The 2014 Annual Anandtech Tax Time Thread!

[jpiniero]

I've used both in the past and had no problems with either one. You might want to look into whether you need data imported from last year's TT-generated return and if H&R can do that.

Forgot to mention I ended up going with TaxAct. Suited me just fine. Haven't submitted yet since I owe, so I'm not in a rush.

 

[DaWhim]

:thumbsup:
If I moved to another city to start a business, it doesn't make sense that my living expenses are deductible just because I moved, but the business owner who already lived there can't deduct his.

but it is little different when I send myself abroad since my company is based in NY but I am "traveling" in china while conducting business here. It is a form of extended travel.

 

[Fern]

I need some tax advice for this year.

To start off with, I own a LLC in NY that import/export, also file tax as a s-corp. It is only 1 man operation.
I have moved to china last year and should be filing tax as a non-resident citizen.

things are little complicated since I live in china.
Since I relocated for business reason, so I guess anything I do, like rent, foods, transportation should be tax deductible off my business?

When I pay myself from my LLC, do I get to use the foreign income exclusion?

Your situation is somewhat complex. You should begin by focusing on the issue I'll describe below:

RE: Your personal (Form 1040) tax return:

1. Under (US) tax law are you considered to have moved to China, or are you on a temporary work assignment?

The concept of your "Tax Home" is key here. Read this to learn about "Tax Home": http://www.irs.gov/Individuals/Inte...ncome-Exclusion---Tax-Home-in-Foreign-Country

If your tax home has shifted/moved to China you can only deduct certain moving expenses, not rent etc. Here is information on deductible moving expenses: http://www.irs.gov/publications/p521/ar02.html

Here is the form for reporting expenses with instructions: http://www.irs.gov/pub/irs-pdf/f3903.pdf

If you are on a temporary assignment, meaning your tax home has NOT shifted/moved to China, you can deduct your "travel expenses", including rent etc. while you're away from your (tax) home. Read more here and look at Table 1-1: http://www.irs.gov/pub/irs-pdf/p463.pdf

2. If your tax home has shifted/moved to China you may be able to exclude the wages you earn while performing services in China if you meet either the Physical Presence Test or the Bona Fide Resident Test. This is called the Foreign Earned Income Exclusion. Read more about it here: http://www.irs.gov/Individuals/Inte...ncome-Exclusion---Tax-Home-in-Foreign-Country

If you qualify you will file Form 2555.

3. If you do not qualify for the exclusion but are taxed by China you should be eligible to claim a Foreign Tax Credit. This is complicated, but you can start here: http://www.irs.gov/Individuals/International-Taxpayers/Foreign-Tax-Credit

4. You will likely need to comply with informational reporting requirements for foreign bank accounts etc. These are broadly known as FBAR and FATCA.

FBAR: http://www.irs.gov/Businesses/Small...t-of-Foreign-Bank-and-Financial-Accounts-FBAR

FATCA: http://www.irs.gov/Businesses/Corporations/Foreign-Account-Tax-Compliance-Act-FATCA

Re: Your S-corporation's Form 1120S:

If China does NOT tax your corporation the situation for it (unlike yours) may not become more complex. If China does tax your corporation you will need to allocate its income and deductions between US and Chinese sources. The income tax paid to China and your S-corporations foreign source income will flow over to your personal Form 1040 where you will claim the Foreign Tax Credit.

You may wish to acquire the services of a tax professional. If so, it is absolutely essential that they be experienced in these foreign tax matters.

Hope that helps.

Fern

 

[Fern]

-snip-

If I moved to another city to start a business, it doesn't make sense that my living expenses are deductible just because I moved, but the business owner who already lived there can't deduct his.

If you "moved" they wouldn't be.

Fern

 

[HardcoreRobot]

Depreciation question... we previously rented a room in our townhouse while we were still living there. This was in 2007-2008 and the property was depreciated during this time.

Between 2009-2014 we lived there as a primary residence without any renters and did not do any further depreciation. In 2014 we moved to a new primary residence and resumed renting the property. We need to continue the depreciation, but I don't know how to restart it.

