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

[alkemyst]

If the interest is split, whoever didn't get the 1098 needs to include the other's name and SSN on Schedule A.

As far as what scenario is best for you, that is impossible to determine without knowing the rest. However chances are two months or so of interest is not enough to want to give up your standard deductions (you cannot take the standard and itemize at the same time)....what is normally better is to determine who has the tax burden (usually the 'man' will have a higher income and more taxes due, while the 'woman' a lower income and is already perhaps looking at a refund).

You will not be able to file jointly though, that is reserved for married couples only. I am not sure if that will get incorrectly recommended.

Å

 

[DealMonkey]

Originally posted by: 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.

Eaglekeeper - thanks for the advice. We file jointly, but perhaps my question wasn't phrased properly. Because she rec'd the disbursement and it's intended for an IRA and I also contribute to my SEP IRA annually, I thought we could kill two birds w/ one stone, so to speak.

From her point of view, as long as it ends up in an IRA acct she doesn't suffer any penalties or taxes for the disbursement. From my point of view, as long as I contribute to a SEP IRA for 2003, it reduces my Schedule C income which passes thru to our joint return. So, I was trying to determine if one deposit would accomplish both?

 

[guapo337]

I am not in a tax bracket, but I still had funds withheld for income tax purposes by my employer (I'm only 16). These should all be refunded, yes? When will I recieve the form that I need to send in to get it refunded? How long will it take for me to get my money?

 

[wyvrn]

Thanks CPA

This is a question regarding property. I have a rental property I am going to sell this year. I am going to take the return from it and buy a new house to live in. Isn't there a tax exemption (1031?) that if I sell a property but roll the proceeds into a new one within 6 months, that I avoid capital gains tax until I sell the new property? Meaning I shouldn't have any tax to pay on the gains until I sell the new property years down the line. Can I do this?

 

[KarenMarie]

I appreciate your tima, CPA.

I was a single mom of one daughter for ages. I am self employeed and up until now, being head of household single mom always got me a refund. I never do a 1099, just file as self employeed. Anyway, my daughter turned 19trs old last October, so I guess I can no longer claim her as a dependent. She does not work, but is a full time student abroad. I pay for all of that cash from my pocket. On the books, my income shows very low.

Any suggestions on how I do not get hammered on taxes now. I can still claim head of household and myself as a deduction, I suppose, but normally they want to tax me approx. $3,000. right off the top before biz. expenses. I don't have $3,000. worth of expenses. I know I can claim something for her going to college, but any other suggestions that will make me not get hammered?

Thanks so much,
KarenMarie (New Jersey)

 

[shazbot]

Originally posted by: 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

I'm a dependent.

So you're saying that I should have reported my scholarships the past 4 years....? b/c what ended up happening is for the 1st two years of college, they charged my student account for tuition + boarding, but then gave me a credit in the amount of my scholarship, which was about 12k. After that, they gave me an additional 2k for things like living expenses, & food. Come junior/senior year, I moved off campus, so instead of giving me a credit for boarding, the school just cut me a check for I think 5k to cover my living expenses. So in summary, I got checks for 2k per semester freshmen/soph year, and checks of 7k per semester junior/senior year. The scholarship total is for 14k.

you're saying that I should have declared 14k as income all 4 of my college years?

and yea, the 8k's realized gains. I haven't quite figured out the exact gains - transaction costs yet, but after its all said & done, it should be somewhere around that.

and I used actual work to figure out my income, didn't realize that i had to count my scholarship as income too...

 

[EagleKeeper]

Originally posted by: DealMonkey

Originally posted by: 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.

Eaglekeeper - thanks for the advice. We file jointly, but perhaps my question wasn't phrased properly. Because she rec'd the disbursement and it's intended for an IRA and I also contribute to my SEP IRA annually, I thought we could kill two birds w/ one stone, so to speak.

From her point of view, as long as it ends up in an IRA acct she doesn't suffer any penalties or taxes for the disbursement. From my point of view, as long as I contribute to a SEP IRA for 2003, it reduces my Schedule C income which passes thru to our joint return. So, I was trying to determine if one deposit would accomplish both?

1) Please do not use the term kill two birds w/ one stone - Makes me shudder. :brokenheart:
2) Effeciency is not a goal of the IRS :disgust: That is why it is called Indivigual.

3) One deposit for you two, can accomplish what you desire. However, clear instructions for the account management must specify that the funds are to be split into seperated accounts. It is also your responsibility to ensure that these instructions are followed.

 

[EagleKeeper]

Originally posted by: 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

Originally posted by: alkemyst
If the interest is split, whoever didn't get the 1098 needs to include the other's name and SSN on Schedule A.

