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[alkemyst]

Originally posted by: Fiveohhh
Here is my situation. Me and my girlfriend bought a house last december and curious how to handle this. I run a small uniform business out of my basement probably did about 10k worth of sales this year(maybe 3k-4k profit). I have a few questions. should i just leave the uniform business out of the picture and pretend like it doesn't exist? also last year we had about 1500 in closing costs that they sent us a form for. I sent it to the guy that did my taxes last year, but he didn't do anything with it. I kinda forgot about it and curious if I should have gotten some extra $ back with it. and lastly if we both live in the house and the mortgage is in both our names, does it matter which one of us files with the house, or can we both do it? and lastly, I've spent a few grand on home improvements is there anything I can do with those?

I'd just like to thank you in advance this has been on my mind for quite awhile, and I don't know any tax people.

I will tell you this 1) if it's a real business even if it takes a loss you better report it....you can be penalized even if $0 tax was owed 2) if it's a real business make sure you can run it from your home...

You both cannot ever file the same deductions this is very illegal (like you and your wife filing separately but both claiming all the interest paid on your home). I don't know the term for it, but it has a name I think....someone got audited doing this and was asking all the bank attorneys for a way out...I left the bank about that time so I have no idea the outcome.

Houses are a great tax shelter though.

Å

 

[Fiveohhh]

Originally posted by: alkemyst

Originally posted by: Fiveohhh
Here is my situation. Me and my girlfriend bought a house last december and curious how to handle this. I run a small uniform business out of my basement probably did about 10k worth of sales this year(maybe 3k-4k profit). I have a few questions. should i just leave the uniform business out of the picture and pretend like it doesn't exist? also last year we had about 1500 in closing costs that they sent us a form for. I sent it to the guy that did my taxes last year, but he didn't do anything with it. I kinda forgot about it and curious if I should have gotten some extra $ back with it. and lastly if we both live in the house and the mortgage is in both our names, does it matter which one of us files with the house, or can we both do it? and lastly, I've spent a few grand on home improvements is there anything I can do with those?

I'd just like to thank you in advance this has been on my mind for quite awhile, and I don't know any tax people.

I will tell you this 1) if it's a real business even if it takes a loss you better report it....you can be penalized even if $0 tax was owed 2) if it's a real business make sure you can run it from your home...

You both cannot ever file the same deductions this is very illegal (like you and your wife filing separately but both claiming all the interest paid on your home). I don't know the term for it, but it has a name I think....someone got audited doing this and was asking all the bank attorneys for a way out...I left the bank about that time so I have no idea the outcome.

Houses are a great tax shelter though.

Å

I guess I phrased that a little wrong I know we both can't do it seperatly, was curious if we could both do it together..I think jointly is the word...

 

[EagleKeeper]

Originally posted by: Fiveohhh
Here is my situation. Me and my girlfriend bought a house last december and curious how to handle this. I run a small uniform business out of my basement probably did about 10k worth of sales this year(maybe 3k-4k profit). I have a few questions. should i just leave the uniform business out of the picture and pretend like it doesn't exist? also last year we had about 1500 in closing costs that they sent us a form for. I sent it to the guy that did my taxes last year, but he didn't do anything with it. I kinda forgot about it and curious if I should have gotten some extra $ back with it. and lastly if we both live in the house and the mortgage is in both our names, does it matter which one of us files with the house, or can we both do it? and lastly, I've spent a few grand on home improvements is there anything I can do with those?

I'd just like to thank you in advance this has been on my mind for quite awhile, and I don't know any tax people.

If you closed on the house in Dec 02, then the closing costs should be accounted for on your 02 taxes. Leaving them out is a loss of money for you. ;( File a 1040X with the proper forms for last year to recoup the $$$. Look at your tax bracket and multiply that by the $1500 to determine what the expected adjustment will net you.

I will not advise you to ignore the business income. The expenses of the direct business, added with examples that have been posted for self employed and treating the business as if it was renting the basement (in terms of expenses of the business) should compenstate more than enough for profit that you stated.

