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Thursday, December 26, 2013

IRA Contribution / Withdrawal in the same year

I contributed $4,000 towards my traditional IRA early in 2013, but later on I took out a distribution of $8,000 from this account. I know I need to pay tax on the $8,000 distribution. I also opened a ROTH IRA account last week which is not funded yet. My question is two-fold:

1. Do I show both the $4,000 contribution as a deduction from my 2013 AGI, and $8,000 taxable withdrawal, or just a net $4,000 withdrawal.

2. Since I have already taken out more that I contributed to my regular IRA this year, can I contribute the fully allowed $6,500 contribution to my Roth IRA account in 2013, while paying tax on the net withdrawal of $4,000 from my regular IRA.

Answer:-

#1; As you received a distribution in 2013 from a traditional IRA and you also made contributions to a traditional IRA for 2013 that may not be fully deductible because of the income. limits. Then you can figure the amount of nondeductible contributions to report on Form 8606. Follow the instruc-tions under Reporting your nontaxable distribution on Form 8606, next, to figure your remaining basis after the distribution.you need to report your nontaxable distribution on Form 8606. To report your nontaxable distribution and to figure the remaining basis in your traditional IRA after distributions, you must complete Worksheet 1-5 before completing Form 8606. 

#2;as said above, I t depends on the amount of non-taxable contribution; you contribute to an IRA or ROTH IRA $5,500 for those age 49 and under $6,500 for those age 50 and older for the 2013 calendar year.

Get more details on free online tax services.



Stock and Re-Investment

I know the below formulas to calculate Gains/Losses IF you have auto-reinvest in mutual funds.

Gain or Loss = Sale Price - Cost Basis
Cost Basis = {Original Cost Purchase + (Sum of all Capital Gains + Dividends)}

How about individual stocks? Do the above formulas still apply?

For example. I have a stock that pays $100 per quarter in dividends. If I use that $100 and buy more shares of the same stock, how does this affect my cost basis?

Answer:- 

Correct. You need to determine the initial amount of money invested. For example, if you invested $5K for Stock XYZ, the cost basis is $5K. Cost basis can also be measured per share. If you bought 100 shares of Stock XYZ for $5K, then the cost basis per share is $50. So, remember that dividends are the portion of the profits a company pays out to you , as an investor (shareholder). Theoretically, the share price will drop by the amount of the dividend upon payment since that amount of cash has just been removed from the balance sheet. Dividends then are investment returns in the form of a cash payment. In contrast, when a company retains its earnings and foregoes paying dividends, the investment returns will presumably be in the form of an increasing share price (at least that's what its investors are counting on). Dividend reinvesting does affect the cost basis of your holdings, but it shouldn't be seen as a kind of partial refund of your original purchase. Read More...

Tuesday, December 24, 2013

What would be the Tax Rate for a Married Filing Joint Tax Return whose Taxable Income is entirely from Capital Gains in 2013?

For example, if a Married Filing Joint Taxpayer, whose taxable income is $300,000 and due entirely to all long term capital gain, "what would be their tax rate in 2013?

According to the new tax law in effect in 2013, "if a married couple is below the $450,000 threshold, they will continue to pay tax at the 15% rate for long term gains, or 15% on $300,000 which is $45,000.

For example, if a Married Filing Joint Taxpayer, whose taxable income is $480,000 and due entirely to all long term capital gain, "what would be their tax rate in 2013? Read More...

Tuesday, December 17, 2013

Duration to consider Long Term

I bought a stock on 1/8/2013. If I sell it @ 9:30am on 1/9/2014 and assume I make $$ on it. That's considered long term capital gain because it's on the 366th day right?

Answer :

Correct;UNLESS you sell it on 12:00pm of 1/8/2014. Long-term capital gains are the profits made when you have sold an asset that you have held for at least a year.

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Certificate of Resale and online sales

I am going to be officially starting up my business online sales (amazon and ebay) in Jan. I will be using a certificate of resale when purchasing my products from the wholesaler. I will be charging VA resident sales tax, but what happens to the products that are sold to out of state buyers? Do those items never have any sales tax paid ?

Answer : 

It depends; in general, a business must collect sales tax from its customers when it has a direct or indirect physical presence in a state, known as “nexus.” The standard for the nexus is not difficult to articulate, but can be nearly impossible to apply. In most states, a business (whether a sole proprietor, or organized as a partnership, limited liability company, or corporation) has a physical presence in a state if any employees or agents have had a physical presence in the state or if the business owns or leases property there. This is a direct physical presence. So you can assume that UNLESS you have have a direct physical presence in a ou of state, you have no sales tax collection obligations there. This is a common misconception, and it can prove costly in the case of a sales tax audit. Certain types of indirect presence in a out of state, alone, will not trigger a sales tax collection obligation. A business owner can be comfortable that the mere selling of products over a website or by a catalog and shipping them to a state (by the U.S. Postal Service or common carrier) will generally not trigger a sales tax collection obligation because such activity does not constitute a physical presence.