Is the property service date still 2007? If I do that, the program assumes I have been depreciating since then says I only have 20 years to go. This link https://accountants-community.intui...-personal-residence-then-renting-it-out-again makes it seem like I need to resume where I left off, but that the clock stopped ticking.

Any advice?

 

[kaerflog]

I usually the taxes myself every year and its very easy for me.(I actually have an accounting degree wayyyyyy back).
This year I have rental income from my 2nd house.
Should this be fairly easy for me to figure out ?? I'm been using TaxAct for the past 5 years.
I was thinking of paying for someone to get it done right. Then I can see hows its done and do it myself in the future.
Advices ????

 

[cabri]

I usually the taxes myself every year and its very easy for me.(I actually have an accounting degree wayyyyyy back).
This year I have rental income from my 2nd house.
Should this be fairly easy for me to figure out ?? I'm been using TaxAct for the past 5 years.
I was thinking of paying for someone to get it done right. Then I can see hows its done and do it myself in the future.
Advices ????

The tax software will do the same any accountant will do; provided you provide the correct/needed info

You may wish to get a desktop version of software, so you can take advantage of the help/assistance system easier

Both TurboTax and Block support the Schedule E (Rental income) - TT will overcharge you for the privilege.

I have used Block for Schedule E returns and it walks you step by step through everything needed. You just have to dig out the info for each step (which yo would also have to do with an accountant if they are good - some will only use what you provide and not tell you what you could be missing)

 

[Imp]

I already did my taxes, but this is a curiosity and future use thing...

Are you taxed on foreign exchange if you aren't doing for-ex trading?

For example, swapped a bunch of CAD to USD, let it sit as cash for years, switched it back for a big gain. Not leveraged or even unleveraged for-ex trading with 100s of transactions per year. More like 5 or less for me.

 

[DaWhim]

Your situation is somewhat complex. You should begin by focusing on the issue I'll describe below:

RE: Your personal (Form 1040) tax return:

1. Under (US) tax law are you considered to have moved to China, or are you on a temporary work assignment?

The concept of your "Tax Home" is key here. Read this to learn about "Tax Home": http://www.irs.gov/Individuals/Inte...ncome-Exclusion---Tax-Home-in-Foreign-Country

If your tax home has shifted/moved to China you can only deduct certain moving expenses, not rent etc. Here is information on deductible moving expenses: http://www.irs.gov/publications/p521/ar02.html

.........

wow! thanks so much! I can't be more grateful.

Yes, indeed, the tax home is the key here. IRS basically allow you either deduct the foreign income earned exclusion or treat everything as travel expenses.

I think it will be easier to go with the tax home in china since I don't know how long I will be here.

This will beg two more questions, for the supposedly wages I should receive from my own US LLC, I should qualify for the foreign earned income exclusion? I am not sure the treatment for US firm paying US employee in a foreign country.

Another question is my LLC is treated as a S-corp, so for the reasonable salary I should be paying myself, I guess I can arguably use a reasonable local reasonable salary which will be significantly lower?

 

[cabri]

I already did my taxes, but this is a curiosity and future use thing...

Are you taxed on foreign exchange if you aren't doing for-ex trading?

For example, swapped a bunch of CAD to USD, let it sit as cash for years, switched it back for a big gain. Not leveraged or even unleveraged for-ex trading with 100s of transactions per year. More like 5 or less for me.

U.S. Taxation of Foreign Currency Gains or Losses

The general rule with regard to the U.S. tax treatment of gains or losses from exchanging U.S. currency for non U.S. currency (and back) is that the gain or loss on the currency exchange will now be taxed the same as the underlying transaction. The Taxpayer’s Relief Act of 1997 included a provision [Act Section 1104(a)] that included some changes, which are included in the following explanation.

Where there are currency gains or losses in connection with a trade or business or with the management or administration of investment assets, the gain is treated as an ordinary gain (rather than as a capital gain) and any loss is generally treated as an expense.

