child custody tax question

AskTaxGuru.com Junior Member, madawg22, asked:

I got custody of my son in August of 2010. My X is telling me that by claiming him I am violating the IRS rule since I did not have him for more than 1/2 of the year. My tax person stated that this is not true and that I did not violate anything. My custody paper work does not identify who claims who, just who has custody. Did I do something wrong and is my tax person wrong?

Should I ammend my tax claim for 2010 and allow my X to claim the son? I just want to do the right thing. Thanks

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Alimony

AskTaxGuru.com Junior Member, lhall700, asked:

My question is about Alimony, I am court ordered to pay my ex-wife $925.00 a month in Alimony. It is split up like this; I send her a check for $500.00 and sent a check of $425.00 to the federal bankruptcy courts. Even though we were both responsible for the bankruptcy the judge order me to pay the bankruptcy as part of my alimony. So do I file my alimony as $925.00 per month on my federal return or do I just claim the $500.00 a month that she receives.

No one here seems to be able to answer my question so I am going to post what two different tax agencys told me.

Dear TaxACT(R) Customer:
If your divorce decree recognizes the bankruptcy payment as alimony, then you should include the whole amount paid for alimony on your tax return.

Taxaid answer:
If your divorce decree, and the court, designates that you pay alimony to your ex of $925, then that is what you can deduct. Apparently because of the bankruptcy proceedings the court ordered that you pay $425 of your wife's alimony directly to the court to assure payments on HER share of the bankruptcy.

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Business Deductions?

AskTaxGuru.com Junior Member, brownpurse182@yahoo.com, asked:

January 1, 2011, I purchased 50% of an S-Corporation; thereby creating a two owner S-Corp. I recently discovered that my business partner failed to separate personal expenses from the previous year’s tax returns (nonemployee children on business cell phone plan and on business fuel cards) , and allowed one employee's family (family not employed with Corporation) to obtain cell phones through the Corporation; yet claimed the entire year-to-date cost of the cell phone bill as a business expense. Please advise as to what the repercussions of his actions can bring.

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What is Schedule C-EZ and which Taxpayers are eligible to use this Form?

Per the IRS Tax Code, "the Schedule C-EZ, Net Profit from Business (Sole Proprietorship), is the simplified version of Schedule C, Profit or Loss from Business (Sole Proprietorship)."

Using Schedule C-EZ can save considerable time, reduce the paperwork burden associated with the Filing of the Long Schedule C Form and Professional Filing fees associated with Schedule C. But the IRS has strict rules regarding who can use this Short Schedule C-EZ!

Taxpayers may be eligible to use the abbreviated Schedule C-EZ instead of the longer Schedule C when reporting business income and expenses on your Form 1040 federal income tax return.

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Why does the IRS want taxpayers to use a 1040-V payment voucher?

According to the IRS, "the Form 1040-V, Payment Voucher, is part of the modernization process. Thus, if taxpayers have a balance due on your tax return, using the payment voucher will help the IRS process that payment more accurately and efficiently."

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Do Taxpayers need to use the payment voucher if they owe taxes when filing their tax return?

According to the IRS, if Taxpayers have a tax liability, it is recommended that they send their tax return, payment voucher, and payment to the addresses indicated.

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Do California LLC have to pay any filing fees in 2010?

A LLC formed in California or doing business in California has an Annual Tax payment due, for the amount of $800, on the 15th day of the 4th month from the beginning of the tax year.

Got any tax questions? Ask them here.

How do I prepare my payment when using the voucher?

Taxpayers are advised to make a check or money order payable to the United States Treasury. The IRS does not accept any cash!

Per the IRS, "If your name and address are not printed on your check or money order, print them so they can be easily read. Also, print your Social Security number (SSN), daytime telephone number, and "2010 Form 1040" on your check or money order. Double check to make sure that you have printed your SSN correctly and that it matches the one used on your income tax return."

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What will be the impact of buying assets (not eligible for bonus depreciation) in the 4th Quarter?

If a business buys substantially all their assets in the last quarter of the tax year, then there may be some unfavorable tax treatments on write-offs on acquired assets that are not eligible for bonus depreciation.

The IRS rules states that if a business "makes more than 40% on their 2011 asset purchase after September, regular depreciation is calculated on all assets put in use in 2011 and this amount is calculated on quarterly basis."

Thus, any assets that are acquired in late 2011 get only 1.5 months of depreciation instead of 6 months’ worth. (It is worth noting that this rule is not applicable to buildings).

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What will be the basic Medicare Part B Premium in 2012?

In 2012, the basic Medicare Part B premium will rise to $99.90 per month, up from the current amount of $96.40. But this will be an apparent reduction for seniors who first enrolled in 2010 or 2011.

Higher Income seniors will still have to pay a significantly larger Part B premium if their modified adjusted gross incomes for 2010 exceeded $170,000 for married filing joint taxpayers and $85,000 for single filing taxpayers.

Furthermore, another burden on Higher Income Seniors will be that they will also "owe a surcharge on Part D premiums for coverage of their Prescription drug costs."

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Rental Income to Sibling

AskTaxGuru.com Junior Member, nmp2001, asked:

Hello - I have a question on the tax implications of rental income from a sibling who is a part owner of the property (I know this sounds strange).

I purchased a condo with my sister a couple of years ago and I am the sole person on the mortgage (although her name is included on the deed for the property). While I have been using the condo as a primary residence and taking mortgage deductions, I have since gotten married and want to potentially purchase a new home with my wife. If and when that happens, my sister will be moving into the condo. I am wondering whether I can "lease" her the apartment while receiving rental income and continuing to deduct the mortgage interest (and also deducting the mortgage interest of my new primary residence). Are there any complications to this since she technically is an owner of the property? And would I be able to charge her a below market rent so that I don't recognize any net income (i.e. charge her the amount of the mortgage interest as rent)?

Thanks in advance.

Click here to read what our tax gurus advised nmp2001.

Deduct VA mortage insurance (VA funding fee)

AskTaxGuru.com Junior Member, randystoker, asked:

I deducted a VA funding fee I paid in '09 on my 2009 tax return. According to publication 936, VA mortgage insurance is known as a funding fee and is fully deductible in the year paid as qualified mortgage insurance. However, this year I received a letter from the IRS stating that my mortgage insurance deduction for '09 was corrected to $0 and that I owed more than $4K in back taxes for 2009. I replied with a copy of my HUD-1 showing the VA funding fee paid and the page from IRS pub. 936 showing that the VA fee paid was considered mortgage insurance and was fully deductible in the year paid. The IRS replied back with a letter requesting to see a copy of my "corrected" 1098 showing the mortgage insurance paid. However, my bank (Chase) replied in an e-mail that they do not put VA funding fees on their 1098's (even though I referenced IRS instructions for 1098 that these fees should be included in box 4 if over $600). Chase said they were sorry and could not comply with my request for a corrected 1098. My question, can the deduction for mortgage insurance be taken if not on the 1098?

Click here to know what our tax gurus advised him.

Under what circumstances will income for personal services performed in the United States as a nonresident alien is not considered to be from U.S. sources and is not subject to U.S. taxation?

The IRS has stated that "if the following three conditions exist, income for personal services performed in the United States as a nonresident alien is not considered to be from U.S. sources and is not subject to U.S. taxation."

If you do not meet all three conditions, your income from personal services performed in the United States is U.S. source income and is taxed.

These three conditions identified by the IRS are as follows:

1)You perform personal services as an employee of or under a contract with a nonresident alien individual, foreign partnership, or foreign corporation, not engaged in a trade or business in the United States; or you work for an office or place of business maintained in a foreign country or possession of the United States by a U.S. corporation, a U.S. partnership, or a U.S. citizen or resident.


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Tips for Managing Your Tax Records

After you file your taxes, you will have many records that may help document items on your tax return. You will need these documents should the IRS select your return for examination. Here are five tips from the IRS about keeping good records.

