CPA's Annual Tax Time Help - Filing Day is over. This thread can be unstickied.

[CPA]

Alright, a lot of tax questions have been popping up the last couple of days, and since I have been helped numerous times by the denizens of ATOT, I would like to extend my services to helping those with tax questions.

Now, though I am a CPA I don't know everything about taxes - my primary job is not as a tax professional. So if your issue is complex or you feel you are still confused about an issue please consult a tax professional.

Also, I can't promise I will always have an immediate answer and if I don't know, I'll tell you I don't know. I would also ask that some of the other members who know there way around the tax regs (Vic, EagleKeeper, etc.) also pop in and answer any questions when necessary.

So, with that said, let this thread be used as a repository of all tax related questions.

NOTE: While our intent is to answer all questions as accurately as possible, please keep in mind that State tax questions are much more difficult to answer due to the varying state laws and regulations. There may be times we just can not give you an accurate answer, so our suggestion would be to visit your state's tax office website, call their offices or visit a local professional who has a thorough understanding of your state's income tax laws. Thank you.

 

[Dufman]

the sticky sounds like a good idea

 

[kermalou]

i can help somewhat also. though I am not a CPA yet, but well on the way.

 

[PlatinumGold]

bump for the sticky request.

btw, i used h&r block last year never again. of course the year before i used a CPA that charged me out the @ss.

this year, i'm doing them myself.

 

[dullard]

Ok this should be a relatively simple question. I'm in the 10% tax bracket from my normal income sources. In addition, last year I got paid $1500 (total) from a company that I did a bit of consulting work and I own a patent with that company that made money from the patent. I could easilly claim that $1500 as a consulting fee or I could claim that $1500 as royalty. Which is better (ie is there a different tax rate for royalities)? If I claim it as a $1500 consulting fee, do I need to fill out a Schedule C and SE for a self employeed income (and thus pay self employement tax in addition to the 10% income tax)? Or can I just put that $1500 on the "other income" line?

 

[GTaudiophile]

Another sticky request (through April 15).

 

[Ameesh]

Hey CPA, are there any question i can ask a tax professional to know if they are good or not, i know this is a vauge question but with so many people out there offering to do taxes its hard to know whos worth going to.

 

[CPA]

Originally posted by: dullard
Ok this should be a relatively simple question. I'm in the 10% tax bracket from my normal income sources. In addition, last year I got paid $1500 (total) from a company that I did a bit of consulting work and I own a patent with that company that made money from the patent. I could easilly claim that $1500 as a consulting fee or I could claim that $1500 as royalty. Which is better (ie is there a different tax rate for royalities)? If I claim it as a $1500 consulting fee, do I need to fill out a Schedule C and SE for a self employeed income (and thus pay self employement tax in addition to the 10% income tax)? Or can I just put that $1500 on the "other income" line?

The advantage here goes to claiming it as self-employed income. It will allow you to take deductions against that income, thus lowering your taxable income. BTW, have you received a 1099 from the company yet. That could be the determining factor.

 

[dullard]

Originally posted by: CPA
The advantage here goes to claiming it as self-employed income. It will allow you to take deductions against that income, thus lowering your taxable income. BTW, have you received a 1099 from the company yet. That could be the determining factor.

The problem is that I have no deductions to legally claim. I was just talking with the owner today about this (we were trying to figure out if they should file the 1099 or not).

 

[EagleKeeper]

Originally posted by: dullard
Ok this should be a relatively simple question. I'm in the 10% tax bracket from my normal income sources. In addition, last year I got paid $1500 (total) from a company that I did a bit of consulting work and I own a patent with that company that made money from the patent. I could easilly claim that $1500 as a consulting fee or I could claim that $1500 as royalty. Which is better (ie is there a different tax rate for royalities)? If I claim it as a $1500 consulting fee, do I need to fill out a Schedule C and SE for a self employeed income (and thus pay self employement tax in addition to the 10% income tax)? Or can I just put that $1500 on the "other income" line?

You have the option of a Schedule C or 1040 Other Income.
Use of the Schedule C will allow you to start deducting expenses that could be related to the payment; this could easily exceed the amount of the income


More paperwork, but the benifits are greater.

Use of the Other Income, can remove the requirement for the SE tax, however, then you probably do not have enough deductions for Schedule A business expenses.

If always possible, try the Schedule C route.

Tax S/W will allow you to check the results of either option quickly.

 

[EagleKeeper]

Originally posted by: Ameesh
Hey CPA, are there any question i can ask a tax professional to know if they are good or not, i know this is a vauge question but with so many people out there offering to do taxes its hard to know whos worth going to.

None that I know of. Only option may be is recomendations, how long they have been doing it and what their certifications/training are. Anyone can hang out a tax shingle, many do so. Offers/promises of a large refund are baloney.

 

[CPA]

Originally posted by: Ameesh
Hey CPA, are there any question i can ask a tax professional to know if they are good or not, i know this is a vauge question but with so many people out there offering to do taxes its hard to know whos worth going to.

Tough question, cause you can take a tax scenario to 50 different CPAs and get 50 different returns. That's not necessarily an indication of their worthiness, more an indication of the complexity of tax laws.

What I would do is first to eliminate those CPAs/tax professional that seem to pop up only around tax time. You'll know them by the little advertising signs they stick around town, the temporary shop they set up in a strip center or they work only out of their house. Second, I would ask for a reference list. A good tax accountant should have a slew of repeat customers. You may even be able to contact a few. Lastly, I would price shop and eliminate the low-ballers and high-enders and go with someone in the middle, preferably a CPA. That way there is some credibility behind the numbers and, of course, remember a CPA can easily lose their license if they don't show due diligence.

