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Thursday, July 18, 2013

NonDividend Distribution - How to apply on 1040

Doesn't Non Dividend Distribution amount reduce the Cost Basis? 
Where on 1040 should I apply that amount? 

If on 8949, then should it be shown as an adjustment in Col. F & G ?
IF yes, then what is the Code to use in column E? 

Or should the Form 8949 Col. E (Cost) already be showing the reduced basis without using F & G?

Answer :

#1; Correct as return of capital. On Form 1099-DIV, a nondividend distribution will be shown in box 3. If you do not receive such a statement, you report the distribution as an ordinary dividend.

#2: When you receive this type of distribution, you're considered to be getting back some of the money you invested in the company. That's why these payments are sometimes called return of capital distributions. Don't confuse these payments with exempt interest distributions. Those distributions represent interest received by the mutual fund from municipal bonds and similar investments. Return of capital distributions don't come from exempt interest or from any other type of earnings.Return of capital distributions appear in box 3 of Form 1099-DIV, labeled "Nondividend distributions.Before you can determine how to report your distribution, you have to take care of an important piece of business: adjusting the basis of your shares. Your basis is used to measure how much gain or loss you have when you sell your shares. You can think of it as a measure of how much you have invested in your shares. Read more..

Wednesday, July 17, 2013

IRS Cancels July 22 Furlough Day

The Internal Revenue Service today announced the cancellation of its fourth scheduled agency-wide employee furlough day that was due to occur on Monday, July 22.

"The IRS will be open for taxpayers that day as scheduled, and all employees will be paid for that day. This step follows a lot of hard work across the Service to cut costs," Danny Werfel, IRS Principal Deputy Commissioner, said in a message to IRS employees.

‪The IRS has so far taken three furlough days on May 24, June 14 and July 5 due to the current budget situation, including the sequester.

‪The IRS is also considering whether the next scheduled furlough day on Aug. 30 will be necessary.

Source: http://www.asktaxguru.com/8190-irs-cancels-july-22-furlough-day.html

Monday, July 15, 2013

Special Mailings Going to Taxpayers Following Notice Issue


The IRS alerted taxpayers and tax professionals about an interest calculation error on certain notices mailed the weeks of July 1 and July 8.

The IRS discovered errors in the CP2000 notices during a two-week period this July. The notices contained an incorrect calculation on the interest owed on proposed taxes from under reported income. The interest figures were lower than they should be. The IRS has corrected the issue for future mailings.

Later this month, the IRS will be sending a special mailing to the recipients of the notices. Taxpayers should follow the directions on the letter, and they will be encouraged to either call a special toll-free number or write to the IRS to receive the corrected interest amount.

A CP2000 notice shows proposed changes to income tax returns based on a comparison of the income, payments, credits and deductions reported on a tax return with information reported by employers, banks, businesses and other payers. The CP2000 also reflects any corrections made to an original tax return during processing.

Source: http://www.asktaxguru.com/8189-special-mailings-going-taxpayers-following-notice-issue.html

People Affected By Boston Marathon Explosions Have Until July 15 To File And Pay; Additional Extension Available

WASHINGTON — The Internal Revenue Service today reminded Boston area taxpayers and others affected by the April 15 Boston Marathon explosions that their individual income tax returns and tax payments are due Monday, July 15.

This relief applies to all individual taxpayers who live in Suffolk County, Mass., including the city of Boston. It also includes victims, their families, first responders, others impacted by this tragedy who live outside Suffolk County and taxpayers whose tax preparers were adversely affected.

The relief gives eligible taxpayers until July 15, 2013, to file their 2012 returns and pay any taxes normally due April 15. No filing and payment penalties will be due as long as returns are filed and payments are made by July 15. By law, interest, currently at the annual rate of 3 percent compounded daily, will still apply to any payments made after the April deadline.

