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

[alkemyst]

Originally posted by: Michael
CPA - All I know is that the professionals I know are real careful about giving public advice without the right type of insurance and disclaimers. I wouldn't do it, but I'm not as much an expert on US tax issues (unless it pertains to something that I faced in my own return, which is relatively complicated but not anywhere near as much as I've seen).

I would never take advice from a forum like this one and would pay a professional if I really needed the help, but maybe that's just me - I'm pretty careful overall.

Now back to the books, I was in NYC presenting at an investor conference earlier this week (talk about watching my words as we're in a quiet period) and was there over the Xmas break as well so the 2 x 3 hour changes have wacked me out a little. Need to check our Q4 numbers one more time.

Michael

Do you have the habit of wearing a tin foil beanie when you go outside too? man you personify paranoia.

 

[alkemyst]

Originally posted by: flot
One question and one comment:

Question: I'm a pretty smart guy and I can muddle my way through most tax info I read. To save myself hassle, I use turbotax, which frequently points out other tax opportunities, which rarely if ever apply to me. I have any number of jackass friends who always laugh at tax time and say things like "I have this great accountant who saves me a bundle every year on my taxes!" I have done my research and believe I have a good understanding of the various ways I can save on my taxes (which, being single with one regular job, boils down basically to me buying a house, and itemizing my interest and a few other things and that's about it) and I see few "loopholes" that apply. Even with some liberal stretching of the truth, I just plain don't see a lot of opportunity. I guess my question is, are their tax people just outright lying for them, or are my friends just completely deluding themselves??

Comment: A number of people have talked about their homes, renting out rooms and/or deducting for a home office. It is my understanding that under the semi-recent (last 5-6 years?) changes in tax law that basically allow you to NOT pay taxes on the profit from the sale of your home, that it is generally preferred NOT to deduct anything related to your house anymore, because when you go to SELL your house, you'll have to suddenly pay tax on the portion that you claimed you had used for business purposes... I could be wrong there, but you guys might want to do some more reading on that.

The more complicated your tax situation is the more a professional can save you money....chances are a good pro will have seen the situation before.

If you just use the standard 1040A or EZ and that suits your needs (no excessive investments, real estate rental, contract/self-employed business, etc) then a smart home preparer can sift through the applicable forms and be done with it.

Now if you do have alot of investments, business income, contract work, real estate/rentals etc, a professional can use a combination of the law, little known forms/worksheets, and even loopholes. Not all pros are good though....my brother was using one that saved him quite a bit (he thought)....the guy made a couple mistakes on purchasing IPO's to late for his company one too many times and was fired....the next guy saved him a TON more money and even was able to go back and save more. Now my brother owns his own business plus makes 6 figures from a regular job elsewhere. The more you make the more you can write off.

You don't have to pay taxes on the profit of a house according to the 250k/500k rule every two years with 2 of the last five years prior to the sale being lived in......

Business purposes is too vague....if using it for rentals (multi units) then usually that portion is excluded from the exemption (you are taxed fully on the gains from the rentals portion of the residence), however if renting the whole house out for even 3 of the last five years (as long as you lived in the house for 2 of them) I believe you can still be exempt, as well as if using a home office inside it.

http://www.turbotax.com/articles/FAQonUsingYourHomeforBusinessorRentBeforeSale.html is a outline of the rules.

Å

 

[alkemyst]

Originally posted by: pyonir
CPA (or anyone that knows):

Would it be worth it to claim the school loan interest i paid last year? it is only about $240. Would it even be worth it?

Thanks

It's worth it if $240 matters to you I think school loan interest is almost always a direct write off up to the limit allowed up to $2500 as long as you make $50k or less and 100k or less if joint.

The worksheet is on page 31 of the 1040 book....

Å

 

[alkemyst]

Originally posted by: wyvrn

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.

What are the tests? Is their a place on the IRS website I can find out, like a downloadable form? Thanks

http://www.irs.gov/formspubs/lists/0,,id=97817,00.html

that has them all in form number order, there are also lists by date and fill-in forms (where you can type the answers in on the PC) available.

I haven't had to go to the library or post office in a few years

Å

 

[BrunoPuntzJones]

Woops, I guess it would help if I did actually say the name of the credit I've edited my post to show it.