Regarding the mortgage in both names:
From the IRS - Pub 530

More than one borrower. If you and at least one other person (other than your spouse if you file a joint return) were liable for and paid interest on a mortgage that was for your home, and the other person received a Form 1098 showing the interest that was paid during the year, attach a statement to your return explaining this. Show how much of the interest each of you paid, and give the name and address of the person who received the form. Deduct your share of the interest on line 11 of Schedule A (Form 1040), and write ?See attached? to the right of that line.

House improvements should be tracked for determing that tax basis when you sell the home, unless it is used for rental purposes.

The business may chose to improve the work area and deduct those expenses

 

[CPA]

Originally posted by: Bleep

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

Not to start a flamewar or anything but this is not correct.
The only requirement to having a business according to the IRS is the intent to make money which I am sure that the woodworker has intentions of.
If down the road a couple of years he sells some carvings that he made using these tools the tools are a business expense but are not now deductable because of the time lapse involved.
Hobby businesses are just as viable as any other business. The thing is if you intend to make any money from any tool you purchased the cost of the tool is deductable, even the prospect of making money with the tool purchased allows it to be deducted as a expense.
The quote is also incorrect in that if you purchased the tool on the last day of the year and did not make money until the 1st day of the next year it would not be deductable, which on the face of it appears to be in error.

Bleep

No flamewar taken. I do not have all the answers, but I will respond with my best understanding of the code.

My intention of explanation was better stated by you. While intent is indeed the litmus test, you will not get the benefit of the intent unless you show income (not necessarily profit) in 3 of 5 years. If you show no income, the IRS can easily rule this as a hobby and nothing is deductible.

Your other explanation regarding the timing of the deductions is correct, though I would think more abstract than I intended on answering.

 

[Fiveohhh]

Awesome thanks for the info planning on finishing off the basement in a afew weeks anway

 

[CPA]

Originally posted by: EagleKeeper

Originally posted by: polm
Question about Capital Gains and Losses

I am re-filing my 2000 tax returns due to a mistake I made with some Non-Employee Compensation.

In addition to the Schedule SE stuff, I am also wanting to file a Schedule D.

In 2000 I sold a total of $5,416.00 in stocks/bonds that I took a failrly significant loss on (in terms of price purchased vs. price at sale time)

What kind of deduction can I expect to receive for this ?

As a rough estimate, look at the tax bracket % that you were in. Take that % and calculate against the loss.
Make sure that you also account for brokerage fees and other expenses used to keep track of the investments.

Also, Capital Losses are capped at $3,000 per year, after applying all losses against gains.

For example, You had $1,000 in gains, $6,000 in losses. 1000 - 6000 = 5000 in net loss, which you would only be able to take 3,000 as a reduction in income for the current year. The additional 2,000 would be included in your gain/loss calculation in the following year.

 

[FelixDeCat]

CPA did you see my question? Or is this beyond your expertise?

 

[EagleKeeper]

Originally posted by: FelixDeKat
I received a distribution from a 'Qualified Settlement Fund' class action lawsuit last year after a multi-year court battle. The amount was $3,400 (about 1/6th of the actual damages but about 33% of the class period damages, a separate suit is pending against the auditors). This was a settlement amount from a fund that earned interest and paid its own taxes through an administrator until approved by the judge for distribution. No other damages (punitive, etc) other than actual were considered.

The remittance attached to the check seemed somewhat vague on the matter and I have turned the IRS website upside down looking for info. Heres some wording, "The Regulations further provide that whether the distribution to the climant is includable in the claimants gross income is generally determined by reference to the claim in respect to which the distribution is made. " I have more info if you need it.

What do you think?

The key words are reference to the claim in respect to which the distribution is made.

Insurance/Injury claims/payments are not normally taxed.

Question becomes: what was the claim for?

 

[CPA]

Originally posted by: EagleKeeper

Originally posted by: FelixDeKat
I received a distribution from a 'Qualified Settlement Fund' class action lawsuit last year after a multi-year court battle. The amount was $3,400 (about 1/6th of the actual damages but about 33% of the class period damages, a separate suit is pending against the auditors). This was a settlement amount from a fund that earned interest and paid its own taxes through an administrator until approved by the judge for distribution. No other damages (punitive, etc) other than actual were considered.