Where currency gains or losses are incurred in connection with the purchase of an investment, the gain or loss on the currency change on realization (usually from selling) is a capital gain or loss and is included as part of the total capital gain or loss on the investment.

Currency gains of $200 or less that arise from personal transactions (not for investment or business) are not taxable, but any personal currency losses are not deductible. A personal transaction includes any gain or loss arising from travel even if the travel is business related. Any currency gains in excess of $200 per transaction (per trip or per purchase) are treated as a capital gain. Losses on currency exchanges for business travel also appear to be non-deductible.
The primary source of information on the tax treatment of currency gains or losses is IRC Section 988.

so it seems that if the gain was under $200 and this was related to personal use, you have nothing to do.

Otherwise if becomes a capital gain and must be reported

 

[DaWhim]

I already did my taxes, but this is a curiosity and future use thing...

Are you taxed on foreign exchange if you aren't doing for-ex trading?

For example, swapped a bunch of CAD to USD, let it sit as cash for years, switched it back for a big gain. Not leveraged or even unleveraged for-ex trading with 100s of transactions per year. More like 5 or less for me.

you supposed to report any income to IRS, even if you got lucky and found 20 bucks on the floor.

I wouldn't bother with it, you are lucky if the exchange rate goes in your favor, but what if it gos against you? can you deduct the losses?

 

[Imp]

U.S. Taxation of Foreign Currency Gains or Losses



so it seems that if the gain was under $200 and this was related to personal use, you have nothing to do.

Otherwise if becomes a capital gain and must be reported

Ah... crap. Thanks for the info.

It's not the paying part that bugs me, it's the matter of how to calculate it. I switched all of it to use on stock trades. That means that most of the currency gains have already been accounted for (cost and disposition of proceeds must be converted to home currency).

But how am I supposed to figure out the capital gain/loss for when I was holding stuff as cash? Easiest way would be to add up all the money swapped over (cost) and all the money when I swap back (proceeds), but then I get double taxed... Oh, man, this is going to be ugly. The good thing is that I have at least a year to figure it out.

 

[Red Squirrel]

My results are in! Got a bit over a grand. Going to go sign the papers today and that should go in my bank within the next few weeks. I'm kind of glad to see I don't have to buy extra RRSPs any more as I used to always buy like $2000 more but this year I took the chance and bought none. I have $60/pay that comes out that I setup previously so it's nice to know that's enough.

I actually had about $400 of RRSPs that I only got a receipt for like a few days ago, so that will just go to next year.

 

[Dr. Zaus]

I want to start a 501(c)3 in the coming year so that my wife can help Autistic people into the work force. Can I fund it with my own money, and then get revenue from the books she writes on the subject: or do I have to get donations in order to be a charitable non-profit?

Also, can we set up the 501(c)3 to max out her retirement in a 403b ?

She's got a Ph.D. and her research is on helping autistic people into the work place: but she doesn't mind working for peanuts, we'd just like to make sure that she's setup for retirement.

 

[Fern]

wow! thanks so much! I can't be more grateful.

You're welcome.

-snip-
This will beg two more questions, for the supposedly wages I should receive from my own US LLC, I should qualify for the foreign earned income exclusion? I am not sure the treatment for US firm paying US employee in a foreign country.

Yes, your wages should qualify for the FEI exclusion.

This is important to note: Wages will be allocated to China or the USA based upon where you are when you are performing that work. The nationality of the corporation paying the wages does not matter.

So, if all your work days are in China all your wages will be considered foreign source wages from China eligible for the FEI exclusion if you meet the Physical Presence Test or Bona Fide Resident Test.

If you have some work days in China and some in the USA you will be required to allocate your wages between China and the USA. Chinese wages = work days in China divided by total works days (Chinese works days + USA work days) multiplied by total wages.

I will address your question below tomorrow. If I fail to do so pls send me a PM reminding me.

Another question is my LLC is treated as a S-corp, so for the reasonable salary I should be paying myself, I guess I can arguably use a reasonable local reasonable salary which will be significantly lower?