As you can see, resale certificates are used by the purchasers, when acquiring property for resale in its present form or as components of other property. They are also used to purchase taxable services that become a part of property for resale in some states. States that allow for resale exemptions either accept a state issued resale certificate or, in some cases, a multi-state certificate. A business which is registered for sales and use tax can use a resale certificate only when the merchandise being purchased is to be resold by the business. A business cannot use a resale certificate to purchase merchandise that they will use and consume in the conduct of business. Any merchandise obtained upon resale certificate is subject to sales and use tax if it is used or consumed by the purchaser in any manner, and must be reported and the tax paid thereon direct to the appropriate jurisdiction.

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change 1099 to wife

1 : Is there a way to change my 1099 to my wife? For half the year our paypal was in my name. My wife has her ebay business, and all the income should be hers.

2 : it was over 30k and it will affect my social security, as well as the fact I was on unemployment at the beginning of the year. 

Does anyone know if Paypal will change the SS number to hers retroactively?

Answer :

1 : I guess it depends on the type of account you have. If you have a personal or premier PayPal account you can change the name on your account only for a typographical error or legal name change. You cannot change the name on your account to another person's name.However, you can change the contact name on your business account for typographical errors and legal name changes or to replace the current contact with a new contact. To submit a request for a business contact name change, follow these steps:
Go to the PayPal website and log in to your account. 

- Click "Profile" at the top of the page. 

- Click "Business Information" in the Account Information column. 

- Click "Change name." 

- Select "Business Name Change" (change contact name). 

- Click "Continue" and follow the instructions. PayPal does not offer joint accounts however, as you have a business PayPal account, you can allow your spouse to access your PayPal account; since you are a PayPal business account holder and want to change your name, you can do so within your account. Once logged in, you can change your name from the Profile section. You can also change additional information here if you wish. This is useful if you noticed an error in your name. So, as it's a business account with a business identity then it's indeed possible , but expect ID and utility request.

2 : I guess so; as MFJ filer, once your MAGI is $32k or exceeds $32K, then your source benefits can be taxable income to the IRS.

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Retirement Question

I am fixing to have my 30 years in with a local city. Public works Department.

I'm able to file for my full retirement. Now the city is telling me that If I retire I have got to find employment somewhere else. They're telling me the IRS calls that Double Dipping. In the past we have people that draw there and still work there. Going on 45 years now. My Question is. Is this really a IRS rule or is the City trying to pull one over on me. Oh and Public Safety Employee's are exempt. From this rule. Wouldn't that be Discrimination?

Answer :

"Double dipping is meeting opposition in state legislatures. New York and New Jersey limited double dipping in 2008. By the end of 2009, Utah, Arkansas, South Dakota, New Mexico and Florida were looking at curbing or ending double dipping with state retirement.Double dipping may end or be limited in your state soon. So you need to consider what might happen to your employment and retirement in the face of new legislation. Double dipping in retirement systems allows the retiree to collect money twice, usually with retiring and rehiring. This casual term applies to different types of double recovery in retirement benefits, but each requires the cooperation of others to make it work. Double dipping is meeting opposition in state legislatures. New York and New Jersey limited double dipping in 2008. By the end of 2009, Utah, Arkansas, South Dakota, New Mexico and Florida were looking at curbing or ending double dipping with state retirement.Double dipping may end or be limited in your state soon. So you need to consider what might happen to your employment and retirement in the face of new legislation. Double dipping in retirement systems allows the retiree to collect money twice, usually with retiring and rehiring. This casual term applies to different types of double recovery in retirement benefits, but each requires the cooperation of others to make it work.i guess you may contact a labor dept of your state for more info in detail

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New LLC with calendar year expenses but no income

I started an LLC in August of 2013 that focuses on residential real estate flipping. I purchased the first house and have completed the renovations. I have plenty of expenses including the cost of the house but since it has not sold yet I'm wondering how I should be reporting this year's tax. My plan is to report as an S corporation and pass everything on to me (as the sole proprietor). My hope was that it would have sold this year so that I could neatly just pay on the profit.

So what I have been like this (hypothetically), 55K in expenses for CY 2013 and no income. If I write off all these expenses as losses and then pass that through to my personal income (using an S Corp designation) I would be set up nicely this year but next year when the house sells I'll be on the hook for the entire sale price as a income since I would have nothing to write off against it (or at least that's my understanding).

So the question is, am I forced to report the loss this year or can it be deferred to next year ?

Any insight would be appreciated!