As far as what scenario is best for you, that is impossible to determine without knowing the rest. However chances are two months or so of interest is not enough to want to give up your standard deductions (you cannot take the standard and itemize at the same time)....what is normally better is to determine who has the tax burden (usually the 'man' will have a higher income and more taxes due, while the 'woman' a lower income and is already perhaps looking at a refund).

You will not be able to file jointly though, that is reserved for married couples only. I am not sure if that will get incorrectly recommended.

Å

The interest and closign costs may allow one of you to use the Schedule A.

 

[EagleKeeper]

Originally posted by: guapo337
I am not in a tax bracket, but I still had funds withheld for income tax purposes by my employer (I'm only 16). These should all be refunded, yes? When will I recieve the form that I need to send in to get it refunded? How long will it take for me to get my money?

The employer is required by law to send the W2/1099 to the last known address by the end of January. Not enforced though.

If you file electronically, you should be able to have the funds deposited into your account 2-3 weeks after that.

TurboTax on the Web Tax Freedom will allow you to file for free if your income is lower than the set thresholds.

The Intuit Tax Freedom Project for the 2003 tax-filing season will be available in mid-January 2004. See you soon!

 

[EagleKeeper]

Originally posted by: wyvrn
Thanks CPA

This is a question regarding property. I have a rental property I am going to sell this year. I am going to take the return from it and buy a new house to live in. Isn't there a tax exemption (1031?) that if I sell a property but roll the proceeds into a new one within 6 months, that I avoid capital gains tax until I sell the new property? Meaning I shouldn't have any tax to pay on the gains until I sell the new property years down the line. Can I do this?

Initial answer and may not be complete.
The IRS treats rental property different than private housing.
Private HOusing has the capital games threshhold. Private does not. You have been depreciating rental property also, to delay the taxes.

FAQ - Rental Property

11.4 Sale or Trade of Business, Depreciation, Rentals: Sales, Trades, Exchanges

Can you sell rental property and reinvest it into rental property without paying capital gains tax?

No. A deferred exchange will be treated as a sale rather than a tax free exchange if the taxpayer actually or constructively receives money on other property in full consideration of the relinguished property. However, rental property may be exchanged directly for other rental property of like kind. Gain realized from such an exchange is deferred. For additional information on like-kind exchanges, refer to Publication 544, Sales and Other Dispositions of Assets.

 

[EagleKeeper]

Originally posted by: KarenMarie
I appreciate your tima, CPA.

I was a single mom of one daughter for ages. I am self employeed and up until now, being head of household single mom always got me a refund. I never do a 1099, just file as self employeed. Anyway, my daughter turned 19trs old last October, so I guess I can no longer claim her as a dependent. She does not work, but is a full time student abroad. I pay for all of that cash from my pocket. On the books, my income shows very low.

Any suggestions on how I do not get hammered on taxes now. I can still claim head of household and myself as a deduction, I suppose, but normally they want to tax me approx. $3,000. right off the top before biz. expenses. I don't have $3,000. worth of expenses. I know I can claim something for her going to college, but any other suggestions that will make me not get hammered?

Thanks so much,
KarenMarie (New Jersey)

Fulltime student - still a dependent. :beer:
Also, check the Hope Scholarship Credit

You can claim yourself as Head of Household as long as you have an elgible dependant. See first line of my response.

I am assuming that you completely checked into any Federal grants and/or scholarships to help defray the educational costs.
Income level , disadvantaged and/or small business, woman

Also, if you have your daughter work for you, some travel costs to/from may be deductable as expenses.

 

[alkemyst]

Originally posted by: KarenMarie
I appreciate your tima, CPA.

I was a single mom of one daughter for ages. I am self employeed and up until now, being head of household single mom always got me a refund. I never do a 1099, just file as self employeed. Anyway, my daughter turned 19trs old last October, so I guess I can no longer claim her as a dependent. She does not work, but is a full time student abroad. I pay for all of that cash from my pocket. On the books, my income shows very low.

Any suggestions on how I do not get hammered on taxes now. I can still claim head of household and myself as a deduction, I suppose, but normally they want to tax me approx. $3,000. right off the top before biz. expenses. I don't have $3,000. worth of expenses. I know I can claim something for her going to college, but any other suggestions that will make me not get hammered?

Thanks so much,
KarenMarie (New Jersey)

someone becoming an adult has nothing to do with claiming them as a independent. You can claim longer....most financial aid programs look at children as dependent even if they file independently until age 24 or 25 (there are exceptions which usually require a marriage involved).

If you are paying for her expenses and education there should be no reason why you cannot still claim her.

