionally, the new law makes a credit available to those who add qualified solar panels, solar water heating equipment, or a fuel cell power plant to their homes in the United States. In general, a qualified fuel cell power plant converts a fuel into electricity using electrochemical means, has an electricity?only generation efficiency of more than 30 percent and generates at least 0.5 kilowatts of electricity.

Taxpayers are allowed one credit equal to 30 percent of the qualified investment in a solar panel up to a maximum credit of $2,000, and another equivalent credit for investing in a solar water heating system. No part of either system can be used to heat a pool or hot tub.


Additionally, taxpayers are also allowed a 30 percent tax credit for the purchase of qualified fuel cell power plants. The credit may not exceed $500 for each .5 kilowatt of capacity.

There is a refund of the "illegal" long distance telephone tax that has been in place for many years. You can dig up old records (41 months of back phone bills), file a special form with your tax return or

Individual taxpayers can take a standard amount from $30 to $60 based on the number of exemptions claimed on their tax return. For those claiming:

one exemption, the standard refund amount is $30
two exemptions, the standard refund amount is $40
three exemptions, the standard refund amount is $50
four exemptions or more, the standard refund amount is $60

The instructions to the 2006 1040 tax forms will provide more information on how to determine the correct number of exemptions. (Because the term ?exemptions? does not appear on Form 1040EZ, people who fill out this form should follow the instructions carefully.)

The standard amount is based on actual telephone usage data, and the amount applicable to a family or other household reflects taxes paid on long-distance or bundled service by similarly sized families or households.

Students:
Hope Credit is for tutition for the first 2 years. = 50%
Lifetime Learning Credit is for any other type of educational advancment. = 20%

Books, laptops, etc do not qualify. Those would have to be entered as expenses on the Form 2106 for those that use Schedule A.

For those of you who enjoy torturing yourself, I present the IRS Web Site.


Previous ATOT Tax Threads
2003
2004
2005


The two sites below have restrictions on their usage and any returns must be started through above links for them to be considered for no charge.

Federal/Intuit Tax Freedom
State/Intuit Tax Freedom

TaxAct states free filing using their online version for Federal.

The below came from cyberia via Hot Deals - Note this does not include E-filing and does not include State.

Originally posted by: cyberia
Free download of H&R Block TaxCut Basic 2006:

TaxCut

Product Comparison Chart:

Chart

All the three main biggies (TurboTax, TaxCut and TaxAct) do the job. Each has slightly different user interfaces and their quirks/irritations. They continually look at the competition and attempt to match them the following year.

All three have state filing. However, if you have multiple states to work with, you MUST purchase a copy for each state that you need to work with.



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Okay, now that that stuff is out of the way, let's get to some helpful insight.

Deadlines (midnight of the date listed for filing deadlines)

W2 - Companies are required to have your W2 POSTMARKED by January 31st. It is NOT required that you have it in your hands by that date. Let's dispel that myth please.

1099 - Companies are required to have your W2 POSTMARKED by January 31st. It is NOT required that you have it in your hands by that date.

Corporate return (S-Corps and other Corporations) ? Thursday, March 15, 2007

Sole Proprietorship return (normal, LLC or otherwise) - Monday, April 17, 2007*

Partnership return (normal, LLC or otherwise) - Monday, April 17, 2007*

Individual return (1040, 1040A or otherwise) - Monday, April 17, 2007*

*Because April 15 falls on a weekend, IRS does not require a postmark date until the following business day.

People in states that send their returns to the Andover, Mass IRS service center are granted an extra day due to Monday being a holiday (Patriots Day)
Just released - Because the City of Washington DC wants a holiday on the 16th, the IRS will be closed. All returns now have until the 17th.


IRS FAQ Index - contains links for below areas

IRS Procedures
Filing Requirements/Status/Dependents/Exemptions
Itemized Deductions/Standard Deductions
Interest/Dividends/Other Types of Income
Pensions and Annuities
Social Security Income
Child Care Credit/Other Credits
Earned Income Tax Credit
Estimated Tax
Capital Gains, Losses/Sale of Home
Sale or Trade of Business, Depreciation, Rentals
Small Business/Self-Employed/Other Business
Aliens and U.S. Citizens Living Abroad
Electronic Filing (e-file)
Magnetic Media Filers
Other (Alternative Minimum Tax, Estates, Trusts, Tax Shelters, State Tax Inquiries)
Individual Retirement Arrangements (IRAs)


Well, sorry for the long post, but just like the IRS code, it takes a lot to do something simple. Now, let the questions begin.