1. Normally, tax records should be kept for three years.
2. Some documents — such as records relating to a home purchase or sale, stock transactions, IRA and business or rental property — should be kept longer.
3. In most cases, the IRS does not require you to keep records in any special manner. Generally speaking, however, you should keep any and all documents that may have an impact on your federal tax return.
4. Records you should keep include bills, credit card and other receipts, invoices, mileage logs, canceled, imaged or substitute checks, proofs of payment, and any other records to support deductions or credits you claim on your return.

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Why should taxpayers make a voluntary disclosure?

The IRS has stated that, "Taxpayers with undisclosed foreign accounts or entities should make a voluntary disclosure because it enables them to become compliant, avoid substantial civil penalties and generally eliminate the risk of criminal prosecution. Making a voluntary disclosure also provides the opportunity to calculate, with a reasonable degree of certainty, the total cost of resolving all offshore tax issues.

Taxpayers who do not submit a voluntary disclosure run the risk of detection by the IRS and the imposition of substantial penalties, including the fraud penalty and foreign information return penalties, and an increased risk of criminal prosecution. The IRS remains actively engaged in ferreting out the identities of those with undisclosed foreign accounts. Moreover, increasingly this information is available to the IRS under tax treaties, through submissions by whistleblowers, and will become more available as the Foreign Account Tax Compliance Act (FATCA) and Foreign Financial Asset Reporting (new IRC § 6038D) become effective."

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What are some of the potential civil penalties that might apply to taxpayers who don't come in under voluntary disclosure and the IRS examines these taxpayers?

Per the IRS, US taxpayers could be subject to substantial "potential civil penalties" that include the following;

1. A penalty for failing to file the Form TD F 90-22.1 (Report of Foreign Bank and Financial Accounts, commonly known as an “FBAR”). United States citizens, residents and certain other persons must annually report their direct or indirect financial interest in, or signature authority (or other authority that is comparable to signature authority) over, a financial account that is maintained with a financial institution located in a foreign country if, for any calendar year, the aggregate value of all foreign accounts exceeded $10,000 at any time during the year.

Generally, the civil penalty for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50 percent of the total balance of the foreign account per violation. See 31 U.S.C. § 5321(a)(5). Non-willful violations that the IRS determines were not due to reasonable cause are subject to a $10,000 penalty per violation.

2. A penalty for failing to file Form 3520, Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts. Taxpayers must also report various transactions involving foreign trusts, including creation of a foreign trust by a United States person, transfers of property from a United States person to a foreign trust and receipt of distributions from foreign trusts under IRC § 6048.This return also reports the receipt of gifts from foreign entities under section 6039F.The penalty for failing to file each one of these information returns, or for filing an incomplete return, is 35 percent of the gross reportable amount, except for returns reporting gifts, where the penalty is five percent of the gift per month, up to a maximum penalty of 25 percent of the gift.

3. A penalty for failing to file Form 3520-A, Information Return of Foreign Trust With a U.S. Owner. Taxpayers must also report ownership interests in foreign trusts, by United States persons with various interests in and powers over those trusts under IRC § 6048(b).The penalty for failing to file each one of these information returns or for filing an incomplete return, is five percent of the gross value of trust assets determined to be owned by the United States person.

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What Are Some Of Highlights of the 2009 Tax Law Changes?

There are some very important tax law changes in 2009 that would impact many taxpayers in all income tax brackets. Some of the most significant changes are highlighted below.

1. Change in Personal Exemptions
For 2009, each personal exemption you can claim is worth $3,650, up by $150 from 2008.

2. Change in Standard Deductions
For 2009, the standard deduction for married couples filing a joint return rises to $11,400, up by $500 from 2008. For single filers, the amount increases to $5,700 in 2009, up by $250 over 2008. And heads of household can claim $8,350 in 2009, a jump of $350 from 2008. Also, the Non-itemizers who pay real estate taxes can claim even larger standard deductions. Joint filers can add in up to $1,000 of property taxes paid. Singles can add in up to $500 of real estate tax payments. Non-itemizers can also add any casualty losses that occurred in presidentially declared disaster areas.

3. Change in Tax Rate
Because of the high inflation in 2008, the 10%, 15%, 25%, 28%, 33% and 35% tax brackets all kick in at approximately 5% higher levels of income than in 2008.


Click here to find out more of these highlights.

How to Avoid a Tax Audit for Sole Proprietorships

IRS has found that taxpayers with Schedule C filers have been both overstating expenses and understating income. Here are some the areas that have been typically sited as overstating expenses, and the IRS has specially targeted these for audits

1. Taxpayer has included personal telephone and cell phone calls on his or her Schedule C.

2. Taxpayer has included personal home and life insurance as part of business insurance expense on his or her Schedule C.

3. Taxpayer has expensed his or her spouses travel expense even though she was not actively involved in the Schedule C business.

4. Taxpayers deducted non-business related expense (personal non-deductible) on his or her Schedule C.

5. Taxpayer’s Schedule C activity looking more like a hobby than a profit activity, that was generating continuous losses for more than 3-5 years with no prospect of generating a profit in the foreseeable.

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Sole Prop with no income, only expenses in 2010

AskTaxGuru.com Junior Member, mlblake77, asked:

My husband received his contractors license in June 2010 and started a Sole Proprietorship with limit start up from us. In 2010, we spent approximately $6000 on expenses (i.e. general liability ins., advertising, tools & equipment, etc... ) but earned no income until 2011. Are we required file the net loss of $6000 in 2010 or are we able defer the expenses from 2010 to 2011 when first earned income / began officially operating?

Thanks!

Tax Question

AskTaxGuru.com Junior Member, feng, asked:

I am a 21 year old college student (dependent).
My parents invested my college savings in stocks. They have about 30,000 dollars left in shares of Apple (I am a senior at a public university)
They are in the 33% tax bracket.
Edit: I am in California Edit: I do not have a job (doing unpaid internship overseas)

Questions: What happens if they transfer the 28,000 dollars worth of stock into a brokerage account under my own name.

Effectively gifting the shares to me. They have a joint account so I should be safe under 28,000 dollars from gift tax.
The stock gained 7000 dollars so was bought with 21,000 dollars.
If I get the stock, will I have to pay kiddie tax on the 7000 if I do not sell the stock?
Will it benefit me if I keep the stock until I graduate, and get a job to be taxed at my own lower rate?

Thanks in advance!

minimizing impact of taxes

AskTaxGuru.com Junior Member, Anonymoose, asked:

Hello all,

I'm currently a college student who's going to be working in the finance industry after college. My salary will be $100k base + $30-40k in bonus. According to tax bracket references, my federal tax would be 28%, and my state tax will probably be 5%. To be conservative, I'm estimating a 33% tax in total, which would leave me with around 90k post tax.

I've heard of people starting corporations to avoid excessive taxation, as well as investments. I consider myself a skilled investor and I definitely plan on investing some of my income, but I wanted to understand how that would affect my AGI.

For example, if I'm paid biweekly, I think federal and state taxes are directly deducted and I receive the post-tax amount. This means that I can't invest over 90k (roughly) because I'll never have that money, correct? (ignoring living expenses, etc).

Also, could someone explain how I could start a corporation to minimize taxation? I definitely don't want to do anything illegal, but I'd like to retain my income if I can.

Thanks. 

IRS Announces Increased Pension Plan Limitations for 2012 for Individual taxpayers

The Internal Revenue Service announced cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for Tax Year 2012. Per IRS, "many of the pension plan limitations will change for 2012 because the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment." The major changes outlined by the IRS include the following:

1. The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $16,500 to $17,000.

2. Unfortunately, the catch-up contribution limit for those aged 50 and over remains unchanged at $5,500.

3. The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $58,000 and $68,000, up from $56,000 and $66,000 in 2011. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $92,000 to $112,000, up from $90,000 to $110,000. For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $173,000 and $183,000, up from $169,000 and $179,000.

Click here to find out more. What did you think of this update?

IRS announces several "Tax Benefits Increase Due to Inflation Adjustments for the tax year 2012."