Fern

 

[Imp]

Two days later and tons of poring over old records... I found out I owe the gubment about $90 in tax from Forex. That was worth the time.

 

[CNNN]

In 2014, I was severely depressed following the death of someone close to me, my girlfriend whom i was going to marry was killed in a brutal car accident and several relatives died throughout the year. Wasn't able to work much and was extremely ill/depressed for the most part. Because of this, had to cash out my 401k early and now the IRS is hitting me with a heavy penalty, according to turbotax, have to pay about 20% in penalties for both state and federal return,

The money was used primarily for medical bills, health care and online classes for my master's degree. Do i have to pay the IRS the entire thing at once, I don't have that kinda money right now and can i make payment arrangements.

A financial adviser told me because my income was so low in 2014, I wouldn't have to pay these insane penalties, turbotax doesn't seem to take that into consideration.

Am i better off going to HR Block and see what they can do for me ?

Thanks

 

[cabri]

In 2014, I was severely depressed following the death of someone close to me, my girlfriend whom i was going to marry was killed in a brutal car accident and several relatives died throughout the year. Wasn't able to work much and was extremely ill/depressed for the most part. Because of this, had to cash out my 401k early and now the IRS is hitting me with a heavy penalty, according to turbotax, have to pay about 20% in penalties for both state and federal return,

The money was used primarily for medical bills, health care and online classes for my master's degree. Do i have to pay the IRS the entire thing at once, I don't have that kinda money right now and can i make payment arrangements.

A financial adviser told me because my income was so low in 2014, I wouldn't have to pay these insane penalties, turbotax doesn't seem to take that into consideration.

Am i better off going to HR Block and see what they can do for me ?

Thanks

401k Hardship Withdrawals - An Overview



A 401k retirement plan may, but is not required to, provide for hardship distributions. Again, most plans do, but some don't. Check with your Human Resources department if you're not sure if your plan allows hardship withdrawal.

Like a 401k loan, your employer must adhere to some very strict and detailed guidelines.

The IRS code that governs 401k plans provides for hardship withdrawals only if:
(1) the withdrawal is due to an immediate and heavy financial need;
(2) the withdrawal must be necessary to satisfy that need (i.e. you have no other funds or way to meet the need);
(3) the withdrawal must not exceed the amount needed by you;
(4) you must have first obtained all distribution or nontaxable loans available under the 401k plan; and
(5) you can't contribute to the 401k plan for six months following the withdrawal.

Under the provisions of the Pension Protection Act of 2006, the need of the employee also may include the need of the employee's non-spouse, non-dependent beneficiary.

The following items are considered by the IRS as acceptable reasons for a hardship withdrawal:

• Unreimbursed medical expenses for you, your spouse, or dependents.
• Purchase of an employee's principal residence.
• Payment of college tuition and related educational costs such as room and board for the next 12 months for you, your spouse, dependents, or children who are no longer dependents.
• Payments necessary to prevent eviction of you from your home, or foreclosure on the mortgage of your principal residence.
• For funeral expenses.
• Certain expenses for the repair of damage to the employee's principal residence.*

Hardship withdrawals are subject to income tax and, if you are not at least 59½ years of age, the 10% withdrawal penalty. You do not have to pay the withdrawal amount back.

A hardship distribution may not exceed the amount of the need. However, the amount required to satisfy the financial need may include amounts necessary to pay any taxes or penalties that may result from the distribution.

Hope this helps

From HR Block Asistance

Exceptions to the 10% early-withdrawal penalty include:

• Death - If the IRA is distributed because the owner dies, there’s no penalty. It doesn't matter how old the IRA owner was at the time of death, or the age of the beneficiary
  
• Disability - There’s no penalty if you become permanently disabled. To qualify for the disability exception:
  • You must be unable to do substantial gainful activity.
    