 

[Kaido]

Whoohoo, first!

I started working for myself this year as a "contractor". Basically I do work for my company, then get a check. I get no benefits or anything else to tie me to the company, just checks. About the middle of the year I started up with a second company, same deal - just checks. The second company had me fill out a W-9 I believe and will give me some kind of paper record for tax purposes, while the first company says I'm on my own. I started using TurboTax last year...how do I fill it out properly? Am I an independent contractor? I'm not even sure how to label myself. If it helps at all, I am a college student working part time. Thanks!

 

[EagleKeeper]

Treat yourself as an independent contractor.

You should receive 1099 forms from anyone that sends you checks.

You need to keep very close track of any/all expenses that could be in anyway related/relevant to the work that you do to create that income.

Tax S/W will help you with the Schedule C - however, you need to use your imagination & receipts to help it help you.

Being a part timer, you should not need to worry much about quarterly taxes; however it the income increase, think about putting aside 25% of the income for Uncle Sam and send it in every quarter. At the end of the year these payments will show up to help offset any tax bill still due.

For myself; my wife collects the receipts; however, I have a spreadsheet that I update every week whenever I spend anything. This way I have everything readily available for copy & paste into the tax S/W.

 

[TheSiege]

Im closing on my house around the 1st, maybe even in december, do i have any added tax benefits for this?

 

[EagleKeeper]

If you expect to be able to itemize this year without the house, then it should not make any difference.

If you do not expect to be able to itemize; wait until the 1st. That way you will have the full year of deductions to use along with the deductible closing costs (points, taxes & identified government fees).

 

[GoPackGo]

The IRS has been really slow to release the form for the Individual Energy Tax Credit.

 

[chambersc]

I'm a student. Do I have to fill out anything to get some money back from my tuition (or anything that I've spent on my university, frankly)? Since I'm a dependent, do I not have to worry about anything and that's my parent's responsibility?

 

[foolish501]

Question, the company i worked for asked me to start working from home (did not force me, but really wanted me to do it). can i claim anything on my tax returns because i work from home ?

 

[paulney]

Question:

My business hired international contractors (outsourced). The amount for the projects was less than $600. There is, however, no W-9 for contractors, since they are international. Is there any form I should have filled out in lieu of W-9?

Thanks.

 

[EagleKeeper]

Originally posted by: chambersc
I'm a student. Do I have to fill out anything to get some money back from my tuition (or anything that I've spent on my university, frankly)? Since I'm a dependent, do I not have to worry about anything and that's my parent's responsibility?

If your parents claim you as a dependant, it is their responsibility if they want the credit

 

[EagleKeeper]

Originally posted by: foolish501
Question, the company i worked for asked me to start working from home (did not force me, but really wanted me to do it). can i claim anything on my tax returns because i work from home ?

You can claim home office related expenses.equipment needed for work that you employer does not provide for you.
A proportioinal rent cost based on square footage or if a full room is used, percentage to the # of bedrooms is acceptable.
The proportion can also be use for utilities.
If you are then required to attend meetings, the vehicle expenses come into play.

All of this items will go on a Form 2106 and must be used with the Schedule A.
If you can not itemize, you are out of luck.

It is strongly recommended to get a statement from your employer indicating that you are working from home for their convience.

 

[dquan97]

Originally posted by: chambersc
I'm a student. Do I have to fill out anything to get some money back from my tuition (or anything that I've spent on my university, frankly)? Since I'm a dependent, do I not have to worry about anything and that's my parent's responsibility?

It's your parents' responsibility to report the tuition paid by them to the university as an education credit (either Lifetime or Hope, depending on your standing as a 1,2,3, or 4th yr)

 

[Yossarian]

First, thanks for the time you guys put into this year after year. It is one of the things that makes this forum great.

My question is about gambling winnings. I got a W-2G from a casino. My understanding is that all winnings are reported as income, and all losses as an itemized deduction. Is this correct? Also, what kind of records are required, and how detailed do they have to be?