Per the IRS, "for tax year 2012, personal exemptions and standard deductions will rise and tax brackets will widen due to inflation."

Due to the existing Tax Law, "the dollar amounts for a variety of tax provisions, affecting virtually every taxpayer, must be revised each year to keep pace with inflation." Thus, the New dollar amounts affecting 2012 returns, filed by most taxpayers in early 2013, include the following:

The value of each personal and dependent exemption, available to most taxpayers, is $3,800, up $100 from 2011.

The new standard deduction is $11,900 for married couples filing a joint return, up $300, $5,950 for singles and married individuals filing separately, up $150, and $8,700 for heads of household, up $200. Nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions, such as mortgage interest, charitable contributions and state and local taxes.

Tax-bracket thresholds increase for each filing status. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket is $70,700, up from $69,000 in 2011.

Click here to find out more.

What are cost of living increase for Social Security recipients in 2011?

Social Security recipients will not get a cost of living increase again in 2011. There is no change in the Social Security Wage Base. It will remain at $106,800, because by law, the wage base cannot be increased if there no cost of living increase in the social security.

The earnings limit does not change, and "for individuals who turn 66 in 2011 will not lose any benefit if they make $37,680 or less before they reach that age."

For taxpayers who reach are at least Age 62 but less than Age 66 by end of 2011 "can earn up to $14,160 before they start losing some benefits."

What do you think of this?

Mileage on Per Diem

AskTaxGuru.com Junior Member, Amits, asked:

Hi,

I am a software consultant and employed with a consulting company which is based in Marlboro MA and my current project is in New Hampshire. I drive daily from MA to NH and my total drive is 120 miles each day.

Can I claim my mileage as per diem from my employer.

Thanks

Tax Refund

AskTaxGuru.com Junior Member, melynda, asked:

Can IRS keep my 2008 tax refund I have coming if I owe for child support for the year 2010?

Paypal 1099 Question/s

AskTaxGuru.com Junior Member, G.H.927, asked:

My wife has been using my eBay/Paypal account to sell things for a while. We've always paid taxes on any profits. This year, she's sold a bit more, and has taken over 20k in payments, and has also taken over 200 payments.So we're going to get a 1099 k next year, which is fine. As always, we plan to claim the profits minus the deduction anyways, which really isn't much (I believe).

Here's the thing... I was laid off my job in July, and was on unemployment for a couple months. I did get hired (thankfully), and am now back to work.

I know that because the paypal/ebay accounts are in my name, the 1099 from paypal will come in my name. We're concerned about this for obvious reasons: I was on unemployment, but paypal is 1099'ing me "saying" I made money, when I didn't. The last thing i need is to get in trouble.

I did sell a few personal things here and there, but nothing that made a profit... more like a loss (which i'm not going to deduct btw...).

So in the event that we can't get the paypal account/1099 to come in her name... WHAT DO WE/I DO??

If we switch to a paypal business account, and then use the business contact name change by providing a copy of her social security, ID, etc... will that ensure the 1099 comes in her name?

Our bank acct. that is tied to paypal is a joint account. Not sure if that helps...

Thanks in advance,

George

Keogh & 401k

AskTaxGuru.com Junior Member, hanna, asked:

Hi. I have a keogh account in which I am making the maximum contribution. This year, I was hired by a new employer and plan to contribute the maximum to my 401(k) account. I understand that these two accounts are defined contribution plans. I'm unclear, however, on if I should be treating these two accounts as one account to figure out my deduction limit or if I can take a deduction for the contributions made to the account with my new employer and an additional deduction for contributions to my self-employed plan.

Any advice will be much appreciated!

IRS Announces Increased Pension Plan Limitations for 2012 for Individual taxpayers!

Per the IRS, "for tax year 2012, personal exemptions and standard deductions will rise and tax brackets will widen due to inflation."

Due to the existing Tax Law, "the dollar amounts for a variety of tax provisions, affecting virtually every taxpayer, must be revised each year to keep pace with inflation." Thus, the New dollar amounts affecting 2012 returns, filed by most taxpayers in early 2013, include the following:

The value of each personal and dependent exemption, available to most taxpayers, is $3,800, up $100 from 2011.

The new standard deduction is $11,900 for married couples filing a joint return, up $300, $5,950 for singles and married individuals filing separately, up $150, and $8,700 for heads of household, up $200. Nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions, such as mortgage interest, charitable contributions and state and local taxes.

Additional Tax Credits and Deductions in 2010!

I think you omitted to mention the following to credits and deductions for 2010!

1. The Retirement Savings Contributions Credit:
This is designed to help low and moderate income taxpayers to save for retirement. Individuals with incomes of up to $27,750 and married couples with joint incomes of up to $55,500 may qualify for a credit of up to $1,000 per person.

2. Sales tax:
Taxpayers can deduct sales tax paid in 2010 if the amount was greater than the state and local income taxes paid by the Taxpayer. In other words, Taxpayers may get to choose to deduct sales tax paid in 2010 if the amount was greater than the state and local income taxes you paid.

IRS allows some taxpayers more time to report their offshore accounts.

Taxpayers who have signature authority over an account but no financial interest in it now have until November 1, 2011 to file Treasury Form 90-22.1 for 2009 and earlier years.

"The filing deadline for the 2010 year is not being extended and for the time being is still June 30, 2011. The August 31 deadline to sign up for the IRS offshore disclosure program isn’t affected."

Source.

New heavy SUV’s put in service in 2011 are entitled to bigger tax breaks

The IRS announced that "New heavy SUV’s put in service in 2011 are entitled to bigger tax breaks." The IRS stated that 100% of their cost can be written off provided the vehicle is not used for personal use.

The requirements for this deduction are that "the SUV’s must have a loaded gross weight over 6,000 pounds". This holds true for new pickup trucks. The $25,000 ceiling for expensing SUV’s does not apply if bonus depreciation is taken.

It is worth noting that used SUV’s/pickup trucks do not enjoy this deduction.

Source.

J1 Visa holder became resident alien

AskTaxGuru.com Junior Member, muriegas, asked:

I was just notified by the J1 Visa holder that she became a resident effective April 29, 2011. Due to her J1 status, she was exempt from FICA taxes. Do I have to refile Form 941 for quarters 2 and 3 to include her taxable FICA/MHI wages? Her "back-taxes" are substantial, and I don't think she can give us the money right now to include in the payments we will be out of balance due to adding her taxable wages, but no employee tax. How do I show that on the Form 941? It will be out of balance. Or, do I wait until I file the 4th quarter Form 941 and include her taxable wages and tax? Thank you.

Paypal 1099 Question/s

AskTaxGuru.com Junior Member, G.H.927, asked:

My wife has been using my eBay/Paypal account to sell things for a while. We've always paid taxes on any profits. This year, she's sold a bit more, and has taken over 20k in payments, and has also taken over 200 payments.So we're going to get a 1099 k next year, which is fine. As always, we plan to claim the profits minus the deduction anyways, which really isn't much (I believe).

Here's the thing... I was laid off my job in July, and was on unemployment for a couple months. I did get hired (thankfully), and am now back to work.

I know that because the paypal/ebay accounts are in my name, the 1099 from paypal will come in my name. We're concerned about this for obvious reasons: I was on unemployment, but paypal is 1099'ing me "saying" I made money, when I didn't. The last thing i need is to get in trouble.

I did sell a few personal things here and there, but nothing that made a profit... more like a loss (which i'm not going to deduct btw...).

So in the event that we can't get the paypal account/1099 to come in her name... WHAT DO WE/I DO??

If we switch to a paypal business account, and then use the business contact name change by providing a copy of her social security, ID, etc... will that ensure the 1099 comes in her name?

Our bank acct. that is tied to paypal is a joint account. Not sure if that helps...

Thanks in advance,

George

What are the major provisions of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010?

The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 that President Obama signed on Dec. 17 extended the various "Bush tax cuts" for another two years through 2012 and extended various expired provisions in the tax code through 2011. As a result, federal personal income tax rates are unchanged for 2011 aside from the yearly cost of living adjustments to the tax brackets reflecting inflation. Under this legislation there were two important tax changes for 2011.