The IRS automatically provided this extension to anyone living in Suffolk County. Eligible taxpayers living outside Suffolk County must have claimed this relief by calling 866-562-5227 before filing a return or making a payment. Eligible taxpayers who receive penalty notices from the IRS can also call this number to have these penalties abated.

Eligible taxpayers who need more time to file their returns may receive an additional extension to Oct. 15, 2013, by filing Form 4868 by Monday, July 15.
Taxpayers with questions unrelated to the Boston tragedy should visit IRS.gov, or contact the regular IRS toll-free number at 800-829-1040.

Source: http://www.asktaxguru.com/8188-people-affected-boston-marathon-explosions-have-until.html

Wednesday, July 10, 2013

Announcement + Need suggestions

Asktaxguru is going to start a series of webinars to provide valuable information to its members. These webinars will provide information on topics related to taxes and money in general such as current laws, deadlines, tax planning for various life situations, estate planning, business, and many more.

Asktaxguru invites suggestions from its members on topics that they would like to know more about. We also invite industry professionals to work with us on these webinars to enable them to reach a large audience.

We are very excited about our webinar series. Please continue to monitor updates on the launch schedule.

Thank you.

IRS issues "Taxpayer Guide to Identity Theft".

The IRS has issued the following useful information regarding Identity Theft.

What is identity theft?
Identity theft occurs when someone uses your personal information such as your name, Social Security number (SSN) or other identifying information, without your permission, to commit fraud or other crimes.

How do you know if your tax records have been affected?
  1. Usually, an identity thief uses a legitimate taxpayer’s identity to fraudulently file a tax return and claim a refund. Generally, the identity thief will use a stolen SSN to file a forged tax return and attempt to get a fraudulent refund early in the filing season.
  2. You may be unaware that this has happened until you file your return later in the filing season and discover that two returns have been filed using the same SSN.
  3. Be alert to possible identity theft if you receive an IRS notice or letter that states that:
    • More than one tax return for you was filed,
    • You have a balance due, refund offset or have had collection actions taken against you for a year you did not file a tax return, or
    • IRS records indicate you received wages from an employer unknown to you.

What to do if your tax records were affected by identity theft?
If you receive a notice from IRS, respond immediately. If you believe someone may have used your SSN fraudulently, please notify IRS immediately by responding to the name and number printed on the notice or letter. You will need to fill out the IRS Identity Theft Affidavit, Form 14039.

For victims of identity theft who have previously been in contact with the IRS and have not achieved a resolution, please contact the IRS Identity Protection Specialized Unit, toll-free, at 1-800-908-4490.

How can you protect your tax records?
If your tax records are not currently affected by identity theft, but you believe you may be at risk due to a lost/stolen purse or wallet, questionable credit card activity or credit report, etc., contact the IRS Identity Protection Specialized Unit at 1-800-908-4490.

How can you minimize the chance of becoming a victim?
  1. Don’t carry your Social Security card or any document(s) with your SSN on it.
  2. Don’t give a business your SSN just because they ask. Give it only when required.
  3. Protect your financial information.
  4. Check your credit report every 12 months.
  5. Secure personal information in your home.
  6. Protect your personal computers by using firewalls, anti-spam/virus software, update security patches, and change passwords for Internet accounts.
  7. Don’t give personal information over the phone, through the mail or on the Internet unless you have initiated the contact or you are sure you know who you are dealing with.

1099 misc and LLC's


Hi All,
New here so I ask for a bit of patience. Your responses to questions from others has helped me greatly.

On point then:

My son and I are floor installers. We are both officers in an LLC that we formed together. We are the only members of the LLC. Our LLC is registered with the state of Minnesota and has a registered EIN with the IRS. My son is registered as the senior officer. 
We received four 1099 misc forms for sub-contract work we performed in 2011 from four different companies. 
Some of the work we performed together and some individually. 
As such we decided to split the 1099's in half. Two for him and two for me. We filed our personal 1040's using the income from the 1099 misc forms.

