Where’s the logic in people receiving their federal tax refunds this year, within 2 weeks of filing, while people who filed early last year, are still waiting?
(Since it’s the IRS, I’m tempted to just say that there’s no logic. Although, some of those people didn’t get either of their stimulus payments as a result, and will need to wait until they file their taxes this year, in order to get those checks.)
@FreePasta Probably only the first check as I think the second one came early in 2021-that is why the filing season was pushed back about a month.
Have a couple of clients whose income was too high in 2018 on which the first cks were based and with their income going down in 2019, should be entitled to the credit on their 2020 return.
@Felton10@FreePasta I got a notice in July that I forgot to include a form. I mailed it back to them immediately. I called them about a week ago and after about 25 minutes, the woman said she couldn’t find anything and that I was just going to have to wait for it to be processed.
I’m guessing that by forgetting that form, my return got put at the bottom of the pile. So, I get that there would be a delay, but this is ridiculous.
@FreePasta@jsh139 Yeh-it probably is not in the system yet. Had a return of deceased taxpayer that the was in a pile of similar returns for 4 months before they processed it. Was told Covid was the reason. Would have thought they would have caught up by now. I’d call them again.
@FreePasta@jsh139 Luckily the IRS has a tax hotline for practioners that you can call and usually get right through. Of course you have to have a POA to talk to them and the system although old school works. You fax them the POA while still on the phone with them (I have two lines in my house with one hooked up to the fax machine) and then they have authorization to talk to you and hopefully deal with your client’s problem.
I made much less money in self employment (side gig) in 2020 and used less of my house for exclusively self employment activities (used to have a home office for self employment activities and now the only place used exclusively for it is essentially storage).
Will the IRS think it’s weird that I still claim the home office expense deduction, at a lower amount in the same house? Any advice as to how to structure it/pitfalls to look out for?
@btwonder Problem with trying to take a home office deduction for only storage is that it fails the principle place of business test. Home office that includes a storage area would meet that test. No of course, they might not identify from filling out the form that you are only taking home office for storage, but under audit it would probably be disallowed. Doubt if lower amount would raise any red flags.
@btwonder@Felton10 Doesn’t it depend what’s being stored? If you’re storing product samples or inventory I think the deduction is allowed. btwonder didn’t say if they have another business location for their side gig, but if there’s not another office somewhere I’d take the deduction for the space used for that type of storage (receipts and records storage wouldn’t count). I don’t think it even has to meet the exclusive use test for inventory storage, just regular use.
@algae1221@btwonder There is never a cut and dry answer to things like this-every set a facts and circumstances is a little different and sometimes even court cases in different district disagree on very similar sets of facts.
In taking a deduction that might be questioned one should have a reasonable reason or authority for doing so-then if it is ultimately disallowed one would probably have to pay back taxes and interest but no penalty.
With something like this, there really isn’t anything on the form that tells the IRS whether the deduction is for a home office or storage and if one can show that the storage is for your business, I think you have gotten over the hump for reasonably claiming it even it is ultimately disallowed.
“Under divorce or separation instruments executed on or before December 31, 2018, alimony payments are deductible by the payer and taxable to the recipient.”
Things may change after that date as well as alimony before that date that was later modified.
Here’s their redundant and repetitive url on the topic
@kimbagby Law changed after 12/31/2018-before then if under a written agreement it was includable in income for the person receiving it and deductible for person paying it. Neither after 12/31/2018.
“On the other hand, generally alimony or separate maintenance payments are deductible from the income of the payer spouse and includable in the income of the receiving spouse, if made under a divorce or separation agreement executed on or before Dec. 31, 2018, even if the agreement was modified after December 31, 2018, so long as the modification is not one described in the preceding paragraph.”
I didn’t focus in on the fact that you had already been paying it in 2018 (my mistake)-if the agreement to pay it was legally executed before 12/31/2018-think you are OK.
My Enrolled Agent said that I have to take depreciation on my rental property because if I didn’t, when I sell it, the IRS will penalize you for not taking the depreciation.
How will the capital gains impact me if I sell this particular property and buy a different one? What tax ramifications are there from those 10 years I took the depreciation? If the new house is the same price, are those capital gains transferred over to the new home?
I’m confused. I want to sell the house with the pool and buy a different one without a pool just because of the expense and time to maintain the pool but not if I owe taxes on 10 years of capital gains.
@cengland0 The important term is allowed or allowable so the IRS can require you to compute gain or losses if you took depreciation or not-either incorrectly or on purpose.
Look into section 1031-like kind exchanges where you sell a property and buy another similar property (ie rental) to defer taxation on the one you sold. Lot of steps and hoops to jump through but if it can defer a big tax gain-if you qualify it is worth it. Don’t think old house having a pool and new one not won’t make any difference-the fact that they are both rental property is the main factor here.
@Felton10 My EA did mention the “like kind exchanges” but also stated that it is very rare to find someone willing to participate with you. I’m in a military town so when people sell their houses, they aren’t looking to buy another one, they are looking to get out of the mortgage payments so they can move to their new location the military is sending them to.
The next option that I have is to fill in that pool with dirt. I would eventually make more money in the long run because I wouldn’t have the pool maintenance expenses with chemicals, cleaning, and repair. But that would be a huge up-front expense and I doubt I could expense that in one year and it would probably need to be amortized for 30 years just like when I paid for a new roof and new air conditioners.
I hate being a landlord but it does bring in good money. I’m grossing about 8.8% on my investment and netting over 7% – not counting any capital gains I can get over the increased value of the house (estimated $60,000) since I bought it. If I had a realtor find tenants for me, I would be getting at least $500 more per month at a cost of just 10% for their management fees. I might look into that once my current tenants move out (they have been there 10 years).
Don’t know of a better low-risk investment out there that can give me the same kind of return. It’s just that I’m getting too old to be doing any work and the pool requires a minimum of 2 hours a week of manual labor. The battery for the hammerhead cleaning vacuum weighs 49.2 pounds and it’s too heavy for me to pick up. Even with a dolly, I still have to lift it from the floor of my garage to the car, then from the car to the dolly, then when I’m done, back from the dolly to the car, then from the car back to the garage. I already hurt my back lifting that battery and I’m scared it’s going to happen again if I don’t get this pool maintenance resolved.
On a side note, I cannot trust the tenants to maintain the pool themselves. Forums are full of landlords complaining of damaged pools because of stupid things tenants did with chemicals or lack of proper chemicals. I don’t want to risk that so I do it myself. A local pool company will maintain it for $170/month but that’s $170 out of my pocket that is hard to justify paying if I’m not working.
@cengland0 Can’t disagree with you about pools-after 13 years of pool costs we are free of them in our new house. Everyone on our street where our new house is either had the builder build a pool or contracted for one after they moved in. Most were moving to FL for the first time. Probably saving at least $ 200 a month with no pool service and cost of running the pool pump.
At our old house, the salt water system was on its last legs and the gas heater was at least 5 years beyond its normal useful life-if either of those would have broken prior to us leaving-it would have cost us 2k a piece to replace either.
@jsh139 There is an installment agreement request form-)9465 I think) that you send in with your taxes telling the IRS much you can pay monthly. Anything less than 24 they will usually approve although have seen longer. A lot easier than not paying the full amount or nothing and getting notices back from them. The form is pretty self explanatory. Don’t get freaked out by all the info they ask-they probably have it all anyway.
@Felton10 thank you! I’ll look into doing that. One follow-up question. Since I owe so much tax, do you think that I will have to pay any underpayment penalty fees? I’ve gotten a refund literally every year except for this one. The form isn’t clear on how to calculate it.
@jsh139 If you are underpaid form 2210 will do that-it is done by quarter-so if you paid in some now it would lessen the penalty for underpayment. Tax program should compute it automatically. You could always delete the form and hence the penalty-pay the taxes and not the penalties and interest and when they send you a bill for the balance, ask for an abatement of the penalty based on your penaly free history-sometimes they will grant it. Hardly ever wipe out interest as you have had the use of the money.
My wife does our taxes (with the help of tax SW). She is an engineer by training - excellent math skills and great at reading arcane instructions and chasing down details. Over the years, she has dealt with the tax implications of stock sales, capital gains (short and long-term) on investments, rental properties, etc. One year, she was stumped by some fuzzy rules about severance taxes on timber sales, so she called the IRS for clarification - the answer from the trained government specialist was “I don’t know”. So we took our best guess, filled out the forms and submitted them, and never heard anything more about it.
@macromeh The “trained gov’t specialist” doesn’t know the rules on every tax law question-they just look up the answer in the IRS publications-same as you do. Ask for the tax law section or for someone in the specific area you have a question next time.
The IRS is never going to pick up every mistake-even if things are done incorrectly. I wouldn’t worry about it. There is a three year statute of limitations except for fraud.
Can I claim my monthly internet costs as part of my home office expenses now that I’m working from home? I can’t buy internet by the hour, so if I have to have it for working from home during the day, I can’t turn off the meter at 5pm. My work isn’t reimbursing me for my of my work from home office space and services I am providing to them at my new in-home office workspace.
Like A/C, heat, furnishings, a media production center, a snack bar, lunch buffet, coffee, twice a week massages, a monthly hair styling stipend and more.
I’m W-2, if that makes a difference.
I learned last year that they raised the personal exemption so much, itemizing doesn’t make sense. So I stopped tracking a lot of that info and receipts.
@mike808 You have to be self-employed to claim a home office deduction (a no-no if you get a W-2) and when misc itemized deductions went away so did the “unreimbursed employee business deduction”. So unfortunately you are out of options for deducting anything business related.
Btw-they did away with the personal exemptions and raised the standard deduction so high that most people can’t and don’t itemize although had a few clients where it made sense due to the overall tax savings with federal and state.
@Felton10 That’s what I meant. The standard deduction went way up and it isn’t worth it to itemize. In a way, that simplified the tax code for me. And probably the IRS too.
The downside was the $10 Trillion in welfare to the rich and corporations that didn’t create jobs or pay for itself in revenue growth. It’s all part of the Big Lie and fraud on the taxpayers.
@mike808 You can thank Donald Trump for taking the “working from home” deduction away from you.
"And the federal tax code for years used to help out this kind of WFH employee. They could reduce taxable income by deducting the cost of running home offices and for other unreimbursed employee expenses.
But those deductions were killed off by the 2017 tax overhaul passed under President Donald Trump, which slashed corporate tax rates while rejiggering individual rates — allowing for a higher standard deduction but fewer itemized deductions."
@Felton10 Yeah, but I’m kind of on the fence about the idea of raising the personal exemption i terms of the massive simplification of tax preparation (and tracking the freaking receipts for every little BS office expense, which don’t purchase or use services (janitorial, for example) at scale like an office building of 10-200 employees does).
@daveinwarsh I wish, but Not in our lifetimes.
Because companies like TaxCut, HRBlock, Quicken, etc. lobby the shit out of Republican senators (that’s code for “bribe”) to prevent that from ever putting them out of business. Just like we won’t have M4A because of lobbying/bribing by the health insurance and big pharma corporate cabals.
@daveinwarsh it’s always been extremely easy to do your own taxes if you make that much and because of the above mentioned lobbying free for most people. Type in some numbers from a couple pieces of paper into another and click a few buttons.
Obviously the tax code needs simplified and less loopholes but a flat tax would be absolutely insane
@daveinwarsh@unksol The whole “free for most people” was the bait for the tax prep software cabal to get the IRS to agree not to just do it themselves and put them all out of business.
Just like the “deal” to get the insurance industry to go along with the ACA in exchange for Medicare not imposing drug price caps. Yep, in exchange for their vote for the ACA, Republican congresscritters demanded the poison pill of giving away the Fed’s right to negotiate drug prices to save taxpayers money as the single biggest customer in the drug market. Because Free Markets! Corporate Handouts!
I too wish we had a progressive flat tax with no difference between “passive” income and “earned” income. Income is income. And those that benefit most from a pre-established economy, commerce, customer markets and infrastructure produced by the country should similarly contribute the most towards its continued growth and maintenance in the firm of taxes.