1.The Social Security tax withholding rate changes
Under this new act, the social security tax withholding has decreased from 6.2 percent to 4.2 percent for all employees for 2011. This 2 percent tax reduction is applied to employee wages up to the Social Security wage base of $106,800. Any individual earning $106,800 or more in wages in 2011 will receive a benefit of $2,136.

What are the advantages and disadvantages of term insurance?

AskTaxGuru.com Junior Member, Edmund, asked:

I was wondering why people buy term insurance instead of whole life insurance, especially in the light of the fact that there are several compelling reasons to purchase term insurance.

As a matter of fact, I am about to purchase some insurance for me so your answer would greatly assist me in making my decision.

Thx!

When is it generally appropriate to consider buying a whole life policy?

AskTaxGuru.com Junior Member, vanngo, asked:

I was wondering when is it generally appropriate to consider buying a whole life policy? Your suggestions would be really appreciated!

Thanks a lot..

What are the main tax advantages of a whole life Insurance policy?

AskTaxGuru.com Junior Member, altonkil, asked:

An insurance agent approached me and tried to sell me a whole life policy stating that there are several features that may have positive tax advantages!

Can you please provide me with an overview as to what the real facts are, ie tax advantages of a whole life from your point of view, and if you have any issues in general that are negative in terms of buying a whole life policy. In fact, and advice from your point of view is appreciated!

Tks a lot!!! Your site was tremendously helpful to me during my tax preparation!

Final Entries to Dissolve S-Corporation

AskTaxGuru.com Junior Member, chid220, asked:

I'm shutting down an S-Corp with no assets or liabilities. The Liabilities consist of loans from shareholders, and their total equals the total of Retained Earnings and Capital Stock. For the final 1120-S Balance Sheet, do I just net the above and enter everything as zero?

IRS Launches the IRS2Go App for iPhone, Android; Taxpayers Can Check Refunds, Get Tax Information

The Internal Revenue Service today unveiled IRS2Go, its first smartphone application that lets taxpayers check on their status of their tax refund and obtain helpful tax information.

"This new smart phone app reflects our commitment to modernizing the agency and engaging taxpayers where they want when they want it," said IRS Commissioner Doug Shulman. "As technology evolves and younger taxpayers get their information in new ways, we will keep innovating to make it easy for all taxpayers to access helpful information."

The IRS2Go phone app gives people a convenient way of checking on their federal refund. It also gives people a quick way of obtaining easy-to-understand tax tips.

Apple users can download the free IRS2Go application by visiting the Apple App Store. Android users can visit the Android Marketplace to download the free IRS2Go app.

"This phone app is a first step for us," Shulman said. "We will look for additional ways to expand and refine our use of smartphones and other new technologies to help meet the needs of taxpayers."

The mobile app, among a handful in the federal government, offers a number of safe and secure ways to help taxpayers. Features of the first release of the IRS2Go app include:

1099 for 2010

AskTaxGuru.com Junior Member, blindsay, asked:

We sent a 1099 to a subcontractor for $14k and deferred doing our taxes. Upon completing our taxes, noticed that we should have done the 1099 for $19k. What can be done about this, since I am sure the subcontractor has already filed his taxes? Thank you.

iPhone app income and taxes - new developer

AskTaxGuru.com Junior Member, DrBeak1, asked:

Greetings forum members,

Sorry if this thread is placed in the wrong forum but I wasn't sure where it fit in.

I have been collecting income from Apple for iPhone apps that I developed since January of this year (2011). Up until today's date (October 11th, 2011) I have collected nearly $4000.00. Apple does NOT withhold taxes and therefore it is up to me to report this income. I have also come to be aware that Apple does not provide any tax forms, just sales reports, to developers.

S Corporation Distributions

AskTaxGuru.com Junior Member, Tebow2259, asked:

What effect will S corporation distributions have on shareholders? Cash & Non-Cash

Claiming depr when property was left off return

AskTaxGuru.com Junior Member, sthornton117, asked:

I am reviewing tax returns from 2007-2010 for a client that knows the depreciation on his rental properties is not right. The CPA that prepared them has me uncertain on how to correct them. There are 2 properties however the Schedule E only shows 1 property with expenses and income for both properties listed under tChe 1. Depreciation was taken in 2007 for the property listed, none taken in 2008. Depreciation was taken in 2009 and 2010 however the amounts are incorrect. The depreciation schedule I requested reports using a 29 Yr SL. Obviously it should've been 27.5 Yrs.

Any Tax Pro Here SMARTER THAN A 5TH GRADER?

AskTaxGuru.com Junior Member, mimiy2k, asked:

Okay, okay . . . I know you're all SMARTER THAN A 5TH GRADER or you wouldn't be on Tax Guru! But, nonetheless, I cannot find a single CPA or Tax Expert after 4 months of searching online and in my area who can answer this question! I don't believe this question requires rocket science level knowledge, however.

Can You answer this for me? I'd be eternally grateful! Here goes:

I cannot find any CPA who knows the answer to this in my area. Hoping a Tax Guru here can help!

I am forming a 527 tax-exempt political committee in Arizona. This is a state committee, not a federal committee. I would like liability protection so the suggestion was made that I form an LLC or unincorporated association that in turn forms the 527. AZ does not recognize Unincorporated Associations so that option is out. As to the LLC, if it elects to file as a C Corp or S Corp, am I correct that I would have to take my fees for managing the 527. (may be full time job) as a salary subject to quarterly estimates and withholdings, and that I would need to set a reasonable salary in accordance with industry standards (in otherwords, if a Sub S, it would not fly to take a very low salary and the rest as distributions as this might open me up to IRS challenges).

If I am correct about the above, this structure does nor work for me because, having run a 527 previously ( with no liability shield), fundraising results vary from month to month and can be highly unpredictable. It is not a situation that can necessarily support a set salary. It is a situation where you may
have zero to pay yourself one month, enough to pay yourself a little another month and maybe enough to pay a decent amount another month. I defintely do not want to get into a situation of payroll tax reporting and withholding. I would also prefer to avoid the time involved with keeping corporate formalities.

Tax Checklist for Sole Proprietorships/Schedule-C Filers

1. Auto Expenses:

i. The standard mileage rate for determining your deduction for the business use of a car has increased to 44.5 cents per mile in 2006. Therefore, it is important to maintain a business log to claim the correct allowable mileage.

ii. It is important to keep a good vehicle log for business miles. CPA’s are now asking clients to produce these logs during the tax interviews. This would determine the business usage percentage to be used in (iv) below.

iii. Also, get in the habit of having these logs as part of your official permanent tax records, especially in case of an audit.

iv. Have actual expenses for the auto handy during the tax interview, these would be car insurance, gas and oil expenses, car repair expenses, along with the business % usage determined in (ii) above, and then let the CPA determine which method actual expenses or mileage method generates the greatest deduction.

2. Depreciation deduction:

i. For tax year 2006, don’t forget to elect this special IRS election to write-off new equipment and furniture purchased for use exclusively for business. This election is available provided the taxpayer has taxable income that exceeds the total amount written off as Section 179 deduction up to the allowable amount $108,000 for 2006.

ii. Don’t forget to capitalize and amortize organization and startup expenses in the year you start the business. An election is available to immediately to the extent of the first $5,000, certain conditions have to be met, however, and once again

Discuss with your Accountant to determine whether your taxable income meets that qualifications required in (I) and conditions are met in (ii).

Tip: You can start depreciating your fixed assets including taking a section 179 deduction the year they are placed in service, even if you operate on the cash basis and you do not pay for the assets until next year. In other words, if you paid via credit card at year-end it is considered purchased in 2006 rather on date you actually paid for these assets.

How to Avoid a Tax Audit for Sole Proprietorships

IRS has found that taxpayers with Schedule C filers have been both overstating expenses and understating income. Here are some the areas that have been typically sited as overstating expenses, and the IRS has specially targeted these for audits

1. Taxpayer has included personal telephone and cell phone calls on his or her Schedule C.

2. Taxpayer has included personal home and life insurance as part of business insurance expense on his or her Schedule C.