Answer :

In general, you need to report the losses on your 2013 return, NOT on your 2014 return.However, assuming you actively participate in the operation of your S corp and you're not merely a passive investor and sufficient basis in AAA acct.not neg balance in AAAacct.then, if your S corp suffers a loss in the tax year of 2013 you can deduct your share of the loss against your other sources of income, such as dividends, interest, your spouse's wages, etc.say,you own a 100% interest in your S corp. Your S corp suffered a biz related loss of $55k in 2013, then. you have a part-time job from which you earned , say,$20k. You also earned , say,$1k in interest and received a dividend of $1k on stock you own.Your total income from your job, interest, and dividend is $22k. You can deduct the $22k of the $55k loss from your $22k income not from the S corp.you can also deduct the remaining $35k as long as youhave sufficient balance in AAA acct.so,You can only deduct an S corp loss if you have a sufficient tax basis.also youdo not need to issue a w2 to yourself as the corp took looses in 2013.

Note;as you can see, an S corp is a business structure that allows its investors to claim earnings and losses on their personal income tax returns. Before you enter losses reported on a K-1 schedule from an S corp into your personal tax return on 1040, you must be sure you have enough basis as a shareholder to claim the losses. So, knowing how to determine your basis and how the current year's increases and decreases affect it will tell you whether you can claim all or part of the losses or whether they are suspended. you can only deduct losses of the S-Corp against ordinary income to the extent you have basis in the S-Corp.Anything above that is considered a capital loss. It's probably long-term capital loss so it's subject to the $3k per year limit with any amount you can't deduct this year carried forward to future years. If you do that and get a negative number for AGI on line 37 of 1040, then you could have a Net Operating Loss. with NOLs you want someone, a cpa/ an irsea in your local area, who knows what they're doing. And be prepared for your professional to charge more than an average return as it will be a lot of work for him/her. You need report on your 1040 the appropriate amount from your K-1 from the S-Corp. (as said, unless you don't have sufficient basis, then you will need to carry it forward to 2011). The basic rules for using an NOL are: you need to carry the amount back to the preceding two tax years and apply it against any taxable income, which can generate an immediate tax rebate. You can waive this action and instead proceed directly to the next step; if so, attached a statement to your tax return in the year in which the NOL was generated, documenting the waiver. Also you may carry the amount forward for the next 20 years and apply it against any taxable income, which reduces the amount of taxable income in those years. After 20 years, any remaining NOL is cancelled. 

It makes financial sense to apply the NOL against the earliest periods possible, since the time value of money dictates that the tax savings in these periods is more valuable than for any tax savings in later periods.

If NOLs are being generated in multiple years, use them in the order the NOLs were generated. This means that the earliest NOL should be completely drawn down before the next oldest NOL is accessed. This approach reduces the risk that an NOL will be terminated by the 20-year rule noted earlier.

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Tuesday, December 10, 2013

Tax on settlement for storm drain damage to house?

Around 2010 the city storm drain caused damage to my house, and in 2013 I received a settlement which is enough to partially pay for repairs. The city paid my attorney, who then deducted contingency fees, and then the attorney paid me the remaining amount for repairs. The settlement agreement with the city does not specify how the money is allocated (for damages, nuisance, etc.) I'll probably get a 1099 in January.

I am confused about what IRS forms I will need to fill out, since I always do my own taxes using TurboTax. I am pretty sure that the best tax treatment will be to offset this 1099 amount with the reduction in basis to the property, since the house has a lot more basis than the damages.

One of the IRS publications says that when the damage payment reduces the basis of the property, it is not considered income so it is not reported on the return. But that's where I am completely confused. If I receive a 1099, then the IRS will see a 1099 "income" source. How can I not report that according to the IRS guidance? There must be some other form I fill out somewhere to offset the 1099 "income" so that it is cancelled out as income and becomes a reduction in basis instead.

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Confused IRA Distribution... Earnings Limit

1 : Sorry if this is duplicated, said I had an invalid thread. I am a little confused. On the SSA website, it lists IRA distributions are not considered as part of the Soc Sec EARNINGS LIMIT. As I look at 2012's 1040 form, line 15a requests my IRA distributions. Line 15b requests the taxable amount and when you look to line 22 it is listed as TOTAL INCOME, then you drop down to line 37, it is part of the ADJUSTED GROSS INCOME?
 
2 : I did notice that on line 32 it asks for an IRA deduction? Does the distribution amount get taken off by this entry?

3 : Assuming that the 2013,1040 form is like the 2012 form, will the IRA deduction be considered INCOME? Which would be used to calculate if I surpassed the determined earnings limit, correct?

Answer :

1 : In general yes;however, it depends; you need to find out if you have made any nondeductible contributions to your IRA. Nondeductible contributions are made to your IRA when you are unable to claim a tax deduction that year for your IRA contribution. If you have nondeductible contributions, your distribution is only partially taxable. In contrast, if you were able to claim a tax deduction in the year of the contribution, then your distribution is fully taxable by being included in your AGI/TI. 1099-R statements report distributions from various retirement plans. You need to separate 1099-R statements into two piles: those received from your IRA, and those received from your pension or annuity plans. Then you need to report your IRA distributions on line 15 and taxable distribution on 15b. IRA distributions that you must include in income are taxed as ordinary income. In figuring your tax, you cannot use the special averaging or capital gain treatment that applies to lump-sum distributions from qualified employer plans.