Å

 

[EagleKeeper]

Originally posted by: alkemystsomeone becoming an adult has nothing to do with claiming them as a independent. You can claim longer....most financial aid programs look at children as dependent even if they file independently until age 24 or 25 (there are exceptions which usually require a marriage involved).

If you are paying for her expenses and education there should be no reason why you cannot still claim her.

Å

Financial Aid programs do not always dove tail with Federal Tax rules. :disgust:

The Federal has rules for students to be declared as dependants for Head of Household rules. Check Pub 501 when she starts getting more independent.
A 1040 dependant has rules regarding support, the HOH has an age bracket unless a full time student and then only until a certain age.

IRS - FAQ

As a single parent, can I claim head of household filing status as long as I have a child living with me (no matter what the age of the child) and paid for over half the cost of keeping up a home?

As long as you meet the three requirements to qualify for head of household filing status, the age of the qualifying person is immaterial. Please refer to Publication 501, Exemptions, Standard Deduction, and Filing Information , for more information.

 

[alkemyst]

Originally posted by: shazbot

I'm a dependent.

So you're saying that I should have reported my scholarships the past 4 years....? b/c what ended up happening is for the 1st two years of college, they charged my student account for tuition + boarding, but then gave me a credit in the amount of my scholarship, which was about 12k. After that, they gave me an additional 2k for things like living expenses, & food. Come junior/senior year, I moved off campus, so instead of giving me a credit for boarding, the school just cut me a check for I think 5k to cover my living expenses. So in summary, I got checks for 2k per semester freshmen/soph year, and checks of 7k per semester junior/senior year. The scholarship total is for 14k.

you're saying that I should have declared 14k as income all 4 of my college years?

and yea, the 8k's realized gains. I haven't quite figured out the exact gains - transaction costs yet, but after its all said & done, it should be somewhere around that.

and I used actual work to figure out my income, didn't realize that i had to count my scholarship as income too...

Yeah any money not used directly for your education (tuition, fees, books) is considered income. It's a good law as without it there wouldn't be much to stop someone from say creating a scholarship of several million to protect there investments from tax and granting it to a child

Now I have no idea what to do about the deliquency....I'd keep that quiet and talk to on-campus legal about the impact. Chances are the IRS will be lenient on a student, but they are not going to like what is a 'decent' income esp. for a dependent student. It may even require quite a bit out of pocket now. I would DEFINITELY file that 8,000 gain, no way are you going to be able to talk your way out of that one

My brother did not file correctly at all one year (the first year his own business made a profit and a fairly large one as well)....he figured out the error and that he owed quite a bit more than he paid. When he tried to do the 'revision' return, IRS contacted him about all these extra fees and they redid the numbers in such a way that it was obscene....the lady handling the case was an a$$hole....anyways he had to get a tax attorney involved as it was a lot of money....it ended up being adjusted back to the amount he thought, plus penalties and interest of course, and he was given a payment plan.

I don't know which way to go with it now...you are going to need a plan though to handle those 4 years eventually more than likely.

Å

 

[alkemyst]

Originally posted by: EagleKeeper


Financial Aid programs do not always dove tail with Federal Tax rules. :disgust:

Yeah those laws had me having to have about $40-50k in loans I had to pay all the interest on. They need to solve that.

The financial aid department at the time told me they expect independent students to also be able to save 1/3 of their incomes for education. Now that's a big chunk of change for anyone I'd say...I didn't think it a realistic figure....as a matter of fact I told the counsellor (and it was true) if I was able to save 1/3 of my income (I was a mid level banker at the time returning for a new degree) there would be not much of a reason to go back to school or to be trying to increase my earnings . The next thing that sucked was financial aid departments look at last year to figure out this year. So they also looked at although I was now a student my income level was based on mid 5 figures....

Å

 

[EagleKeeper]

Originally posted by: alkemyst

Originally posted by: EagleKeeper


Financial Aid programs do not always dove tail with Federal Tax rules. :disgust:

Yeah those laws had me having to have about $40-50k in loans I had to pay all the interest on. They need to solve that.

The financial aid department at the time told me they expect independent students to also be able to save 1/3 of their incomes for education. Now that's a big chunk of change for anyone I'd say...I didn't think it a realistic figure....as a matter of fact I told the counsellor (and it was true) if I was able to save 1/3 of my income (I was a mid level banker at the time returning for a new degree) there would be not much of a reason to go back to school or to be trying to increase my earnings . The next thing that sucked was financial aid departments look at last year to figure out this year. So they also looked at although I was now a student my income level was based on mid 5 figures....