3. Taxpayer has expensed his or her spouses travel expense even though she was not actively involved in the Schedule C business.

Benefits of LLC’s over S-Corporations

The Limited Liability Companies (LLC’s) are now one of the most popular choices for incorporations over the sub-Chapter S Corporations.

Features of an LLC

• This type of entity is a form of business ownership that has several attributes of corporation and partnership structures.
• An LLC is neither a corporation nor a partnership.
• An LLC may be called a limited liability corporation, but the correct accepted terminology is Limited Liability Company.
• The LLC’s owners are generally referred to as members not partners or shareholders.
• The number of members of an LLC is unlimited and may be individuals, corporations, or other LLC.

What are the business records and documents that need be to be kept for 6 Years?

The IRS has required that some business records and documents need to be kept for a minimum of 6 years. These are as follows;

-Accounts Payable Ledgers and Schedules
-Accounts Receivable Ledgers and Schedules
-Cancelled Checks
-Cancelled Stock and Bond Certificates
-Employment Tax Records
-Expense Analysis and Expense Distribution Schedules
-Expired Contracts, Leases

New IRS Retirement Plan Navigator Aims to Help Small Businesses

The Internal Revenue Service has created a new Web-based tool to help small business owners determine which tax-favored pension plan best suits their needs and how to keep their plans in compliance.

The IRS Retirement Plan Navigator is intended to provide employers with an easy-to-use guide that focuses on three areas: choosing a plan, maintaining a plan and correcting a plan.

By using the navigator, employers may find that choosing and maintaining a pension plan is not as daunting as they thought. Some plan types are less costly and easier to establish than others.

The navigator does not suggest which plan may be best for a specific employer but it does lay out the options to allow them to choose one that best fits their situations. The navigator includes a side-by-side comparison of pension plans and their requirements.

Five Facts about the Foreign Earned Income Exclusion

If you are living and working abroad you may be entitled to the Foreign Earned Income Exclusion. Here are some important facts about the exclusion:

1. The Foreign Earned Income Exclusion: United States Citizens and resident aliens who live and work abroad may be able to exclude all or part of their foreign salary or wages from their income when filing their U.S. federal tax return. They may also qualify to exclude compensation for their personal services or certain foreign housing costs.

2. The General Rules: To qualify for the foreign earned income exclusion, a U.S. citizen or resident alien must have a tax home in a foreign country and income received for working in a foreign country, otherwise known as foreign earned income. The taxpayer must also meet one of two tests: the bona fide residence test or the physical presence test.

3. The Exclusion Amount: The foreign earned income exclusion is adjusted annually for inflation. For 2008, the maximum exclusion is up to $87,600 per qualifying person.

What records does an Employer need to maintain to comply with the Federal Statutes?

Federal statutes require that employers should maintain certain paperwork for all their employees. These laws require that all employers should maintain the following records as follows;

1. certain employee pre-hire paperwork,
2. employee health and safety logs,
3. retain employee payroll records,
4. employee I-9 forms.

In addition to the records that are required by law, employers should also be maintaining personnel files on all employees that include the following;

Question About Filing Singe Or Married

AskTaxGuru.com Junior Member, bulls2030, asked:

Hi,
I got married overseas and my spouse and child at the moment live abroad.
My spouse does not have a green card or anything and we are currently waiting for her immigration.
Well for my past two tax returns, I have been filing my taxes as married filing separately with my spouses name, but haven't got a TIN or whatever that is called.

I have been searching online for this issue if I can file my taxes as single because my spouse and child have not immigrated to the USA.

So I have two questions.

1) Based on my situation described above, can I file my taxes as "Single" or do I have to file as "Married Filing Separately"?
2) If I can file as single, will the IRS say something since I already filed my past two returns as married filing separately with my spouses name and none EIN or TIN or whatever that is called?

Anyone's help would be much appreciated
Thanks

International marriage, untaxed income, income in two states

AskTaxGuru.com Junior Member, mwolfe, asked:

Hello,

I am filing myself instead of using turbotax for the first time in 6 years because I'm unemployed and can't afford the fee for tax preparation. I'm not sure how complicated my situation is, however, so I wanted some help and advice before continuing.

I made income in two different states (Oregon, which takes out state taxes but doesn't file federal, it seems, and Michigan, which does the opposite). The bulk of my income was made in Michigan, and half of it was untaxed because I was considered a political consultant/non employee. When I moved to Oregon, I did not establish residence and my legal address is still in Michigan.

I was also married (which is the reason I am not establishing legal residence in Oregon) and am in the process of obtaining permanent residency in Canada (outland application process, so I am still living in the states). My wife is Canadian and has supported me during my spotty employment in Oregon, though her employment doesn't really "count" for my US taxes. She lives in Canada and her income is Canadian. Should I still apply as married, but filing separately? For these purposes, I assume I count as "single" because she is not my dependent, but we were legally married in September and I'd like to claim it as such (if I file my taxes as single, it could jeopardize the genuineness of my application of permanent residence should the Canadian government look into my tax history).

I did not utilize any governmental living assistance programs, I am no longer a student (as of December 2009), and I am not on unemployment. I do not own a home or property. As far as I'm aware, I don't have any deductions.

All in all, I made a meagre amount of money in 2010, I'll probably have to pay in, but I'm still unemployed. I just don't want to be audited.

Thanks for your help,

Miranda

Summertime Child Care Expenses May Qualify for a Tax Credit

Did you know that your summer day care expenses may qualify for an income tax credit? Many parents who work or are looking for work must arrange for care of their children under 13 years of age during the school vacation. Those expenses may help you get a credit on next year’s tax return.

Here are five facts the IRS wants you to know about a tax credit available for child care expenses. The Child and Dependent Care Credit is available for expenses incurred during the lazy hazy days of summer and throughout the rest of the year.

qualifying relative gross income test

AskTaxGuru.com Junior Member, judyannf, asked:

I'm trying to determiine how to figure my son's gross income. (for the purpose of determining if he can be claimed as a dependent) He earned $4175 in wages, $142 in dividends, but had $1265 in long term realized losses from the sale of mutual funds. Do I include the losses in determining his gross income? If I can include the loss, then his income will be below $3650. He meets the other criteria for a qualifying relative.

How Long can a Self Employed Person get Unemployment Benefits?

Generally speaking, unemployment benefits are paid for a maximum of 26 weeks in most states. "Disaster Unemployment Assistance is again available to victims starting with the first week of unemployment and continuing up to a period of 26 weeks provided the catastrophic event was declared as a disaster by the President. Benefits may be extended for an additional period of time if deemed necessary."

Filing California 540 or 540NR?

AskTaxGuru.com Junior Member, dhurandhar, asked:

Hi,

My wife and I are filing our taxes jointly for 2010. I was a resident of California in 2010. However, my wife was not a resident and all her income was from a different state. My question is:

1) Should I use Form 540 or 540NR for California tax return?
2) I should be able to deduct her income from California taxable income, shouldn't I? (we are already paying taxes in the other state for her portion of the income)

Thanks!

Can I claim my husband since we are separated

AskTaxGuru.com Junior Member, akennedy, asked:

My husband and I separated in June of 2010. We have one child. He did not have a job in 2010. Since he can not claim himself I was wondering if I could claim him on my taxes. 

Six Facts About the American Opportunity Tax Credit

Many parents and college students will be able to offset the cost of college over the next two years under the new American Opportunity Tax Credit. This tax credit is part of the American Recovery and Reinvestment Act of 2009.

Here are six important facts the IRS wants you to know about the new American Opportunity Tax Credit:

1. This credit, which expands and renames the existing Hope Credit, can be claimed for qualified tuition and related expenses that you pay for higher education in 2009 and 2010. Qualified tuition and related expenses include tuition, related fees, books and other required course Materials.
2. The credit is equal to 100 percent of the first $2,000 spent and 25 percent of the next $2,000 per student each year. Therefore, the full $2,500 credit may be available to a taxpayer who pays $4,000 or more in qualifying expenses for an eligible student.