The same for a single-payer healthcare system, like an M4A. Not having single-payer and a for-profit/dividend generating insurance industry is the biggest inefficiency and drag on our economy.
@unksol In the video, Adam thinks the government knows all about your income and that might be true if you work for a corporation and have no other investments. But how would they know about foreign income and income from rental property and how would they know how much my chemicals cost for maintaining that pool at the rental property? You have people mowing the lawn, painting, carpet replacements, etc. All those expenses are deductible from your income and tenants might pay in cash which means it may never go into the bank.
A lot of income sources have taxes paid based on the honor system. You could own a jukebox in a bar and pocket all the money it earns without ever paying a penny in taxes. How could the government find that out and charge you the correct amount? How would the government know how much you received in cash tips as a waiter or hair stylist?
@cengland0 this is clearly a simplified approach for the majority of people who don’t need itemized deductions. That pool has decreased since the standard deduction went up. I used to need to itemize. Now I don’t. Barely. If there was a flat progressive tax itemization might go away entirely.
Under the table cash payments are a whole nother issue.
You’re rental properties should be correctly done as business expenses
The point was more for that “free” tax software and the vast majority. And as mentioned it works in other countries. If the majority is flat/automated the irs can focus on the more complex issues
@unksol Standard deduction doesn’t come into play on non W2 income. I can deduct a $5 lightbulb expense on all my rental income without having to reach the standard deduction threshold.
You say that my rental properties should be correctly done as business expenses and to be clear, it is and why I hire an IRS Enrolled Agent to do my taxes. I claim all the income and pay more than my fair share of taxes. But it’s not W2 income so I don’t pay social security or medicare taxes on it. However, my comment was about how the government would know if I took payments from my tenants unless I told them voluntarily? I do that because I’m an honest person but I also know of people that don’t do it and have gone decades without paying taxes on their rental income.
@cengland0 they wouldn’t. That obviously has to be handled differently. But most people don’t own rental properties. It clearly can’t work that way for everyone. However it does for the majority.
The irs could choose to do return free filling and congress could implement a flat progressive tax. And it still be you responsibly to correct things.
John smith who only has reported w2 could check a box and send it back. Yes you have all my stuff correct.
You might not be able too. You would have to report some things. Technically you’re special percentage wise.
Obviously it’s not that simple but there are some ways we could massivly simplify the tax code that could be hashed out and eliminate lots of big business loop holes. And free up the irs for enforcement.
@cengland0@unksol Even if you are an indiv, rental management co usually send out a 1099-Misc showing the amount of rent paid to you and you are supposed to send out a 1099 (new Nec this year) to those you pay $ 600 or more to.
@Felton10 Key words there are “supposed to” but who would know if I didn’t? That’s why the IRS cannot do the taxes for us because they really don’t know all of our incomes and are relying on people to be honest when reporting their cash tips, rent income, and jukebox income.
@cengland0 There is a question on the rental form asking you if you were obligated to send out any 1099s and if you did or will, but you can leave it blank and still e-file the return.
Had clients ask me in the middle of the year to prepare 1099 for people who should have gotten them and didn’t (not sure why they want it because even in the old days where you sent in copies of your W-2s with the paper filed tax form, you did not have to attach the 1099 to it. Prepare it form them and tell them it is their choice whether to mail the copy to the IRS since they will get a penalty for late filing.
Only way you might be caught is if someone was audited who should have been send one by you.
@cengland0 Also had clients who didn’t file and the IRS sends them a proposed amount due based on forms they received which in some cases shows 10s of thousands of dollars more owed since all the IRS used was the income they received and none of the deductions.
@cengland0@unksol You might want to think about the long term consequences for SS payout of not paying SS taxes on non W2 income. If you are wealthy enough already, already have a pension that will pay well, already earning the max that has SS deducted it wouldn’t matter, etc. but if you make/have less than those things it well could later in life for how well you do or do not live.
@Kidsandliz Thanks for your opinion on not paying SS tax on my rental income.
Without going into too much detail, I am already retired and 56 years old. I will receive 3 different pensions from 3 different companies when I reach 65.
I put a lot of money in my 401K and that was supplemented by company match so I doubled my money immediately. I own both the house I live in and my rental property without any debt. My car is also paid off. So financially, I’m taken care of for the rest of my live. The rental income goes in the bank and I’ve never spent a penny of the profits in 10 years.
@cengland0 Sounds like you were in a position to make, and did make, some good financial decisions and are in good shape. For some it may have mattered.
@cengland0@Kidsandliz Have never seen anyone pay SS taxes on rental property voluntarily since it is considered a passive activity and filed on Sch E not Sch C. Best and easiest way to maximize social security (other than earning a lot of money) is not collect it until you have to at age 70. Your earnings are increased approx 8% a year between ages 66 and 70. Hard to beat that guaranteed rate of return these days.
@Felton10 I might agree with you about waiting to take your SS until you’re older but that depends on your needs and your life expectancy.
It’s all math from here. I’m going to ignore any COLA to make it easier to calculate. Let’s say that you qualify for $2000/month at 65 but could get 8% more for the 5 years if you wait.
At age 65, you get $2000/month = $24,000
At age 66, you get $24,000
At age 67, you get $24,000
At age 68, you get $24,000
At age 69, you get $24,000
You have already received $120,000 and you could spend it or invest it if you want.
If you wait until 70 and get 8% more per year, that is $24,000 *1.08 * 1.08 * 1.08 * 1.08 * 1.08 = $35,264
You would have received only $24,000 if you took it early so your gain each year after age 70 is $11,264. But by taking it early, you already got $120,000. If you divide that $120,000 by the $11,264, that is 10.64 years before you break even making it so if you live to be 81, you might be better off waiting. That is if you know you’ll live that long. That also depends on how good of an investment you put that $120,000 in which could make the break even point even later in life.
@cengland0 Obviously if you need it to maintain your standard of living or to live it all, you take it and with the break even point being somewhere between 78 and 82 depending on if you take it at 62 or wait till 70, you look at your families’ life expectancy history and if everyone dies early, you take it as soon as you can.
@cengland0@Felton10 Your math depends on whether or not you can afford to do anything in addition to pay the rent, bills and eat with the SS money. If you can’t then that is kind of irrelevant as there is no money to invest.
I don’t care about the break even point. All I care about is when I retire I have as much money as I can come up with so that I am a fewer more steps away from poverty than I otherwise would be. The multiple cancer crap stuff kind of wrecked my trajectory on retiring with enough money.
@cengland0@Kidsandliz Best laid plans of mice and men etc. Wanted to work until I was 70 and not take SS, but that didn’t quite work out as the CPA firm where I had been working part-time for 7 years decided the money they had been paying me was better in their pocket rather than mine.
So to keep up my standard of living decided to take SS when I could at 66 and along with my own clients and my retirement annuities everything has worked out OK.
@Felton10 I had the same plan but wanted to work for the rest of my life instead of quitting at 70. I enjoy working – gives me a reason to wake up in the morning and adds structure to my life. But, unfortunately, my last employer laid me off in 2017 and my anxiety levels are too high to look for a similar paying job. The last time I had to go into an office was in 2001 because I was able to work from home since then. I’ve gone 20 years without having to see work people or drive during rush hour. I don’t think I could do it again – even to fill out the job application and do an interview.
The last time I applied for a job was in May of 1990 and the company published their job in in the local news paper. There were so many applicants that the company rented a large conference room in a hotel. I had to be there at 8am but lived over an hour drive away. So I left very early to beat the traffic. I got there way too early and sat in the lobby thinking about leaving my current job that paid pretty good for another job that is better but paid less. I ended up getting sick at the hotel and had to go home without talking to anyone.
I immediately called them when I got home and they seemed to understand but said the next hiring batch would be in October. I did go back in October 1990 and did get hired but those 5-6 months delay caused “Net Credited Date” to be a problem with seniority so I got all the crap work that nobody else wanted to do.
Anyway, my anxiety has gotten much worse since then and so has my salary demands. There is no way someone would pay me as much as my former employer without seeing me in person and without an interview. I have given up and accept the fact that I will never be able to work again. I’m just sitting at home wasting away watching Youtube and TV and occasionally going to the gym and/or grocery shopping but nothing else.
@Kidsandliz I agree with you about the break even point. I would take SS as soon as I qualify (I’m only 56 now) even if that means the payment will be lower.
I looked at my annual SS statement that tells me the estimated amounts I would receive depending on when I begin taking it. I have a hard time contradicting @Felton10 on this because he/she’s an expert but my calculation shows that waiting the 5 years from 65 to 70 would result in a 15% increase. That’s significant less than the 8% for each year compounded to be around a 47% increase: (1.08)^5 = 47%.
As for me, nobody on either my mom’s side or my dad’s side lived past their 60’s except for my Aunt who is currently in her 70’s. I doubt I would live to my previously calculated break even point of 85 so I would plan to take the SS money at 65 no matter what my financial situation was – just based on life expectancy.
Pandemic unemployment assistance overpaid me. I knew it and called. I was told to email about it, which I did. They then sent me the forms to appeal. I called again and said, “I don’t want to appeal, what do I do”? She said, “I don’t know.” I emailed again Dec. 18, got an answer in February. Meanwhile got a 1099 that’s thousands of dollars too much. My guess is I have to use it, but straightening out the tax later is going to be a nightmare.
@pooflady Unfortunately if you got it and didn’t repay it in the same year, you have to declare what the 1099 says. There is a way to get a deduction if you have to give some of it back in later years, but yes it is not nice or pretty.
@Felton10 Thanks. Like I said, it’s going to be a nightmare. Fortunately, I haven’t spent any of the overpayment. I tried submitting another claim for $30. Two days later they put $170 in my account. I tried calling the number they gave, it was a blah, blah, blah recording and then at the end it said “call some other time.”
@pooflady Yeah I have/had that problem too although for a slightly different reason. I thought I was supposed to file in the state I lived, worked and paid taxes on that money in. The university was in another state. Turns out the university paid into the state they were in even though they were supposed to pay into the state I lived in. I had been called and told no record, apply in the state the university is in, so I did. I was told I was going to be denied in my state. So I applied in the other state and was approved.
My state then wrongly approved me EVEN THOUGH they had no record in the quarterly income report thing they look at that I had earned any money at all in the state I lived in AND had told me they were going to deny me. HUH??? Oh and they approved me for less money that I should have gotten by formula and that I was being paid in the other state. Go figure.
I did pay back the amount I needed to (after badgering them for months as I found out I couldn’t pay it back until they got around to doing the paperwork on their end). I paid it back the same year. I STILL got a 1099 for the full amount I was paid even though I paid it all back. And the kicker was that you have to pay back the portion they withheld for federal taxes too rather the state recalling the amount of federal taxes they paid, by mistake, on my behalf - yeah I can get that refunded this year but coming up but repaying that at the time was hard.
They refuse to issue me an amended 1099 because they “paid me the money and so have to give me a 1099; doesn’t matter that I paid it back because I was given that money in error”. @felton10 is there a solution since the feds will have no proof I paid that money back (I do though)? I know I have to report what is on that wrong 1099 since I have it and so then does the IRS. I haven’t filed taxes yet (was planning to use turbo tax’s free online form) as I am still hoping to be able to figure out how to get an amended 1099. Or am I stuck paying taxes on money I, in the end, didn’t get?
@Kidsandliz I got a headache from reading all that. I would recommend not paying taxes on an incorrect amount or on an amount you sent back. I would send that IRS an explanation of what happen including a copy of the 1099 and you documentation of having returned the money.
Hopefully your tax program has the capability to attach a pdf file with all the above info to the e-filed return.
@Kidsandliz@pooflady Every state has different rules re what attaches you to that state for paying non resident taxes, but the general rule is that you should never have to pay taxes on the same income twice so if required to pay it to the remote state, you can take a credit on your home state return for the taxes paid to the other state to avoid double state taxation.