Note : Your IRA distributions may be fully or partly taxable, depending on whether your IRA includes any nondeductible contributions.

Fully taxable. If only deductible contributions were made to your IRA since it was set up, you have no basis in your IRA. Because you have no basis in your IRA, any distributions are fully taxable when received. See Reporting and Withholding Requirements for Taxable Amounts, later.
Partly taxable. If you made nondeductible contributions to your IRA, you have a cost basis (investment in the contract) equal to the amount of those contributions. These nondeductible contributions are not taxed when they are distributed to you. They are a return of your investment in your IRA. You must complete, and attach to your return, Form 8606 if you receive an IRA distribution and have ever made nondeductible IRA contributions.

2 : No; You can reduce your taxable income by contributing money to a traditional IRA. You may be able to claim a deduction on your individual federal income tax return for the amount you contributed to your IRA; For the year 2014, the dollar limits for IRA contributions are:$5,500 if you are age 49 or younger, $6,500 if you are age 50 or older.
 
3 : No, the IRA deduction is not considered INCOME; however, deductible contributions are taxed when they are distributed to you.

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Asked to submit 1099 for interview expenses

I recently traveled to participate in on-site interviews for a job at a company with whom I am not employed. I incurred expenses for gasoline and hotel -- which the company agreed to pay. In order to be reimbursed for my expenses, I have been asked to complete an expense report and to submit a 1099 so that "I can be set up in the system."

1 : Is it appropriate for me to have to complete a 1099 in this circumstance? 

2 : If the answer is yes, should the company be supplying me the form? Or should I simply obtain from the IRS site?

Answer :

1 : You, as a non –EE payee, do not submit 1099MISC; companies that pay an independent contractor $600 or more for services provided during the year must provide the contractor with a Form 1099-MISC by January 31 of the following year. To be reimbursed for expenses incurred on behalf of a client, the you need to provide an invoice with adequate accounting for expenses to the client. Generally adequate accounting includes a detailed list of expenses and receipts if requested by the client. Assuming the client reimburses valid business expenses, you will not report the reimbursement as income, nor will you deduct the expenses as business expenses. The reimbursement will not be reflected on your Form 1099-MISC

2 : As mentioned above; you do not submit a 1099MISc to the company;however, as long as the biz pays you , an independent contractor, $600 or more for services provided during the year must provide you with a Form 1099-MISC by January 31 of the following year.

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Alimony and living in same house

My wife and I are legally separated officially on 1/1/14. She has just been diagnosed with breast cancer and I'd like to not move out for a few months to help her.

1 : However, I am paying her a huge amount of alimony, but I think I read where I can't deduct alimony from my taxes if I live in the same house.

Is there a way around this?
 
2 : Also, how can the IRS know where i live if we file separately for 2014?

3 : I assume I (effectively) have to pay her taxes (or I guess get taxed double) if there is no way around this correct?

Answer :

1 : basically, correct; you and your former spouse may not live in the same household (there are certain exceptions). You may contact an attorney for sure; After you are divorced or legally separated (meaning after you are considered divorced for tax purposes), you and your ex-spouse cannot live in the same household or file a joint Form 1040.

2 : Even if you file your returns separately, you need to provide the same address wth the IRS unless YOU REPORT NEW ADDRESS ON YOUR SEPARATE RETURN.

3 : Your former spouse should report any taxable alimony received on Line 11 of IRS tax Form 1040 while you need to report alimony paid on line 31a.

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The IRS announced new dollar limits for 2014 for 401(k) and other defined contribution plans & defiined benefit pension plans.

The IRS announced on Oct. 31, 2013, cost-of-living adjustments for the 2014 tax year that apply to dollar limits for 401(k) and other defined contribution retirement plans, as well as defined benefit pension plans.

IRS stated that "some plan limits will remain unchanged because the increase in the Consumer Price Index did not meet the statutory thresholds for adjustment, but other limits will rise in 2014."

The announcement highlighted the new limits for 2014 as follows:

    1. The 401(k), 403(b), and certain 457 plan elective deferral limits in 2014 will remain at $17,500; the catch-up contribution limit will stay at $5,500.

    2. The annual defined contribution limit from all sources under Code Section 415(c) will rise to $52,000 from $51,000.

    3. The maximum amount of employee compensation that can be considered in calculating contributions to defined contribution and defined benefit plans will increase to $260,000 from $255,000.

    4. The limit used in the definition of ”key employee" for purposes of certain nondiscrimination tests and determining whether a plan is top-heavy will increase to $170,000 from $165,000.

    5. The limit used in the definition of a highly compensated employee for the purpose of 401(k) and other nondiscrimination testing remains unchanged at $115,000.

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Not sure what I need to Do if anything

1 : I am an amateur artist and I was considering a web site.
Question is how do I limit any liability. create a LLC ?
 