The remittance attached to the check seemed somewhat vague on the matter and I have turned the IRS website upside down looking for info. Heres some wording, "The Regulations further provide that whether the distribution to the climant is includable in the claimants gross income is generally determined by reference to the claim in respect to which the distribution is made. " I have more info if you need it.

What do you think?

The key words are reference to the claim in respect to which the distribution is made.

Insurance/Injury claims/payments are not normally taxed.

Question becomes: what was the claim for?

Sorry, Felix, EagleKeeper beat me to it. This was going to be my exact question.

 

[CPA]

Originally posted by: EagleKeeper

Originally posted by: Fiveohhh
Here is my situation. Me and my girlfriend bought a house last december and curious how to handle this. I run a small uniform business out of my basement probably did about 10k worth of sales this year(maybe 3k-4k profit). I have a few questions. should i just leave the uniform business out of the picture and pretend like it doesn't exist? also last year we had about 1500 in closing costs that they sent us a form for. I sent it to the guy that did my taxes last year, but he didn't do anything with it. I kinda forgot about it and curious if I should have gotten some extra $ back with it. and lastly if we both live in the house and the mortgage is in both our names, does it matter which one of us files with the house, or can we both do it? and lastly, I've spent a few grand on home improvements is there anything I can do with those?

I'd just like to thank you in advance this has been on my mind for quite awhile, and I don't know any tax people.

If you closed on the house in Dec 02, then the closing costs should be accounted for on your 02 taxes. Leaving them out is a loss of money for you. ;( File a 1040X with the proper forms for last year to recoup the $$$. Look at your tax bracket and multiply that by the $1500 to determine what the expected adjustment will net you.

EagleKeeper,

I believe only prepaid interest and points in a primary mortgage closing cost is allowable as a Schedule A deduction. All other closing costs (filing fees, doc fees, attorny fees, broker fees, etc.) are not deductible. If this was a refinance, then the majority of closing costs would be deductible, but must be allocated over the life of the new loan.

 

[FelixDeCat]

The claim was that shareholders were induced to purchase securites at an inflated price due to the fraudelent representation of its supposed value by the defendants. The dist was to considered as if it was paid directly by them to us.

 

[Fiveohhh]

Originally posted by: CPA

Originally posted by: EagleKeeper

Originally posted by: Fiveohhh
Here is my situation. Me and my girlfriend bought a house last december and curious how to handle this. I run a small uniform business out of my basement probably did about 10k worth of sales this year(maybe 3k-4k profit). I have a few questions. should i just leave the uniform business out of the picture and pretend like it doesn't exist? also last year we had about 1500 in closing costs that they sent us a form for. I sent it to the guy that did my taxes last year, but he didn't do anything with it. I kinda forgot about it and curious if I should have gotten some extra $ back with it. and lastly if we both live in the house and the mortgage is in both our names, does it matter which one of us files with the house, or can we both do it? and lastly, I've spent a few grand on home improvements is there anything I can do with those?

I'd just like to thank you in advance this has been on my mind for quite awhile, and I don't know any tax people.

If you closed on the house in Dec 02, then the closing costs should be accounted for on your 02 taxes. Leaving them out is a loss of money for you. ;( File a 1040X with the proper forms for last year to recoup the $$$. Look at your tax bracket and multiply that by the $1500 to determine what the expected adjustment will net you.

EagleKeeper,

I believe only prepaid interest and points in a primary mortgage closing cost is allowable as a Schedule A deduction. All other closing costs (filing fees, doc fees, attorny fees, broker fees, etc.) are not deductible. If this was a refinance, then the majority of closing costs would be deductible, but must be allocated over the life of the new loan.

I just dug out the slip and there was $80 in prepaid interest, and 1600 in points paid..

 

[CPA]

Originally posted by: Fiveohhh

Originally posted by: CPA

Originally posted by: EagleKeeper

Originally posted by: Fiveohhh
Here is my situation. Me and my girlfriend bought a house last december and curious how to handle this. I run a small uniform business out of my basement probably did about 10k worth of sales this year(maybe 3k-4k profit). I have a few questions. should i just leave the uniform business out of the picture and pretend like it doesn't exist? also last year we had about 1500 in closing costs that they sent us a form for. I sent it to the guy that did my taxes last year, but he didn't do anything with it. I kinda forgot about it and curious if I should have gotten some extra $ back with it. and lastly if we both live in the house and the mortgage is in both our names, does it matter which one of us files with the house, or can we both do it? and lastly, I've spent a few grand on home improvements is there anything I can do with those?