@Felton10 Thanks for answering. I have no idea if turbo tax allows comments or attaching anything. If it doesn’t I’ll have to see what else is out there where I can attach something. I might just have to print and mail so I can include the documentation I paid it back. Life would be a heck of a lot easier if they’d give me an amended 1099 that reflects I have zero income but paid X dollars to the IRS. Hopefully it won’t mean I pay state income tax on the amount I paid back. I guess I need to actually look at the tax forms and see what is on them and from what line the state takes my income (in the past I relied on turbo tax and they did all that for me - some years free program, other years paid program - so I haven’t paid as close attention to what income line transfers from fed to state). Ugh.
As far as state income tax: The state I teach remotely in has no state income tax so in that respect I am in luck. I just pay it in the state I live in since I work remotely and don’t set foot in that state. I gather this is going to be an issue for some who were forced into working remotely who live across state lines from their in person place of work. My sympathies to any of you this affects, especially if you didn’t realize it and didn’t pay estimated state taxes in the state you live in.
@Kidsandliz Luckily where I used to live in the Washington DC area where everyone worked in a different state than they lived in (DC, VA, MD), the states had it all worked out re paid in state you lived in and none of the horseshit like you are dealing with.
So I worked as an election judge. I got a 250 dollar paycheck. Since under 600 no way. Do I still have to claim it? Where or how?
Is this my punishment for trying to help the democratic process?
What is the best way to estimate capital gains from stock investments? Mom (soon to be 89 y/o) has made money from her holdings with Wells Fargo etc. the past few years, but since there is no good way to know in advance how much she will make by the end of the year it is near impossible to make quarterly deposits. I hate to have her pay out those quarterlies then potentially have her investments tank by year end and have to get that money back…
@chienfou As long as you pay in 100% of your previous yrs taxes either by withholding or estimates (or 90% of the current years liability) according to the rules, you can owe any amount on Arpil 15 and not have a penalty.
I had a client who sold some land and the prev year had a 30,000 liability and made sure he covered it all with withholding the next year (withholding is assumed to be make equally throughout the year so you can catch up at the end of the year if need be). He had to pay 2.7 million on April 15 and because he covered his prev years taxes liability with withholding or estimates-no penalty.
Of course if you figure you have paid in too much you can just forgo the January est tax payment.
Also, I realize you have a vested interest in doing tax prep, but do you have any preference about tax software for those of us living outside of your area of service?
@chienfou I think most of the name brand tax prep programs are all pretty much the same in their ability to handle most people’s tax returns who use them. You might goggle which program is the best and you might get that some may be better than others for certain type of taxpayers.
@chienfou@Felton10 It also depends on which extra forms you need, as the different software companies (Intuit, HRBlock, TaxCut, TaxAct, etc) all tweak what forms are in their respective “Deluxe” and “Pro” versions.
The Deluxe tends to be the “step up” level you have to buy to get forms for rental property. The Pro is uaually if you run a self-employed small business (contracting, service, consulting, etc).
You need the Deluxe if you need to file an 8949 for cryptocurrency capital gains/losses, for example.
@Felton10@mike808
Been using TurboTax (Intuit’s) Home and Business for the past several years, straight single employer W-2 for me, simple self-employed tutoring for the wife. I like keeping to the same software as it pulls data from year to year easily. Plus I can use the same SW to do Mom’s taxes as well. Free federal e-file and free software for my state with about a $25 (?) fee to e-file for Mom. Been happy so far, and have found that overall, as otherwise mentioned, I do best with just the standard deduction since we own our house outright and are both in (thankfully) good health. The business expenses get pulled out of SWMBO’s income either way.
My tax program is relatively inexpensive (1,800 a year) but is has it has unlimited tax prep and e-filing as well as every individual and business-federal, state and local tax form known to man.
@speediedelivery You should have gotten the forms from your broker by now-they give them a little extra time till Feb 15th to get that stuff to you (as opposed to the January 31st deadline for the other tax docs).
As I understand it, cryptocurrency purchases/sales are treated like stock purchases with each trade converted to USD basis.
It would seem to me that this is similar to Forex trading. How are those reported if I were, say buying/selling foreign sovereign currencies and making money in arbitrage.
How does the IRS deal with HFT? It would seem to me that the micro-auditing of individual trade cost/basis transactions is utterly insane and overly burdensome. But that seems to be the requirement for cryptocurrency reporting.
Is there a simpler method that the IRS tolerates with cryptocurrency trading happening in micro-trades, and being reported that way, since thats what the blockchain literally proves happened?
To you, an exchange customer, you just ordered and bought .001 BTC, and the exchange fills that with partials from makers, at whatever prices and micro-volatility that entails. So you get 15 separate transactions reported to the IRS by the exchange for each partial order that was filled, totalling the .001 BTC that ended up in your wallet. It’s a very real mess.
@mike808 Only had one question from a client who child bought some bitcoin and wanted to know the tax implications. Evidently buying it like you said is like buying stock-no tax effect, but lets say you buy something with your bitcoin-that is when the shit hits the fan and you have to compute a gain or loss.
Does my 18-year old son need to file taxes in order to get a stimulus check? He does not have a job and is not attending college. We plan to claim him as a dependent. So I figured he wouldn’t be filing. We got a first round check (including money for him because he didn’t turn 18 until July) but not second (we didn’t get 2nd at all because of anomaly in 2019 taxes). Hoping to claim that second one and this third via 2020 taxes. Just not sure of the best plan with regard to him.
Obviously nothing is finalized until the bill becomes law, but it appears he could either get it as your dependent or filing a “zero” tax return.
“For a third check, if you’re in the 17-to-24 age range and listed as a dependent, you will be eligible for a payment of up to $1,400 (assuming the current proposal becomes law). However, that money will be added on to your family’s total, unless one of the situations below applies to you.”
Each stimulus ck had their own set of rules and given you son’s age and changing status, that is what makes it so much “fun”.
I’d wait a few days until it becomes law and then there will be a plethora of articles which should make things much clearer.
We started a business in 2020 but we do not have any income from it yet. So much fun! For our personal taxes, how do we treat the money that’s been going toward launching the business? We actually had no earned income at all in 2020, so that should make taxes interesting. Living off a couple of sales of long-term Apple stock (thank you Steve Jobs!).
@katbyter You should have decided on the form the entity should have taken-sch c, corp (c or sub S) or llc when you filed for your FEIN.
If a corp (C or sub S) the money you put in should be divided between capital stock and loans to the corp.
If a pass through entity (llc or sub s), you might be able to deduct some of the expenses (as opposed to capitalizing them as organizational expenses) on your personal return.
If you chose a 12/31/20 year end, the deadline is coming up soon to either file a return or file for an extension.
If you have no idea what I am talking about you better contact a tax professional in your area ASAP.
The various tax credits for tuition apply to students that studied at an “Eligible Educational Institution”. The IRS says that means “any educational institution eligible to participate in a student aid program run by the U.S. Department of Education.”
What about a university that is eligible (it meets the Department of Education’s criteria - it’s accredited, meets the various listed requirements for institutions, etc) but chooses not to participate in these programs? Could you claim (one of) the various student tax credits with a tuition bill from such a university?
I’ve never gotten into in that deep to recognize or deal with those distinctions. I would say if they sent you a 1099-T, they would fulfill all the requirements for you to claim any and all deductions and credits you are entitled to. And the IRS wouldn’t look into it any further. Without that form, doubt if any education deductions or credits you took on your return probably would be allowed.
@owenversteeg Its interesting the variety of questions being asked and keeps my brain working either knowing the answer or looking up the answer. Someone once told me the difference between a lawyer and an average person is the lawyer knows where to look it up. Guess that applies to CPA’s as well.
I would like to know more generally about you job as a CPA. Not looking to change careers, just curious. I don’t know a lot about the job of an accountant.
Apart from personal income tax filings and, I guess, corporate income tax filings, what do you spend most of your work hours doing?
I would be curious to hear a breakdown of tasks on an annual basis. Like, are personal income tax filings ten percent of your job? Thirty percent?
How much of your job is tax-related versus other business accounting?
@Limewater If my sister is any guide some of his tax stuff is probably year round and filing lots of extensions for people. You know. Due to procrastination all the sole proprietor records are still in a shoe box.
@Limewater Alot depends who you work for-if you work for a CPA firm as I did for a number of years or on my own when during some of that time I worked part-time both year round and during tax season.
Some clients require a lot of hand holding and bookkeeping aid and guidance throughout the year. Business planning and tax projections also takes up time. I also do payroll for a couple of my clients which I do bi-weekly as well as quarterly and year payroll tax returns.
Up until a couple of years ago, I performed audits for several of my clients. Lots of rules and regulations as well as oversight by the AICPA. I actually had to have my audits audited to make sure I was conforming to all required standards via the AICPA peer review program. Very expensive and nerve racking
The good news is that I work-maybe a total of 2 1/2 months of full time work if added together-I can earn as much as most who are retired and work full time down here in Florida.
But my practice such that it is now is about 80% tax and 10% bookkeeping and 10% business and tax planning.
@Kidsandliz@Limewater When I saw someone walk in with any type of box-I ran the other way. Women who kept books for their husbands were the worst-they made up their own accounting systems sometimes.
I am stuck on line 5a/5b or line 1… My company tops the percentage we can contribute to our retirement plans – I was unaware of this and exceeded it last year (and might have done it again because auto-increase was on this year) … The retirement plan paid me back the small amount and 1099-R’ed me. Do I add it to line 1, because of this instruction:
You should receive a Form 1099-R showing the total amount of your pension and annuity payments before income tax or other deductions were withheld. This amount should be shown in box 1 of Form 1099-R.
Pension and annuity payments include distributions from 401(k), 403(b), and governmental 457(b) plans. Rollovers and lump-sum distributions are explained later. Don’t include the following payments on lines 5a and 5b. Instead, report them on line 1.
Disability pensions received before you reach the minimum retirement age set by your employer.
Corrective distributions (including any earnings) of excess elective deferrals or other excess contributions to retirement plans.
The plan must advise you of the year(s) the distributions are includible in income.
Is it considered a corrective distribution? Or is it a line 5a or 5b?
@mikibell I am trying to recover from 2nd Covid shot and I don’t think I could count to ten with both hands. Will address your issue when my head is clearer-hopefully tomorrow.
@Kyeh@tinamarie1974 well if sleeping in till 10 and eating breakfast at 11 is normal and feeling better. Make waffles from scratch as that was the only thing my wife said she could stomach. Guess we are moving in the right direction, but slowly. Thanks for asking.
@Felton10 waffles from scratch are always a good sign. I slept a LOT after my first vaccine…warned my boss that it might happen again after 2nd. Happy first day of spring!!!
@Felton10 p.s. found more info on the back of the second page of the forms… Only boxes 1, 5, and 7 have info… 7 is E.
Again no rush! I appreciate the advice… If my taxes for the last 2 years hadn’t been so screwed up, I would just wing it… I am terrified they are going to audit me and I can’t splain what they did to the last two years! (The IRS filed my 2018 as my 2019, and have done all sorts of adjustments to get to the right net result!)
@mikibell Sorry for the delay in responding. It definitely should be on line 5 as that is where all 1099-R payments are recorded. Hope you are using a tax software program so if you put in the distribution code from the 1099-R in the software it will handle it correctly. But pretty sure it has to be taxed since it was probably deducted from your taxable w-2 wages prior so taxing you on it now is just making things right.
I wouldn’t worry too much about being audited. Less and less people are being audited these days and unless they see real fraud as opposite to someone who is just making mistakes no matter how stupid they will just proposed corrections and move on.
@Felton10 I have it on 5a… I think I also need to put it on 5b… I don’t use software to do the original, but I do use turbotax to file – thank you, kindly!!!
I truly do hope you are feeling better!
Sorry, I thought I read this as answering Taxi questions. Never mind. Sorry to bother you, it won’t happen again. Really Really sorry that I completely misread the title. I really should be held up for public secruinty and shaming for this grevious error.