  • Your disability -- either mental or physical -- must be expected to:
    • Lead to death
      
    • Last for a long, continued, and indefinite time
• Medical bills - You might use money to pay unreimbursed medical expenses that are more than 10% of your adjusted gross income (AGI). If you do, you won't pay a penalty. If you're age 65 or older, the threshold is only 7.5% of AGI.
  
• Medical insurance - You might receive unemployment wages for part of the year and meet certain other conditions. If so, you'll pay no penalty on early IRA distributions. However, you must use them to pay for medical insurance to cover:
  
  • You
    
  • Your Spouse
    
  • Your Dependents
  To receive the penalty exemption, you must meet all of these conditions:
  
  • You lost your job. If you're self-employed and your business is defunct, you might also qualify for this exception.
    
  • You received unemployment pay for at least 12 weeks in a row.
    
  • You received the distributions in the year you received the unemployment compensation or the following year.
    
  • You receive the distributions no later than 60 days after you’ve gotten a new job.
• Payments over life expectancy - You won’t pay a penalty if the IRA distribution is part of a series. They must be substantially equal payments over one of the these:
  
  • Your life expectancy
  • You and your beneficiary’s joint life expectancies
  You must follow the distribution methods approved by the IRS to figure the required payments. To avoid the penalty, these withdrawals must last:
  
  • For at least five years
    
  • Until you’re at least 59 1/2
• First-home purchase - You can withdraw up to $10,000 from an IRA without a penalty. You must use this to help you buy, build, or rebuild a first home for:
  
  • You
    
  • Your Spouse
    
  • Your Children or grandchildren
    
  • Your Parents or other ancestor
  
  The lifetime limit is $10,000. However, you and your spouse can each withdraw $10,000 from your IRAs. Together you can have a total of $20,000.
  
  You must use the money within 120 days from the date you withdrew it to qualify for the exception. In this case, a first-time homebuyer is someone who hasn’t owned an interest in a main home for at least two years.
  
• Education expenses - You won’t pay a penalty if you use the money to pay qualified higher-education expenses for:
  
  • You
    
  • Your Spouse
    
  • Your Child or grandchild
  
  Qualified expenses for all students include:
  
  • Tuition
    
  • Fees
    
  • Books
    
  • Room and board - Students must be enrolled at least half-time for this expense to qualify.
  
  The expenses must be required for attendance at one of these:
  
  • College
    
  • University
    
  • Vocational school
    
  • Other postsecondary educational institution
• Qualified reservists – You don’t have to pay the additional 10% penalty tax on your distributions if you meet these three conditions:
  
  • You were ordered or called to active duty after Sept. 11, 2001.
    
  • You were ordered or called to active duty for either:
    
    • A period of more than 179 days
      
    • An indefinite period of time because you were a reservist in one of these:
      
      • U.S. Army National Guard
        
      • U.S. Air National Guard
        
      • U.S. Army Reserves
        
      • U.S. Navy Reserves
        
      • U.S. Marine Reserves
        
      • U.S. Air Force Reserves
        
      • U.S. Coast Guard Reserves
        
      • Reserve corps of the public health service
  • The distribution is from either:
    • An IRA
    • Amounts from elective deferrals under a 401(k) or 403(b) plan
  • The distribution was made between these dates:
    
    • No earlier than the date of the order or call to active duty
      
    • No later than the close of the active-duty period
• IRS levy – The IRS might have levied the distribution. If so, you won’t have to pay the (10%) additional tax.

The amount you can withdraw is unlimited. However, the distribution is still subject to income tax. It could be taxed at a rate as high as 39.6% depending on your tax bracket.

So, you are responsible for the tax in any case; just the penalty can be waived.

You can request a payment plan from the IRS for tax owed.

Tax software should allow you to file such a request

 

[maniacalpha1-1]

I have a question on a simple IRA early withdrawal. I left the job I held, and don't want to leave the funds there.

If I understand correctly, the basic idea is - if I cash it out, it gets added to my income for the year in which I request the withdrawal - and there is a 10% penalty on top for being under 59 1/2. Also, the penalty is 25% if I "take a distribution in the first 2 years I participate in the plan". I first started participating in the plan in January 2014; if I wait til Feb 2016 to cash it out, does that avoid the 25%?