Head of Household December Marriage?

AskTaxGuru.com Junior Member, LadyBug06445, asked:

If we did not marry or live together until December 11, 2010 AND we both have custody of our children from previous relationships can we each file separate tax returns as "Head of Household" for 2010?

How do I deduct payroll donations?

AskTaxGuru.com Junior Member, Kurple, asked:

Hi, we had $1000 deducted from my husband's payroll in 2010 to go to charities (after tax donations). At this point I have no idea what the individual charities were. Is there any way to take the tax deduction?
Thanks.

At what level of income besides SS am I required to file a return?

AskTaxGuru.com Junior Member, rowena1, asked:

I have SS income of $13800 and a small pension of 800 per year. I have no other income and file single. Am I required to file a tax return even though I don't owe any taxes?

Deduct VA mortage insurance (VA funding fee)

AskTaxGuru.com Junior Member, randystoker, asked:

I deducted a VA funding fee I paid in '09 on my 2009 tax return. According to publication 936, VA mortgage insurance is known as a funding fee and is fully deductible in the year paid as qualified mortgage insurance. However, this year I received a letter from the IRS stating that my mortgage insurance deduction for '09 was corrected to $0 and that I owed more than $4K in back taxes for 2009. I replied with a copy of my HUD-1 showing the VA funding fee paid and the page from IRS pub. 936 showing that the VA fee paid was considered mortgage insurance and was fully deductible in the year paid. The IRS replied back with a letter requesting to see a copy of my "corrected" 1098 showing the mortgage insurance paid. However, my bank (Chase) replied in an e-mail that they do not put VA funding fees on their 1098's (even though I referenced IRS instructions for 1098 that these fees should be included in box 4 if over $600). Chase said they were sorry and could not comply with my request for a corrected 1098. My question, can the deduction for mortgage insurance be taken if not on the 1098? 

When to file Form 5471?

AskTaxGuru.com Junior Member, zenjk, asked:

Hello,

I hope I am adding this thread under the right topic, I apologize if I am not.
I have a question related to Form 5471 filling and hope that the experts here will be able to help me.

We started a offshore dev center in India in 2006 with local initial capital investment. In 2009 the US company wired the investment to buy 70% stake in the India company. For various reasons, the India company reflected the investment to the RBI and Ministry of company affairs in 2011 and that's when the share certificate was provided to the US company.

The question:
When should the US company file the Form 5471? 2009 year end or 2011 year end?

Thanks in advance

How to Get Your Prior-Year Tax Information from the IRS

Taxpayers sometimes need tax returns from previous years for loan applications, to estimate tax withholding, for legal reasons or because records were destroyed in a natural disaster or fire. If your original tax returns were lost or destroyed, you can obtain copies or transcripts from the IRS. Here are 10 things to know if you need federal tax return information from a previously filed tax return.

1. There are three options for obtaining free copies of your federal tax return information – on the web, by phone or by mail.
2. The IRS does not charge a fee for transcripts, which are available for the current and past three tax years.
3. A tax return transcript shows most line items from your tax return as it was originally filed, including any accompanying forms and schedules. It does not reflect any changes made after the return was filed.
4. A tax account transcript shows any later adjustments either you or the IRS made after the tax return was filed. This transcript shows basic data, including marital status, type of return filed, adjusted gross income and taxable income.
5. To request either transcript online, go to Internal Revenue Service
   and use our online tool called Order A Transcript. To order by phone, call             800-908-9946       and follow the prompts in the recorded message.

11 Most Common Mistakes in Retirement Planning

Most people think that just by having a retirement plan they will be financially sound and secure when they are ready for retirement. However, this is the most common misconception and if you are one of those people making the following retirement planning mistakes you will be in for a nasty surprise which could result in a possible disastrous financial retirement situation.

1. Retirement Planning Procrastination.
This is the most common mistake and all financial planners urge their clients that “the sooner you get started the more you will be able to contribute, and this in turn leads to be better stream of retirement income”.

2. Not taking retirement planning seriously.
This is especially true of younger people who really either don’t understand or are simply not interested in understanding this process. Clearly, the earlier one starts this process the larger the nest egg come retirement. People tend to worry about retirement once they have fulfilled all their financial priorities such as paying off their home, funding their children’s education, paying off their BMW’s etc. However, retirement experts have urged people to view retirement planning with a very high sense of urgency and importance.

NJ Resident Taking Job in NYC

AskTaxGuru.com Junior Member skwak asked:

Hello,

I am a NJ resident and have always worked in NJ. That made my income tax situation simple, pay the Federal Government and pay the State of NJ.

I am looking at taking a new position in NYC. The annual income will likely be $200K vs the $150K I make in NJ. What should I anticipate being my additional tax burden by taking this position? That is, regardless of who get my tax dollars, NJ, NY, NYC - what should I anticipate as my new tax rate?

Thanks to anyone who can help!

Nine Facts about the New Vehicle Sales and Excise Tax Deduction

Taxpayers who buy new motor vehicles this year may be entitled to a special tax deduction for the sales or excise taxes on those purchases when they file their 2009 federal tax returns next year. This tax break is part of the American Recovery and Reinvestment Act of 2009.

Taxpayers in states that do not have state sales taxes may be entitled to deduct other fees or taxes imposed by the state or local government.

Here are nine important facts the IRS wants you to know about the deduction:

Back-to-School Tips for Students and Parents Paying College Expenses

Whether you’re a recent graduate going to college for the first time or a returning student, it will soon be time to get to campus – and payment deadlines for tuition and other fees are not far behind. The Internal Revenue Service reminds students or parents paying such expenses to keep receipts and to be aware of some tax benefits that can help offset college costs.

Typically, these benefits apply to you, your spouse or a dependent for whom you claim an exemption on your tax return.

IRS announces new Interest Rates on Overdue Taxes for both Individuals and Corporations Effective September 30, 2011!

The IRS announced new interest rates on overdue taxes for both Individuals and Corporations effective September 30, 2011. The new rates on overdue taxes will now be 3%. The interest rates on Corporations will be 5% for Corporations that owe more than $100,000.

Three Tips for Employers Outsourcing Their Payroll

Outsourcing payroll duties to third-party service providers can streamline business operations, but the IRS reminds employers that they are ultimately responsible for paying federal tax liabilities.

Recent prosecutions of individuals and companies who - acting under the guise of a payroll service provider - have stolen funds intended for payment of employment taxes makes it important that employers who outsource payroll are aware of the following three tips from the IRS:

1. Employer Responsibility
2. Correspondence
3. EFTPS

International Marriage This Year, Spouse Not in US Till Next Year

Another AskTaxGuru.com Junior Member asked:

Hi,
I was married in March of 2011, my spouse will likely not finish the CR-1 visa process until 2012. His income in his country is not high enough to be eligible for income taxes in his country. Mine is substancially higher, and I have filed every year since I was 10 or so. We have no dependents. I bought a house in 2009 so my only deductions other than the standard have been related to mortage interest, town real estate taxes, etc...

I have a few questions:
1) Do I now need to file as married as we are legally married and have started the immigration process for him to be come a permanent resident?
2) Should I be thinking about adjusting my withholding? I am currently claiming 0 exemptions and withholding at my old single rate, as I had no idea whether he'd be included or not and really didn't want to owe taxes for 2011.
3) Would his foreign income need to be reported on my tax return? If so, what documentation is required? He may not get much documentation since he is exempt in his country.

I know that is a lot to digest and probably tricky without details, if his country matters it is Jamaica. I am not sure who to ask while the immigration process is ongoing, he has not been approved for conditional permanent residence yet and that process is not likely to be completed this year.

I am gratefull for this forum and any assistance or commentary you have to point me in the right direction.