Å

The liberals feel that the middle class is not supposed to be able to get any assistance for education or anything else. Once you pull yourself out of the gutter, you are expected to be able to pay the soak it to me fees. Those fees are a no braininer to the wealthy and subsidize the lower class who need 1-2 years of remedial education to get the the proper learning level. All caused by the neglect of politicians to properly take care of the higher education system.
:disgust:

 

[shazbot]

alke, what about boarding/living expenses? 'cause thats the one i'm worried about, i got about 10k total a year for those expenses. would those count as directly towards an education?

 

[alkemyst]

Originally posted by: shazbot
alke, what about boarding/living expenses? 'cause thats the one i'm worried about, i got about 10k total a year for those expenses. would those count as directly towards an education?

You will need to do the worksheets, but living is part of life for everyone You can't write that off. Boarding = rent/mortgage has nothing to do with education as that is outside getting an education.

Å

 

[CPA]

Sorry guys and gals that I haven't been on in a couple of days to help answer questions, I had a stomach flu all friggen weekend and I didn't do much but lay in front of the TV and moan and groan to the wife.

Anyway, I want to give a big shout out to EagleKeeper and Alkemyst for answering everyone's questions over the last couple of days. These guys know their stuff, so when you thank me for this thread give them a hand to, as I couldn't handle this alone.

Now, again, my intent of this thread is to answer, with as much validity as possible, based on current tax rules and regs, questions pertaining to 2003 and prior tax issues. I am not going to get in the habit of telling you what you should do or shouldn't do based on your scenarios. I will tell you what you CAN and CAN'T do based on your scenario. This may seem like the same thing, but there is a definite line.

Alright, now let's get back to the questions.

 

[CPA]

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?

Squisher, as I stated above I don't want to get in the habit of telling you what you should or shouldn't do, and unfortunately your questions are right along that line.

I will tell you though, that if you go with someone, anyone, you will have two things to consider. Cost and liability. Your cost to prepare the tax return will be much more than the cost of Turbotax, but is it anymore than the cost of your time? Only you know that. And with liability, you would now have a preparer that would be partially responsible for the return. Of course, they are only responsible to the extent you provide them with accurate data.

For what it's worth, and I've said this before, give 50 different CPAs a tax situation and you'll get 50 different tax returns.

 

[Rage187]

YHPM CPA!

 

[guapo337]

Originally posted by: EagleKeeper

Originally posted by: guapo337
I am not in a tax bracket, but I still had funds withheld for income tax purposes by my employer (I'm only 16). These should all be refunded, yes? When will I recieve the form that I need to send in to get it refunded? How long will it take for me to get my money?

The employer is required by law to send the W2 to the last known address by the end of January. Not enforced though.

If you file electronically, you should be able to have the funds deposited into your account 2-3 weeks after that.

TurboTax on the Web Tax Freedom will allow you to file for free if your income is lower than the set thresholds.

The Intuit Tax Freedom Project for the 2003 tax-filing season will be available in mid-January 2004. See you soon!

sweet. thank you so much.

 

[wyvrn]

Thanks very much

Originally posted by: EagleKeeper

Originally posted by: wyvrn
Thanks CPA

This is a question regarding property. I have a rental property I am going to sell this year. I am going to take the return from it and buy a new house to live in. Isn't there a tax exemption (1031?) that if I sell a property but roll the proceeds into a new one within 6 months, that I avoid capital gains tax until I sell the new property? Meaning I shouldn't have any tax to pay on the gains until I sell the new property years down the line. Can I do this?

Initial answer and may not be complete.
The IRS treats rental property different than private housing.
Private HOusing has the capital games threshhold. Private does not. You have been depreciating rental property also, to delay the taxes.

FAQ - Rental Property

11.4 Sale or Trade of Business, Depreciation, Rentals: Sales, Trades, Exchanges

Can you sell rental property and reinvest it into rental property without paying capital gains tax?

No. A deferred exchange will be treated as a sale rather than a tax free exchange if the taxpayer actually or constructively receives money on other property in full consideration of the relinguished property. However, rental property may be exchanged directly for other rental property of like kind. Gain realized from such an exchange is deferred. For additional information on like-kind exchanges, refer to Publication 544, Sales and Other Dispositions of Assets.

 

[EagleKeeper]

All are welcome

/Takes a bow

 

[dirtboy]

ROTH IRA's & withdrawls for 1st time home buyers

It is my understanding that 1st time home buyers can pull monies out of a ROTH IRA tax & penalty free for use on a new home.

I also understand that you must pass the 5 year test.

My two questions are:

1. I converted (rechartered) my traditional IRA into a ROTH in the 1998 tax year. It is now 2004, which is 6 years later. Does it matter exactly when I made the conversion, or since 5 years have past am I okay?

2. What exactly can I use this money for? Does it have to be for the down payment, or can I use it for closing costs, window coverings, etc?