I received notification from the IRS that my son's income was not associated to the two 1099 misc forms that we used for his part of the earnings of our LLC. 
Instead it is their understanding that I failed to include the two 1099's used by my son as my income. They apparently have not associated these two 1099's to his income. 
The IRS would like the subsequent tax/penalty/interest on this so called undeclared amount which at this writing is $10,991.

My dilemma is how to respond to the IRS. Is there a form that I should include in my response? 
I have to respond by 7/31/13. 
As it is I intend to lay out the explanation much as I have here.


Source: http://www.asktaxguru.com/8174-1099-misc-and-llc-s.html

Deducting donated space

Q. Can a private business deduct from their taxes donated rental space? If they lease their space out during non-business hours, what is the standard deduction?

A. Yes according to me the donated things can be deducted from the tax.

IRS offers 5 essential Tax Tips for starting a new Business

IRS offers five basic tips from the IRS that can help you get started in your new business. 


1.Type of Business: 
Early on, you will need to decide the type of business you are going to establish. The most common types are sole proprietorship, partnership, corporation, S corporation and Limited Liability Company. Each type reports its business activity on a different federal tax form. 



2.Types of Taxes: 
The type of business you run usually determines the type of taxes you pay. The four general types of business taxes are income tax, self-employment tax, employment tax and excise tax. 



3.Employer Identification Number:
A business often needs to get a federal EIN for tax purposes. Check IRS.gov to find out whether you need this number. If you do, you can apply for an EIN online. 



4.Record keeping:
Keeping good records will help you when it’s time to file your business tax forms at the end of the year. They help track deductible expenses and support all the items you report on your tax return. Good records will also help you monitor your business’ progress and prepare your financial statements. You may choose any record keeping system that clearly shows your income and expenses. 



5.Accounting Method: 
Each taxpayer must also use a consistent accounting method, which is a set of rules that determine when to report income and expenses. The most common are the cash method and accrual method. Under the cash method, you normally report income in the year you receive it and deduct expenses in the year you pay them. Under the accrual method, you generally report income in the year you earn it and deduct expenses in the year you incur them. This is true even if you receive the income or pay the expenses in a future year.

IRS issues tax tips for Newlyweds for 2013

IRS states that " a change in your marital status can affect your taxes", and has offered the following tax tips; 

1) It’s important that the names and Social Security numbers that you put on your tax return match your Social Security Administration records. If you’ve changed your name, report the change to the SSA. To do that, file Form SS-5, Application for a Social Security Card. You can get this form on their website at SSA.gov, by calling 800-772-1213 or by visiting your local SSA office. 

2) If your address has changed, file Form 8822, Change of Address to notify the IRS. You should also notify the U.S. Postal Service if your address has changed. You can ask to have your mail forwarded online at USPS.com or report the change at your local post office. 

3) If you work, report your name or address change to your employer. This will help to ensure that you receive your Form W-2, Wage and Tax Statement, after the end of the year. 

4) If you and your spouse both work, you should check the amount of federal income tax withheld from your pay. Your combined incomes may move you into a higher tax bracket. Use the IRS Withholding Calculator tool at IRS.gov to help you complete a new Form W-4, Employee's Withholding Allowance Certificate. See Publication 505, Tax Withholding and Estimated Tax, for more information. 

5) If you didn't qualify to itemize deductions before you were married, that may have changed. You and your spouse may save money by itemizing rather than taking the standard deduction on your tax return. You’ll need to use Form 1040 with Schedule A, Itemized Deductions. You can’t use Form 1040A or 1040EZ when you itemize. 

6) If you are married as of Dec. 31, that’s your marital status for the entire year for tax purposes. You and your spouse usually may choose to file your federal income tax return either jointly or separately in any given year. You may want to figure the tax both ways to determine which filing status results in the lowest tax. In most cases, it’s beneficial to file jointly.