Here it is:

Retirement Savings Contribution Credit

Few will be able to make use of it to a great extent. Though someone under 25K AGI who put in $2000, will get a straight $200 credit. Not shabby.

My question is: If I started a business as a hobby and make zero profit from it, should I bother mentioning it? To give an example, say I sell cookies to friends but my materials cost for the cookies far exceeds the "income" I get from it. From a tax perspective, the IRS should not care about this right? Also, since I am doing it as a hobby/learning experience, I am not an official business. That is, I don't have a license, or office space, or employees (except myself). On a related note, could I claim a loss? Since I am losing money.

You can only claim losses to the extent of your gains, and even then it's an itemized deduction (2% AGI).

If you make money 3 out of the last 5 years, the IRS doesn't see it as a hobby. So you should keep track of what you are doing...I honestly don't know if you could get hit by the IRS as being a taxable bidness, and then turn around and say you wanted to do a net operating loss carryback...

Would it be worth it to claim the school loan interest i paid last year? it is only about $240. Would it even be worth it?

In a 15% bracket that's $36. I can do the paperwork in a couple of minutes. Hey that'd buy 30+ tacos or Prince of Persia: The Sands of Time with Splinter Cell. But that's just me.

 

[pyonir]

Originally posted by: alkemyst

Originally posted by: pyonir
CPA (or anyone that knows):

Would it be worth it to claim the school loan interest i paid last year? it is only about $240. Would it even be worth it?

Thanks

It's worth it if $240 matters to you I think school loan interest is almost always a direct write off up to the limit allowed up to $2500 as long as you make $50k or less and 100k or less if joint.

The worksheet is on page 31 of the 1040 book....

Å

Thank you sir!

 

[alkemyst]

Originally posted by: BrunoPuntzJones

Would it be worth it to claim the school loan interest i paid last year? it is only about $240. Would it even be worth it?

In a 15% bracket that's $36. I can do the paperwork in a couple of minutes. Hey that'd buy 30+ tacos or Prince of Persia: The Sands of Time with Splinter Cell. But that's just me.

School interest doesn't work like that. He would more than likely get 100% of the $240 back up to $2500 if he paid that much and stayed under the 50k/100k income brackets.

The paperwork is all of about 8 boxes on a worksheet and including you line 22 income - all the deductions on lines 23 or whatever to 32 I think (basically the adj. gross income).

Also to look into especially if independent: the Hope and Lifetime Learning Credits....I don't have them in front of me but I think the Hope you can only claim for the first two years of approved post-secondary school (or two years total I was told, but I am not sure if that is just a loophole or wrong info to claim your Junior and Senior years if you did not claim your freshman and sophomore ones), once that is done then the Lifetime Learning can be used I think indefinitely each year (it's pretty limited though). Keep in mine too that not all 'school costs' are considered part of these deductions. These two deductions are more percentage based and income level dependant whereas the school loan interest is a nice easy write off for even those with nice incomes.

My filing this year is nuts with being self-employed....I wish I was able to get into a house before the end of the year though.

Å

 

[KK]

Got a question about giving to charity. What is the dollar amount limit before you have to have a reciept? Like if I was to drop of some clothing in one of the charity dropboxes, how much can I write off.

KK

 

[alkemyst]

Originally posted by: KK
Got a question about giving to charity. What is the dollar amount limit before you have to have a reciept? Like if I was to drop of some clothing in one of the charity dropboxes, how much can I write off.

KK

I know it's pretty low and outlined right on the form / instructions themselves.

Å

 

[EagleKeeper]

Originally posted by: sygyzy
My question is: If I started a business as a hobby and make zero profit from it, should I bother mentioning it? To give an example, say I sell cookies to friends but my materials cost for the cookies far exceeds the "income" I get from it. From a tax perspective, the IRS should not care about this right? Also, since I am doing it as a hobby/learning experience, I am not an official business. That is, I don't have a license, or office space, or employees (except myself). On a related note, could I claim a loss? Since I am losing money.

IRS Hobby Link - Is it a Business or a Hobby?