Also, right now, I live in a state without an income tax. I am expecting to move to NJ (that has an income tax) within 2 months. Thus - if I wait til 2016 to avoid the 25%, I assume I will be paying NJ income tax on the distribution.

Are my assumptions based on what I've read, correct?

 

[cabri]

I have a question on a simple IRA early withdrawal. I left the job I held, and don't want to leave the funds there.

If I understand correctly, the basic idea is - if I cash it out, it gets added to my income for the year in which I request the withdrawal - and there is a 10% penalty on top for being under 59 1/2. Also, the penalty is 25% if I "take a distribution in the first 2 years I participate in the plan". I first started participating in the plan in January 2014; if I wait til Feb 2016 to cash it out, does that avoid the 25%?

Also, right now, I live in a state without an income tax. I am expecting to move to NJ (that has an income tax) within 2 months. Thus - if I wait til 2016 to avoid the 25%, I assume I will be paying NJ income tax on the distribution.

Are my assumptions based on what I've read, correct?

Assumptions seem correct.

To avoid all the taxes for both Federal and State; just setup an IRA and have the 401K funds directed into it.
Alternatively, if you new employer has a 401K; you maybe able to roll the funds over to that one.

 

[chowderhead]

In 2014, I was severely depressed following the death of someone close to me, my girlfriend whom i was going to marry was killed in a brutal car accident and several relatives died throughout the year. Wasn't able to work much and was extremely ill/depressed for the most part. Because of this, had to cash out my 401k early and now the IRS is hitting me with a heavy penalty, according to turbotax, have to pay about 20% in penalties for both state and federal return,

The money was used primarily for medical bills, health care and online classes for my master's degree. Do i have to pay the IRS the entire thing at once, I don't have that kinda money right now and can i make payment arrangements.

A financial adviser told me because my income was so low in 2014, I wouldn't have to pay these insane penalties, turbotax doesn't seem to take that into consideration.

Am i better off going to HR Block and see what they can do for me ?

Thanks

You can read up on hardship withdraws and see if the 401k plan that you had allows for it. Good luck.
http://www.irs.gov/Retirement-Plans/Retirement-Plans-FAQs-regarding-Hardship-Distributions

 

[cabri]

You can read up on hardship withdraws and see if the 401k plan that you had allows for it. Good luck.
http://www.irs.gov/Retirement-Plans/Retirement-Plans-FAQs-regarding-Hardship-Distributions

He has already pulled the funds.

To avoid penalty; he has to be able to convince the IRS that doing so fell under one of the categories.

 

[Schfifty Five]

This might be a simple one hopefully:

In 2014, my wife quit one of her nursing jobs and her 401k contributions from there were sent to clearing house (RCH). I didn't want it sitting there so I had a distribution taken out for it and once I got the check, I had her deposit it into her current job's 401k.

The clearing house sent her a 1099-R which shows the gross distribution and labeled it as an early distribution (box 7 shows 1). If I enter that into my tax filing, it adds more to what we owe. But I know we don't owe anything on that b/c she rolled it into her 401k plan.

How should I enter this on my tax filing? When I go through the questions, there is a section that asks if any amount of the distribution rolled over. Do I just put the full amount reported on the 1099-R there?

Thanks.

 

[cabri]

How should I enter this on my tax filing? When I go through the questions, there is a section that asks if any amount of the distribution rolled over. Do I just put the full amount reported on the 1099-R there?

Thanks.

exactly

All the extra paperwork is because you took the check rather than having it sent directly.

Hopefully; you also rolled the check within the required time frame; otherwise, you will owe the 10% penalty

 

[Schfifty Five]

exactly

All the extra paperwork is because you took the check rather than having it sent directly.

Hopefully; you also rolled the check within the required time frame; otherwise, you will owe the 10% penalty

Thanks for the response.

Yeah, I rolled it in within that same week of receiving the check, so within that 60 day (i think) time window.