2 : It is only myself and some art I will try to sell.
I expect to make very little if anything.

What are the minimum tax for this type of corp.
fees for state ,city, federal forms, etc.

3 : do I need to incorporate in state I live in or some other state
I will have a vacation home.

Answer :

1 : I assume it is a SMLLC; then, while single-member LLCs offer more liability protection than sole proprietorships, they do have more risk than multiple-member LLCs. In some cases, courts have held single-member LLC owners liable if their negligence has led to damages to others. Similarly, courts have also allowed creditors to go after personal assets in some cases where the business has a debt burden. In a February 2010 article, you need to know that single-member operatorsneed to maintain separate banking accounts and to treat the business as its own financial entity. You might even consider setting up a MMLLC and making a family member a small owner.

2 : Needless to say it depends on yur taxable income; if you are filing as a sole proprietor, partner, and/or a self-employed individual, you generally have to make estimated tax payments if you expect to owe tax of $1k or more when you file your return.however, you do not have to pay estimated tax for the current year if you had no tax liability for the prior year;you were a U.S. citizen or resident for the whole year;your prior tax year covered a 12 month period.Basically, as a sole owner, you need to file your return as long as the amount on Sch C line 29/ 31 is $400 or exceeds $400 and you also need to pay Self employment tax as long as the amount on Sch SE line 2/ 3 is $400 or exceeds $400.

3 : It is up to you and yur biz needs. Few companies need to incorporate, but there are many good reasons to do so. The most important immediate benefits from incorporation are the limited liability protection for owners, the ability to receive investment funds, and the flexibility to expand the business. Unlike most partnerships and all sole proprietorships, corporations offer limited liability for all owners. Should serious business problems occur, creditors cannot legally attack the personal assets of the owners. Therefore, even in the most dire business situations, corporation creditors cannot sue stockholders personally to endanger their homes, autos, bank accounts, or investments, to recover monies due. However, if the corporation has committed an illegality, such as fraud, the U.S. courts often pierce the corporate veil and allow creditors to sue owners personally, as a result of the deception.You need to analyze the nature of your business, your future plans, and the costs and responsibilities of incorporation before deciding on a structure for your company. Consult with a CPA/or an IRS EA in your local area if you are unsure of the ramifications , income, tax, cost, and liability -- of forming a corporation versus choosing another structure. For example, small businesses with multiple owners may enjoy benefits similar to a corporation by creating an LLC. With limited liability features, LLC owners are taxed as individuals, distributing company income to owners to be included in their personal tax returns -- and at personal tax rates. However, if you plan to grow and expand your business, a corporation might be the best option for the future.

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quarterly witholding irs

1 : I am a canadian (non resident to US). I own 2 rental houses in Arizona. Both are rented. Both are contained inside an LLP (not LLC). Is it mandatory for an llp to pay 4 quaterly witholding (35%) payments to IRS or do I wait until end of the year?

2 : What If there was very little actual profit in Rent (rent minus expense) for the whole year? or no profit?

Answer:

1 : Partnerships do not have to calculate or pay estimated taxes. This is a natural extension of being a pass-through entity that is not liable for income tax. However, the partners in a general partnership may have to pay quarterly estimated taxes, depending on their circumstances. For instance, partners who are residents of the US(or a US resident for tax purposes) and expect to owe $1K or more in tax must pay quarterly estimated taxes.If you are filing as a, partner and/or a self-employed individual, you generally have to make estimated tax payments if you expect to owe tax of $1K or more when you file your return; rental properties are considered passive income even if you actively or materially participate in the rental activity. Passive income by definition is not subjected to self-employment tax.In ome state, i.e., CA state, no estimated tax is required;but the LLP may be required to withhold taxes if the partnership distributes CA source taxable income to a nonresident partner.

NOTE : if a partnership has income effectively connected with a trade or business in the US, it must withhold on the income allocable to its foreign partner(s) under Partnership Withholding. A partnership may have to withhold tax on a foreign partner's distributive share of fixed or determinable annual or periodical gains and income not effectively connected with a U.S. trade or business, as well as withhold on any other FDAP income(U.S.-source fixed annual or periodic income) paid to a foreign person regardless of whether he is a partner or not under NRA Withholding. However, there are exemptions so you need to fill out the W8-BEN form to atleast establish you are not a US person;

claim you are the ‘beneficial owner’ of the foreign income; confirm you are a non-resident claiming exemption from the 30% (if you are eligible).

2 : As mentioned above.

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Barter and taxes

1 : 2013 was a bad year for us and our only income was through bartering and selling locally. We made enough income to cover our bills and keep a roof over our head so we assume its safer to file taxes rather than wait for the IRS to come knocking at our door. Is there a way to file without have a W2/1099?

2 : Do we need to file for a business license and ID number in order to file? Any help would be appreciated!!