Thanks and Best Regards,
KReneeS

How to Get Your Prior-Year Tax Information from the IRS

Taxpayers sometimes need tax returns from previous years for loan applications, to estimate tax withholding, for legal reasons or because records were destroyed in a natural disaster or fire. If your original tax returns were lost or destroyed, you can obtain copies or transcripts from the IRS. Here are 10 things to know if you need federal tax return information from a previously filed tax return.

1. There are three options for obtaining free copies of your federal tax return information – on the web, by phone or by mail.

Which entities are considered "Eligible Shareholders" of an S Corporation?

The IRS has clearly stated that the following are permitted shareholders of an S Corporation, as follows;

1. US Citizens or Resident Individuals
2. Estates
3. QSST's
4. IRC Sec 501(c) (3) Charities
5. ESBT's

For more of these, visit the link here.

Flipped House Income

An AskTaxGuru.com Junior Forum Member, jrburrow, asked:

My sister and I purchased a house in early 2011 for $60,000

The house was put in my name; not split with my sister

We recently sold the house for $126,000 and we had roughly $30,000
of expenses in fixing up the house.

My question is that since the house was in my name only, will I be responsible for all taxes on the net income even though my sister was a 50%partner with me. How do I report and show just my share of the net income on my tax return?

Thanks, Jerre

Our AskTaxGuru.com moderator Wnhough answered this question here.

What do you think?

Why would an LLC company wish to be taxed as a C corporation?

There are a number of reason that an LLC owner would wished to be taxed as an C or as S Corporation. However, there are 5 primary reasons that the LLC owner should consider as being very important and these are as follows;

1.Self-employment Savings.
In the current tax environment, there is some scope for self employment tax savings especially in the S Corporation where is an opportunity of having some pass thru income that can potentially escape self employment taxes, assuming the owners take a reasonable salary.

2.Fringe benefit plans generally are deductible.
In the case of the C Corporation, these fringe benefits not be subject to inclusion in salary for the 2% Shareholders as required for an S Corporation or be considered as a Guaranteed Salary for an LLC Entity. Thus, the extent of the potential fringe benefits would be an important factor in deciding to choose the tax treatment as a C Corporation.

3.Dividends are taxed at a lower tax rate.
The shareholders can take advantage of the lower dividend tax rate on any distributions made from the C Company. These would be taxed at much lower tax rate than that of any pass thru income reported on the LLC’s or an S Corporations K-1, that would be subject to the individual shareholders marginal tax rate.

More reasons when you click here.

What are the Self Rental Recharacterizations rule?

The "Recharacterization Self Rental" rule generally applies to self-rented property and applies to taxpayers who rent property to a trade or business in which the taxpayer materially participate.

The IRS has stated that for any;

1. "Losses incurred from the rental of such property to be characterized as Passive, subject to the normal passive activity loss limitation rules.

2. But, any Profit from the rental of such property to be characterized as Non-Passive. [IRS Reg 1.469-2(f)(6)]. The intent is prevent these gains to be offset against other passive activity losses by the taxpayer."


For more of the Self Rental Recharacterizations rule, click here.

Tax on Foreign Property

A forum question posted by AskTaxGuru.com Junior Member Rotodummy:

Hi,


I am a resident of US and have been filing my tax returns regularly.
I had a commercial property in India bought in 2000 for about 11000 USD and sold recently in 2009 for about 35000 USD. I have purchased a residential property from the proceeds of this sale and in fact transferred more money to complete the acquisition of the new property.
Do I have to pay any Capital Gains tax?
If not taxable, do I have to mention any reference of the same in my 2010 returns, which quite frankly, I did not mention.

Answered by Moderator, Wnhough:

“Do I have to pay any Capital Gains tax?”

----> I guess so; as a US person( a US resident), you are subject to US taxes on your world wide income and US source income. You pay tax on your LTCG to Indian taxing authority(ies) in India and you can claim your LTCG tax paid in India on your US federal return as long as your US tax rate is higher than that in India by filing IRS form 1116. I guess you can’t claim your Indian LTCG tax on your US state return, BUT only on your federal return. This means that your LTCG is subject to double taxation to both India and your US state. For Foreign Currency Conversion between Indian Rupee and $ US, you may need to use weighted average currency value.You report your foreign tax credit on 1040 line 8, other taxes, I guess or on form 1040 line 47.REMEBER: foreign taxes that are not eligible for the foreign tax credit may be eligible for the foreign tax deduction.

To read more of the answer, click here and join in the discussion or place your comments below.

Are losses from NJ LLC's deductible on the NJ Individual Tax return?

A forum question posted by Leah, an AskTaxGuru Junior Member reads:

Are the LLC's losses generated from an NJ LLC deductible on the individual shareholders tax return, assuming there is sufficient basis to claim these losses?

Answered by Tax Guru:

New Jersey State does not conform with the Federal tax return when it comes to reporting the K-1 losses from LLC's or S Corporations. As such, according to New Jersey State Tax, "if the net amount from all Schedule NJK-1's is zero or less" no deduction for any losses are allowed on the Form NJ 1040."

Thus, these losses are not deductible on the NJ 1040 tax return, but taxpayers can offset the losses of K-1's from one or more LLC's with gains from other K-1's.

Have something to say? Join in the discussion by clicking here or in the comments below.

Back-to-School Tips for Students and Parents Paying College Expenses

Whether you’re a recent graduate going to college for the first time or a returning student, it will soon be time to get to campus – and payment deadlines for tuition and other fees are not far behind. The Internal Revenue Service reminds students or parents paying such expenses to keep receipts and to be aware of some tax benefits that can help offset college costs.

Typically, these benefits apply to you, your spouse or a dependent for whom you claim an exemption on your tax return.

1. American Opportunity Credit This credit, originally created under the American Recovery and Reinvestment Act, has been extended for an additional two years – 2011 and 2012. The credit can be up to $2,500 per eligible student and is available for the first four years of post secondary education. Forty percent of this credit is refundable, which means that you may be able to receive up to $1,000, even if you owe no taxes. Qualified expenses include tuition and fees, course related books, supplies and equipment. The full credit is generally available to eligible taxpayers whose modified adjusted gross income is below $80,000 ($160,000 for married couples filing a joint return).
2. Lifetime Learning Credit In 2011, you may be able to claim a Lifetime Learning Credit of up to $2,000 for qualified education expenses paid for a student enrolled in eligible educational institutions. There is no limit on the number of years you can claim the Lifetime Learning Credit for an eligible student, but to claim the credit, your modified adjusted gross income must be below $60,000 ($120,000 if married filing jointly).
3. Tuition and Fees Deduction This deduction can reduce the amount of your income subject to tax by up to $4,000 for 2011 even if you do not itemize your deductions. Generally, you can claim the tuition and fees deduction for qualified higher education expenses for an eligible student if your modified adjusted gross income is below $80,000 ($160,000 if married filing jointly).
4. Student loan interest deduction Generally, personal interest you pay, other than certain mortgage interest, is not deductible. However, if your modified adjusted gross income is less than $75,000 ($150,000 if filing a joint return), you may be able to deduct interest paid on a student loan used for higher education during the year. It can reduce the amount of your income subject to tax by up to $2,500, even if you don’t itemize deductions.

Want more? Click Back-to-School Tips for Students and Parents Paying College Expenses to join in the discussion.

What Every Parent Should Know about Child’s Investment Income

Children with investment income may have part or all of this income taxed at their parent’s tax rate rather than at the child’s rate. Investment income includes interest, dividends, capital gains and other unearned income

This rule applies to children who have investment income of more than $1800 and meet one of three age requirements for 2008:

1. The child is younger than 18.
2. The child is 18 and has earned income that does not exceed one-half of their own support for the year.
3. The child is older than 18 and younger than 24 and a full-time student with earned income that does not exceed one-half of the child’s support for the year.

To figure the child's tax using this method, fill out Form 8615, Tax for Certain Children Who Have Investment Income of More Than $1,800, and attach it to the child's federal income tax return.

When certain conditions are met, a parent may be able to avoid having to file a tax return for the child by including the child’s income on the parent’s tax return. In this situation, the parent would file Form 8814, Parents' Election To Report Child's Interest and Dividends.