Wednesday, July 03, 2013

Can I claim my daughter as a dependent on my taxes?

Q. My daughter died of SIDS and only lived two months. Can I claim her on taxes?

A. First of all sorry for you loss that must have been really hard for you... Yes, a child who dies during the year will qualify as your dependent provided all other requirements are met. So, you can claim her for the year. The six month rule is only for a child who lived longer than that in the year, A child who was born or died during the year is treated as having lived with you all year if your home was the child's home the entire time she was alive during the year. The same is true if the child lived with you all year except for any required hospital stay following birth.

I owe money on my income taxes from last year. Can I still get a tax refund this year?

Q. I owe money on my income taxes from last year. Can I still get a tax refund this year?

A. It depends; taxpayers who do not pay their taxes in full before the April 15th deadline for the prior tax year will owe tax, penalties and interest. Unfortunately, any refund available for a subsequent tax year will go toward the tax debt and not to the taxpayer, as the IRS’s primary concern is with recovering the tax owed. Taxpayers who owe back taxes to the IRS can make payments online or mail payments in to the IRS. Having an installment agreement in force prevents the IRS from taking action against you to collect the debt, but it does not prevent the offset of your refund. Any payments you make, whether structured by an installment agreement or mailed in intermittently, are applied to your back taxes until the tax is paid in full. Any refunds for which you are eligible will be applied to your back taxes even if you are making payments. Once the IRS applies your refund to your past due taxes, you will receive a letter (CP 49) in the mail from the IRS advising you that your refund has been applied to taxes you owe. If you feel the offset is in error, you can call the IRS at 800-829-1040.

Source: http://www.asktaxguru.com/8164-i-owe-money-my-income-taxes-last.html

Indirect IRA rollover to 401k options

Q. I took an indirect rollover from an IRA to roll into a 401k. Let's say for $4000. At the end of the 60 day payback period, I only had $3000 available to put into the 401k, which I did. I was $1000 short. During the 60 days though, I contributed over $1000 to the 401k. Let's say I contributed $2000 via payroll deduction. Is there any way to use $1000 of the $2000 payroll deduction to offset the $1000 shortfall on the repayment? Thanks for any help.

A. 1: With an indirect rollover you receive the money directly in the form of a check. You are then to deposit that cash distribution into a new retirement account within 60 days otherwise you will face penalties. Your employer however is required to withhold 20% of your funds as prepayment for your federal income taxes. You have full use of the funds for that 60 days but if you do not redeposit it into a new 401K acct., the entire amount will be taxed and may incur penalties. To avoid any taxes or penalties, you need to deposit the full amount, including the 20% into a new 401K account. 

2: It depends as long as the over contribution of $1K fully covers all the rollover costs (Or the withholding tax rates, 20%, or 10% of prepayment penalty is higher than your marginal tax rate); for example, a 401k indirect rollover does not automatically preserve the tax benefits associated with your 401k account. Because you’re being given the distribution amount , $4K, directly instead of the transfer being handled by account trustees, the IRS places additional strictures on indirect rollover to try to ensure you re-invest your retirement savings in another qualified 401k plan.The first penalty is an automatic 20% withholding of the account balance that’s designed to pay a portion of the taxes that would be due should you elect not to re-invest the funds in a new 401k account. Although the taxes due if you decide to keep the funds would likely be more than 20%, this insures the IRS that they’ll get at least a portion of the taxes that become due on the distribution.The second penalty is a 10% early withdrawal fee. Because it can’t be guaranteed that you’ll actually execute the 401k indirect rollover, the IRS also preemptively assesses this penalty based on the assumption that you won’t.To have these withholding fees credit to your new 401k account, you must open a qualified 401k account within sixty days of receiving the distribution check and make a deposit in the amount of the entire original distribution (including the amounts that were deducted in fees and withholding). To recoup the withholding, you must then file the amounts as a credit on the distribution year’s tax return.As a quick example, let’s assume that you have $30K in a IRA account and you decide on an indirect rollover:Account value: $30K; Tax withholding: 20% of $30K or $6K; Early withdrawal fee: 10% or $30K or $3K Total distribution: $30K– $6K– $3Kor $21K. To recoup the $9K in fees and penalties, within sixty days you must deposit into a qualifying 401k account the amount of $3K,NOT $21K. You’ll eventually be credited the $9K when you file your tax return but, in the short term, you must come up with that $9K on your own.As you can see, the 401k indirect rollover isn’t the preferred method the IRS wants you to use to rollover your 401k account. It’s designed to place substantial penalties on your retirement funds to help ensure that you’ll actually follow through on rolling over the money into another qualified IRA or 401k account.