It is generally accepted that people prefer to make a living doing something they like. If you are thinking of starting a business but it does not provide you with "a living," or make a profit, your expenses may not be deductible. Expenses connected with your business activities may be tax deductible or limited to the rules for hobby expenses. The limit on not-for-profit (hobby) losses applies to individuals, partnerships, estates, trusts, and S corporations . It does not apply to corporations other than S corporations.

In determining whether you are carrying on an activity for profit, all the facts should be taken into account. No one factor alone is decisive. Among the factors to consider are whether:


You carry on the activity in a business-like manner.

The time and effort you put into the activity indicate you intend to make it profitable.

You depend on income from the activity for your livelihood.

Your losses are due to circumstances beyond your control (or are normal in the start-up phase of your type of business).

You change your methods of operation in an attempt to improve profitability.

You, or your advisors, have the knowledge needed to carry on the activity as a successful business.

You were successful in making a profit in similar activities in the past.

The activity makes a profit in some years (and the amount of profit it makes).

You can expect to make a future profit from the appreciation of the assets used in the activity.

For details about not-for-profit activities, refer to Chapter 1 in Publication 535, Business Expenses. The chapter explains how to determine whether your activity is carried on to make a profit and how to figure the amount of loss you can deduct. For further information on the status of your business you may also consider the sources provided in our Tax Assistance page.

 

[EagleKeeper]

Originally posted by: alkemyst

Originally posted by: wyvrn

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.

What are the tests? Is their a place on the IRS website I can find out, like a downloadable form? Thanks

http://www.irs.gov/formspubs/lists/0,,id=97817,00.html

that has them all in form number order, there are also lists by date and fill-in forms (where you can type the answers in on the PC) available.

I haven't had to go to the library or post office in a few years

Å

IRS FAQ - Referencing Pub 527

 

[EagleKeeper]

Originally posted by: alkemyst

Originally posted by: pyonir
CPA (or anyone that knows):

Would it be worth it to claim the school loan interest i paid last year? it is only about $240. Would it even be worth it?

Thanks

It's worth it if $240 matters to you I think school loan interest is almost always a direct write off up to the limit allowed up to $2500 as long as you make $50k or less and 100k or less if joint.

The worksheet is on page 31 of the 1040 book....

Å

IRS FAQ - Student Loan Interest

IRS Pub Student Loan Interest Deduction

However, there is a special deduction allowed for paying interest on a student loan (also known as an education loan). This deduction can reduce the amount of your income subject to tax by up to $2,500 in 2003.

The student loan interest deduction is taken as an adjustment to income. This means you can claim this deduction even if you do not itemize deductions on Schedule A (Form 1040).

 

[EagleKeeper]

Originally posted by: KK
Got a question about giving to charity. What is the dollar amount limit before you have to have a reciept? Like if I was to drop of some clothing in one of the charity dropboxes, how much can I write off.

KK

$500 was the normal limit, before you have to fully itemize and have paperwork to back up the donations.

Noncash contributions. If your total deduction for all noncash contributions for the year is over $500, you must complete Section A of Form 8283, and attach it to your Form 1040

IRSPublication 526 (12/2000), Charitable Contributions

 

[Michael]

alkemyst - I know of several CPAs that have been sued for "bad" tax advice and also know that it is easy to make a mistake giving advice in a forum like this one and cause a problem for someone taking the advice. I also know the rules of 2 Big 4 CPA firms and what they tell their employees about giving out advice in forums like this, especially after claiming to be a CPA.

Personally, I'm even more careful because I'm a SEC reporting officer for my company and am even more exposed than the usual person.

So, yes, I'm a little paranoid on this type of topic. But they are out to get me.

Michael

 

[CPA]

Originally posted by: Michael
alkemyst - I know of several CPAs that have been sued for "bad" tax advice and also know that it is easy to make a mistake giving advice in a forum like this one and cause a problem for someone taking the advice. I also know the rules of 2 Big 4 CPA firms and what they tell their employees about giving out advice in forums like this, especially after claiming to be a CPA.

Personally, I'm even more careful because I'm a SEC reporting officer for my company and am even more exposed than the usual person.

So, yes, I'm a little paranoid on this type of topic. But they are out to get me.