Answer :

1 : Many people are not aware that the benefits derived from barter transactions are taxable and must be reported to the IRS on IRS Form 1099-B and your state tax return. The IRS and your state maintain websites where you can download income tax forms to report barter income. Generally, whatever property or services that you barter for amount to taxable income based on the FMVof the property or services received by the taxpayer.you need to submit your tax returnsby attaching a copy of Form 1099-B to your other tax forms. You need to keep a copy of all forms that were mailed, including IRS Form 1099-B.On line 7, you need to show the cash you received, the fair market value of any property or services you received, and the fair market value of any trade credits or scrip credited to your account by a barter exchange.

2 : Many people choose to operate small home businesses without getting a business license, because technically it is possible to do so in some cases without penalty. But if the business falls under special state requirements and regulations or you need to bring the small company public with common business services, like banking, you are going to have to apply for a license. When you go into a bank to open a business checking or savings account, you will be asked for identification and a business license or permit from the state. The bank usually needs to verify that you are in fact a legitimate business before opening an account in a company name. the IRS doesn't care if you have a business license or not. Business licenses are required by local governments - not the IRS.Once you are required to have a biz license , then you ned to use it to file state retrun.You still can file your return with your SSN# in lieu of an EIN.

If you operate your business as a corporation or partnership, you have employees, withhold taxes on income, or have a Keogh plan, you will have to apply for an EIN with the IRS. You should do this after you have decided the form of ownership and your business name. The EIN is like a social security number for your business. There is no fee for applying for an EIN and you can do it online with the IRS.

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Government announces that the "Small Business Health Care Tax Credit is set to increase in 2014."

The Small Business Health Care Tax Credit "is intended to encourage small employers to offer health insurance to their employees. The maximum tax credit was 35% of the employer’s premium payments made on behalf of employees in tax years 2010 – 2013."

Per the Government, "this credit amount will increase to 50% of the employer’s premium payments beginning in the 2014 tax year. It is important to note that to be eligible for the Small Business Health Care Tax Credit; the employer must have fewer than 25 full-time equivalent employees making an average of about $50,000 a year or less."

To be eligible for the full amount of the tax credit the company must have fewer than 10 full-time equivalent employees making an average of about $25,000 a year or less. (The Owner may typically be excluded from these calculations.)

To qualify for the Small Business Health Care Tax Credit, "the employer must pay at least 50% of full-time employees' premium costs (employee only coverage). The employer does not need to offer coverage to part-time employees or to dependents. Beginning in 2014, only premiums paid by the employer for employees enrolled in a qualified health plan offered through a Small Business Health Options Program (SHOP Exchange) are counted when calculating the credit."

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What are some of the provisions of the Hire Act of 2010 with respect to Foreign Account Act Compliance Act (FATCA)?

The Hiring Incentives to Restore Employment (HIRE) Act of 2010 "contained a revenue offset provision referred to as the Foreign Account Tax Compliance Act (FATCA)."

FATCA legislation "creates a host of new anti-abuse measures designed to deter U.S. individuals from attempting to hide assets overseas and further delays the effective date of the worldwide allocation of interest provision."

FATCA contains provisions dealing with the following items;

a) Expanded withholding rules and additional reporting requirements for foreign financial institutions and non-financial foreign entities,
b) Disclosure of information with respect to foreign financial assets,
c) Penalty for underpayments attributable to undisclosed foreign financial assets,
d) Statute of limitations for omission of income in connection with foreign assets,
e) Information reporting for passive foreign investment companies,
f) E-filing of certain returns related to withholding on foreign transfers,
g) Foreign trusts treated as having U.S. beneficiary,
h) Uncompensated use of trust property,
i) Reporting requirement for U.S. persons treated as owners of foreign trusts,
j) Penalty for failure to report information or file return concerning certain foreign trusts,
k) Substitute dividends and dividend equivalent payments received by foreign persons,
l) Repeal of certain foreign exceptions to registered bond requirements, and
m) Interest expense sourcing for worldwide affiliated groups.

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What are some of the more important tax credits and incentives that would be expiring at the end of 2013?

As such, there are more than 50 such provisions that are scheduled to expire at the end of 2013. The following are 20 of the most important provisions to expire and are as follows;

1) The increase in the § 179 expensing limit to $500,000 with a phase-out threshold of $2,000,000, and an expansion of the definition of § 179 property.

2) Additional 50% bonus depreciation under § 168(k).

3) The election to accelerate AMT credits in lieu of bonus depreciation under § 168(k).

4) The credit for non-business energy property such as energy efficient doors and windows, insulation, and hot water heaters, under § 25C.

5) The employer wage credit for activated military reservists under § 45P.

6) Tax-free distributions from individual retirement plans for charitable purposes under § 408(d).

7) The credit for research and experimentation expenses under § 41.

8) The credit for construction of new energy efficient homes under § 45L.

9) Numerous incentives for biodiesel and renewable diesel under § 40A and § 6426.

10) The credit for energy efficient appliances under § 45M.

11) The work opportunity tax credit under § 51.

