4th Annual Tax Thread - 2006

[49erinnc]

Originally posted by: allisolm

Originally posted by: 49erinnc
[I had surgery this year and I think that I may be able to reach 7.5%. I just want to be sure I'm claiming the right stuff. I plan on deducting my annual deductible that I had to pay out of pocket for surgery, all of my office copays (including dental), prescription copays and remaining balances for my surgery after insurance payments. Am I in the right to deduct all of those? And what about stuff that I've bought such as ice packs, OTC pain relievers, therapeutic devices (TENS unit), etc. that I have used as post-op recovery?

Topic 502 - Medical and Dental Expenses
Don't forget $.20 per mile for driving to appointments, picking up prescriptions, etc. .

Thanks. That's a very helpful link for me. I'm still a little uncertain about whether or not I can deduct medical expenses I've actually paid or incurred. I have several thousand dollars in surgical bills due, for an August, 06 surgery. Obviously, I haven't paid them off but I need to know if I can deduct the total amount I owe (out of pocket) or if I can only deduct what I've paid thus far, since incurring the charges. If I can claim what is owed and not what is paid, then I can definitely hit the 7.5%.

Interesting note about mileage. Every little bit helps and I've certainly put in a lot of miles/parking garage fees for medical treatment this year.

 

[DrPizza]

Re: students being claimed as dependents by the parents

In such situations, why don't you sit down with your parents and some good tax software, figure out the return filing each way: parents claiming you as a dependent vs. you filing as independent. Then, go with the method that results in the greatest return; figure out a fair way to divide the difference.

 

[DrPizza]

Ugghh... any good resources for depreciation? I have a house I rent out, plus I we're just about at that point where we have enough farm income ($1000/year?) to be called a farm, thus I can depreciate the equipment and the barn. What I'm really looking for is what happens in the long term - what are the future tax implications? i.e. if I sell the rental house 5 years down the road. I understand that once I begin a depreciation schedule, I'm stuck in it.

 

[EagleKeeper]

Originally posted by: DrPizza
Ugghh... any good resources for depreciation? I have a house I rent out, plus I we're just about at that point where we have enough farm income ($1000/year?) to be called a farm, thus I can depreciate the equipment and the barn. What I'm really looking for is what happens in the long term - what are the future tax implications? i.e. if I sell the rental house 5 years down the road. I understand that once I begin a depreciation schedule, I'm stuck in it.

Depreciation is automaic at a fixed percentage based on the value of the property.

Tax S/W will handle it for you. If you sell the property, some/all of the depreciation gets recaptured to be taxable.

Any futher assistance on this subject may required you to spend $$ for a professional or dig into the tax code for depreciation.

 

[EagleKeeper]

Originally posted by: mjuszczak
I've never done my taxes before... my dad always did them.

I graudated College in May, and this year moved out on my own, got my own car insurance, got my own health care halfway through the year, etc.

This year I have to do my own taxes. I've held two jobs this year, and have also done a bunch of donating, of which I have receipts for... I've also had about $1200 in co-pays for medical bills, all of which I have receipts for.

Three questions

1) Can I deduct the $50 donation to 501c3's and the $1200 in co-pays for medical bills, or will the standard deduction be cheaper?
2) I've had stocks and forex trades this year, and I assume those places will send me tax statements. Mostly it was a loss. I didn't make any gains at all this year.
3) I declared "0" dependents at both jobs... and i assume I'll get a W2 for each.

My question is: Where do I start? Is there an easy program to do this for me?

Tax S/W will help you organize - you will have to have all the peperwork related to the stock/forex trades, possible from the broker(s) along with any W2s from your work.
If your broker does not have the details; then you are responsible for the numbers.

Losses in the trades will go against gains and then affect income upto a certain point. After that the extra losses are rolled into next year.

The Co-pays are subject to the 7.5% floor before they will have any impact. Then the Schedule A limits will come into play.

You will have to look at the standard deduction and determine if you are better off itemizing using the Schedule A.

 

[EagleKeeper]

Originally posted by: shuttleboi
I just started a new job in November. I received 1000 shares of stock and 3000 options. A friend told me that I would be taxed just for receiving the shares and the options, but I haven't even sold them to incur capitol gains tax. Is he right? Heck, I only receive a third of the 1000 shares and 3000 options per year over the next 3 years. Will my W-2 have all the information related to these stocks?