I'd just like to thank you in advance this has been on my mind for quite awhile, and I don't know any tax people.

If you closed on the house in Dec 02, then the closing costs should be accounted for on your 02 taxes. Leaving them out is a loss of money for you. ;( File a 1040X with the proper forms for last year to recoup the $$$. Look at your tax bracket and multiply that by the $1500 to determine what the expected adjustment will net you.

EagleKeeper,

I believe only prepaid interest and points in a primary mortgage closing cost is allowable as a Schedule A deduction. All other closing costs (filing fees, doc fees, attorny fees, broker fees, etc.) are not deductible. If this was a refinance, then the majority of closing costs would be deductible, but must be allocated over the life of the new loan.

I just dug out the slip and there was $80 in prepaid interest, and 1600 in points paid..

Make sure it was $1600 in actual points, meaning you paid down the interest rate at closing. If so, then yes, your accountant should have included $1680 as a schedule A deduction. Now, that being said, if your accountant used the standard deduction, then you would NOT get the benefit of these deductible items. I'm thinking since you just moved into your house, you had little or no mortgage interest and real estate tax payments. Therefore, your standard deduction was greater than your Itemized deductions (Schedule A).

 

[EagleKeeper]

Originally posted by: CPA

EagleKeeper,

I believe only prepaid interest and points in a primary mortgage closing cost is allowable as a Schedule A deduction. All other closing costs (filing fees, doc fees, attorny fees, broker fees, etc.) are not deductible. If this was a refinance, then the majority of closing costs would be deductible, but must be allocated over the life of the new loan.

My short statement was vague.

What you stated is correct; with some clarification. Fees paid to a taxing authority are considered deductable. this would be the fees charged by the municipality for recording and stamps.

Fees that are not deductible, can be used for the taxable basis when selling the property. Broker fees if used to obtain the loan can be treated as points.

For a refinance, closing cost fees that would normaly be deductible must be pro-rated over the life of the loan, until the loan is completed. If the loan is paid off early, then any remainder of the pro-ration is deductable that year.

 

[EagleKeeper]

Originally posted by: CPA

Originally posted by: Fiveohhh

I just dug out the slip and there was $80 in prepaid interest, and 1600 in points paid..

Make sure it was $1600 in actual points, meaning you paid down the interest rate at closing. If so, then yes, your accountant should have included $1680 as a schedule A deduction. Now, that being said, if your accountant used the standard deduction, then you would NOT get the benefit of these deductible items. I'm thinking since you just moved into your house, you had little or no mortgage interest and real estate tax payments. Therefore, your standard deduction was greater than your Itemized deductions (Schedule A).

If what CPA states, then you are SOL.
Check your tax form used for that year and also your state income tax. You may be able to adjust your state, even if you can not help the Fed.

 

[CPA]

Originally posted by: FelixDeKat
The claim was that shareholders were induced to purchase securites at an inflated price due to the fraudelent representation of its supposed value by the defendants. The dist was to considered as if it was paid directly by them to us.

From the IRS website:

Court awards and damages. To determine if settlement amounts you receive by compromise or judgment must be included in your income, you must consider the item that the settlement replaces. Include the following as ordinary income.

....

Compensation for lost wages or lost profits in most cases.

.....



So, it seems that you have a taxable proceed and must include it in ordinary income.

 

[EagleKeeper]

Originally posted by: FelixDeKat
The claim was that shareholders were induced to purchase securites at an inflated price due to the fraudelent representation of its supposed value by the defendants. The dist was to considered as if it was paid directly by them to us.

I suspect that this should be treated as a Schedule D item.
You have an added value to the original value of the securities.

/edit - Use CPA's reference, however, both should end up with the same result.

 

[CPA]

Originally posted by: EagleKeeper

Originally posted by: CPA

EagleKeeper,

I believe only prepaid interest and points in a primary mortgage closing cost is allowable as a Schedule A deduction. All other closing costs (filing fees, doc fees, attorny fees, broker fees, etc.) are not deductible. If this was a refinance, then the majority of closing costs would be deductible, but must be allocated over the life of the new loan.