@Felton10
If I receive a distribution from my father’s estate, is that income? If it is under the $15K (I think) gift tax limit, is it a non-taxable gift? Are inheritences taxable?
Separately, are distributions from a trust taxable (i.e. will I get a K-1? I think that’s the form) or can they be considered gifts too?
@mike808 Inheritances are not considered income and therefore are not taxable and are also not subject to gift tax limitations either. Since you said estate, I assume he passed away and you are getting distributions of stock/cash and/or proceeds from the sale of assets.
But income producing assets product income which someone has to pay tax on either on the form 1041 or passed through to the person getting the benefit via the form k-1 which you mentioned-that can’t be considered a gift you have to include the amounts from the k-1 (usually dividends, interest or gains from sale of assets on your tax return)
@Felton10 So a check from “the estate of …” account is not taxable and has no gift limit to the recipient/beneficiary, yes? Because any income/gains taxes would be paid via the estate tax return, yes?
And a trust distribution is taxable - in any amount, or can a trust give up to the gift limit before having to declare distributions as income to the recipient/beneficiary via a K-1?
@mike808 It can either be paid at the return level (1041 for both estate or trust) or passed through to the beneficiary via a k-1. Gift taxes are always paid by the person paying the gift-never the one receiving it. A check to you may be a payment of earnings and there considered a distribution of income rather than principal and therefore taxed to via a k-1. If you don’t get a k-1 at the end of the year-no tax ramifications…
@Felton10 - stupid child got a letter from the IRS. Who know what she did with it, if she even opened it (that is about normal for her) and can’t even remember getting it (also normal for her). Then she gets another notice saying she was having her stimulus money withheld to pay for underpaid taxes due to one of 4 reasons, none of which apply. She can’t remember her IRS log in. She can’t remember her IRS password (that is about normal for her too - why would you possibly write that down?). It agrees with her email but then never sends a link with her user name. Given the information on her tax form I put that through turbotax and she didn’t underpay, although she did underpay the state by $40 (she does not do her own taxes and doesn’t let me do them for her either - I will whisper you why).
I’ve tried calling the IRS over and over for days and you get hung up on because they are too busy to call you back or put you on hold. I have all her information to pretend I am her if I ever manage to get through (she is not capable of dealing with stuff like this, she couldn’t even deal with the phone tree, can’t fill out forms - had an IEP in school for very good reasons) but this also means I can’t go in person to an IRS office because they will know I am not her and her showing up with me “in tow” to help her likely will result in many wasted trips of mine to the IRS office because why would she bother to tell me she changed her mind about going that day (not to mention she has a kid due in Oct but has had some early labor that needed shut down) so I will be out plenty of parking money and time.
Is there any other way to find out what they are yapping about other than file an appeal addressing the 4 reasons given in the letter (side point: do I even believe the letter is sent only for one of those 4 reasons? Nope. The IRS is too much of a mess for that) that they are saying is the reason they are keeping her stimulus money?
@Kidsandliz I’m afraid the only way you are going to find out immediately what the issue is is to talk to them directly. Try calling first thing in the morning and right before they close at night. Just had a client wait for three hours on the phone to talk to them so now being able get a hold of them is not unusual. Forget writing to them-that will only prolong the problem and it will take months before you get a letter back saying they will respond in another 3 months.
Probably some type of income that wasn’t reported when the original return was filed. Her tax preparer seems like a real sleeze ball.
@Felton10@Kidsandliz
I can only add that if you do mail them things, keep copies, and receipts. And a journal of when you call, how long you were on hold, who you talked with (full name, not just first name), and what you talked about and the instructions you were given.
My sister has been dealing with untangling an estate with all kinds of complications for two years now and we’ve had to get an ombudsman involved (not sure that the official title) where they have dragged their feet for months and claim they never received documents and so forth.
The corporations and the rich have “defunded the police” - the IRS, that is, and so they are underfunded and the leaders are directed to deflect from the real theives robbing the treasury blind by generally going all in on Kafka and chasing inconsequential small fry, while billionaires and corporations watch Rome burn.
@Kidsandliz@mike808 When you reach the IRS, the person on the phone will give you their name and ID# which you should write down. The person on the phone accesses your acct on the computer and if you have any questions, likely put you on hold and go away while they look up the answer in the IRS pubs-something you could have done if you knew where to look.
You will not always get the same answer if you call up multiple times with same question. You have to ask for the tax law section or the particular area that deals with your type of question.
@Felton10 Even unreported income won’t kick her over the limit - she is still poverty line - not to get the kid stimulus money. Kids are 8 and under, income is far below the upper limit (she gets single head of household refunds), SS number on her taxes for everyone is correct, kids were claimed on last year’s and the year before’s taxes… None of the 4 reasons they state are relevant. Sigh. I’ll try the hours you suggested to call. Thanks.
@Felton10@tinamarie1974 HOLY CRAP. THANK YOU!!! That is exactly what happened to my kid and explains why we have no clue what the deal is since she didn’t violate any of the “possible” 4 reasons that are mentioned. Likely she got the first letter which she would have found confusing even if she did read it and so in typical fashion decided if she ignored it then the problem would go away and she wouldn’t have to deal with the issue. (Sigh).
How the heck does one then file an appeal? The author of the WSJ also refer to an abatement (in her blog about this mess). What is the difference? Should I/do I need to file both? The letter gives no indication of how you do that, only that you need to do that. Obviously I need to file one for her.
@Felton10@tinamarie1974 OMG that was pure LUCK!!! Thank you for reading that and this forum thread to know I needed to know that!!! The article says some crazy number of people like 5 million or 11 million or something got these letters, way the heck more than in previous years.
Now I am struggling to find what forms I need to file on her behalf, where to send them, etc. I am presuming the proof I need to send is SS cards (to prove names), birth certificates (to prove kids’ ages) and the front page of her tax form to prove she meets the income guidelines.
The letter says she is flagged for one of these reasons (copy/paste):
======
We changed the amount claimed as Recovery Rebate Credit on your tax return. The error was in one or more of the following:
The Social Security number of one or more individuals claimed as a qualifying dependent was missing or incomplete.
The last name of one or more individuals claimed as a qualifying dependent does not match our records.
One or more individuals claimed as a qualifying
dependent exceeds the age limit.
Your adjusted gross income exceeds $75,000 ($150,000 if married filing jointly, $112,500 if head of household).
The amount was computed incorrectly.
======
Talk about vague. None of those 5 is wrong. She gets the full amount and I have already checked her tax form and everything is right on there too.
@Felton10@Kidsandliz@tinamarie1974 If you can’t get through to the IRS, do a Google search for the “Tax Payer Advocate” in your area. It should be easier to get through to them and they are suppose to help you manage your way through the IRS maze.
@Felton10@Kyser_Soze@tinamarie1974 Thanks for the suggestion. I did that following a link in the article that led to a blog. In reading entries I found that they exist through there and a link to find where they are in my state. The is only one place in this state and that is in a city about 3 hours from me. In the morning I’ll call free legal aid and see if they have some local people who can help.
@Felton10@Kidsandliz@tinamarie1974 By the way, I got one of those letters also. I used to work for a tax office and quit a couple years ago because I have other things to focus on, but I had them do my taxes. So I’m not even going to look at any of it! I’m going to play the dumb client and take the letter to them and ask WTF is this about? That’s what the clients used to do to me!
@Felton10@Kyser_Soze@tinamarie1974 When you get answers PLEASE let me know!! (even it if is a whisper). Apparently we have 60 days from who knows when to respond. Is yours as incomprehensible as to why as this is for my kid?
@Kidsandliz@tinamarie1974 An abatement is when they aleady have assessed the penalty. An appeal is when you contest their adjustment in the first place.
@Felton10@Kidsandliz@tinamarie1974 You should be able to just call them and they should be able to look at the account and tell you what the problem is without you being there.
@Kidsandliz@Kyser_Soze@tinamarie1974 Usually the taxpayer advocate is sort of the court of last resort when you have exhausted all your other avenues without success. I doubt they would take your case without having contacted the IRS first. You may find after calling the IRS that they tell you to disregard the letter and you will be receiving a letter to that effect. At the very least they will confirm what you should send them to show you deserved the stimulus payment and where to send it.
@Felton10@Kidsandliz@tinamarie1974 Yes, I looked at mine and thought WTH? There is just my wife and me and our SS# have not changed, no dependents, and I quit taking any money out of my retirement accounts to keep my income below the levels listed for this year, so it makes no sense. I’m going to make an appointment with the tax company and see what they have to say about it.
@Felton10@Kyser_Soze@tinamarie1974 The problem is apparently right now only 8% of the people who are calling the IRS can get through. Unfortunately so far I have not been in that 8%.
@Felton10@tinamarie1974 Thanks for the clarification between the two. With no info that is useful I have no idea if they have already assessed the penalty. The letter is pretty generic - eg basically says nothing useful other than she has 60 days to appeal but didn’t tell you what you are appealing.
@Kidsandliz@Kyser_Soze@tinamarie1974 I would see what their hours are in your time zone and be ready to push the last number button just as the clock strikes 8 in the morning. I did that calling the tax practionioners hotline (for CPA’s and tax professionals only) and got through in 5 minutes where the day before I was told to call back later when I called in the middle of the day.
@Kidsandliz@Kyser_Soze@tinamarie1974 Was calling for a client and of course they wouldn’t talk to me w/o a poa which you can fax them while still on the line (who still uses a fax machine anymore-the IRS does) and luckily with a two land lines where one is hooked up the fax machine that works for me.
@Felton10@Kidsandliz@tinamarie1974 This could be an unusual year and an unusual time, but I used to get through the tax practitioners hotline in a matter of minutes all the time. But there are “Help Wanted” signs everywhere and in addition to over 700,000 dead, some of whom may have had jobs, there were 1.7 million baby boomers that retired early because of coronavirus! Even the IRS may be shy of some employees. I quit for other reasons, but if I hadn’t for those reasons, I would’ve quit to stay away from infected people. My tax job required me to meet face to face and there were many times people would cough in my face and not cover their mouth. Disgusting!
Where’s the logic in people receiving their federal tax refunds this year, within 2 weeks of filing, while people who filed early last year, are still waiting?
(Since it’s the IRS, I’m tempted to just say that there’s no logic. Although, some of those people didn’t get either of their stimulus payments as a result, and will need to wait until they file their taxes this year, in order to get those checks.)
@FreePasta You are trying to apply logic to the workings of the IRS. Never will work, never has.
@Felton10
Ha! See my edit.
(I wrote it as you were typing your response.)
@FreePasta Probably only the first check as I think the second one came early in 2021-that is why the filing season was pushed back about a month.
Have a couple of clients whose income was too high in 2018 on which the first cks were based and with their income going down in 2019, should be entitled to the credit on their 2020 return.
@FreePasta I’m still waiting for my 2019 refund. Next Monday it’ll be a year since they accepted my 2019 return. Insane!
@FreePasta @jsh139 Have you called them or gotten any notices?
@Felton10 @FreePasta I got a notice in July that I forgot to include a form. I mailed it back to them immediately. I called them about a week ago and after about 25 minutes, the woman said she couldn’t find anything and that I was just going to have to wait for it to be processed.
I’m guessing that by forgetting that form, my return got put at the bottom of the pile. So, I get that there would be a delay, but this is ridiculous.
@FreePasta @jsh139 Yeh-it probably is not in the system yet. Had a return of deceased taxpayer that the was in a pile of similar returns for 4 months before they processed it. Was told Covid was the reason. Would have thought they would have caught up by now. I’d call them again.
@Felton10 @jsh139
That’s exactly what happened to one of these other people.
@FreePasta @jsh139 Luckily the IRS has a tax hotline for practioners that you can call and usually get right through. Of course you have to have a POA to talk to them and the system although old school works. You fax them the POA while still on the phone with them (I have two lines in my house with one hooked up to the fax machine) and then they have authorization to talk to you and hopefully deal with your client’s problem.
On a scale of 1 to LOL, how to you rank the sovereign citizens who claim they’re immune from taxation?