12) The exclusion from gross income of cancellation of debt on a qualified principal residence under § 108(a).

13) Parity for exclusion from income for employer-provided mass transit and parking benefits under § 132.

14) Treatment of mortgage insurance premiums as qualified residence interest under § 163(h).

15) The option to deduct State and local general sales taxes under § 164(b).

16) Fifteen-year straight-line cost recovery for qualified leasehold, restaurant, and retail improvements under § 168(e).

17) Seven-year recovery period for motorsports entertainment complexes under § 168(i).

18) Special rules for contributions of capital gain real property made for conservation purposes under § 170(b).

19) The energy efficient commercial buildings deduction under § 179E.

20) The deduction for qualified tuition and related expenses under § 222.

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Close on Building 12/2013 or 1/2014?

I am able to close on the sale of a commercial / residential building this month. We have owned the building for many years and there is substantial capital gains. I don't know whether I will roll the gains over to another real estate venture or not.

My question right now is whether there are tax advantages to close this month or January 2014.

Answer :

As you said, probably your commercial property has appreciated from the time that you bought it, you will be subject to capital gains tax on the entire gain. As you have held it for over one year, it qualifies as a long-term capital gain and is typically taxed at the 0% or 15 % rate. As you can see, since you dispose of a commercial / residential building, you need to recapture the depre and are subject to a 25 percent tax on all depreciation you have claimed. SO, depreciation recapture can cause a significant tax impact for people who are selling residential /commercial rental properties. Part of the gain will be taxed as a capital gain and may qualify for the maximum 15% rate on long-term gains. The part of the gain that is related to depreciation, however, will be taxed at a maximum 25% rate. The technical term for gain related to depreciation on residential property is called unrecaptured real estate depre, sec1250 dpre recapture. However, the federal capital gains tax rate is currently 0 percent UNLESS your tax bracket is higher than 15%; and 15% as long as your marginal tax rate is higher than 15%.So UNLESS your tax bracket is higher than 15%, this year, you may sell it without CG tax.
Several states levy capital gains taxes on the sale of commercial property;you ned to check it with the Dept. of Rev of yur home state for more info in detail. For example, in CA in 2010, the capital gains tax rate is 9.3 percent. CA residents selling property in another state don’t owe CA taxes on capital gains, but must understand their tax obligations in the state where the property is located. Although laws vary from state to state, most states tax both capital gains and accumulated depreciation as regular income, meaning that you will need to pay your state's prevailing income tax rate in addition to the federal capital gains and depreciation recapture taxes.

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What are the long term tax rates on Gains on Sales of Collectible Assets?

Long-term Gains on sales of investments in collectibles are taxed at a flat 28%. Short-term investments in collectibles are taxed as short-term capital gains at taxpayers ordinary income tax rates. The following are some items includable as collectibles as follows;
  1.     stamps,
  2.     coins,
  3.     precious metals,
  4.     precious gems,
  5.     rare rugs,
  6.     antiques,
  7.     alcoholic beverages, and
  8.     fine art.
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Selling a gifted home in CA

1 : She is a Trustee on the Trust and a Beneficiary too I think...not sure. We've been living in the home here in CA for almost 9 years, and her father just gifted the house out of the Trust name to her last month. It's in my wife's name alone now, not the Trust name. No mtgs on the home to pay off when it sells. We wish to sell it now and keep the money. When it was deeded to her, the value listed on the Grant Deed was $510,000....which was way too low. Realtors are telling us home is worth $565-575K....so we have it listed at $564,900 right now. When we sell the home, what kind of taxes should we expect to pay?

2 : We are trying to avoid using the money to buy another home and are wondering if that's possible. Please help.

Answer :

 1 : I guess the trust is revocable inter vivos trust or a grantor trust; such a trust may be amended or revoked at any time by the person or persons who created it (commonly known as the trustor(s), grantor(s) or settlor(s)) as long as he, she, or they are still competent. A trust grantor can pass on gifts to heirs and beneficiaries. As long as the gifted home is your primary residence, then, as long as you received real property as a gift, consider living in the property for at least two years before selling the property. This will make you eligible for a capital gains exclusion of up to $500K ,as MFJ filer ,on the sale of a primary residence. Capital gains or losses on the property received as a gift are calculated with respect to the original owner's cost basis in the property. In other words, when property is given, the recipient receives both the property and the property's cost basis. The recipient also receives the donor's holding period in the property for determining whether a gain is long-term or short term.

The basis of gift property is the original owner's cost basis, plus or minus any adjustments. Typical adjustments that increase basis are substantial repairs and improvements, along with any expenses for selling the property (such as broker's commissions). Typical adjustments that reduce basis are depreciation the previous owner claimed for renting out the property. The recipient's gain or loss on the gift property will be the selling price minus this adjusted cost basis.For example, say the dj basis of the home is $500K and its FMV is $600K and sell it for $550K, then, its LTCG is $5K;$550K-$500K;however, if the FMV of the home is $550K and its adj basis(OC+other expenses as aid above) is 600K and sold it for $700K , then its LTCG is $100K;$700K-$600K if you sell it for $570K, between $550K and $600K, then no gain or loss. If you sell it for $540K then LTCL is $10K;$550K-$540K.