Michael

Michael, I can understand, somewhat, you fear, but there is a big difference between providing advice and providing tax law. We are not proclaiming to provide advice, only provide the rules as the pertain to the situation. We are acting as the reference quide, supported by actual regs. Yes, there is still some risk in that, but I take risk in my every day ordinary job.

While I am not the reporting officer, I do privide support and documentation on our 10-Q and K filings, and of course my CPA credentials are out here to. To me, though, it's not that big of a deal.

 

[CPA]

Originally posted by: gluck
Just another state tax question. I posted it again as didn't hear from any of the tax experts....

I came down from CA for a contract to TX in Nov '02. Filled 02 taxes from CA. I am here in TX since then. For six months in 03 my employer taxed me CA state taxes. Then he changed my address to the one in TX and stopped cutting the CA taxes.
So where do I file my taxes from this year ? CA or TX ? If TX then would I get my CA state tax back ? What should I got for that ?
Is my scenario complex ? Would I need a CPA doing the taxes ?

YHPM

 

[Squisher]

Poor CPA(and it seems EagleKeeper), you really opened a can of worms when you started this thread. Here's my question.

We're a two income couple. I'm just a working grunt, but my wife is a regional manager with a home office and tons of business expenses, some are paid for by her employer others are not. I've been doing our returns using TurboTax the last few years.

Should I find someone to do our taxes? If so, what would be best a CPA or another profession?

And, how do I find a competent one outside of word of mouth?

 

[Soybomb]

Cool thread, thanks for your time everyone

So its been over a tear since I've done my taxed but let me go over the basics. I'm 22, full time student, live away from my dads. Since I've been a full time student my dad could claim me as a dependent and I won't be able to claim myself right? Also I work and made probably 14k during the year. I've used all my investments and everything to pay for college so theres nothing there. I assume I'm best to just claim standard deductions and include student loan interest in it?

 

[alkemyst]

Originally posted by: Soybomb
Cool thread, thanks for your time everyone

So its been over a tear since I've done my taxed but let me go over the basics. I'm 22, full time student, live away from my dads. Since I've been a full time student my dad could claim me as a dependent and I won't be able to claim myself right? Also I work and made probably 14k during the year. I've used all my investments and everything to pay for college so theres nothing there. I assume I'm best to just claim standard deductions and include student loan interest in it?

It's been over a year since most probably have done their's too . If you are claimed as a dependant you cannot claim yourself as one. If you are paying your own way then your parents should not be claiming you. Even if you used investments to pay for college any interest made or gains are still applicable (I don't know if you are thinking if you 'cash out' before year-end you don't have to report them, but you do)...

Also school loan interest cannot be included if you have subsidized loans....you have to report what the loan tax form (a 1099X I think) says. I think you can report school fees though even if loans paid for them, but not 'free money' like grants and scholarships. Should be pretty easy to grab the 1040A or even EZ (not sure if school deductions are on the EZ) and just go down the line , taxes are pretty easy when you don't have a lot of variables.

You want your W2's, your 1099X (or whatever from the loan people), your school fee receipts, and the 1040 form/inst. Then just go down the line Check into the Hope deduction if you haven't used it yet (if you haven't you can retroactively claim it I think back 3 years) if you have for two years then the Lifetime Learning deduction is in your best interest, it's more flexible but not as good as a Hope deduction if you can claim that....you can't claim both. These are outside of the school loan interest deduction. If you sold a lot of investments and took a loss you may be able to write those off.

Å

 

[DealMonkey]

Wow, what a great thread - thanks for providing it CPA! OK, here's a question for you:

My wife is a salaried FT employee. I am self-employed Schedule C. My wife received a hefty retirement contribution from her company at the end of 2003 who told her "Go to Schwab and open a SEP-IRA and deposit these funds." Which I thought was strange, since normally a company will have a third-party retirement provider who manages the employee's IRA contributions & also I thought SEP IRAs were only for self-employed people.

Anyhow, my question is: Every year, I make a contribution to my SEP-IRA, generally the maximum allowed based on my income. Is there some way, that my wife could deposit her funds into my SEP-IRA account (perhaps I can switch it to a joint account for this purpose) and have it count towards both? Meaning, her funds go into a retirement account and therefore she isn't taxed on them or penalized AND at the same time, count as a contribution to my SEP-IRA for 2003 thereby lowering my taxable income?