@UncleVinny Crazy seems to be going around. Them and the Q Anon idiots have taken crazy to a new level.
@UncleVinny People can claim anything they want but if there is no tax law to support their claims, they are just tilting at windmills. A big “1”.
I made much less money in self employment (side gig) in 2020 and used less of my house for exclusively self employment activities (used to have a home office for self employment activities and now the only place used exclusively for it is essentially storage).
Will the IRS think it’s weird that I still claim the home office expense deduction, at a lower amount in the same house? Any advice as to how to structure it/pitfalls to look out for?
@btwonder Problem with trying to take a home office deduction for only storage is that it fails the principle place of business test. Home office that includes a storage area would meet that test. No of course, they might not identify from filling out the form that you are only taking home office for storage, but under audit it would probably be disallowed. Doubt if lower amount would raise any red flags.
@btwonder @Felton10 Doesn’t it depend what’s being stored? If you’re storing product samples or inventory I think the deduction is allowed. btwonder didn’t say if they have another business location for their side gig, but if there’s not another office somewhere I’d take the deduction for the space used for that type of storage (receipts and records storage wouldn’t count). I don’t think it even has to meet the exclusive use test for inventory storage, just regular use.
@algae1221 @btwonder There is never a cut and dry answer to things like this-every set a facts and circumstances is a little different and sometimes even court cases in different district disagree on very similar sets of facts.
In taking a deduction that might be questioned one should have a reasonable reason or authority for doing so-then if it is ultimately disallowed one would probably have to pay back taxes and interest but no penalty.
With something like this, there really isn’t anything on the form that tells the IRS whether the deduction is for a home office or storage and if one can show that the storage is for your business, I think you have gotten over the hump for reasonably claiming it even it is ultimately disallowed.
Can I claim my alimony on my taxes? I was ordered to pay it in 2018
@kimbagby per the IRS
“Under divorce or separation instruments executed on or before December 31, 2018, alimony payments are deductible by the payer and taxable to the recipient.”
Things may change after that date as well as alimony before that date that was later modified.
Here’s their redundant and repetitive url on the topic
https://www.irs.gov/faqs/interest-dividends-other-types-of-income/alimony-child-support-court-awards-damages/alimony-child-support-court-awards-damages-1
@kimbagby Law changed after 12/31/2018-before then if under a written agreement it was includable in income for the person receiving it and deductible for person paying it. Neither after 12/31/2018.
@Felton10 I thought that once you were already paying in 2018 you were grandfathered in for the remaining alimony
@kimbagby Here is what the IRS says:
“On the other hand, generally alimony or separate maintenance payments are deductible from the income of the payer spouse and includable in the income of the receiving spouse, if made under a divorce or separation agreement executed on or before Dec. 31, 2018, even if the agreement was modified after December 31, 2018, so long as the modification is not one described in the preceding paragraph.”
I didn’t focus in on the fact that you had already been paying it in 2018 (my mistake)-if the agreement to pay it was legally executed before 12/31/2018-think you are OK.
My Enrolled Agent said that I have to take depreciation on my rental property because if I didn’t, when I sell it, the IRS will penalize you for not taking the depreciation.
How will the capital gains impact me if I sell this particular property and buy a different one? What tax ramifications are there from those 10 years I took the depreciation? If the new house is the same price, are those capital gains transferred over to the new home?
I’m confused. I want to sell the house with the pool and buy a different one without a pool just because of the expense and time to maintain the pool but not if I owe taxes on 10 years of capital gains.
@cengland0 The important term is allowed or allowable so the IRS can require you to compute gain or losses if you took depreciation or not-either incorrectly or on purpose.
Look into section 1031-like kind exchanges where you sell a property and buy another similar property (ie rental) to defer taxation on the one you sold. Lot of steps and hoops to jump through but if it can defer a big tax gain-if you qualify it is worth it. Don’t think old house having a pool and new one not won’t make any difference-the fact that they are both rental property is the main factor here.
@Felton10 My EA did mention the “like kind exchanges” but also stated that it is very rare to find someone willing to participate with you. I’m in a military town so when people sell their houses, they aren’t looking to buy another one, they are looking to get out of the mortgage payments so they can move to their new location the military is sending them to.
The next option that I have is to fill in that pool with dirt. I would eventually make more money in the long run because I wouldn’t have the pool maintenance expenses with chemicals, cleaning, and repair. But that would be a huge up-front expense and I doubt I could expense that in one year and it would probably need to be amortized for 30 years just like when I paid for a new roof and new air conditioners.
I hate being a landlord but it does bring in good money. I’m grossing about 8.8% on my investment and netting over 7% – not counting any capital gains I can get over the increased value of the house (estimated $60,000) since I bought it. If I had a realtor find tenants for me, I would be getting at least $500 more per month at a cost of just 10% for their management fees. I might look into that once my current tenants move out (they have been there 10 years).
Don’t know of a better low-risk investment out there that can give me the same kind of return. It’s just that I’m getting too old to be doing any work and the pool requires a minimum of 2 hours a week of manual labor. The battery for the hammerhead cleaning vacuum weighs 49.2 pounds and it’s too heavy for me to pick up. Even with a dolly, I still have to lift it from the floor of my garage to the car, then from the car to the dolly, then when I’m done, back from the dolly to the car, then from the car back to the garage. I already hurt my back lifting that battery and I’m scared it’s going to happen again if I don’t get this pool maintenance resolved.
On a side note, I cannot trust the tenants to maintain the pool themselves. Forums are full of landlords complaining of damaged pools because of stupid things tenants did with chemicals or lack of proper chemicals. I don’t want to risk that so I do it myself. A local pool company will maintain it for $170/month but that’s $170 out of my pocket that is hard to justify paying if I’m not working.
@cengland0 Can’t disagree with you about pools-after 13 years of pool costs we are free of them in our new house. Everyone on our street where our new house is either had the builder build a pool or contracted for one after they moved in. Most were moving to FL for the first time. Probably saving at least $ 200 a month with no pool service and cost of running the pool pump.
At our old house, the salt water system was on its last legs and the gas heater was at least 5 years beyond its normal useful life-if either of those would have broken prior to us leaving-it would have cost us 2k a piece to replace either.
Is the suggestion to itemize or take the standard deduction provided by Turbo Tax generally correct?
@zinimusprime pretty much-probably even more so now given the high std deduction amts and the limits on taxes if you do itemize.
I screwed up and set my W4 allowances to Married - 5 instead of Married - 0 and instead of a nice refund, I now owe about $5,000 in tax
Does the IRS do payment plans or am I just going to have to write a big fat check?
@jsh139 There is an installment agreement request form-)9465 I think) that you send in with your taxes telling the IRS much you can pay monthly. Anything less than 24 they will usually approve although have seen longer. A lot easier than not paying the full amount or nothing and getting notices back from them. The form is pretty self explanatory. Don’t get freaked out by all the info they ask-they probably have it all anyway.
@Felton10 thank you! I’ll look into doing that. One follow-up question. Since I owe so much tax, do you think that I will have to pay any underpayment penalty fees? I’ve gotten a refund literally every year except for this one. The form isn’t clear on how to calculate it.
@jsh139 If you are underpaid form 2210 will do that-it is done by quarter-so if you paid in some now it would lessen the penalty for underpayment. Tax program should compute it automatically. You could always delete the form and hence the penalty-pay the taxes and not the penalties and interest and when they send you a bill for the balance, ask for an abatement of the penalty based on your penaly free history-sometimes they will grant it. Hardly ever wipe out interest as you have had the use of the money.
@Felton10 Thanks again!
My wife does our taxes (with the help of tax SW). She is an engineer by training - excellent math skills and great at reading arcane instructions and chasing down details. Over the years, she has dealt with the tax implications of stock sales, capital gains (short and long-term) on investments, rental properties, etc. One year, she was stumped by some fuzzy rules about severance taxes on timber sales, so she called the IRS for clarification - the answer from the trained government specialist was “I don’t know”. So we took our best guess, filled out the forms and submitted them, and never heard anything more about it.
@macromeh The “trained gov’t specialist” doesn’t know the rules on every tax law question-they just look up the answer in the IRS publications-same as you do. Ask for the tax law section or for someone in the specific area you have a question next time.
The IRS is never going to pick up every mistake-even if things are done incorrectly. I wouldn’t worry about it. There is a three year statute of limitations except for fraud.
@Felton10 Yeah, that was TY 1996 - we never lost any sleep over it.
Can I claim my monthly internet costs as part of my home office expenses now that I’m working from home? I can’t buy internet by the hour, so if I have to have it for working from home during the day, I can’t turn off the meter at 5pm. My work isn’t reimbursing me for my of my work from home office space and services I am providing to them at my new in-home office workspace.
Like A/C, heat, furnishings, a media production center, a snack bar, lunch buffet, coffee, twice a week massages, a monthly hair styling stipend and more.
I’m W-2, if that makes a difference.
I learned last year that they raised the personal exemption so much, itemizing doesn’t make sense. So I stopped tracking a lot of that info and receipts.
@mike808 You have to be self-employed to claim a home office deduction (a no-no if you get a W-2) and when misc itemized deductions went away so did the “unreimbursed employee business deduction”. So unfortunately you are out of options for deducting anything business related.
Btw-they did away with the personal exemptions and raised the standard deduction so high that most people can’t and don’t itemize although had a few clients where it made sense due to the overall tax savings with federal and state.
@Felton10 That’s what I meant. The standard deduction went way up and it isn’t worth it to itemize. In a way, that simplified the tax code for me. And probably the IRS too.
The downside was the $10 Trillion in welfare to the rich and corporations that didn’t create jobs or pay for itself in revenue growth. It’s all part of the Big Lie and fraud on the taxpayers.
@mike808 You can thank Donald Trump for taking the “working from home” deduction away from you.
"And the federal tax code for years used to help out this kind of WFH employee. They could reduce taxable income by deducting the cost of running home offices and for other unreimbursed employee expenses.
But those deductions were killed off by the 2017 tax overhaul passed under President Donald Trump, which slashed corporate tax rates while rejiggering individual rates — allowing for a higher standard deduction but fewer itemized deductions."
@Felton10 Yeah, but I’m kind of on the fence about the idea of raising the personal exemption i terms of the massive simplification of tax preparation (and tracking the freaking receipts for every little BS office expense, which don’t purchase or use services (janitorial, for example) at scale like an office building of 10-200 employees does).
Can we ever expect a simple Flat Tax with no exemptions or deductions, maybe starting at $35,000? Seems like anyone could do their own taxes then.
@daveinwarsh I wish, but Not in our lifetimes.
Because companies like TaxCut, HRBlock, Quicken, etc. lobby the shit out of Republican senators (that’s code for “bribe”) to prevent that from ever putting them out of business. Just like we won’t have M4A because of lobbying/bribing by the health insurance and big pharma corporate cabals.
@daveinwarsh it’s always been extremely easy to do your own taxes if you make that much and because of the above mentioned lobbying free for most people. Type in some numbers from a couple pieces of paper into another and click a few buttons.
Obviously the tax code needs simplified and less loopholes but a flat tax would be absolutely insane
@daveinwarsh @unksol The whole “free for most people” was the bait for the tax prep software cabal to get the IRS to agree not to just do it themselves and put them all out of business.
Just like the “deal” to get the insurance industry to go along with the ACA in exchange for Medicare not imposing drug price caps. Yep, in exchange for their vote for the ACA, Republican congresscritters demanded the poison pill of giving away the Fed’s right to negotiate drug prices to save taxpayers money as the single biggest customer in the drug market. Because Free Markets! Corporate Handouts!
I too wish we had a progressive flat tax with no difference between “passive” income and “earned” income. Income is income. And those that benefit most from a pre-established economy, commerce, customer markets and infrastructure produced by the country should similarly contribute the most towards its continued growth and maintenance in the firm of taxes.
The same for a single-payer healthcare system, like an M4A. Not having single-payer and a for-profit/dividend generating insurance industry is the biggest inefficiency and drag on our economy.