Fees paid to a taxing authority are considered deductable.

I knew I was forgetting something.

 

[Vic]

Originally posted by: CPA

Originally posted by: SuperTool
Do I have to live in a house to deduct the interest?

No, as long as you don't rent it out. If you rent it out, there are tests that must be passed in order to get the interest deduction on schedule A.

Actually, IIRC, you have to live in the house at least 14 days a year.

 

[CPA]

Originally posted by: Vic

Originally posted by: CPA

Originally posted by: SuperTool
Do I have to live in a house to deduct the interest?

No, as long as you don't rent it out. If you rent it out, there are tests that must be passed in order to get the interest deduction on schedule A.

Actually, IIRC, you have to live in the house at least 14 days a year.

Correct, that is part of the tests that must be passed.

 

[Homerboy]

Ok heres my question:

I bought stock in my former employer as we went IPO. Needless to say, becuase we were in the telecom industry, we were bankrupt and the stock was worth $0 within a few years.

I bought 300 shares at $11/share through Soloman Smith & Barney (SSB). The company filed Chapter 11 in LATE 2002 but the final liquidation and "death" of the company was in the fall of 2003 (I forget exact dates of the top of my head)

It is to my understanding that I can claim that $3300 loss on my capital gains correct? If so, do I need to contact SSB or will then simply send me Form X-Y?

 

[EagleKeeper]

Originally posted by: CPA

No, as long as you don't rent it out. If you rent it out, there are tests that must be passed in order to get the interest deduction on schedule A.

If the house is used as a rental, the Schedule A interest is not the appropriate place to record this. The interest becomes an expense against the rental income.

 

[CPA]

Originally posted by: Homerboy
Ok heres my question:

I bought stock in my former employer as we went IPO. Needless to say, becuase we were in the telecom industry, we were bankrupt and the stock was worth $0 within a few years.

I bought 300 shares at $11/share through Soloman Smith & Barney (SSB). The company filed Chapter 11 in LATE 2002 but the final liquidation and "death" of the company was in the fall of 2003 (I forget exact dates of the top of my head)

It is to my understanding that I can claim that $3300 loss on my capital gains correct? If so, do I need to contact SSB or will then simply send me Form X-Y?

SSB may send you something, but it's not necessary since you don't send it 1099s. As long as you can prove it in an audit, then you are clear.

As stated in an above topic of capital losses, you must first offset the loss against any gains. Assuming you had 0 gains for the year, you can only claim $3000 as a loss in the current year. Next year, you can use the remaining $300 to offset any gains, or barring any gains, as a reduction to income.

Assuming gains, you can use all of the $3300 to offset them.

 

[FelixDeCat]

Originally posted by: CPA

Originally posted by: FelixDeKat
The claim was that shareholders were induced to purchase securites at an inflated price due to the fraudelent representation of its supposed value by the defendants. The dist was to considered as if it was paid directly by them to us.

From the IRS website:

Court awards and damages. To determine if settlement amounts you receive by compromise or judgment must be included in your income, you must consider the item that the settlement replaces. Include the following as ordinary income.

....

Compensation for lost wages or lost profits in most cases.

.....



So, it seems that you have a taxable proceed and must include it in ordinary income.

And thats where I would disagree. The original securities were wiped out and are currently worth .0005 per share. So I would think that Im still under water on this. A lost profit would imply that not only did I receive my original capital back but was entitled to something in addition. As it stands, I am still under by $8,000 for qualified amounts and $16,000 total. The rest have been written off as capital losses.

 

[CPA]

Originally posted by: EagleKeeper

Originally posted by: CPA

No, as long as you don't rent it out. If you rent it out, there are tests that must be passed in order to get the interest deduction on schedule A.

If the house is used as a rental, the Schedule A interest is not the appropriate place to record this. The interest becomes an expense against the rental income.

This is what I was referring to from IRS website:

"A second home can include any other residence you own, and treat as a second home. You do not have to use the home during the year. However, if you rent it to others, you must also use it as a home during the year for more than the greater of 14 days or 10 percent of the number of days you rent it, for the interest to qualify as home mortgage interest. "