 

[CPA]

Originally posted by: dullard

Originally posted by: CPA
The advantage here goes to claiming it as self-employed income. It will allow you to take deductions against that income, thus lowering your taxable income. BTW, have you received a 1099 from the company yet. That could be the determining factor.

The problem is that I have no deductions to legally claim. I was just talking with the owner today about this (we were trying to figure out if they should file the 1099 or not).

Now, you're getting into something I'd rather not discuss. You would be legally subject to backup withholding if you got caught, plus interest and penalty.

You've got to have some sort of costs. What about the cost of the patent?

 

[GTaudiophile]

What is your opinion of Turbo Tax? Two years ago, my dad, who has a Masters in CFP, did his tax by hand and by using Turbo Tax. He compared the results and found he owed a lot more with Turbo Tax (TT made some wrong assumptions).

I personally think Intuit and the IRS are in cahoots, robbing the middle class of more money.

 

[dullard]

Originally posted by: CPA
Now, you're getting into something I'd rather not discuss. You would be legally subject to backup withholding if you got caught, plus interest and penalty.

You've got to have some sort of costs. What about the cost of the patent?

We definiately want to keep everything legal. We are just thinking about what would be the best legal route to take - is a 1099 the only legal way (they are going to their accountant shortly)?. The only costs I could possilby imagine is driving from school to their place (which I made ~5 trips at ~1 mile each). So yes I could claim the 36 cents per mile deduction, but that is barely worth the paper it is written on. The company paid all patent related costs.

 

[EagleKeeper]

Originally posted by: dullard

Originally posted by: CPA
The advantage here goes to claiming it as self-employed income. It will allow you to take deductions against that income, thus lowering your taxable income. BTW, have you received a 1099 from the company yet. That could be the determining factor.

The problem is that I have no deductions to legally claim. I was just talking with the owner today about this (we were trying to figure out if they should file the 1099 or not).

If the owner does not submit a 1099, there is no tracking.
Deductions can be easy to locate regarding how you originally generated the income.

I have a support contract with a client that pays $100/yr.
If I chose to take a vacation, this cost can offset the income and/or more.

 

[polm]

Originally posted by: GTaudiophile
What is your opinion of Turbo Tax? Two years ago, my dad, who has a Masters in CFP, did his tax by hand and by using Turbo Tax. He compared the results and found he owed a lot more with Turbo Tax (TT made some wrong assumptions).

I personally think Intuit and the IRS are in cahoots, robbing the middle class of more money.

 

[EagleKeeper]

Originally posted by: dullard

Originally posted by: CPA
Now, you're getting into something I'd rather not discuss. You would be legally subject to backup withholding if you got caught, plus interest and penalty.

You've got to have some sort of costs. What about the cost of the patent?

We definiately want to keep everything legal. We are just thinking about what would be the best legal route to take - is a 1099 the only legal way (they are going to their accountant shortly)?. The only costs I could possilby imagine is driving from school to their place (which I made ~5 trips at ~1 mile each). So yes I could claim the 36 cents per mile deduction, but that is barely worth the paper it is written on. The company paid all patent related costs.

Rather than the mileage, you can justify a portion of the cost of the vehicle/insurance/gas/maintainence.
Was a computer used at all within the development of the patent.
Did you talk to the company via phone at all.

Brainstorm!!

 

[EagleKeeper]

Originally posted by: GTaudiophile
What is your opinion of Turbo Tax? Two years ago, my dad, who has a Masters in CFP, did his tax by hand and by using Turbo Tax. He compared the results and found he owed a lot more with Turbo Tax (TT made some wrong assumptions).

I personally think Intuit and the IRS are in cahoots, robbing the middle class of more money.

One can override TT assumptions. think of TT as a fancy spreadsheet. If one does not read the instructions properly on hwat to enter and where, then the calculations will be flawed.

Intuit is taking advantage of the tax system created by Congress. They have competetion. The problem is the E-filing costs/restrictions that the IRS some states impose.

 

[Pliablemoose]

Can I deduct the $1500 worth of woodworking tools I just bought?

(I don't do woodworking for a living)

 

[m2kewl]

if mrs. x worked off the books from jan-sept of 2003 (being paid ~$10k/month) and claimed unemployment. will she be in trouble with the irs???

 

[Vic]

Originally posted by: m2kewl
if mrs. x worked off the books from jan-sept of 2003 (being paid ~$10k/month) and claimed unemployment. will she be in trouble with the irs???

:Q
If she doesn't claim and pay tax on the income? Yes. But that will be all the IRS will care about.
The unemployment is another matter. That could quite possibly be criminal fraud. The state that paid those benefits will most certainly not be happy. They would want the total amount of the benefits back plus they may prosecute and she could even get a few months in the county pokey.

Mrs. X has put herself in quite a pickle there. And she should have known better, especially about the unemployment.

 

[pulse8]

Originally posted by: m2kewl
if mrs. x worked off the books from jan-sept of 2003 (being paid ~$10k/month) and claimed unemployment. will she be in trouble with the irs???

wtf? are you serious?

 

[CPA]

Originally posted by: Pliablemoose
Can I deduct the $1500 worth of woodworking tools I just bought?

(I don't do woodworking for a living)

ummmm, no.

Unless, you can show that you sold some of your woodworking (that it was not just a hobby). Then you could take a section 127 deduction for the full cost.

 

[johnjosh]

cpa what is the chances of someone gettting audited if they are making $200,000 in grose?

p.s i am not asking this for me but for my friend