@daveinwarsh @mike808 I agree with Mike 100% for all the reason he listed and more.
@daveinwarsh @Felton10 @mike808 key word is “progressive” flat tax. That I’m all for.
@daveinwarsh @Felton10 @mike808
@unksol In the video, Adam thinks the government knows all about your income and that might be true if you work for a corporation and have no other investments. But how would they know about foreign income and income from rental property and how would they know how much my chemicals cost for maintaining that pool at the rental property? You have people mowing the lawn, painting, carpet replacements, etc. All those expenses are deductible from your income and tenants might pay in cash which means it may never go into the bank.
A lot of income sources have taxes paid based on the honor system. You could own a jukebox in a bar and pocket all the money it earns without ever paying a penny in taxes. How could the government find that out and charge you the correct amount? How would the government know how much you received in cash tips as a waiter or hair stylist?
@cengland0 this is clearly a simplified approach for the majority of people who don’t need itemized deductions. That pool has decreased since the standard deduction went up. I used to need to itemize. Now I don’t. Barely. If there was a flat progressive tax itemization might go away entirely.
Under the table cash payments are a whole nother issue.
You’re rental properties should be correctly done as business expenses
The point was more for that “free” tax software and the vast majority. And as mentioned it works in other countries. If the majority is flat/automated the irs can focus on the more complex issues
@unksol Standard deduction doesn’t come into play on non W2 income. I can deduct a $5 lightbulb expense on all my rental income without having to reach the standard deduction threshold.
You say that my rental properties should be correctly done as business expenses and to be clear, it is and why I hire an IRS Enrolled Agent to do my taxes. I claim all the income and pay more than my fair share of taxes. But it’s not W2 income so I don’t pay social security or medicare taxes on it. However, my comment was about how the government would know if I took payments from my tenants unless I told them voluntarily? I do that because I’m an honest person but I also know of people that don’t do it and have gone decades without paying taxes on their rental income.
@cengland0 they wouldn’t. That obviously has to be handled differently. But most people don’t own rental properties. It clearly can’t work that way for everyone. However it does for the majority.
The irs could choose to do return free filling and congress could implement a flat progressive tax. And it still be you responsibly to correct things.
John smith who only has reported w2 could check a box and send it back. Yes you have all my stuff correct.
You might not be able too. You would have to report some things. Technically you’re special percentage wise.
Obviously it’s not that simple but there are some ways we could massivly simplify the tax code that could be hashed out and eliminate lots of big business loop holes. And free up the irs for enforcement.
@cengland0 @unksol Even if you are an indiv, rental management co usually send out a 1099-Misc showing the amount of rent paid to you and you are supposed to send out a 1099 (new Nec this year) to those you pay $ 600 or more to.
@Felton10 Key words there are “supposed to” but who would know if I didn’t? That’s why the IRS cannot do the taxes for us because they really don’t know all of our incomes and are relying on people to be honest when reporting their cash tips, rent income, and jukebox income.
@cengland0 There is a question on the rental form asking you if you were obligated to send out any 1099s and if you did or will, but you can leave it blank and still e-file the return.
Had clients ask me in the middle of the year to prepare 1099 for people who should have gotten them and didn’t (not sure why they want it because even in the old days where you sent in copies of your W-2s with the paper filed tax form, you did not have to attach the 1099 to it. Prepare it form them and tell them it is their choice whether to mail the copy to the IRS since they will get a penalty for late filing.
Only way you might be caught is if someone was audited who should have been send one by you.
@cengland0 Also had clients who didn’t file and the IRS sends them a proposed amount due based on forms they received which in some cases shows 10s of thousands of dollars more owed since all the IRS used was the income they received and none of the deductions.
@cengland0 @unksol You might want to think about the long term consequences for SS payout of not paying SS taxes on non W2 income. If you are wealthy enough already, already have a pension that will pay well, already earning the max that has SS deducted it wouldn’t matter, etc. but if you make/have less than those things it well could later in life for how well you do or do not live.
@Kidsandliz Thanks for your opinion on not paying SS tax on my rental income.
Without going into too much detail, I am already retired and 56 years old. I will receive 3 different pensions from 3 different companies when I reach 65.
I put a lot of money in my 401K and that was supplemented by company match so I doubled my money immediately. I own both the house I live in and my rental property without any debt. My car is also paid off. So financially, I’m taken care of for the rest of my live. The rental income goes in the bank and I’ve never spent a penny of the profits in 10 years.
@cengland0 Sounds like you were in a position to make, and did make, some good financial decisions and are in good shape. For some it may have mattered.
@cengland0 @Kidsandliz Have never seen anyone pay SS taxes on rental property voluntarily since it is considered a passive activity and filed on Sch E not Sch C. Best and easiest way to maximize social security (other than earning a lot of money) is not collect it until you have to at age 70. Your earnings are increased approx 8% a year between ages 66 and 70. Hard to beat that guaranteed rate of return these days.
@Felton10 I might agree with you about waiting to take your SS until you’re older but that depends on your needs and your life expectancy.
It’s all math from here. I’m going to ignore any COLA to make it easier to calculate. Let’s say that you qualify for $2000/month at 65 but could get 8% more for the 5 years if you wait.
At age 65, you get $2000/month = $24,000
At age 66, you get $24,000
At age 67, you get $24,000
At age 68, you get $24,000
At age 69, you get $24,000
You have already received $120,000 and you could spend it or invest it if you want.
If you wait until 70 and get 8% more per year, that is $24,000 *1.08 * 1.08 * 1.08 * 1.08 * 1.08 = $35,264
You would have received only $24,000 if you took it early so your gain each year after age 70 is $11,264. But by taking it early, you already got $120,000. If you divide that $120,000 by the $11,264, that is 10.64 years before you break even making it so if you live to be 81, you might be better off waiting. That is if you know you’ll live that long. That also depends on how good of an investment you put that $120,000 in which could make the break even point even later in life.
@cengland0 Obviously if you need it to maintain your standard of living or to live it all, you take it and with the break even point being somewhere between 78 and 82 depending on if you take it at 62 or wait till 70, you look at your families’ life expectancy history and if everyone dies early, you take it as soon as you can.
@cengland0 @Felton10 Your math depends on whether or not you can afford to do anything in addition to pay the rent, bills and eat with the SS money. If you can’t then that is kind of irrelevant as there is no money to invest.
I don’t care about the break even point. All I care about is when I retire I have as much money as I can come up with so that I am a fewer more steps away from poverty than I otherwise would be. The multiple cancer crap stuff kind of wrecked my trajectory on retiring with enough money.
@cengland0 @Kidsandliz Best laid plans of mice and men etc. Wanted to work until I was 70 and not take SS, but that didn’t quite work out as the CPA firm where I had been working part-time for 7 years decided the money they had been paying me was better in their pocket rather than mine.
So to keep up my standard of living decided to take SS when I could at 66 and along with my own clients and my retirement annuities everything has worked out OK.
@Felton10 I had the same plan but wanted to work for the rest of my life instead of quitting at 70. I enjoy working – gives me a reason to wake up in the morning and adds structure to my life. But, unfortunately, my last employer laid me off in 2017 and my anxiety levels are too high to look for a similar paying job. The last time I had to go into an office was in 2001 because I was able to work from home since then. I’ve gone 20 years without having to see work people or drive during rush hour. I don’t think I could do it again – even to fill out the job application and do an interview.
The last time I applied for a job was in May of 1990 and the company published their job in in the local news paper. There were so many applicants that the company rented a large conference room in a hotel. I had to be there at 8am but lived over an hour drive away. So I left very early to beat the traffic. I got there way too early and sat in the lobby thinking about leaving my current job that paid pretty good for another job that is better but paid less. I ended up getting sick at the hotel and had to go home without talking to anyone.
I immediately called them when I got home and they seemed to understand but said the next hiring batch would be in October. I did go back in October 1990 and did get hired but those 5-6 months delay caused “Net Credited Date” to be a problem with seniority so I got all the crap work that nobody else wanted to do.
Anyway, my anxiety has gotten much worse since then and so has my salary demands. There is no way someone would pay me as much as my former employer without seeing me in person and without an interview. I have given up and accept the fact that I will never be able to work again. I’m just sitting at home wasting away watching Youtube and TV and occasionally going to the gym and/or grocery shopping but nothing else.
@Kidsandliz I agree with you about the break even point. I would take SS as soon as I qualify (I’m only 56 now) even if that means the payment will be lower.
I looked at my annual SS statement that tells me the estimated amounts I would receive depending on when I begin taking it. I have a hard time contradicting @Felton10 on this because he/she’s an expert but my calculation shows that waiting the 5 years from 65 to 70 would result in a 15% increase. That’s significant less than the 8% for each year compounded to be around a 47% increase: (1.08)^5 = 47%.
As for me, nobody on either my mom’s side or my dad’s side lived past their 60’s except for my Aunt who is currently in her 70’s. I doubt I would live to my previously calculated break even point of 85 so I would plan to take the SS money at 65 no matter what my financial situation was – just based on life expectancy.
Pandemic unemployment assistance overpaid me. I knew it and called. I was told to email about it, which I did. They then sent me the forms to appeal. I called again and said, “I don’t want to appeal, what do I do”? She said, “I don’t know.” I emailed again Dec. 18, got an answer in February. Meanwhile got a 1099 that’s thousands of dollars too much. My guess is I have to use it, but straightening out the tax later is going to be a nightmare.
@pooflady Unfortunately if you got it and didn’t repay it in the same year, you have to declare what the 1099 says. There is a way to get a deduction if you have to give some of it back in later years, but yes it is not nice or pretty.
@Felton10 Thanks. Like I said, it’s going to be a nightmare. Fortunately, I haven’t spent any of the overpayment. I tried submitting another claim for $30. Two days later they put $170 in my account. I tried calling the number they gave, it was a blah, blah, blah recording and then at the end it said “call some other time.”
@pooflady Yeah I have/had that problem too although for a slightly different reason. I thought I was supposed to file in the state I lived, worked and paid taxes on that money in. The university was in another state. Turns out the university paid into the state they were in even though they were supposed to pay into the state I lived in. I had been called and told no record, apply in the state the university is in, so I did. I was told I was going to be denied in my state. So I applied in the other state and was approved.
My state then wrongly approved me EVEN THOUGH they had no record in the quarterly income report thing they look at that I had earned any money at all in the state I lived in AND had told me they were going to deny me. HUH??? Oh and they approved me for less money that I should have gotten by formula and that I was being paid in the other state. Go figure.
I did pay back the amount I needed to (after badgering them for months as I found out I couldn’t pay it back until they got around to doing the paperwork on their end). I paid it back the same year. I STILL got a 1099 for the full amount I was paid even though I paid it all back. And the kicker was that you have to pay back the portion they withheld for federal taxes too rather the state recalling the amount of federal taxes they paid, by mistake, on my behalf - yeah I can get that refunded this year but coming up but repaying that at the time was hard.
They refuse to issue me an amended 1099 because they “paid me the money and so have to give me a 1099; doesn’t matter that I paid it back because I was given that money in error”. @felton10 is there a solution since the feds will have no proof I paid that money back (I do though)? I know I have to report what is on that wrong 1099 since I have it and so then does the IRS. I haven’t filed taxes yet (was planning to use turbo tax’s free online form) as I am still hoping to be able to figure out how to get an amended 1099. Or am I stuck paying taxes on money I, in the end, didn’t get?
@Felton10 @pooflady worked remotely so lived in a different state than I remotely worked in, never set foot in that remote state.
@Kidsandliz I got a headache from reading all that. I would recommend not paying taxes on an incorrect amount or on an amount you sent back. I would send that IRS an explanation of what happen including a copy of the 1099 and you documentation of having returned the money.
Hopefully your tax program has the capability to attach a pdf file with all the above info to the e-filed return.
@Kidsandliz @pooflady Every state has different rules re what attaches you to that state for paying non resident taxes, but the general rule is that you should never have to pay taxes on the same income twice so if required to pay it to the remote state, you can take a credit on your home state return for the taxes paid to the other state to avoid double state taxation.