403(b) Loan becomes a distribution

Q. I defaulted on a loan from my 403 b account. I paid the taxes on the distribution. I am 64 years old & still working. Do I still have to pay back the loan? What happens if I pay it back? What happens if I don't pay it back?

A. (1) Most 403(b) loans have to be repaid within 5 years (30 years if used to pay for a new home). 403(b) loans are beneficial because they allow you to borrow cash from your retirement savings but do not charge taxes on the interest unless you default. As you default on the loan, the unpaid balance is treated as an early distribution from your 403(b), triggering taxes and a 10% penalty. Then the loan should net-out of the 403b and no longer exist. Unless there is something hidden in the Plan Document about loans, you need to have the company record the loan as a withdrawal so it no longer accrues interest. Worse, IRS restrictions on loan repayments are very severe. Missing even a single payment can trigger a loan default, and the loan cannot be reinstated.When you borrow out of your 403(b), it reduces the amount you accumulate for retirement. Even if you take out a small 403(b) loan, do not think that defaulting on it can have small consequences. Most companies treat the loan as being outside of your annuity, so the loan continues to accumulate interest until you decide to withdraw your money or the loan balance equals your annuity value. Some teachers may not realize the loan they defaulted on years ago is continuing to accumulate interest, rather than being debited against their annuity at the time of default. Unfortunately, this would really require looking at the specific contract to see what it says. If it is a governmental 403(B) plan, you'd also need to look at applicable state and local law. Whether the plan is governmental or not basically depends on whether you were a public or private school teacher. If public, it's a governmental plan, if private, it is not.You need to definitely try to get the contract.

(2) In general, when you pay back your loan with interest, you take out cash from your regular checking and savings accounts. This reduces the interest being paid on either account because the amount deposited in each account is reduced. Unless you pay off the loan, it will be seen as an early distribution from the account and you will owe federal and state income taxes along with the 10% penalty if you are under 59 and 1/2 years of age.

Source: http://www.asktaxguru.com/8161-403-b-loan-becomes-a-distribution.html

IRS Statement on the Supreme Court Decision on the Defense of Marriage Act

We are reviewing the important June 26 Supreme Court decision on the Defense of Marriage Act. We will be working with the Department of Treasury and Department of Justice, and we will move swiftly to provide revised guidance in the near future.

Source: IRS Statement on the Supreme Court Decision on the Defense of Marriage Act

National Taxpayer Advocate Identifies Priority Issues for Upcoming Year; Reports on Exempt Organization Review Concerns

WASHINGTON — National Taxpayer Advocate Nina E. Olson today released her statutorily mandated mid-year report to Congress that identifies the priority issues the Taxpayer Advocate Service (TAS) will address during the upcoming fiscal year. The report expresses particular concern about the impact of budget cuts on the IRS’s ability to meet taxpayer needs, the IRS’s unwillingness to issue full refunds to victims of tax return preparer fraud and shortcomings in IRS procedures for assisting victims of tax-related identity theft.

Read More Source: National Taxpayer Advocate Identifies Priority Issues for Upcoming Year; Reports on Exempt Organization Review Concerns

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