2 : no problem. It is up to you if you , after sellig the gifted home, buy a new one.

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Personal Liability for Tax Penalty

I had a penalty assessed to an LLC of which I'm a member. I'm taking personal responsibility for the penalty for payment. I'm wondering how the penalty gets taxed or viewed in relation to the entity.
 
1. Can the penalty be deducted from future draws?
 
2. Any benefit to having the the penalty instead be paid from a personal account?

Answer :

1 : The IRS imposes penalties for late payment of tax, for late filing of a tax return, or both. The IRS also charges interest on any unpaid tax. Business and regular taxpayers can never deduct tax penalties imposed by the IRS or any other taxing authority. The IRS does not want to give any taxpayer an incentive to break the law. If your return is audited and the IRS determines you owe additional tax, you usually have to pay penalties and interest on this amount. You cannot deduct these penalties from your next tax return, nor can you deduct the additional tax you owe. The IRS reasons that you would have paid this tax anyway and would not have had to pay interest if

If you receive penalties for not fulfilling a government contract on time, you may be able to deduct them as business expenses. For example, if you work in the construction industry and a building is not ready by the contract date, you can deduct penalties from your taxes as a business expense. These penalties are not due to misbehavior on your part but to circumstances beyond your control. However, you cannot deduct other penalties related to the construction business, such as penalties for failure to comply with building codes. Tax code only allows taxpayers to claim deductions on penalties and interest assessed for the current tax year, so if you paid a penalty for 2012 taxes during the 2013 tax year, those amounts can't be claimed as deductions, nor can interest accrued for unpaid taxes in previous amounts be claimed. Because many penalties are paid in a successive tax year than the one in which the infraction occurred, many individuals can't deduct penalties.


2 : As mentioned above. As of 2011, the IRS does not allow you to deduct penalty because it wants to discourage taxpayers from filing incorrectly to avoid paying taxes.

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Social Security and Supplemental Security Income (SSI) Benefits related

Are you or anyone you know receiving Social Security and/or Supplemental Security Income (SSI)? The Social Security website (socialsecurity.gov) is a very important website that will answer many questions without having the need for you to visit your local Social Security office. One of the most important resources is your mySocialSecurity account. By signing up for the account you can view information pertaining to your earning history, deductions, current statement, etc. If you are getting benefits then you can verify your social security benefits at a glance and in one place. In addition, you can print an official Benefits verification letter, also known as "budget letter", "benefits letter", "proof of income letter" or "proof of award letter". This letter will help when you are applying for any loans, applying for other benefits or any such official needs.

For further information please visit The United States Social Security Administration


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Roth IRA contributions error

I have lived overseas since 2001, and because of that status, claimed the foreign income exemption status on my annual tax returns. All the while I was making contributions to my Roth IRA, and my wife's Spousal IRA. I was recently told that those contributions are not allowed, since because of claiming the foreign income exemption I had no taxable income during those years. Now I am trying to straighten our the problem. I have called the mutual fund companies where the IRA accounts are located (not the original companies, since I moved the IRA's from Schwab to other investment funds), and was told that they could not help me so I would need to talk with my tax preparer. I have no idea what I need to do or where to begin fixing this problem. I assume I will have to remove all those contributions that I have made over the past 12 years from those IRA funds, and pay a 6% tax on the contrubutions for each year the money remained in the funds (is all this correct?). I am also wondering if I need to remove any income earned by those funds, and if so, would that be just for the year the money was invested, or all subsequent years as well? Since the funds have been moved to numerous funds over the years, I have no idea or records of what the earnings were each year. Can anyone please give me a step-by-step plan for how to fix this situation?

Answer :

I guess before talking to yor tax preparer, Needless to say, what you need to do is contact your R-IRA custodian. This is generally the bank, brokerage, mutual fund company or other financial institution you receive your R-IRA statement form. You can find their contact information on your statement, which generally arrives in your mailbox quarterly. In some cases, you might need to contact your investment adviser to get the ball rolling.You need to tell your custodian that you would like to remove non-qualified contributions you made to your R-IRA. If you are removing money from a Roth IRA, there are generally no tax considerations since the IRS already taxed the money you originally invested. If you are removing a traditional IRA contribution, however, you must make sure that you report that money as income when you file your taxes and not take a tax deduction for the amount. In both cases, you need to pay regular income tax and a 10-percent tax penalty on any earnings generated by the original contribution., Your custodian will figure out how much money in earnings, if any, you have to claim as taxable income or etc. Then, you need to contact a CPA/ an IRS EA for professional help on your returns, federal/state(as long as you are a full year resident of the state).

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