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Friday, September 30, 2011

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.

Thursday, September 29, 2011

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!

Wednesday, September 28, 2011

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.

Tuesday, September 27, 2011

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

Monday, September 26, 2011

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.

Sunday, September 25, 2011

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?

Saturday, September 24, 2011

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.

Friday, September 23, 2011

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.

Thursday, September 22, 2011

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.

Wednesday, September 21, 2011

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.

Tuesday, September 20, 2011

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: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:
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

Tuesday, September 13, 2011

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.

Got something to say? Click here to participate in the forum or post your comments below.

Monday, September 12, 2011

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)
What do you think? Join this discussion here or post your comments below.

Sunday, September 11, 2011

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.

Saturday, September 10, 2011

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.

Have something to say? Join the discussion here or place your comments below.
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