The W2 may have the info - or you may receive a seperate tax statment.

You do not have to pay tax on the stock until you actual sell it. You need to know what the price of the stock is when you obtain control of the stock. then when you sell it; you will be responsible for the capital gains. Depending on how you receive the stock; the capital gains may be on the actual gain of the stock from the current price or a base value of 0. The same may apply to the options.

 

[EagleKeeper]

Originally posted by: senseamp
Can I deduct my doctor and medical procedure co-pays?
Do I need to itemize to deduct my state income taxes?

Yes and Yes

 

[EagleKeeper]

Originally posted by: chambersc
A follow up question. When am I no longer considered a dependent?

That is trying to prove a negative.

First - can you be claimed as a dependant.

Second, if yes; will you be claimed as a dependant.

If the answer to either question is no, then you are no longer classified as a dependant.

 

[DrPizza]

Originally posted by: EagleKeeper

Originally posted by: DrPizza
Ugghh... any good resources for depreciation? I have a house I rent out, plus I we're just about at that point where we have enough farm income ($1000/year?) to be called a farm, thus I can depreciate the equipment and the barn. What I'm really looking for is what happens in the long term - what are the future tax implications? i.e. if I sell the rental house 5 years down the road. I understand that once I begin a depreciation schedule, I'm stuck in it.

Depreciation is automaic at a fixed percentage based on the value of the property.

Tax S/W will handle it for you. If you sell the property, some/all of the depreciation gets recaptured to be taxable.

Any futher assistance on this subject may required you to spend $$ for a professional or dig into the tax code for depreciation.

Thanks I kinda figured this was going to be a tax accountant year. Wayyy too many questions to ask here (i.e. is purchasing our herd considered an expense? Are they now assets? I received a $50 deposit for an animal that will be paid in full in January; should I work from a cash method or accrual method, etc. Hopefully a good accountant will get us set up correctly.

 

[d3n]

I had a home contractor fall through on a contract. I've heard I can claim the loss on my return. Do I need an itemized return for this?

 

[mattocs]

The wife and I bought a house in October 2006. We were told we could deduct a lot of stuff off of our taxes. Any idea on what could be deducted, and would you suggest we go to H and R or someplace instead of using TurboTax?

 

[d33pt]

1. We got married in 08/2006. Do we need to file joint for 2006?

2. I own a house that I currently deduct. I plan to buy a second house in 2007, and keep the first house. Will it be better to declare the first one as a rental (parents will live in it) or declare it as a second home?

 

[EagleKeeper]

Originally posted by: mattocs
The wife and I bought a house in October 2006. We were told we could deduct a lot of stuff off of our taxes. Any idea on what could be deducted, and would you suggest we go to H and R or someplace instead of using TurboTax?

Look at the closing sheet.
Anything paid to the government becomes deductible as well as points.
Look for anything that contains the words relating to "government fees" or the word "tax".

H&R block can not do anyting without you providing the information to them. Tax S/W will ask you for the same information that H&R block type place will need.

 

[EagleKeeper]

Originally posted by: d33pt
1. We got married in 08/2006. Do we need to file joint for 2006?

2. I own a house that I currently deduct. I plan to buy a second house in 2007, and keep the first house. Will it be better to declare the first one as a rental (parents will live in it) or declare it as a second home?

It will usually be best to file jointly.

If you can use the house as a rental; there will be major tax advantages. You just need to ensure that your parents pay close to fair market value.


This way you obtain the depreciation on the house along with the mortgage, taxes plus any utilities/expenses for the maintenance of the house.

 

[TheSiege]

ok 2 quick questions. My girlfriend has a son, she is going to claim him, since his father is never there. what form should she use? and i work 2 jobs what form should i use? everything else is the typical stuff.

 

[d33pt]

Originally posted by: EagleKeeper

Originally posted by: d33pt
1. We got married in 08/2006. Do we need to file joint for 2006?

2. I own a house that I currently deduct. I plan to buy a second house in 2007, and keep the first house. Will it be better to declare the first one as a rental (parents will live in it) or declare it as a second home?

It will usually be best to file jointly.

If you can use the house as a rental; there will be major tax advantages. You just need to ensure that your parents pay close to fair market value.