@Felton10 Thanks for answering. I have no idea if turbo tax allows comments or attaching anything. If it doesn’t I’ll have to see what else is out there where I can attach something. I might just have to print and mail so I can include the documentation I paid it back. Life would be a heck of a lot easier if they’d give me an amended 1099 that reflects I have zero income but paid X dollars to the IRS. Hopefully it won’t mean I pay state income tax on the amount I paid back. I guess I need to actually look at the tax forms and see what is on them and from what line the state takes my income (in the past I relied on turbo tax and they did all that for me - some years free program, other years paid program - so I haven’t paid as close attention to what income line transfers from fed to state). Ugh.
As far as state income tax: The state I teach remotely in has no state income tax so in that respect I am in luck. I just pay it in the state I live in since I work remotely and don’t set foot in that state. I gather this is going to be an issue for some who were forced into working remotely who live across state lines from their in person place of work. My sympathies to any of you this affects, especially if you didn’t realize it and didn’t pay estimated state taxes in the state you live in.
@Kidsandliz Luckily where I used to live in the Washington DC area where everyone worked in a different state than they lived in (DC, VA, MD), the states had it all worked out re paid in state you lived in and none of the horseshit like you are dealing with.
@Felton10 Of course one wonders what would change if DC because state #51.
@Kidsandliz Nothing about this would change-too many people live and work in different “states” in this area and this handling makes too much sense.
So I worked as an election judge. I got a 250 dollar paycheck. Since under 600 no way. Do I still have to claim it? Where or how?
Is this my punishment for trying to help the democratic process?
@CaptAmehrican sorry-see my response below your post.
Unless something like that was designated as reimbursed expenses, you should claim it. Form 1040 Schedule 1 Line 8-Other Income.
What is the best way to estimate capital gains from stock investments? Mom (soon to be 89 y/o) has made money from her holdings with Wells Fargo etc. the past few years, but since there is no good way to know in advance how much she will make by the end of the year it is near impossible to make quarterly deposits. I hate to have her pay out those quarterlies then potentially have her investments tank by year end and have to get that money back…
@chienfou As long as you pay in 100% of your previous yrs taxes either by withholding or estimates (or 90% of the current years liability) according to the rules, you can owe any amount on Arpil 15 and not have a penalty.
I had a client who sold some land and the prev year had a 30,000 liability and made sure he covered it all with withholding the next year (withholding is assumed to be make equally throughout the year so you can catch up at the end of the year if need be). He had to pay 2.7 million on April 15 and because he covered his prev years taxes liability with withholding or estimates-no penalty.
Of course if you figure you have paid in too much you can just forgo the January est tax payment.
@Felton10
thanks… that’s good to know!
Also, I realize you have a vested interest in doing tax prep, but do you have any preference about tax software for those of us living outside of your area of service?
@chienfou I think most of the name brand tax prep programs are all pretty much the same in their ability to handle most people’s tax returns who use them. You might goggle which program is the best and you might get that some may be better than others for certain type of taxpayers.
@chienfou @Felton10 It also depends on which extra forms you need, as the different software companies (Intuit, HRBlock, TaxCut, TaxAct, etc) all tweak what forms are in their respective “Deluxe” and “Pro” versions.
The Deluxe tends to be the “step up” level you have to buy to get forms for rental property. The Pro is uaually if you run a self-employed small business (contracting, service, consulting, etc).
You need the Deluxe if you need to file an 8949 for cryptocurrency capital gains/losses, for example.
@Felton10 @mike808
Been using TurboTax (Intuit’s) Home and Business for the past several years, straight single employer W-2 for me, simple self-employed tutoring for the wife. I like keeping to the same software as it pulls data from year to year easily. Plus I can use the same SW to do Mom’s taxes as well. Free federal e-file and free software for my state with about a $25 (?) fee to e-file for Mom. Been happy so far, and have found that overall, as otherwise mentioned, I do best with just the standard deduction since we own our house outright and are both in (thankfully) good health. The business expenses get pulled out of SWMBO’s income either way.
My tax program is relatively inexpensive (1,800 a year) but is has it has unlimited tax prep and e-filing as well as every individual and business-federal, state and local tax form known to man.
@Felton10 So you can file all our taxes, right
Is there a deadline for forms from stock earnings? I guess we are waiting for one before we can file.
@speediedelivery You should have gotten the forms from your broker by now-they give them a little extra time till Feb 15th to get that stuff to you (as opposed to the January 31st deadline for the other tax docs).
As I understand it, cryptocurrency purchases/sales are treated like stock purchases with each trade converted to USD basis.
It would seem to me that this is similar to Forex trading. How are those reported if I were, say buying/selling foreign sovereign currencies and making money in arbitrage.
How does the IRS deal with HFT? It would seem to me that the micro-auditing of individual trade cost/basis transactions is utterly insane and overly burdensome. But that seems to be the requirement for cryptocurrency reporting.
Is there a simpler method that the IRS tolerates with cryptocurrency trading happening in micro-trades, and being reported that way, since thats what the blockchain literally proves happened?
To you, an exchange customer, you just ordered and bought .001 BTC, and the exchange fills that with partials from makers, at whatever prices and micro-volatility that entails. So you get 15 separate transactions reported to the IRS by the exchange for each partial order that was filled, totalling the .001 BTC that ended up in your wallet. It’s a very real mess.
@mike808 Only had one question from a client who child bought some bitcoin and wanted to know the tax implications. Evidently buying it like you said is like buying stock-no tax effect, but lets say you buy something with your bitcoin-that is when the shit hits the fan and you have to compute a gain or loss.
Does my 18-year old son need to file taxes in order to get a stimulus check? He does not have a job and is not attending college. We plan to claim him as a dependent. So I figured he wouldn’t be filing. We got a first round check (including money for him because he didn’t turn 18 until July) but not second (we didn’t get 2nd at all because of anomaly in 2019 taxes). Hoping to claim that second one and this third via 2020 taxes. Just not sure of the best plan with regard to him.
Obviously nothing is finalized until the bill becomes law, but it appears he could either get it as your dependent or filing a “zero” tax return.
“For a third check, if you’re in the 17-to-24 age range and listed as a dependent, you will be eligible for a payment of up to $1,400 (assuming the current proposal becomes law). However, that money will be added on to your family’s total, unless one of the situations below applies to you.”
Each stimulus ck had their own set of rules and given you son’s age and changing status, that is what makes it so much “fun”.
I’d wait a few days until it becomes law and then there will be a plethora of articles which should make things much clearer.
@Felton10 It’s actually easier if it just goes together with the family deposit – it will help us support him!
@katbyter No doubt rather than going to the trouble of him filing a return.
We started a business in 2020 but we do not have any income from it yet. So much fun! For our personal taxes, how do we treat the money that’s been going toward launching the business? We actually had no earned income at all in 2020, so that should make taxes interesting. Living off a couple of sales of long-term Apple stock (thank you Steve Jobs!).
@katbyter You should have decided on the form the entity should have taken-sch c, corp (c or sub S) or llc when you filed for your FEIN.
If a corp (C or sub S) the money you put in should be divided between capital stock and loans to the corp.
If a pass through entity (llc or sub s), you might be able to deduct some of the expenses (as opposed to capitalizing them as organizational expenses) on your personal return.
If you chose a 12/31/20 year end, the deadline is coming up soon to either file a return or file for an extension.
If you have no idea what I am talking about you better contact a tax professional in your area ASAP.
Here’s an unusual question for ya!
The various tax credits for tuition apply to students that studied at an “Eligible Educational Institution”. The IRS says that means “any educational institution eligible to participate in a student aid program run by the U.S. Department of Education.”
What about a university that is eligible (it meets the Department of Education’s criteria - it’s accredited, meets the various listed requirements for institutions, etc) but chooses not to participate in these programs? Could you claim (one of) the various student tax credits with a tuition bill from such a university?
@owenversteeg see my answer below
I’ve never gotten into in that deep to recognize or deal with those distinctions. I would say if they sent you a 1099-T, they would fulfill all the requirements for you to claim any and all deductions and credits you are entitled to. And the IRS wouldn’t look into it any further. Without that form, doubt if any education deductions or credits you took on your return probably would be allowed.
@Felton10 Thank you! I (and I’m sure everyone else) really appreciates the time you’ve taken to answer people’s questions
@owenversteeg Its interesting the variety of questions being asked and keeps my brain working either knowing the answer or looking up the answer. Someone once told me the difference between a lawyer and an average person is the lawyer knows where to look it up. Guess that applies to CPA’s as well.
@Felton10 @owenversteeg I believe it applies to many many professions. Where to look it up, being able to read it and parse it, and how to apply it.
Programming works the same way. Technically so does construction and the NEC and almost all skilled labor.
I would like to know more generally about you job as a CPA. Not looking to change careers, just curious. I don’t know a lot about the job of an accountant.
Apart from personal income tax filings and, I guess, corporate income tax filings, what do you spend most of your work hours doing?
I would be curious to hear a breakdown of tasks on an annual basis. Like, are personal income tax filings ten percent of your job? Thirty percent?
How much of your job is tax-related versus other business accounting?
@Limewater If my sister is any guide some of his tax stuff is probably year round and filing lots of extensions for people. You know. Due to
procrastinationall the sole proprietor records are still in a shoe box.@Limewater Alot depends who you work for-if you work for a CPA firm as I did for a number of years or on my own when during some of that time I worked part-time both year round and during tax season.
Some clients require a lot of hand holding and bookkeeping aid and guidance throughout the year. Business planning and tax projections also takes up time. I also do payroll for a couple of my clients which I do bi-weekly as well as quarterly and year payroll tax returns.
Up until a couple of years ago, I performed audits for several of my clients. Lots of rules and regulations as well as oversight by the AICPA. I actually had to have my audits audited to make sure I was conforming to all required standards via the AICPA peer review program. Very expensive and nerve racking
The good news is that I work-maybe a total of 2 1/2 months of full time work if added together-I can earn as much as most who are retired and work full time down here in Florida.
But my practice such that it is now is about 80% tax and 10% bookkeeping and 10% business and tax planning.
@Kidsandliz @Limewater When I saw someone walk in with any type of box-I ran the other way. Women who kept books for their husbands were the worst-they made up their own accounting systems sometimes.
I am stuck on line 5a/5b or line 1… My company tops the percentage we can contribute to our retirement plans – I was unaware of this and exceeded it last year (and might have done it again because auto-increase was on this year) … The retirement plan paid me back the small amount and 1099-R’ed me. Do I add it to line 1, because of this instruction:
Is it considered a corrective distribution? Or is it a line 5a or 5b?
please and thank you for the assistance!
@mikibell I am trying to recover from 2nd Covid shot and I don’t think I could count to ten with both hands. Will address your issue when my head is clearer-hopefully tomorrow.
@Felton10 what side effects are you having? And I hope you feel better soon!
@Felton10 please feel better and no rush! Still trying to get 2018 taxes fixed by the IRS, kinda afraid to file 2020 until that is done.
@tinamarie1974 shoulder that hurts, ribs that hurt, no appetite, feeling hot and cold (both of us), just general lisslessness.
@Felton10 aaawww sorry for you both. Let’s hope those side effects subsidie quickly
@Felton10 @tinamarie1974 Yuck - but I guess we can hope it’s a good sign that your bodies are reacting and building immunity!
@Felton10 @Kyeh you and the misses feeling better today?
@Kyeh @tinamarie1974 well if sleeping in till 10 and eating breakfast at 11 is normal and feeling better. Make waffles from scratch as that was the only thing my wife said she could stomach. Guess we are moving in the right direction, but slowly. Thanks for asking.
@Felton10 waffles from scratch are always a good sign. I slept a LOT after my first vaccine…warned my boss that it might happen again after 2nd. Happy first day of spring!!!
/giphy happy spring
@Felton10 p.s. found more info on the back of the second page of the forms… Only boxes 1, 5, and 7 have info… 7 is E.
Again no rush! I appreciate the advice… If my taxes for the last 2 years hadn’t been so screwed up, I would just wing it…
I am terrified they are going to audit me and I can’t splain what they did to the last two years! (The IRS filed my 2018 as my 2019, and have done all sorts of adjustments to get to the right net result!)
@mikibell Sorry for the delay in responding. It definitely should be on line 5 as that is where all 1099-R payments are recorded. Hope you are using a tax software program so if you put in the distribution code from the 1099-R in the software it will handle it correctly. But pretty sure it has to be taxed since it was probably deducted from your taxable w-2 wages prior so taxing you on it now is just making things right.
I wouldn’t worry too much about being audited. Less and less people are being audited these days and unless they see real fraud as opposite to someone who is just making mistakes no matter how stupid they will just proposed corrections and move on.
@Felton10 I have it on 5a… I think I also need to put it on 5b… I don’t use software to do the original, but I do use turbotax to file – thank you, kindly!!!
I truly do hope you are feeling better!
@mikibell Not all entries that are on 5a go on 5b but in your case, I think it should as it is taxable.
Sorry, I thought I read this as answering Taxi questions. Never mind. Sorry to bother you, it won’t happen again. Really Really sorry that I completely misread the title. I really should be held up for public secruinty and shaming for this grevious error.
Time to make contributions to IRAs and health savings accounts extended to May 17.
Warning - not all states are allowing the income exemption of $10,200 of unemployment income.
@Felton10
If I receive a distribution from my father’s estate, is that income? If it is under the $15K (I think) gift tax limit, is it a non-taxable gift? Are inheritences taxable?
Separately, are distributions from a trust taxable (i.e. will I get a K-1? I think that’s the form) or can they be considered gifts too?
@mike808 Inheritances are not considered income and therefore are not taxable and are also not subject to gift tax limitations either. Since you said estate, I assume he passed away and you are getting distributions of stock/cash and/or proceeds from the sale of assets.
But income producing assets product income which someone has to pay tax on either on the form 1041 or passed through to the person getting the benefit via the form k-1 which you mentioned-that can’t be considered a gift you have to include the amounts from the k-1 (usually dividends, interest or gains from sale of assets on your tax return)
@Felton10 So a check from “the estate of …” account is not taxable and has no gift limit to the recipient/beneficiary, yes? Because any income/gains taxes would be paid via the estate tax return, yes?
And a trust distribution is taxable - in any amount, or can a trust give up to the gift limit before having to declare distributions as income to the recipient/beneficiary via a K-1?
@mike808 It can either be paid at the return level (1041 for both estate or trust) or passed through to the beneficiary via a k-1. Gift taxes are always paid by the person paying the gift-never the one receiving it. A check to you may be a payment of earnings and there considered a distribution of income rather than principal and therefore taxed to via a k-1. If you don’t get a k-1 at the end of the year-no tax ramifications…
@Felton10 - stupid child got a letter from the IRS. Who know what she did with it, if she even opened it (that is about normal for her) and can’t even remember getting it (also normal for her). Then she gets another notice saying she was having her stimulus money withheld to pay for underpaid taxes due to one of 4 reasons, none of which apply. She can’t remember her IRS log in. She can’t remember her IRS password (that is about normal for her too - why would you possibly write that down?). It agrees with her email but then never sends a link with her user name. Given the information on her tax form I put that through turbotax and she didn’t underpay, although she did underpay the state by $40 (she does not do her own taxes and doesn’t let me do them for her either - I will whisper you why).
I’ve tried calling the IRS over and over for days and you get hung up on because they are too busy to call you back or put you on hold. I have all her information to pretend I am her if I ever manage to get through (she is not capable of dealing with stuff like this, she couldn’t even deal with the phone tree, can’t fill out forms - had an IEP in school for very good reasons) but this also means I can’t go in person to an IRS office because they will know I am not her and her showing up with me “in tow” to help her likely will result in many wasted trips of mine to the IRS office because why would she bother to tell me she changed her mind about going that day (not to mention she has a kid due in Oct but has had some early labor that needed shut down) so I will be out plenty of parking money and time.
Is there any other way to find out what they are yapping about other than file an appeal addressing the 4 reasons given in the letter (side point: do I even believe the letter is sent only for one of those 4 reasons? Nope. The IRS is too much of a mess for that) that they are saying is the reason they are keeping her stimulus money?
@Kidsandliz I’m afraid the only way you are going to find out immediately what the issue is is to talk to them directly. Try calling first thing in the morning and right before they close at night. Just had a client wait for three hours on the phone to talk to them so now being able get a hold of them is not unusual. Forget writing to them-that will only prolong the problem and it will take months before you get a letter back saying they will respond in another 3 months.
Probably some type of income that wasn’t reported when the original return was filed. Her tax preparer seems like a real sleeze ball.
@Felton10 @Kidsandliz
I can only add that if you do mail them things, keep copies, and receipts. And a journal of when you call, how long you were on hold, who you talked with (full name, not just first name), and what you talked about and the instructions you were given.
My sister has been dealing with untangling an estate with all kinds of complications for two years now and we’ve had to get an ombudsman involved (not sure that the official title) where they have dragged their feet for months and claim they never received documents and so forth.
The corporations and the rich have “defunded the police” - the IRS, that is, and so they are underfunded and the leaders are directed to deflect from the real theives robbing the treasury blind by generally going all in on Kafka and chasing inconsequential small fry, while billionaires and corporations watch Rome burn.
@Kidsandliz @mike808 When you reach the IRS, the person on the phone will give you their name and ID# which you should write down. The person on the phone accesses your acct on the computer and if you have any questions, likely put you on hold and go away while they look up the answer in the IRS pubs-something you could have done if you knew where to look.
You will not always get the same answer if you call up multiple times with same question. You have to ask for the tax law section or the particular area that deals with your type of question.
@Felton10 Even unreported income won’t kick her over the limit - she is still poverty line - not to get the kid stimulus money. Kids are 8 and under, income is far below the upper limit (she gets single head of household refunds), SS number on her taxes for everyone is correct, kids were claimed on last year’s and the year before’s taxes… None of the 4 reasons they state are relevant. Sigh. I’ll try the hours you suggested to call. Thanks.
@Felton10 @Kidsandliz check this out
https://www.wsj.com/articles/the-latest-irs-headache-for-taxpayers-11-million-math-error-notices-11630661402?mod=e2tw&twclid=11443374061757865986
@Felton10 @tinamarie1974 HOLY CRAP. THANK YOU!!! That is exactly what happened to my kid and explains why we have no clue what the deal is since she didn’t violate any of the “possible” 4 reasons that are mentioned. Likely she got the first letter which she would have found confusing even if she did read it and so in typical fashion decided if she ignored it then the problem would go away and she wouldn’t have to deal with the issue. (Sigh).
How the heck does one then file an appeal? The author of the WSJ also refer to an abatement (in her blog about this mess). What is the difference? Should I/do I need to file both? The letter gives no indication of how you do that, only that you need to do that. Obviously I need to file one for her.
@Felton10 @Kidsandliz welcome for some reason it randomly showed up in my Twitter feed. I was like, um really?!?!?!
@Felton10 @tinamarie1974 OMG that was pure LUCK!!! Thank you for reading that and this forum thread to know I needed to know that!!! The article says some crazy number of people like 5 million or 11 million or something got these letters, way the heck more than in previous years.
Now I am struggling to find what forms I need to file on her behalf, where to send them, etc. I am presuming the proof I need to send is SS cards (to prove names), birth certificates (to prove kids’ ages) and the front page of her tax form to prove she meets the income guidelines.
The letter says she is flagged for one of these reasons (copy/paste):
======
We changed the amount claimed as Recovery Rebate Credit on your tax return. The error was in one or more of the following:
The Social Security number of one or more individuals claimed as a qualifying dependent was missing or incomplete.
The last name of one or more individuals claimed as a qualifying dependent does not match our records.
One or more individuals claimed as a qualifying
dependent exceeds the age limit.
Your adjusted gross income exceeds $75,000 ($150,000 if married filing jointly, $112,500 if head of household).
The amount was computed incorrectly.
======
Talk about vague. None of those 5 is wrong. She gets the full amount and I have already checked her tax form and everything is right on there too.
@Felton10 @Kidsandliz @tinamarie1974 If you can’t get through to the IRS, do a Google search for the “Tax Payer Advocate” in your area. It should be easier to get through to them and they are suppose to help you manage your way through the IRS maze.
@Felton10 @Kyser_Soze @tinamarie1974 Thanks for the suggestion. I did that following a link in the article that led to a blog. In reading entries I found that they exist through there and a link to find where they are in my state. The is only one place in this state and that is in a city about 3 hours from me. In the morning I’ll call free legal aid and see if they have some local people who can help.
@Felton10 @Kidsandliz @tinamarie1974 By the way, I got one of those letters also. I used to work for a tax office and quit a couple years ago because I have other things to focus on, but I had them do my taxes. So I’m not even going to look at any of it! I’m going to play the dumb client and take the letter to them and ask WTF is this about? That’s what the clients used to do to me!
@Felton10 @Kyser_Soze @tinamarie1974 When you get answers PLEASE let me know!! (even it if is a whisper). Apparently we have 60 days from who knows when to respond. Is yours as incomprehensible as to why as this is for my kid?
@Kidsandliz @tinamarie1974 An abatement is when they aleady have assessed the penalty. An appeal is when you contest their adjustment in the first place.
@Felton10 @Kidsandliz @tinamarie1974 You should be able to just call them and they should be able to look at the account and tell you what the problem is without you being there.
@Kidsandliz @Kyser_Soze @tinamarie1974 Usually the taxpayer advocate is sort of the court of last resort when you have exhausted all your other avenues without success. I doubt they would take your case without having contacted the IRS first. You may find after calling the IRS that they tell you to disregard the letter and you will be receiving a letter to that effect. At the very least they will confirm what you should send them to show you deserved the stimulus payment and where to send it.
@Felton10 @Kidsandliz @tinamarie1974 Yes, I looked at mine and thought WTH? There is just my wife and me and our SS# have not changed, no dependents, and I quit taking any money out of my retirement accounts to keep my income below the levels listed for this year, so it makes no sense. I’m going to make an appointment with the tax company and see what they have to say about it.
@Felton10 @Kyser_Soze @tinamarie1974 The problem is apparently right now only 8% of the people who are calling the IRS can get through. Unfortunately so far I have not been in that 8%.
@Felton10 @Kyser_Soze @tinamarie1974 Thank’s for the info about the taxpayer advocate’s purpose.
@Felton10 @tinamarie1974 Thanks for the clarification between the two. With no info that is useful I have no idea if they have already assessed the penalty. The letter is pretty generic - eg basically says nothing useful other than she has 60 days to appeal but didn’t tell you what you are appealing.
@Kidsandliz @Kyser_Soze @tinamarie1974 I would see what their hours are in your time zone and be ready to push the last number button just as the clock strikes 8 in the morning. I did that calling the tax practionioners hotline (for CPA’s and tax professionals only) and got through in 5 minutes where the day before I was told to call back later when I called in the middle of the day.
@Kidsandliz @Kyser_Soze @tinamarie1974 Was calling for a client and of course they wouldn’t talk to me w/o a poa which you can fax them while still on the line (who still uses a fax machine anymore-the IRS does) and luckily with a two land lines where one is hooked up the fax machine that works for me.
@Felton10 @Kidsandliz @tinamarie1974 This could be an unusual year and an unusual time, but I used to get through the tax practitioners hotline in a matter of minutes all the time. But there are “Help Wanted” signs everywhere and in addition to over 700,000 dead, some of whom may have had jobs, there were 1.7 million baby boomers that retired early because of coronavirus! Even the IRS may be shy of some employees. I quit for other reasons, but if I hadn’t for those reasons, I would’ve quit to stay away from infected people. My tax job required me to meet face to face and there were many times people would cough in my face and not cover their mouth. Disgusting!