I hope that makes sense.

 

[EagleKeeper]

Originally posted by: Squisher
Poor CPA(and it seems EagleKeeper), you really opened a can of worms when you started this thread. Here's my question.

We're a two income couple. I'm just a working grunt, but my wife is a regional manager with a home office and tons of business expenses, some are paid for by her employer others are not. I've been doing our returns using TurboTax the last few years.

Should I find someone to do our taxes? If so, what would be best a CPA or another profession?

And, how do I find a competent one outside of word of mouth?

Have you had a problem doing your taxes up until the present time.
If nothing has really changed with your situation, then there would be no need.
As long as the split business expenses are accounted for, you seem to be doing OK.

I will let CPA give you recommendation on how to find a decent tax person if you feel a need to.

 

[EagleKeeper]

Originally posted by: DealMonkey
Wow, what a great thread - thanks for providing it CPA! OK, here's a question for you:

My wife is a salaried FT employee. I am self-employed Schedule C. My wife received a hefty retirement contribution from her company at the end of 2003 who told her "Go to Schwab and open a SEP-IRA and deposit these funds." Which I thought was strange, since normally a company will have a third-party retirement provider who manages the employee's IRA contributions & also I thought SEP IRAs were only for self-employed people.

Anyhow, my question is: Every year, I make a contribution to my SEP-IRA, generally the maximum allowed based on my income. Is there some way, that my wife could deposit her funds into my SEP-IRA account (perhaps I can switch it to a joint account for this purpose) and have it count towards both? Meaning, her funds go into a retirement account and therefore she isn't taxed on them or penalized AND at the same time, count as a contribution to my SEP-IRA for 2003 thereby lowering my taxable income?

I hope that makes sense.

Indivigual Retirement Account.

Just have her set up another IRA or similar account. Assuming that the two of you file joint, then it makes no difference if she has an account.
If you filed seperately, then it is her money/income, not yours.

Talk to whoever is the custodian for your IRA and explain what you wish to do.

 

[shazbot]

question for the CPA's, should be pretty simple. I'm a college student on full scholarship. I don't think i've done it, but should I have declared my scholarships as income? And also, this past year, I only made about $770 doing some work for a professor, thats all I made, and thats well below my states income tax req's, but i read somewhere that the federal limit is $750. The catch is that i did some stock trading, and made probably around 8k last year. What kinda tax should I be paying on my capital gains? I wasn't sure if it was dependent on my regular income tax bracket, or since they were all less than 1 year holdings, if it was taxed @ a higher %.

 

[alkemyst]

Originally posted by: shazbot
question for the CPA's, should be pretty simple. I'm a college student on full scholarship. I don't think i've done it, but should I have declared my scholarships as income? And also, this past year, I only made about $770 doing some work for a professor, thats all I made, and thats well below my states income tax req's, but i read somewhere that the federal limit is $750. The catch is that i did some stock trading, and made probably around 8k last year. What kinda tax should I be paying on my capital gains? I wasn't sure if it was dependent on my regular income tax bracket, or since they were all less than 1 year holdings, if it was taxed @ a higher %.

Since you have already contradicted things above hopefully we have the whole picture.

Are you dependent or independent?

Any free money you recieve is income and fully taxable....the IRS however, allows you to deduct (from the gross amount) any tuition and fees you had to pay for your education. (I think there is a limit on the amount for books allowed, but that would be in the instructions). Loans do not get reported as income whether subsidized or not, however you can write off any interest that you pay.

You made about $9800 of income + the scholarships....for the average student after tuition and fees chances are 'what's left' is less than their standard deduction so they are pretty much done with worrying about tax. You probably made higher than average income for students.

However, you were implying an income picture of only $770 which isn't accurate.

Was the $8k all profit or how much you sold it all for? Did you buy at a discount or with any options? Stock fees and management are deductable usually. The law changed May 5th 2003 so depending on when you sold determines the 'law' you fall under. 1040 Schedule D is where you'd figure it out.

Å

 

[tw1164]

My fiancé and I bought a house this year. Both of our names are on the mortgage. How do we deduct the mortgage interest? Do we each claim 50/50, or could we do 100/0%. Which way is normally better?

Thanks in advance