This way you obtain the depreciation on the house along with the mortgage, taxes plus any utilities/expenses for the maintenance of the house.

What if my parents won't be paying fair market value? I'm just charging them enough to break even on the mortgage, which is low.

 

[EagleKeeper]

Originally posted by: d33pt

Originally posted by: EagleKeeper

Originally posted by: d33pt
1. We got married in 08/2006. Do we need to file joint for 2006?

2. I own a house that I currently deduct. I plan to buy a second house in 2007, and keep the first house. Will it be better to declare the first one as a rental (parents will live in it) or declare it as a second home?

It will usually be best to file jointly.

If you can use the house as a rental; there will be major tax advantages. You just need to ensure that your parents pay close to fair market value.


This way you obtain the depreciation on the house along with the mortgage, taxes plus any utilities/expenses for the maintenance of the house.

What if my parents won't be paying fair market value? I'm just charging them enough to break even on the mortgage, which is low.

The IRS may take exception to you taking the place as a rental unless you are actually getting near FMV

 

[rasczak]

Originally posted by: alkemyst

Originally posted by: EagleKeeper
If you are classified as a dependant - you loose.

Try your negotiating skills on your parents.

This is a HUGE snafu I heard about in college. Kid is footing the whole bill and his parents are writing them off.

The only way out of this is to go to court if your parents won't see the light of day....unfortunately many colleges look at your parent's income to determine aid unless you are married or have a kid until you are 24 (at least while I was in college).

Colleges also expect you to be able to save 30% of your income toward expenses. When I sat down with the Financial Aid office I flat out told them if I could save 30% of my income, I would not be going back to school.

but if the student is working and getting taxed, he can claim for himself and the parents wouldn't be able to claim him correct?

 

[dxkj]

I started a side thing this year that started as a hobby, but has grown into something I plan on doing for money in the future. IE I spent more on it than i would have if it was just a hobby.

Basically raising and breeding animals and selling them, with the associated costs of cages/enclosures etc.

Is there a limit to how much I can deduct this year from this? Should I treat this as a hobby or as a small side business that I am attempting? I have made $0 this year in this venture, but spent a good amount.

I cashed out some stock to pay for this, and did not pay taxes at that time so hopefully this will partially offset that?

Edit: Also I am using 2 rooms in my house EXCLUSIVELY for this hobby/business and my entire garage. Can I depreciate or deduct anything additional for this? I also use gas in the garage for heating and at least $100 in electricity each month (I can calculate this more accurately fairly easily) Another deduction?

 

[EagleKeeper]

Originally posted by: dxkj
I started a side thing this year that started as a hobby, but has grown into something I plan on doing for money in the future. IE I spent more on it than i would have if it was just a hobby.

Basically raising and breeding animals and selling them, with the associated costs of cages/enclosures etc.

Is there a limit to how much I can deduct this year from this? Should I treat this as a hobby or as a small side business that I am attempting? I have made $0 this year in this venture, but spent a good amount.

I cashed out some stock to pay for this, and did not pay taxes at that time so hopefully this will partially offset that?

Edit: Also I am using 2 rooms in my house EXCLUSIVELY for this hobby/business and my entire garage. Can I depreciate or deduct anything additional for this? I also use gas in the garage for heating and at least $100 in electricity each month (I can calculate this more accurately fairly easily) Another deduction?

If the intent is to turn this into a small business and show income/profit within a 5 year period, then you can use the Schedule C and start deducting the expenses.

I would go easy on the actual room depreciation, but the utilites as a percentage would be fair.

 

[EagleKeeper]

Originally posted by: jpbelauskas

Originally posted by: alkemyst

Originally posted by: EagleKeeper
If you are classified as a dependant - you loose.

Try your negotiating skills on your parents.

This is a HUGE snafu I heard about in college. Kid is footing the whole bill and his parents are writing them off.

The only way out of this is to go to court if your parents won't see the light of day....unfortunately many colleges look at your parent's income to determine aid unless you are married or have a kid until you are 24 (at least while I was in college).

Colleges also expect you to be able to save 30% of your income toward expenses. When I sat down with the Financial Aid office I flat out told them if I could save 30% of my income, I would not be going back to school.

but if the student is working and getting taxed, he can claim for himself and the parents wouldn't be able to claim him correct?

Again, that is between the student and the parent. Look at what benefits the family unit the most.

Just because the student is earning income; is that income enough to support them without parent assistance.

A student can file with dependant status and the parents file w/ them as a dependant.

If the student files as single, then the parent can not claim them.

 

[EagleKeeper]

Originally posted by: TheSiege
ok 2 quick questions. My girlfriend has a son, she is going to claim him, since his father is never there. what form should she use? and i work 2 jobs what form should i use? everything else is the typical stuff.

The gf can use either the 1040A or the 1040., depending on her circumstances.

Both forms allow her to claim the child as a dependant and potential for the EIC.

Depending on your situation, any one of the three forms may work.
If you just have income from wages and nothing else, you may get by with the 1040EZ. If not, then the 1040A will work unless you have additional types of income or are able to use the Schedule A.

 

[EagleKeeper]

Originally posted by: DrPizza

Originally posted by: EagleKeeper

Originally posted by: DrPizza
Ugghh... any good resources for depreciation? I have a house I rent out, plus I we're just about at that point where we have enough farm income ($1000/year?) to be called a farm, thus I can depreciate the equipment and the barn. What I'm really looking for is what happens in the long term - what are the future tax implications? i.e. if I sell the rental house 5 years down the road. I understand that once I begin a depreciation schedule, I'm stuck in it.

Depreciation is automaic at a fixed percentage based on the value of the property.

Tax S/W will handle it for you. If you sell the property, some/all of the depreciation gets recaptured to be taxable.

Any futher assistance on this subject may required you to spend $$ for a professional or dig into the tax code for depreciation.

Thanks I kinda figured this was going to be a tax accountant year. Wayyy too many questions to ask here (i.e. is purchasing our herd considered an expense? Are they now assets? I received a $50 deposit for an animal that will be paid in full in January; should I work from a cash method or accrual method, etc. Hopefully a good accountant will get us set up correctly.

Farming falls under Schedule F.
Instructions

Looking at the instructions; you may be able to get by with Tax S/W that supports the Schedule F.

The basic bare bones low end may not support this form; Check the package contents

 

[EagleKeeper]

Originally posted by: binister
My old company gave me private stock in the company in 99'. They basically gave us a cash bonus, took it back and gave us shares of the company.

I sold the shares back to a current employee this year for 1/50 the price they were sold to me.

How do I claim this loss? There really isn't any paperwork because it was a private party sale.

Without any paperwork showing the "purchase" and "sale"; it would be difficult to claim the loss on the Schedule B.

 

[EagleKeeper]

Originally posted by: d3n
I had a home contractor fall through on a contract. I've heard I can claim the loss on my return. Do I need an itemized return for this?

Topic 453 - Bad Debt Deduction

If someone owes you money that you cannot collect, you may have a bad debt. For a discussion of what constitutes a valid debt, refer to Publication 550, Investment Income and Expenses, and Publication 535, Business Expense. To deduct a bad debt, you must have previously included the amount in your income or loaned out your cash. If you are a cash basis taxpayer, as most individuals are, you may not take a bad debt deduction for income you expected to receive but did not because the amount was never included in your income. For a bad debt, you must show that there was an intention at the time of the transaction to make a loan and not a gift.

There are two kinds of bad debts ? business and nonbusiness. A business bad debt, generally, is one that comes from operating your trade or business. A business deducts its bad debts from gross income when figuring its taxable income. Business bad debts may be deducted in part or in full.

All other bad debts are nonbusiness. Nonbusiness bad debts must be totally worthless to be deductible. You cannot deduct a partially worthless nonbusiness bad debt. You must establish that you have taken reasonable steps to collect the debt and the debt is worthless. It is not necessary to go to court if you can show that a judgment from the court would be uncollectible. You may take the deduction only in the year the debt becomes worthless. A debt becomes worthless when the surrounding facts and circumstances indicate there is no longer any chance the amount owed will be paid. You do not have to wait until a debt is due to determine whether it is worthless.

A nonbusiness bad debt is reported as a short?term capital loss in Part 1 on Form 1040, Schedule D (PDF). It would be subject to the capital loss limitations. A nonbusiness bad debt deduction requires a separate detailed statement attached to your return.