More information can be found in IRS Publication 929, Tax Rules for Children and Dependents. This publication and Forms 8615 and 8814 are available on the IRS Web site at IRS.gov in the Forms and Publications section. You may also order them by calling the IRS at 800-TAX-FORM (800-829-3676).

Links:

• Form 8615, Tax for Children Under Age 18 With Investment Income of More Than $1,800 (PDF 49K)
• Form 8615, Instructions (PDF 24K)
• Form 8814, Parent's Election to Report Child's Interest and Dividends (PDF 43K)
• Publication 929, Tax Rules for Children and Dependents (PDF 220K)
• What Every Parent Should Know about Child’s Investment Income, AskTaxGuru.com

Source: irs.gov

Five Facts about the Foreign Earned Income Exclusion

If you are living and working abroad you may be entitled to the Foreign Earned Income Exclusion. Here are some important facts about the exclusion:

1. The Foreign Earned Income Exclusion: United States Citizens and resident aliens who live and work abroad may be able to exclude all or part of their foreign salary or wages from their income when filing their U.S. federal tax return. They may also qualify to exclude compensation for their personal services or certain foreign housing costs.

2. The General Rules: To qualify for the foreign earned income exclusion, a U.S. citizen or resident alien must have a tax home in a foreign country and income received for working in a foreign country, otherwise known as foreign earned income. The taxpayer must also meet one of two tests: the bona fide residence test or the physical presence test.

3. The Exclusion Amount: The foreign earned income exclusion is adjusted annually for inflation. For 2008, the maximum exclusion is up to $87,600 per qualifying person.

4. Claiming the Exclusion: The foreign earned income exclusion and the foreign housing exclusion or deduction are claimed using Form 2555, which should be attached to the taxpayer’s Form 1040. A shorter Form 2555-EZ is available to certain taxpayers claiming only the foreign income exclusion.

5. Taking Other Credits or Deductions: Once the foreign earned income exclusion is chosen, a foreign tax credit or deduction for taxes cannot be claimed on the excluded income. If a foreign tax credit or tax deduction is taken on any of the excluded income, the foreign earned income exclusion will be considered revoked.

For more information about the Foreign Earned Income Exclusion get Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad and the instructions for Form 2555. Both are available on the IRS Web site at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Links:

• Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad (PDF 348K)
• Form 2555, Foreign Earned Income
• Form 2555-EZ, Foreign Earned Income Exclusion
• Five Facts about the Foreign Earned Income Exclusion, AskTaxGuru.com

Source: irs.gov

What is Taxable or Non-Taxable Income?

Generally, most income you receive is considered taxable but there are situations when certain types of income are partially taxed or not taxed at all.

To help taxpayers understand the differences between taxable and non-taxable income, the Internal Revenue Service offers these common examples of items not included as taxable income:

• Adoption Expense Reimbursements for qualifying expenses
• Child support payments
• Gifts, bequests and inheritances
• Workers' compensation benefits
• Meals and Lodging for the convenience of your employer
• Compensatory Damages awarded for physical injury or physical sickness
• Welfare Benefits
• Cash Rebates from a dealer or manufacturer

Some income may be taxable under certain circumstances, but not taxable in other situations. Examples of items that may or may not be included in your taxable income are:

• Life Insurance If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. Life insurance proceeds, which were paid to you because of the insured person’s death, are not taxable unless the policy was turned over to you for a price.
• Scholarship or Fellowship Grant If you are a candidate for a degree, you can exclude amounts you receive as a qualified scholarship or fellowship. Amounts used for room and board do not qualify.
• Non-cash Income Taxable income may be in a form other than cash. One example of this is bartering, which is an exchange of property or services. The fair market value of goods and services exchanged is fully taxable and must be included as income on Form 1040 of both parties.

All other items—including income such as wages, salaries, tips and unemployment compensation — are fully taxable and must be included in your income unless it is specifically excluded by law.

These examples are not all-inclusive. For more information, see Publication 525, Taxable and Nontaxable Income, which can be obtained at Internal Revenue Service or by calling the IRS at 800-TAX-FORM (800-829-3676).

Link:
Publication 525, Taxable and Nontaxable Income
What is Taxable or Non-Taxable Income? As seen on AskTaxGuru.com

Capital gains tax break on the sale of my home

Question posted by AskTxGuru.com Junior Member hackstat:

If I become a RESIDENT of Florida and than sell my home in New York where I lived for more than 20 years in a couple of years, will I still be entitled to the $250,000 capital gains tax break on the sale of my New York home. Or do I have to sell the New York home before coming a resident of Florida


Thank you

Answered by Moderator Wnhough:

If I become a RESIDENT of Florida and than sell my home in New York where I lived for more than 20 years in a couple of years, will I still be entitled to the $250,000 capital gains tax break on the sale of my New York home.”-->Yes; when you, as a single home owner, sell your primary residence, you can make up to $250,000 in profit as long as you have owned and occupied your primary dwelling at least 24 of the last 60 months before its sale.


“Or do I have to sell the New York home before coming a resident of Florida”---> As long as you meet the condition, as said above, to claim your $250,000 CG tax break UNDER federal tax law, NOT under the state tax law. You can sell your primary home whenever you want.

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Stock Split

A forum question posted by AskTaxGuru.com Junior Member WHANSMA:

If bought 50 shares of XYZ stock at $10.00 per share back in 2005. It splits 2 for 1 when it gets to $50.00 per share. I now have 100 shares worth $25.00 per share. Since the stock is not doing well in 2010 I sell 50 shares to try to cut some of my loss. I sell at $5.00 per share. I know this is entered as Long Term on Schedule D but am confused as to what the cost basis total should be? (Column E).


Thanks


Wayne

Answered by Moderator Wnhough:

“I know this is entered as Long Term on Schedule D but am confused as to what the cost basis total should be? (Column E).”----> In general, regardless of the type of stock split, it usually affects the stock basis price at which you purchased the stock. So, failure to take this issue into account when computing your capital gains and losses can result in substantial under reporting of income on your 1040 to the IRS. You must use the post-split basis as you only sell part of your basis. As you bought 50 shares of stock at $10 per share and it splits two for one, then you own 100 shares with a basis of $25 per share, 100*$25=$2,500=$50*50. If you sell 50 shares at $5 per share, then your basis will be $1250;50*$25, plus commission that you paid when buying the stock, and your sale price will be $250, $5*50, minus commission. So, your LTCL is $1,000; $250-$1,250=($1,000)

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How much of the Capital Gain is excluded on "Sales of Qualified Business Stock"?

According to the current tax rules, there is a "100% exclusion on gain from sale of qualified stocks acquired after September 27, 2010, and before January 1, 2012.

The requirements are that the stock must be held at least 5 years in order to qualify for zero capital gain tax on the sale. The 100% exclusion applies for both regular tax and the alternative minimum tax.

Does Interest Expense change qualified Dividends?

A forum question by AskTaxGuru.com Junior Member dakotah196 says:

AGI: 98,000

Qualified Dividends from IBM Stock: 3000

Interest Expense associated with purchase of IMB stock: 1000

The question is: Will the taxpayer receive preferential 15% capital gains tax rate on the entire 3000 or on 3000-1000=1000?

Thank you!

Answered by Moderator Wnhough:

The question is: Will the taxpayer receive preferential 15% capital gains tax rate on the entire 3000 or on 3000-1000=1000?”

--->On the whole $3,000, the qualified dividends from IBM stock; Qualified dividends shown in box 1b of the Form 1099-DIV you receive are the ordinary dividends subject to the same 0% or 15% maximum tax rate that applies to net capital gain. You must have held the stock for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date. You need to file Qualified Dividends and Capital Gain Tax Worksheet on Sch D andeport iton 1040 lineyou’re your investment expense, $1,000, is deductible as miscellaneous itemized deductions on Schedule A of your tax return. When your investment portfolio includes both taxable and tax-exempt securities, you can deduct only those expenses that are related to the taxable securities.

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