 

[EagleKeeper]

Originally posted by: Yossarian
First, thanks for the time you guys put into this year after year. It is one of the things that makes this forum great.

My question is about gambling winnings. I got a W-2G from a casino. My understanding is that all winnings are reported as income, and all losses as an itemized deduction. Is this correct? Also, what kind of records are required, and how detailed do they have to be?

You are correct in terms of all winnings (not just what is reported) should be declared. Most gaming places will provide you with a W2-G which will contain the information when a payout was more than $1200.

Only if you itemize using the Schedule A can you deduct your losses (up to the point that you claim winnings).

Again most gaming places will be able to provide you with a printout (when you use their players card) showing your winnings and "donations" with them.

Keeping your losing sports & race tickets and lotto type tickets will provide evidence of your losses.

Be careful on collecting losing tickets from the ground. If an audit happens; the IRS may look at the ticket window and time stamps of the losing tickets.

 

[CaffeineAndStuff]

I've been contributing to a Roth IRA this year but due to various reasons (marriage, bonuses etc) I'll be over the limit for a Roth this year. How do I go about resolving this (I presume I simply contact my broker (Fidelity) to convert to a regular IRA) and what is the cutoff date for this?

 

[alkemyst]

My time is difficult lately, but anyone can feel free to PM me.

I used to file taxes based on an apartment-based business. It was a lot of work, but along with help here I was able to net the least out of pocket to uncle sam.

Unfortunately going back into W2 cost me a $2k tax bill thinking I would be in a house early last year prior to my market going through the roof (900 sqft cottages going for $80k or so went to $300k+ in a few months)

The lotto deal is a new one this year...a few I have talked to are trying to use it (it only works if you are itemizing deductions already)....basically you pay tax on your winnings, but most have a bigger loss in just playing the game.

And yes, there is one person in the office asking for everyone's losing tickets.

 

[Yossarian]

Thanks for your reply. I should have been more clear, this is in regards to poker so there are few financial records from the casino other than the one $700 jackpot win I had. What I did is put that money into an account at the casino, and have been withdrawing (and depositing back a bit) when I visit so there is some paper trail.

 

[EagleKeeper]

Originally posted by: CaffeineAndStuff
I've been contributing to a Roth IRA this year but due to various reasons (marriage, bonuses etc) I'll be over the limit for a Roth this year. How do I go about resolving this (I presume I simply contact my broker (Fidelity) to convert to a regular IRA) and what is the cutoff date for this?

You can NOT convert the excess to an IRA.

Your broker should be able to handle situation for you in returning the excess or just keep it in a seperate investment account.

The cutoff date is the April filing deadline

 

[EagleKeeper]

Originally posted by: Yossarian
Thanks for your reply. I should have been more clear, this is in regards to poker so there are few financial records from the casino other than the one $700 jackpot win I had. What I did is put that money into an account at the casino, and have been withdrawing (and depositing back a bit) when I visit so there is some paper trail.

With that small amount you should have no problem just declaring losses against it.

Losses that you declare do NOT have to be from the same type of wager as the winnings.

 

[EagleKeeper]

Originally posted by: paulney
Question:

My business hired international contractors (outsourced). The amount for the projects was less than $600. There is, however, no W-9 for contractors, since they are international. Is there any form I should have filled out in lieu of W-9?

Thanks.

Form 1042-S should cover the situation. The amounts in question may avoid any tax penalty on your part.

 

[paulney]

Thanks a lot, EagleKeeper! I really appreciate it.

 

[markgm]

I look forward to this thread every year. Thanks for all of the answers!

 

[chambersc]

Originally posted by: dquan97

Originally posted by: chambersc
I'm a student. Do I have to fill out anything to get some money back from my tuition (or anything that I've spent on my university, frankly)? Since I'm a dependent, do I not have to worry about anything and that's my parent's responsibility?

It's your parents' responsibility to report the tuition paid by them to the university as an education credit (either Lifetime or Hope, depending on your standing as a 1,2,3, or 4th yr)

what if they've contributed nothing and I've payed it all?

 

[Rage187]

My first child was born last month.

Can I still get the full years worth of earned income credit?


Also, I moved cross country this year, built a new house and the old house will be sold next week.
Any special things I should do to get the biggest return?

 

[johnjbruin]

No Questions - just dropping in to say "thanks for the public help, keep up the good work"

:beer: