f13.net

I figured since we're heading into the season, I'd open up this thread for some of you who have some general questions about the changes and whatnot to the code. I know there's a thread down there in that place I don't respond to anything, so I figured a more open forum for people might be a good idea.

A few rules:

1 - No politics. There's another forum for that discussion.
2 - Try and keep it broad. Specifics are fine as long as we're not dominating the thread with your situation only.
3 - Other CPA's can feel free to chime in, and offer their ideas.
4 - Be aware that my response may be that your situation is complicated without personal details, and would require a professional consult with somebody in your area. However, I will try my best to give you several options of what would happen in generic scenarios.

I worked 3 jobs last year I should be getting 1099 information for. When is the latest they are supposed to send it?

The latest they should be mailing it to you is January 31. If you haven't recieved it by then, contact them.

EDIT: And by that, I mean you haven't received it in the mail 5 days afterwards. They can postmark them January 31 and meet the deadline.

Can you hit the highlights of what middle class (not $260k  :why_so_serious:) homeowners should keep an eye out for? Even just links to laymen's summaries would be cool.

Since they don't send forms anymore, FYI you can still get many of them from the library (or print them there if you don't have a printer, etc).

Post Offices have the forms and common booklets as well.

I believe it's Feb 15th this year.

Any advice on someone looking to go DIY on taxes this year? A particular software suite? Don't do it you idiot?

I have used Turbotax  online for about 6 years now. I like it a lot

I moved from Turbo Tax to H&R block's Tax Cut.  It was a little more user friendly and was $10 cheaper for the state & federal version.  Either program is good and unless you have complicated tax situation that involves a whole lot more forms than your W-2s, mortgage interest and student loan interest forms there's no real reason to not do your own taxes.

I switched to H&R Block TaxCut as well when Intuit implemented their draconian licensing changes on Turbo Tax a while ago (which they later rescinded) and never bothered to switch back since TaxCut worked just as well for me.

I've used TurboTax for a few years now with no complaints.

If you make between $40k and $100k combined with spouses, which I would assume encompasses most of the middle class people, the answer is not a whole bunch. Payroll taxes go back to the levels before the cuts. You don't get 30% credits for energy efficient stuff in 2012 anymore. The deduction for qualified mortgage insurance premiums expired.

DIY Turbo Tax is fine, especially if you have online simple investment accounts in major brokerages (Fidelity, Morgan Stanley, etc can link to that via web to pull down information)

You probably shouldn't do it if you have any of the following:

1 - Rental Property
2 - Several K1 investments, investments in real estate, or major holdings in trusts
3 - You run your own side business, are a contractor, or have equity sharing arrangements

That's the deadline for brokerage houses to issue 1099-R, 1099-B and 1099 interest amounts. Slightly different than the regular contractor 1099-MISC which is generally January 31 of that year.

http://www.irs.gov/Businesses/Form-1099-MISC-&-Payment-Types-to-Report)

That's the information on 1099 requirements for contractors, doctors and attorneys with the deadline.

Thanks for this. 

Sure thing. And for a lot of those, it's not that some people couldn't do it. It's probably so time intensive for them that the cost/benefit of doing a software package for $75 v taking to a pro for $350 gets lost in the hours of confusion.

And even then, you may not be getting all your deductions or planning for 2013 correct. The real advantage of getting a CPA now isn't filing 2012's return. It's about planning for the big changes coming in 2013 so you don't get screwed.

I've used Tax Act for years.  It's free for Federal returns.  My taxes aren't very complicated at all though.

We use TurboTax deluxe. We do the downloadable because need state filing and we have to file three separate federal returns (not to mention pay another $1700 in taxes) because of DOMA. My partner has 1099 income this year, but it's a pure passthrough which it's supposed to handle.

I just hope I can make TurboTax understand that I should get a full rebate of my NJ state taxes since I have spent less than 30 days in the state in 2012...I think it gets confused when I'm not also filing forms for foreign income exemptions, since as a USG employee I don't benefit from those.  :oh_i_see:

I've been using TaxAct -- web only software -- for the last few years. It's been pretty good. Returns are about where they should be, only issue is it's not as nice at explaining a number of things as it could be in terms of claimable deductions. Good for simple returns with minimal deductions (you know, mortgage, state and local taxes, interest on accounts, student loan interest -- simple stuff). Not sure I'd use it if you had issues more complicated than that.

So, my household makes $600k+ a year in AGI. How do I avoid paying any taxes?  :why_so_serious:

If you live in Illinois and have relatively simple returns, I have found that using H&R Block's website (you need to use a different email address every year to keep using the free version) for federal is pretty good, then just use the State of Illinois online form for the thieves at the Thompson Center.

As someone who has prepared between 500 and 1,000 tax returns for US citizens in foreign countries:

Do you need to file a tax return in any country in which you are stationed?  If not, stop whining about not getting the Foreign Earned Income Exclusion.  In general, the people claiming the exclusion do so because they are bona fide residents of another country and are filing taxes in the country in which they work, and generally have a higher net tax bill then those that work in the US as marginal tax rates are higher in most other countries.

As for your state taxes, you probably should seek a tax professional.  From some quick browsing of the IRS site and the Foreign Service Journal there appears to be many odd quirks in rules about domicile for Foreign Service personnel and tax home in the states.... especially if you are using a NJ address for mail or anything like that (ie, if you are using a parent's address for bills or what not.)

As a good "in general" rule, you should probably file at least a Part-time resident NJ tax return as you were a continuing resident of the state in previous years and it is a conservative way to establish you are leaving the jurisdiction.  If you file a full-time resident return in one year, and then just don't file the next, it is more likely to kick off an automatic notice from the NJ state tax authority.


Really man, ask some of your co-workers for a recommendation and go to a CPA firm that has experience dealing with these issues for your first year of filing taxes.  Ask lots of questions about what is most advantageous, and how establishing your domicile works, what sort of allowances and benefits aren't subject to taxation, etc.  This will give you a good guide for filing your own taxes in future years and minimize the risk getting a bunch of pesky notices.

Then you can use your notes and the professionally prepared return as a template for preparing your own taxes going forward.

You want to go to a firm that has actual experience with these types of issues though, as the way foreign residency interacts with US taxation is a specialized field.

I agree with JC about the NJ stuff. I file several returns there and their tax code is horrid to understand.

What is the take on whole life insurances at the moment?  I had my insurance rep trying to sell me some today and he said that it was a good idea with the new tax changes. 

In what regard? Whole or term? Is he talking about death benefits?

Sales point: "You'll need this due to <scary news item>.  Really!"

I was looking for something cheaper than TurboTax but the one or two I looked at just weren't as good.

I'm apparently not middle-class (:uhrr:) so, wondering about the need to visit a CPA this year for planning purposes.  Is it a matter of telling me how to adjust my withholding or is there something more than that?

Ahem, whole life insurance.   :why_so_serious:

And no, he was talking about it as a form of tax shelter, I guess.  Like a 401k.  I'm not too knowledgeable about insurance, really, and have always viewed whole life insurance as a bit of a scam.  But that's what we pay you guys the big bucks for, right?   :awesome_for_real:

The advantage of a whole insurance policy is that you get the benefits tax free, and the inside "build-up" income tax-free. However, we can never be sure if Congress won't come after that inside income, which would render the whole thing useless (pun intended). It's been challenged tons of times, but always survived on the insurance lobby.

Term insurance is meant to cover a period where you feel you are exposed if you die. Example, if you are aged 35 and have 2 kids that are under age 10, you may want to take out a 10 year term policy to insure your earning power, and insure they get to college. There's no deduction advantage to this, but if you kicked it you do make sure your estate passes along the tax-free income to them for their needs.

Here's the thing, whole insurance is always going to provide worse returns than the market. The reason is that the insurance company can't make money if they don't. They need to insulate themselves against a guaranteed payout, so they pay less over time in order to produce those gains along with the premiums. At the end of the day, you'd be better off controlling your money in a 401k, getting a 10 year term policy, and planning appropriately for the long haul.

Don't listen to insurance salesmen about anything. They don't have your interests at heart, ever.

I don't trust any salesmen, particularly insurance salesmen.  That's why I always, always, always ask my CPA before I do anything. 

I would assume that you wouldn't recommend whole life insurance for the kiddos, either?  What about the 529 college savings accounts?

529 accounts are fine. Many of my clients use them.

No, I am exempt from all foreign taxes. I actually don't care about not getting the foreign exemption, except in the sense that it makes my tax filing awkward.

I'd go to a firm that has experience in that, but...lol, Africa.  I'll have to see what my coworkers do - I know a lot of people engineer ways to domicile themselves in states which do not require tax filings, such as Florida.

I'm assuming, from your answers, that you'd prefer that over a whole life policy for a child?

Absolutely. My opinion of life insurance is that it should be used by an income earner to cover possible catastrophic losses due to their death. That's its intent, and all other uses of it is insurance salesman trying to shoehorn in something it's not.

This is a bit of a state by state thing, but at least in Maryland, you can write off 529 donations on your state taxes as well.

Yeah, I'm in Texas where there is no state income tax.  This sounds good on paper, but there are no dedeuctions of any sort with their setup.

Ah, no. That's not been true in a few years. You can deduct your sales taxes. There's two ways to do that -- one, keep all your receipts. (I'd only suggest this if you did a LOT of big ticket items). Two, the IRS has a nifty table by income and sales tax rate. You find out your local total sales tax rate (state + local), and then look it up against your income.

Instant deduction.

Yeah, I discussed that with the CPA a few times.  It's never worth it for us. 

My ex-m-i-l always used to give me shit about it, I talked to my dad (CPA for 35 years) and his point was it was a waste of time for the gains given, not to mention it opens you up to an easy audit.  And his favorite expression is "you can do it on your OWN return, but I won't sign my name to anything that won't stand up to an audit."

Yeah, but they don't audit it if you're using the IRS's own table. It's a stock deduction based on your sales tax rate and your income. There's nothing to audit, except for "is that really your sales tax" which is, you know, easy to prove.

Yeah, if you're claiming obscene amounts with receipts -- yes.

But not if you're just looking it up on the table and plugging it in.

No.

1. Ghost was specifically talking about contributions to a Section 529 plan, which in some states is deducted from your state taxable income before calculating your state income tax liability.  As Texas has no state income tax, there is no current tax benefit to contributions to a 529 plan.  On the other hand as an example, NY does have state income tax...  so your contribution to a 529 plan would give you a tax benefit equal to the size of your contribution x the marginal rate (like 7.85%ish).

A 529 plan also provides no current benefit for Federal tax purposes.  The only real benefit is that future earnings aren't taxed if spent on qualified education expenses.

2. You get to choose whether to deduct your state income taxes paid (not liability, actual payments) OR sales tax paid PLUS real estate taxes paid on your Schedule A.  You can either use your receipts or the Federal sales tax table to calculate your sales tax paid.

In any state with an income tax, your state income tax paid (withholdings on W-2s/1099s plus estimated payments) will generally dwarf your sales tax paid, which is where this comment comes into play:


Basically the Federal table gives you a tiny sales tax paid amount.  At our firm, the only thing we ever asked was "Did you buy a car or a boat?"  If yes, then we would look at and calculate which was more advantageous.  No?  Wouldn't bother.

3. Obviously, if you are a resident of any state without an income tax the deductibility of sales tax should be automatic if you are itemizing.

Not as awkward as someone who has to file tax returns in multiple countries.   :grin:

For a number of years I had to do tax returns for my brother in both Canada and the US, which was a treat.  I finally was fed up when he started getting stock options so I made him go to his Father-in-Law's accountant to get his Canadian taxes done.


As you are out of the country, you will have until June 15th as a first deadline to file your income taxes. 

I would just recommend that, for your peace of mind, get a knowledgeable professional (ie some firm that has experience with Foreign Service) to do your taxes for the first year and get some advice for going forward and what to know with establishing your tax home for state purposes.  Most accounting firms are all electronic these days anyway, so you could probably do the whole thing over the phone and by email.

So I guess as of 6-months ago schools are now requiring physical IRS transcripts in order to complete the FAFSA process.  This is supposedly due to identity theft.   It adds 5-10 days to the process (unless you go in person) and per an agent I talked to has seriously increased the workload at the service, during a hiring freeze to make matters worse.   :oh_i_see:

Btw, I'm pretty much screwed for courses this sem. because of this one new rule I had no idea existed.  Cant get my xscripts in time to make registration and cant afford the courses w/o the aid.  And there's no SAR w/o the xscripts either.

I'm going to take all my papers over to H+R and tell them I'll be back on Wednesday to get them. :oh_i_see:

That's odd.  I did my FAFSA 2-3 months ago for the first time and was able to do it all online.  I didn't have to mail anything in. 

^This. I applied online before I even went in to a school and it was approved within a about 24hours. It required filling out some forms and electronic signatures, that was about it. When I went to register for the classes after the aid was granted, it was all deducted from the balance of the loan and anything unspent for the semester will be cut to me in a check.

Gotcha. As I am a resident of such a state and my tax software does the itemizing (and then does the standard Is Greater Than Standard Deduction stuff), I was thrilled to see something there about sales tax.

Because my sales tax rate is something like 8% (state + local. Might even have county in there. Can't recall). Which is...something I'd like to deduct, when possible.

If you've got your returns done and uploaded this is sometimes the case and can at least get you an SAR.  But, many schools in my state are now requiring this transcript regardless even if your FAFSA is fully done.  In prior years, you could complete a FAFSA and gain a reward letter w/o even finishing a return; at least until disbursement.  Not so anymore.

Something I should point out in terms of charitable donations:

You do not get a personal donation for services rendered. You get the mileage driven, and the amounts of cash or property you donate. You do not get a deduction for amounts contributed to specific individuals, or nonqualified organizations. You cannot deduct your personal expenses as a donation, but you can deduct the expenses associated with performing that volunteer job (ie - you can deduct paint and travel expenses you purchased to paint a hospital pro bono, but you can't deduct the babysitter expense to take care of your kid for that day.)

You cannot deduct amounts of partial interests in property. Example, you cannot deduct a floor of an office building you own rent-free to a chartiable organization, because you still own the building. You also cannot deduct a week at your vacation home that you donate to an auction for charity, because you still own the house. Many people get confused about this, because many non-profits don't understand this rule.

Stupid IRS, messing with our deductions.

Also, you can't deduct rental property expenses if you make more than a higher-level IT worker makes.

What's that tax-simplification bandwagon these days?  FairTax?  Won't happen, but this deduction nonsense is something I'd like to see simplified.  As it is, I only write checks to organizations for just this reason... or I don't expect to be able to deduct it.  So, won't be buying any paint but I'll give someone cash to buy paint.

Tax hint for the next 3 months if you owe (though some of the credits may apply as well otherwise):  take some college courses and use the new(ish) education tax credits for 2012.  Look it up but you can get anywhere from $1000-$4500 in what's essentially a 'grant' for taxpayers who goto school.  And I do believe the $2500 credit is every year you're in school.  And you MIGHT be able to claim credits from prior years since the act was put in place.

Also, if you owe and are re-training (going to school) you can defer your tax payments until you're done.  Coupled with the credits it's a really nice way for people to more easily switch jobs.

Must one pass these college courses?

No, because you'd receive the credit well before even completing the class in some cases.  The cutoff for 2012 is April 1 2013.   :grin:
You're welcome.

addendum: also under workforce reinvestment you can get purely need-based grants up to $9.5k for re-training (comm. colleges, tech schools, trade schools, etc.) through unemployment offices.  Note: displaced workers are need enough in some cases even if your tax bracket is high.  This is a lifetime credit though, so once you max it out you're done.

Socialism ftw!

My brother and I co-signed on a mortgage for a condo in 2011, if the tax form from the bank shows both of our names on one part, but only my social on the "Payees social security number" section, would he be allowed to take the mortgage interest deduction if I don't need it?
(I got a new job late may, my withholdings have been based on a ~45k salary, but since I only worked half the year, my gross income is something like ~22k, whereas he's right at or pushing 100k these days, and it could actually save him some cash)

You're welcome. :awesome_for_real:

Here's something I haven't figured out.  I would get a Form 5498 on May 31 but I have to file 1.5 months before that.  I don't get how that is supposed to work.

The IRS will be looking for the SSN on the Form 1098 (you get this from your mortgage lender, tells you how much you paid in mortgage interest and sometimes property taxes) to match the SSN on the tax return, so no.

In more detail, who can take the deduction has to do with 1. Who makes the payments, 2. Whether you have an interest in the property.  If your brother took over ownership and was paying the mortgage, then he should be able to deduct it for instance....  or if the mortgage is in both your names for a property in both your names, and he made payments.

It has nothing to do with your taxes until distributions from your account are made. It's for tracking purposes with the IRS so that they know you are making contributions to that account. When that happens you get a 1099-R for distributions.

Gotcha, the property/mortgage are in both of our names, but that's only because I didn't have the credit/income history to qualify for the mortgage alone, so he helped me out.  I make all the payments, and my SSN is the only one on the 1098.
At least I should be getting a couple grand back to blow on evil things this year! Bummer for him, tho.

Paelos,

My fiancee covers my medical/health/etc. Feeds me at the moment also.

Can we say she financially supports another person?

tl;dr: $3,800 would go a long way right now.

She cannot claim you as a dependent if you are not related.

Actually yes she can, but the criteria for it are really strict and I doubt Schild fits it. You have to have lived together for the entire year, she has to have paid for basically everything and Schild has to have made less than the $3800 on his own in the year,  I think, and I'm pretty sure there are other things to pass as well.

Wife saw a 1099-G for the first time today.  I had loads of fun trying to explain that one.  I also learned today that the woman I've known since 1995 has never filed a tax return.  Part of the conversation was: HER "... I pay 32% of my income in tax."  ME "... above the amount... you know, nevermind." :awesome_for_real:

Did you personally make less than $3700 during 2012 and live with each other the entire year? If not, no.

Bleh. I have to juggle like 3 1099-Gs this year also. Unf unf unf. Almost just don't want to file as I think I made less than $50k. Pretty sure with my luck this year I would get audited hard though. Goodbye savings account, say hi to taxes.

If you got a 1099-G, that means the IRS got a copy attached to your SSN as well in their system. So, they'll find you eventually, and yes you should file. It could take them 3 years, but the penalties would be horrific.

Two things bring up audit questions. One, missing years in your tax record when you filed in prior years. Two, not reporting 1099s on a return when they show up on your yearly transcript. The second is just a simple matter of a computer flagging a record.

See this link to my post in a Politics forum thread for the same question Ghambit asked a while ago.  http://forums.f13.net/index.php?topic=19091.msg789267#msg789267

It's basically impossible, outside of some extreme corner cases, and no accountant is going to do it.  Based on all supplemental information (including IRS publications) the only examples that ever get used are in-laws and children of unmarried partners.

He doesn't even fits the 4 criteria as it stands, but I agree it's ridiculously aggressive to try it.

I meant it's basically impossible to claim a non-related adult, even if you fit the criteria, and most professionals will not do it.

Pretty much. The ideal situation in Schild's case would have been to get married during that year. Then he gets the lower rate and both exemptions on the same return.

I was just wondering. Heh.

I've looked at this casually because we're getting completely fucked by DOMA now that my partner is at home taking care of our daughter and not working. (Last year, it cost us $1700 as compared to filing jointly.) AFAIK you can't claim a non-related person as a dependent. Publication 501 says its limited to a child or relative.

Anyone know a good agency, German or American, that handles international taxes? This year I need to file in California, US Federal, Iceland, Malta and Germany.

Shoot me.

The question is how far you are willing to stretch qualifying relative. In your situation, Numtini, I might be inclined to push the envelope since you don't have the option to qualify as married. You'd have to be willing to take it to a court case though.

However, Johny Cee may know of a tax law case where that's come up. I know what tax cases have come up where the courts struck down a person not filing as an act of "civil disobedience" for not allowing a gay joint return. I'm not as clear on the dependent issue.

Lately the courts have been a lot more favorable towards GLBT-IRS cases in front of them where the individuals were just trying to get a fair shake.  The problem is it means taking that risk and being willing to go to court over it, as Paelos says.  You might get backing from rights groups at the expense of all the publicity, but then you might not get any help.

And it's tough to stand on principle when it's you, your partner, and your daughter's lives on the line and really all you want is to be treated fairly.  The people most likely to be able to weather that are also the ones doing well enough they don't need to fight the system.

What happens if his gf forms a trust in schild's name or starts an LLC that gives fin. aid to Schild?  Back in my old IRS post I kinda alluded to that.  Essentially, if you're giving someone welfare, especially a student, then there's a decent deduction there yes?

As an aside, what happens if companies don't send me the 1099G/information or they get it wrong? I suspect the last company I worked for is going to fuck it up completely as they don't really exist anymore.

The CPA answer is you are required by the tax code to correctly report all your income on your return. Not having a 1099 makes that harder to track for the government, though. However, if you do get audited they will pull your bank statements for the time period. Then you'll have to substantiate all the deposits.

I am certainly not recommending this, but I know several people who failed to file returns for multiple years.  The IRS never came after them.  When they finally got around to filing, it turned out they had left $thousands of refunds on the table by not filing.  That is probably why they were never hunted down.  I think the vast majority of W-2 earners get a refund in the end unless one's income puts them in the highest brackets.  All the tax preparation companies like H&R Block and Liberty make all their money by getting you your refund and taking a small cut for doing so.  I have never found them cost effective if you actually owe the government money beyond what is withheld.  TurboTax et al. is more economical for those people.

If you can prove you contributed all of the support and it is your household, you have a much better shot with claiming a child...  especially since there is far more guidance on the issue because so many more hetero couples are non-married and have children from prior relationships.  There are tax seminars on this now as so many people don't bother to get married.

If your house is joint owned it gets more difficult to substantiate.

What isn't really covered in the rules is the unsaid burden of proof...  many times with adults, the IRS is going to lean towards "taxpayer is trying to game the system" (one person working under the table, trying to claim roommates who are full-time students, that sort of thing) so it is far more likely to be challenged and it is such a measly deduction for the work involved.  Children, as they aren't wage earners, get more leeway and if the child isn't being claimed on two returns more likely to not get scrutinized.

You still won't be able to get child tax credits or earned income tax credits or etc. if your daughter isn't a blood relative or you aren't a legal guardian ("qualifying dependent").  Basically, the child isn't a qualifying dependent for those purposes but you could still potentially claim the exemption, which is a much smaller deduction.

On the plus side, if your partner had a part-time job (for certain annual income) she could make a mint off of the Child Tax Credit and Earned Income Credit as both are refundable.  


Summary:

- Safest answer is see a professional and ask them to look into it, which may eat into any possible benefit in year one but means you can just continue to file the same way going forward.
- You can google it and follow the links to tax sofware forums.  From a quick perusal, they seem pretty aggressive in claiming exemptions.
- Even if you get challenged on it, what will generally happen is that you get a tax notice saying "we think your return should say this" removing the deduction and giving you a tax liability, which you can respond to and challenge or sign the form and mail in with the payment.  It isn't likely to initiate a full-fledged audit, but there is that possibility.

So if they file incorrectly and I fie correctly and get audited, what happens?

Short and sweet, because I rambled:

You could have a very good case to claim the exemption for your daughter.  "Qualifying Dependent" is for things like filing Head of Household, Child Tax Credit, Earned Income Credit, etc. and you really need to have a legal guardianship.


It's not really a GLBT issue.  Demographics have changed so much that there is a large percentage of the population living in long-term unmarried households with children from prior relationships.  There really isn't an easy way to untangle it for both gay unmarried couples and hetero unmarried couples, and really gay couples with children are a tiny proportion of all unmarried households which is probably why the IRS is sitting on the sidelines.  There isn't really anything they can do (besides having an "Are you gay?" checkbox) that won't lead to giant headaches as millions of hetero unmarried couples with children try gaming who claims children if the IRS eases up on the Qualified Dependent rules.

- If you claim more than is reported on the 1099, you won't get audited or even a notice.
- If you claim less and get a notice (notices are faaaaaaaaarrrrrrr more common than audits) than you will have to substantiate the amount you claimed...  check stubs, or copies of bank statements showing payments in. 
- It's far easier, if you disagree, to contact the previous employer/contractor (or whoever gets/maintains the records in a bankruptcy) and get them to issue a Corrected 1099.

Companies issue corrected Forms 1099 and W-2 all the fucking time, and you should always check your W-2s/1099s to what your records say and contact them if there is a difference.

JC is right, you get the to correct the 1099.

I think schild is worried that there won't be anybody at the company that can correct the 1099. It seems like bank statements will be his best option if he does get audited.

He wouldn't get audited though. He'd get a notice, and he would mail them back his response with documentation to support his position.

1.  LLCs (and all other corporate forms) are business classes.  If you aren't conducting business, and are using the form to conduct personal affairs, it has a huge potential to screw you over...  at the very least dissolving the corporate form and IRS headaches in the form of audits and multiple years of correct returns.  At worst, it is a tax avoidance strategy and has huge potential in fines and legal headaches.

A business (whether personal/Sched C or corporate/limited liability form) needs to operated by making economic decisions, not tax avoidance decisions...  essentially, if the only reason you organized something is for tax benefit purposes with no underlying business purposes the IRS can throw out all the transactions and the entity.

2. Charitable deductions result from giving money (or assets) to officially recognized 501(C)3 charities.  There is no deduction for just giving a person money.... in fact, you should be filing a gift tax return for giving someone money.  That is why all scholarships are administered through charities or foundations.

3. Business deductions only result from money spent for business (or in the case of non-profits, charitable) purpose expenditures.  

4. A trust doesn't work much differently, but there are a million different types of trust.  Payments down to the member of the trust are just payments of capital (limits of which would be governed by the trust document) at best, at worst it is taxed on the beneficiaries personal return.

The short version is that, after a few decades of correcting for oversights, there really isn't any tax benefit to doing it that way outside of not getting hit with a gift tax when setting up the trust.  There are some legal benefits (creditors can't go after the trust, I believe).  But trust law is not my strong suit.


A quick in general thing:

USING BUSINESS OR TRUST ASSETS FOR PERSONAL USE IS A BAD IDEA.  Sort of a best case is that they have to issue a 1099 or W-2 for the use and need to claim any benefits as ordinary income, at worst it could endanger your legal entity if someone from the state or fed think you are using the entity to funnel money for personal use and not for the stated purposes of the trust.

The general rule is that expenditures have to be for business purposes, and there are rules about how much can be spent for business purposes.  

Some examples:
-A law firm I used to work on would lease cars for the partners, but the partners would have to pay taxes on a certain amount of the lease payments and it was included on their W-2s.  
-Giving rent free living to an employee who is required to be on the grounds at all hours isn't taxable.  Paying for lodging for the owner across town would be taxable, as there isn't a business purpose for it.

I'm a legal parent according to Mass law and listed on her birth certificate (child of married parents using anonymous donor insemination), so last year I filed as head of the household and took the full child tax credit. It still doesn't make up for what filing jointly would do since we're more or less in the perfect married situation for taxes. Since we have to make up the fake joint return to generate the state return, how much it costs us gets rubbed in our faces. I want to put a piece of tape over the little box in TurboTax that tells you what your return will be. Hell, we even have to buy a more expensive desktop version of TT because we have to do the two sets of returns--none of the tax software will automagically handle a DOMA return.

This year my partner has a few thousand dollars of self-employment income and the earned income credit will mostly balance out what she would owe for self-employment tax.

Someone, because this is how things work, would take over the conservatorship (right word?) to wind down the company so there would be someone he could contact though that might be more work than just sending his bank statements in.

Worst case scenario is that he can't substantiate on his end without a giant pile of work and he just pays the additional tax.

Yes and no.  I was thinking of a very specific tax case where the court sided against the IRS.

Also a lot of family law has been turned upside down because courts were previously making decisions that made no sense in order to stick with their biases.  Num is going to be familiar with those like I am.  I'm just reminding her that the courts are making a lot more common sense decisions in grey areas these days.  It's an issue to us, even though you are right, just because we have decades of our own biases built up.

Sorry.  Not trying to turn this into GLBT on Taxes, just reinforcing the idea that tax law is slowly improving to handle scenarios that were once edge-case, and do so in a favorable light.

Ahhh, okay.  In your original post, all your lines were in one paragraph and so I thought you were referencing your dependent to your tax situation when in reality it is just the difference between the Single vs. MFJ tax brackets.  Sorry!


My personal bet is that we might see MFJ go away and increased personal exemption/standard deduction amounts on all (now Single) returns. 
1. It sidesteps the gay/hetero issues, especially in light of the piece-meal adoption of gay marriage.
2. The present situation greatly benefits households with one large wage earner and one non-working.
3. Demographically marriage is overall much less popular, and these trends will probably accelerate if Obamacare fully unties medical insurance from households.
4. Gets the IRS out of divorces.

I had to do this in 2012, it's relatively painless.  Mailed off some copies of statements and they agreed with me.

Also, for those who might be in a tight spot financially:

Even if you don't have the money to pay your tax liability, file your returns on time and pay what you can.  The IRS is actually very understanding if you are trying to work with them.  They will send out a notice about the unpaid tax liability and send you a form to go on a payment plan which you just need to sign and send back. 

Not filing subjects you to penalties and interest, and suspicion.  The penalty is a flat amount, but they will charge interest on your unpaid tax balance according to a statutory rate. 

The payment plan interest rate is actually much better, and is sometimes better than the rate of a bank loan.


In general, the IRS (and most state tax agencies) are reasonable folks if you are trying to work with them. 

I work with a guy that used to work for the IRS. He did almost 30 years of audits and he told me essentially the same thing. They are pretty understanding if you are at least making a attempt at paying things off.

I may actually need to consult a tax professional this year, worried I may be a bit fucked.

My parents house got hit by a tornado in April, and my dad and I opted to do the work ourselves.  Their mortgage is through Chase, and chase wanted a name of a contractor before they'd release any of the insurance proceeds.  (Note: Texas has no licensing for general building contractors - you can't even get one if you want one)

So, I was the contractor, problem solved.  Except I just got a 1099-MISC from Chase for $22.8k.

I have no idea how they arrived at this number.  Total damages were ~70k+, there was a lot of shit to fix and not everything was covered by insurance.  I'd have to go over all my old statements for the exact amount, but my parents only tossed me a few grand for it, I wasn't doing it for the cash and had to stop helping to start my new job pretending to be an engineer about 1/2 way through the project.

So uh, is there any way that this doesn't end up completely raping me financially when I do my taxes this year?

As a Canadian creating W2s for the US employees at my work, I have one question: Why is your tax system so fucking ridiculous?

Tornado stuff gets special consideration from the IRS, especially if in a federally mandated disaster zone.  Even if you got 1099ed, the fact that your/parent's house was damaged may nearly void any taxes owed.  Moreso even if you self-contracted, seeing as how you were operating out of a damaged area and essentially fixing up the 'neighborhood.'  Plus they can't really tax your property if it's in the middle of a disaster zone, as said property very nearly has zero value.

The sticky part may be that it's your parents and not you unless you're dependent.

1.  Proceeds from insurance for destruction of property are not taxable to the person whose property was damaged....  Basically, you lost $2X,000 in assets which was replaced by a $2X,000 cash payment from the insurance company.  So your parents don't have any tax liability. 

2.  You received a 1099 in that amount as that was the cash amount your parents received from the insurance claim, that is reported to the "contractor" (ie you) as a payment for services.  This amount is taxable to you!! so you might want to double check with your folks about how much they received to make sure the amount is correct.

3.  You will need to file a Schedule C this year, and claim the the 1099 proceeds as revenue.

4.  You can also claim deductions in the amount of the materials used, equipment rentals, etc. used on the project.  Your parents should have this, or if you got your materials from a large supply store they may be able to print out an account summary.  YOU WILL NEED THIS INFORMATION FOR YOUR RECORDS TO SUBSTANTIATE YOUR DEDUCTIONS.

5.  If everything is as you say, then you should only have a couple thousand dollars in net taxable income on your Schedule C.  If your parents received a larger payment and it's more than the cash you received than I foresee a potentially fun family conversation.

6.  Schedule C income is subject to Self-Employment Tax, so you will owe Social Security and Medicare (both employee and employer portions) that you will need to pay, plus income tax, so it might be a surprising amount of tax owed.


Basically, you have to treat it as if you are an unrelated third party contractor that did the job for pay, and that's the easiest way to think about it.  You can take deductions for the expenses, but any income over that is taxable.  It's very important for you to chase down all of the invoices and receipts and whatnot to make sure you get all the deductions you can.

And YES, IT MAY BE A VERY GOOD IDEA TO SEE A PROFESSIONAL.

Yeah, that's going to be more difficult than most can handle appropriately.

Because we are Americans and ridiculous is our forte.

Fortunately, the expense receipts parts shouldn't be difficult.  What's confusing to me is how they arrived at the number on the 1099 - the property damage loss (not including damaged items etc that were replaced, just the repair $$) was somewhere between 50-65k.  It lifted the roof off the house a bit, cracked a half dozen rafters, fucked a whole bunch of decking, entire roof, fireplace/chimney, etc, etc.  It was a huge undertaking.  It'd make sense if the 1099 showed ~50k+, I just can't wrap my head around how they arrived at ~23k "other income", split equally in 2 parts in the details, with only $0.01 difference between them.

The only part that (maybe?) could be a problem is that my parents didn't write me a check/transfer me the whole lot, and then I paid for everything from there.  We just deposited the insurance checks, as they were spread out over either 3 or 4 completion payments, into their checking account, and paid for things from there.  I don't know if the receipts that show "nerf's dad's debit card" on them could bite me in the ass if I were to get audited.  I'm guessing that if that were an issue, the fact that only a couple grand ever hit my bank account would offset that problem, and I easily have more money in receipts showing either I paid, or paid with cash, than I ever physically received money in my account for.  All told, I can produce ~30k in receipts for materials/services without even trying, and ~50-60k if I dig through the piles.

If you plan on Nerfing this alone without a professional CPA helping you, please keep a running post when it goes wrong.  :awesome_for_real:

And remember to post more dog pics as part of the running post

I got married in September of 2012 to a non-american. I believe we can file jointly for the entirety of 2012. She is (for the moment) still a resident of Singapore - a country that does not seem to have an awesome tax treaty with the united states. Questions are:

1 - Should we probably look into filling jointly?
2 - Will this be complicated enough that I should go see a tax person? (been doing my own on Turbotax since I've been a taxpayer.)


thanks in advance!

How long has she been in the US over the last 3 years?

How much foreign income does she make?

Wrong questions.

Is she hot?

Shes a grad student, makes less than 30k here. She has no overseas income. She has been in the states for the last 5 years.

Did she get her green card during 2012? If she's in the country on a student visa, she doesn't qualify for the substantial presence test for resident alien. The key factor here is resident v. nonresident aliens. Resident aliens can file joint with no special issues. Nonresidents have to jump through some more hoops.

Here's the reg on what to do if you want to elect to be nonresident electing married filing joint residency.

Some expansions on Paelos' advice and some general info:

1. The US taxes on world-wide income, as opposed to many nations that only tax based on source/residency.  What that means is that, for many countries citizens, they owe no tax to their home government if they are not a resident.  The US taxes on all of your income from anywhere no matter where you live if you are a US citizen, but grants Foreign Tax Credits/Foreign Income Exclusions which reduce your taxes by the amount you paid in income tax to a foreign country.

2. You said your wife is a Singapore resident, but then you said she's been here for five years.  Did you mean a citizen of Singapore, but she has been a resident of the US for five years?  All of her income is from US sources and not from foreign sources?

3.  You can choose to file Married Filing Joint if you are married, and it doesn't matter what the nationality/residency status of your spouse is.  The MAJOR downside to this is that your spouse would automatically be considered a resident alien for US tax purposes and thus all of their income from whatever country would be subject to US tax as per point 1.

As an example:  My brother is a US citizen who is a resident of Canada and married to a Canadian.  I would never recommend he file MFJ as this would then subject his wife to US taxation as a resident alien on her world-wide income.

4. In your case, your spouse is a US resident with no income outside the US and is married to a US citizen?  I think that's an argument for having her tax home here... but I don't know the vagaries of how her visa status would effect that, what class her visa is, and it's been too many years since I last had to research student visas.


YES, this is definitely a situation where a tax firm with appropriate experience dealing with crossborder issues could give you a great deal of peace of mind.

This thread is great. I never expected so many tax issues from a bunch of wise-ass former gamers.

What do you think tax people do for the rest of the year?

The people who spent their nights trying to figure out new ways to rob your bank in Brittain did eventually grow up.

Just a little heads up from my discovery tonight -

Because of all the fiscal cliff shenanigans, the IRS is a bit behind on setting up their systems to handle things like Schedule C forms and a list of other credits/deductions via e-filing. Right now, they're saying end of February/beginning of March.    :mob:

Yeah we got that heads up as well.

Our partners are chuckling about it, because we all know they were full of shit saying they could handle it by January 31. Then again, we don't file anybody's 1040s until after March 15th for the most part. I'm usually up to my eyeballs in corps.

So I decided to withdraw my 2011 contributions to my IRA out last year as they no longer qualified to be deductible based on my income. I read all the instructions, did all the worksheets, and managed to do it in the window where it would still be considered part of 2011.  Also engineered it so there was zero capital gains (that was somewhat fortuitous, but the market price when I was doing this was spot on) and coded it properly so it wasn't taxable on my return.  I filed the proper forms for it and created a 1099-R to reflect what occurred. Now Vanguard has sent me a 1099-R for 2012 showing the distribution.  Do I need to declare it again on my taxes and input the 1099-R with the coding for it to be nontaxable for 2012? 2011?  If I include it on my 2012 return do I need to amend 2011 to take it off? Do I ignore the 2012 1099-R and consider it already declared on 2011?  It won't result in any taxable income any which way I do it, but don't want my return to not have a 1099 on it that is reported to the IRS by the issuer as I imagine that might increase an audit trigger.

Sorry if this is too specific and understand that it might be something that can't be answered in this format.

It's complicated.   :awesome_for_real:  I'll give you a top of my head take...

What distribution code is on your 2012 1099R?  Is it labeled a taxable or non-taxable distribution, in whole or in part?  Did you claim any benefit for the IRA contribution on your 2011 tax return?

If you didn't claim any tax benefit on your 2011 tax return, and the 2012 1099-R is coded as a non-taxable return of an excess contribution during the required time period, it shouldn't matter (ie when you enter it into the tax software it doesn't show up on your tax return because it's non-taxable).  If you filed your 2011 tax return with some tax benefit for the IRA contribution, you might need to amend your 2011 tax return.

This is an issue where I would really need everything in front of me.

THE PLACE TO START IS TO CALL VANGUARD AND HAVE SOMEONE WALK YOU THROUGH THEIR 1099-R, THEIR REASONING, AND IT'S EFFECTS ON YOU.  Many investment firms actually have decent customer support when it comes to tax effects as screwing this up is the easiest way to lose themselves alot of money.

This would also be a very good time to see a tax professional for piece of mind!  You may have done everything correctly, but Vanguard may have prepared their forms in full Cover Their Ass mode and assumed you messed up.  Did you keep Vanguard in the loop as to what you were doing?

Sorry, not tremendously helpful but it's tough to say anything for sure without having your prior year's return, the 1099s, etc. in front of me.

Start by calling Vanguard and confirming the timing and why.

We'll go from there.

EDIT: JC basically went whole hog there on the details, but moving around IRA money is probably one of the more complicated things to discuss sans details. My guess is that Vanguard just made an error.

I probably made the error somewhere along the lines.  I didn't get any benefit for 2011 (or any penalty either). Since I did it after 12/31 Vanguard did not send me a 1099 (I entered the info as a "didn't receive 1099") so they probably had no clue (although I thought I checked some box when I did the withdrawal that it was a return of contribution that supposed to attach to the 2011 tax year, although it has been a year so can't remember exactly). They have coded it as a "no known exception" distribution and that all of it is taxable. I noticed in the instructions that you can alter that code if you think it is wrong, but don't know the ramifications of that.  

I guess I should call Vanguard and see what they say.


EDIT: Found this statement in the instructions:


That is what I did. So can I just get Vanguard to withdraw the 1099-R? Ignore it?

You can't ignore it, as you have a 1099-R showing a taxable distribution.  The IRS will look for you to report.  This link is the best I managed with some limited looking around:  http://www.irs.gov/instructions/i8606/ch01.html#d0e545

Step one is to definitely call Vanguard...  You might have to bite the bullet and go to a CPA firm. 

Thanks for the help.
 

This thread delivers!

It's like the ask the butcher thread except less tasty.

Figured since this is here.. I just wanted to check if I have overlooked any easy deductions, like the old Making Work Pay Credit. If this is to broad a question, ignore.

My status: Broke full time college student. Single, 28, have no and am not a dependent. Made like 5.5k last year. Already claiming the Hope American Opportunity Credit and EIC.

I co-own a home with my parents, but I am living in an apartment and have paid nothing into the home in taxes/mortgage/etc this year. I don't have a car. I do have a 401k & RothIRA but have contributed nothing to them this year due to broke status. Nothing else pertinent comes to mind finance wise.

Would you itemize at all?

Good point. When I said deductions I should have said credits. Not itemizing jack.

No, I think you're in a situation where you don't need to worry too much. The two credits you listed are the most common. Here's a list of credits people usually take with the right criteria:

1 - Earned Income Credit: You made a low to moderate income less than 40k, slightly more if you have kids. There's lots of math here.
2 - Child Tax Credit: There are some AGI limits, but it's about $1000 in credits
3 - Child Care Credit: AGI limits
4 - American Opportunity Credit for College Students: This one is a little compilicated on the income limits.
5 - Retirement Savings Contribution Credit (work sponsored account or IRA contributions and you made less than $28k if you're single)

Thanks. Lines up with what I expected.

I've got to go buy a new mortgage. Since the regional chain bought out our (awesome) local bank, they've done nothing but drive it into the ground with total shit customer service (and at the risk of sounding old, jeans and t-shirts are not acceptable banker attire). I had to pay off a loan a year early because they hadn't sent me the payment book for the final year...for four months running. They send the mortgage payment paperwork so late it arrives the day it's due. Totally set up for screwing people with fees.

Anyway. I sit down to do my taxes yesterday and my 1098 or whatever from them only lists the mortgage interest. Not the real estate taxes or PMI payments from escrow that it's supposed to list.

I have not has a single transaction with this bank in two or three years that hasn't been a clusterfuck. Compared to a small three-branch bank that was amazing (and making money through the banking crisis).

And it's the time of year where I love my new homeowner 'credit' from 2008. $350 off my federal return for the next 14 years. 8 months later the 'credit' became a credit (no repayment unless you sell early).

Oh, an actual tax question after venting: I received a small payment ($78) from my health care as part of a wellness program (basically don't smoke and go to the doctor a couple times and you get that as a minimum bonus at the end of the year). Where would that be reported? Also, after my first year with an FSA, I have to say I like those.

I don't believe there's any exception for wellness payments. As such you'd report it as "other income" not subject to self-employement tax. However, check the documentation (if any) from your health care company to see if that is a rebate payment on your premiums. If that's the case, I wouldn't bother reporting it as income at all due to it's small size.

Can someone explain personal deductions for operating a home office since I worked from home all of 2012. Basically, I have a computer. It is not a cheap computer. I had a cell phone the whole year (Nexus S). It says I can list the fair market value, but doesn't seem to include things like monthly cost for keeping them up (internet, cell phone plans, etc). I'm using turbotax, Halp.

Edit: So things that were gifts to me:


Can be deducted? I mean, really? I can go by fair market value (sale price on Ebay) for an unlocked Nexus S which is RETARDED HIGH?

Is this really happening? Did I not fuck up on how much I saved?

If any of the equipment and services were used exclusively for business purposes go ahead and deduct it (though computer equipment can be a bit complicated if you have to use a depreciation schedule). If any of it was shared with personal use you'll want to consult with an accountant. :awesome_for_real:

Alright skipped that. Bought a $500 suit for a handful of meetings with a board that I only used for that purpose. Can't figure out where to deduct it. Deducted the SHIT out of my cell phone bill though.

You can't deduct gifts if you are the recipient (nor can the donor), nor does it count as income for the recipient if it's below the threshold.

Business attire is not deductible even if used exclusively for your business.

Balls.

Well my internet and cell phone bill sure as shit is. So that's getting deducted.

What else can I deduct, tell me moreeeeeeee. I put away something like $8,100 to cover taxes and I thought I was wrong - didn't even think about deductions. I'm down to owing $8,2XX. BRING ME LOWER. DO IT.

Edit: Also, real happy about rent being part of a "home office." That chopped a fast $2k off of taxes. Yeesh.

Deduct books, software, and office supplies that you have receipts for that are business-related. Talk to an accountant to see if any of your f13.net expenses are deductible.

Edit: also if you have your own personal health insurance (not paid for by an employer) the premiums may be deductible.

I am on my fiancee's health insurance, pretty sure I can't deduct that, but that would be suhweeeet. The only thing I put on there was my cell phone bills and internet bills as the receipts are the statements in my bank account.

I assume you are deducting rent as "% of sq ft that is office" * "% of office time used for business" * rent you paid.

Unless you run your own busines and keep those expenses tracked (with receipts) or donate cash/items, there's not a lot you can deduct besides mortgage interest.

You can't deduct your full rent for home office, just the percentage you use for that office. And here's the kicker, if you use your office for any personal shit (ie - you surf the web from the same place, or your fiancee uses the same computer) you're fucked.

I'm assuming you weren't a W2 employee, and were doing contract work?

% of square foot yes. I was doing contract work yes. How do they even calculate that other shit. I used to surf the web at godaddy more than I did work.

Taxes are retarded.

My fiancee has her own computer. No one uses mine but me.

My office room is technically like 400 sq ft of a 800 sq ft apartment. I used it only for work last year.

Edit: :awesome_for_real:

Then you'd deduct your business expenses against your 1099 revenue on a Schedule C form of your 1040.

As an aside, I'd be inclined to call bullshit on a client that said half his apartment was his exclusive office. I've never seen that on a tax return, ever. 33%, sure. 50%? You're pushing it. But if you do take it, you get the rents and utilities on a pro-rated basis. In addition you get your car mileage (it should be documented), your business meals and entertainment for business trips including any travel, and your computer expenses that aren't fixed assets (monitors, printers, phones, anything that has a useful life of more than a year). Fixed assets such as your office furniture, computer, printers, phones, modems, get depreciated as fixed assets over their tax assigned lives. In most cases this is 5-7 years.

Other business expenses would be: Educational expenses to stay current with a certification, professional dues and subscriptions, training expenses, legal or professional expenses, etc.

What about R&D like games and such put towards furthering my ability to do future jobs and current ones? =D

Edit: Also, have you ever had a client that lived in an apartment that was like 798 square feet where half of it was one room and the other half was a bathroom, closet, and bedroom? That other room IS my office during work hours of every single day.

If you can defend the fact that you live, eat, sleep, watch TV, play games, and shit in 400 square feet? Claim it. I'm just giving you a heads up that the requirements are strict on home offices, and I've never seen it. Then again, I'm not signing your return, you are.

Any expenses you put into procuring future jobs can be expensed as development costs. However, you'd have a hard time on games due to the personal entertainment nature of the product.

Let's back up. I'm reporting far less than 400 square feet after looking at the thing. However, I split a part of rent with someone. When asked how much rent is per month, do I put the amount *I* put in, or the total cost of rent?

Also, talk to me about what triggers red flags. I wouldn't mind deducting software/games/etc as something to further design abilities.

Home office deductions are one of the biggest audit triggers.  That said, most people accused of abusing it are not talking about a few grand here or there.  Just be prepared to defend what you claim.  That goes a long way.

I'm claiming like 150sq ft of like 800 and some software / equipment (which is on the depreciation schedule) and nothing else. It's a pretty low amount of shit.

That's much more reasonable than half. And yes, you can only report what you paid personally in rent. You can write off software. Very few people will actually check on what kind of software you mean, unless you get an IRS letter, or unless it's an absurdly large portion of your business expense.

Business expenses are fairly straight forward. The simple rule is that you can only deduct the actual cost of what you bought, and you can only deduct the percentage of that cost which you use for business. If you paid $1000 for a cell phone during the year, and you use it 70/30 business to personal, you deduct $700. This goes with almost everything.

Here's a good IRS letter trigger since you asked. People who are self employed with schedule C's who hit their withholding almost exactly, so they don't owe and hardly get a refund if any, and prepare their own returns. If I'm looking as an agent for somebody cramming expenses through, I'm looking for the guy who realized he was about $1000 off of his withholding and just started making shit up. Also, nobody really plans their withholding THAT well, even with help.

Going to PM you a couple questions.

Actually on second thought, you answered my question. I did not know I could claim like 50/50 on things like cell phone usage etc. Which makes a lot more fucking sense than just saying NOPE due to me using it personally outside of business hours. Ok then. Thanks. And no, I'm not trying to get ANYWHERE near hitting my withholding mark.

Did I ask this already: Can I deduct what I paid my fiancee for health insurance through her company so I had coverage?

Edit: Actually did ask this, never got a specific answer though.

Did you pay the insurance company or your fiancee?  If you paid the insurance company or her company that had the plan, then it probably isn't an issue to claim it.  If you paid anyone else, I would have to look it up but probably no.

I gave money to my fiancee every month (it's not that much, it's a claim of 77*9).

The more you try to get in there the more likely you'll get audited. If it only saves you $20 on your taxes I'd skip it.

How does that even work? You're on her insurance as a dependent?

Yup Domestic Partner / Dependent (they classify the former as the latter).

It's in a weird area of tax law. Expenses are supposed to be you paying for something. Not you paying somebody to pay for something. The IRS hates the idea of allowing that stuff, because it becomes untrackable. However, they've been taking to court over it several times with varying results on the circumstances.

Example, you can deduct a donation to a charity, but you can't deduct a donation to a person. What if a person gave money to a charity on your behalf? The IRS still says no, you can't make the deduction unless you personally gave the money. No third parties.

My guess is that no, you'll get nothing for the deduction. One because it's under a strange section of the law, two because it's not worth it to you due to the amount.

Interesting. I mean, if there were a way for them to bill me, we'd do that. But I have no way of doing that as it just comes out of her paycheck every month. Bleh. Ok. Time to find other things.

It's not even deductible for her. I get two line items on my paycheck, one for my insurance before taxes and the other for the difference between that and a family plan that covers my partner (legally married, except for DOMA) and daughter that I have to pay tax on.

Yea, wasn't really worried about Line-item deductions for her.

Numtini is correct though that your situation is one of many key issues of the differences between state and federal reporting when it comes to domestic partners. Beyond that explanation, it gets into the political lobby arena, which is beyond the scope of this thread.

Texas doesn't have a real domestic partnership category anyways.  It will be an insurance company designation.  The closest we have is common law marriage, and I imagine that would be an even bigger headache in regards to taxes.

Most companies in Texas, I have since found out (except for ass backwards shitty ones) consider someone a domestic partner after a year of living together, making insurance stuff REAL EASY.

Sorry for bumping this, but I recently got a letter from the IRS. I'm not getting audited or anything, but it says the folllowing:

You have unpaid taxes for 2012
Amount Due: $124.72
Our records show you have unpaid taxes for the tax year ending 12/31/2012 (form 1040)

Taxes you owed: $X,XXX
Payments and Credits: -$X,XXX
Failutre to pay proper estimated tax penalty: $124.72
Amount due by June 3, 2013 $124.72

The Xs are the entire amount owed. I paid every dime on time. I have no clue what I'm being penalized for exactly.

On the back it says "Failure-to-pay proper estimated taxes" and then gives periods of dates ranging from 15 days to 107 days (5 different periods) and some arbitrary numbers to the right of them. Like, super arbitrary, I have no clue where they came from.

I plan on calling them but I'd like some information. The internet is a horrible place to search for tax code clarification.

If amount paid == amount owed then most likely they received your payment late for some reason.

Oh, interesting. So it's like an automated thing.

Yes.

This is also why you hear people saying the IRS should just tell you how much you owe/what your refund is instead of you filling out the forms. For most people all of their income and taxes paid are reported directly to the IRS already (your employer(s), financial institutions, etc.). So, for example, if you forget to report, say, a 1099-MISC amount on your taxes their computers will pick that up automatically and send you the same kind of notice you got above.

Fantastic. Will call them and get it sorted out. I assume I don't need to send the letter back (as there's no option on it for - "NO, YOU ARE THE PENALTY")

Did you pay 90% of the tax in the current year in withholding or withhold 100% of the total tax you owed in the prior year?

You may not have withheld enough, and you may have been in a position to pay estimated taxes throughout the year.

I withheld nothing, I was a 1099 the whole year everywhere I worked. At the end of the year I paid 100% of taxes owed.

How would I even know if I were expected to pay estimated taxes? (Yes, I'm aware ignorance is not an excuse).

Given what I paid, the $124 is like an arbitrary pittance.

There's a formula/worksheet for this (1040-ES). I forgot about this since it's been a while where I've gotten most of my income sans withholdings but if your estimated taxes owed is >$1000 you should've been making estimated tax payments during the year (once a quarter usually).

So I'm getting penalized on being late paying ESTIMATED taxes even though I paid my actual 100% taxes.

Which means I'm getting penalized for not being a seer?

Yes. US income tax is actually "pay as you go" meaning you are supposed to pay tax on the income you get when you get the income. Of course that could get complicated so they allow you to do it once a quarter instead, if necessary. The IRS also does give you leeway if your income came in unevenly during the year so they don't expect you to pay tax on income you might be getting later in the year. Typically what I did back in the day when I had supplemental 1099-MISC income was estimate my taxes near the end of the calendar year and make one payment, if necessary, at the deadline of the final payment period (usually Jan 15). If I was exclusively or almost exclusively getting 1099-MISC income I would do the estimation twice a year.

My income was super uneven. I went from unemployment at the beginning to a short stint at a place that needed contract work to almost regular pay for a company that didn't pay regularly. They also bounced a check (though, this was absolutely by mistake). Anyway, estimating my taxes would have been near impossible. Ugh. Taxes.

During the year it might have but you still could've done it at the end of the calendar year and then made one payment on or before January 15th. Then you would've avoided all or almost all of the penalty, assuming that's what they are penalizing you for.

This is a pretty ridiculous penalty. They may have well have said "Hey, we want to wring you for $125 more. Arbitrary Government Tax - $125."

Meh, I don't really care, it's just goofy.

All payroll taxes are collected quarterly. Therefore, if you are not on payroll, they expect you to pay in your taxes quarterly.

That's the rationale behind the law. The actual reason is that they know people are usually idiots, and won't pay 100% of their taxes on time across the board if they aren't forced to think about it all throughout the year. Also, they want to make sure they collect money in waves, not in a huge amount at once.

:( I didn't know any of this.

If you are a 1099 guy who runs his own business, you should have a CPA. It's usually worth the money unless you have revenues of less than $40,000.

It simpler: if you are paying your own taxes then just take a swing at estimating and pay something quarterly.  As long as Boss Hogg gets all his money at the end, he won't send Sheriff Coltrane after you.

Couldn't find a thread on 401k or retirement funds, but what do you all think?

I'm doing a 401k from work, because they match my deductions up to a certain point (like I put in 6% and they match 6% which is free money--sort of). Should I eventually take some of it and put it into a Roth IRA?

Yes, you should do a 401k up to the match. It's hard to find another investment vehicle that offers to double your money right off the bat. If your employer doesn't match, I think it's pointless unless you prefer not dealing with your own investments, or you suck at saving.

The Roth is just money that's already taxed going into non-taxable withdrawals on the back end. I don't really like them very much, unless you are banking on tax rates increasing a lot. In my mind I'd rather front load my plan with my money and have it earn on the pre-tax income, then pay on the withdrawals. The reason being is that you are unlikely to be in a higher tax bracket when you retire (due to your withdrawal income being lower than your salary), and your rates may be lower. Example, a guy who makes $100k a year as he approaches retirement after 35 years of contributions is unlikely to draw that much a year out of his retirement fund. The amount will probably be closer to $60k, which has a different rate.

Here's my thing about the Roths.  Given the current push for Austerity mindset and the idea that everything has to be paid-off I'm almost certain we're going to be seeing higher taxes, it's just a question of how much.  (We're Gen X, we get screwed for things like this all the time. It's just expected at this point.)

My worry is that my expected draw of 25-35k will be taxed so much higher in 30 years (Because retirement will be 70) than it is today, meaning I'll lose money no the back-end I could have saved on the front.  Of course if I'm wrong, the power of compounding means I've left a load of money on the table.  Frustrating!

Does it make more sense to max out my yearly pre-tax contribution through the company 401k or rather split it up with a simple IRA account and the 401k? I don't think there is any advantage to doing that though other than not having all my eggs in one basket and having more flexibility in my investments? The rate of return on our 401k is extremely good and it is well managed as far as I can tell.

Any decent 401k will allow you to split your money across multiple funds anyway, so the eggs in a basket factor should not be there unless you're dealing with like an Enron type setup.

Who is the broker handling your 401k (Fidelity, Charles Schwab, Smith Barney, etc.), do they have a wide range of funds to allocate your money to and can you change your allocation whenever you want?

Called the IRS. They removed the late payment penalty while I explained my ignorance. Whoop.

Good, they gave you a one-time abatement in this scenario, which is the right thing to do. They will mark your record though, so don't make that mistake for another 7 years.

I believe that if you contribute to a 401k at all, your IRA contributions lose tax deductability.  There may be thresholds, though.  Give as much to your 401k as you can and especially maximize any matching.  Matching will grow your value more than even the best investment returns.

As far as picking where to invest, be wary choosing short term bond and money market funds right now.  For example, my firm's most risk averse option has a management fee in excess of its return so you would actually be losing money by choosing it. Every plan has different options, though.  In general, you should never pay more that a 1% management fee on any equity fund in a 401k.  Higher than that is thievery.  Pick one or two with a good long term record and low fees and focus there.  T Rowe Price is usually a good option.  If you choose more than 4 or 5 equity funds, then they start to overlap anyway or one is buying what the other is selling.  It is called "diworesification" - diversifying to the extent that it actually hurts you.

We use Millman which is a smaller outfit. As far as our options go there a wide range of funds and I can change my allocation whenever I want with no penalty. Our management fees are extremely low and I have essentially setup my threshold at medium risk.. Sounds like really just pay as much in as I can then.

Yes.

If you're covered by a retirement plan at work, you can't deduct your IRA. It doesn't have to be a 401k, it can be anything. There's a box on your W2 for them to check if you are covered by a plan.

Shiz basically echos my point about matching. It's an amazing win-win for you unless the company is investing in something that's not following the market as a whole. In terms of retirement, I like to use 20 year looks. Where was the market 20 years ago? The DOW was trading at 3437. It's now trading over 15000. That means if you're investing with the market in that 20 year period, your $25k back then is worth over $100k today. People talk about how crazy the market is, and it is in short terms, but taken over a long haul it's been very consistent in providing returns for the conservative investor.

The stock market goes through long cycles.  I like to watch the rolling 10 year return - the measure of what you would have earned if you had invested in stocks over the prior ten years, plotted monthly.  Three times the rolling 10 year return has been close to zero or lower: 1937-40, 1974-5 (1-2%), 2008-2010.  After the first two, the rolling 10 year return went to 20% 20-30 years later.  As of March 31, 2013, we are at 8% meaning that if you invested in the S&P 500 on March 31, 2003, you have earned an 8% compounded return even through the 2008 crisis.  If history is any indicator, the next 10 years will be significantly better and the ten years after that even more rewarding.  

Bonds are not going to do it for you.  US interest rates are at 300 year lows (according to some bond wonk I saw on Bloomberg TV).  When interest rates rise, you WILL lose money on bonds unless the rise is very slow.  If you own a 20 year bond and rates rise 1 percentage point, the market value of that bond will drop 20%.  Please be wary of bond funds.  Protect with cash and invest in stocks.

If it matters, I work for a charitable foundation in the investments group.  We hire money managers and invest with a 50 year time horizon.  We are raising our equity allocation gradually.

Or bet against the interest rate.  :grin:

I agree on rolling 10s as well. That's a good indicator of movement, and it shows how the market as a whole looks. It's very positive even though people dog Wall Street as pump and dump.

So tax season is starting up again, and I have a question.  I have this "friend" see, and he's been paying monthly on back taxes since last season.  He has credits and deductions for this year but not enough income to take advantage.  Question is, can one use back taxes to take advantage of current year credits/deductions/refunds?  e.g. if one owed $500 from 2012 to the IRS, yet had zero income in 2013, can a 2013 rebate be used for it?

If you have a refund that would normally be coming to you, the government will just take it instead of cutting you a check and apply it to your bill. You don't even have to ask, they will just do it since they want your money.

However, most credits aren't refundable now, unless you mean the Earned Income Credit.

That is what I refer to; credits.  Specifically credits for no-work broke-ass students (education credits specifically); mind you, my friend has plenty that is also deductible, but useless since he's not working.  I guess what you're saying is since credits arent refundable, I cannot apply it towards what I owe from year's prior??  /sadface

If you aren't getting a refund from a credit, you aren't getting anything. Therefore you can't pay your tax with it for any year.

Got a lovely letter form the IRS saying they are adjusting my 2012 taxes and I owe them a grand. It all has to do with a return of contribution from an IRA that I put on my 2011 taxes that was improperly coded as a distribution in 2012 so I ended up with a bad 1099-R in 2012 that Vanguard wouldn't correct. I filed all the right shit for a substitute 1099-R and explained it all, including citing/quoting the code. Researched the hell out of it so I know I am on solid ground.  Was this thing kicked out by a machine since there was essentially a 3rd party 1099 with no corresponding income listed on the return?  It is one of the agree/pay us or disagree/send us a statement with dox letters, so if it was some automated deal maybe a human looking at it with my explanation and documentation would agree with me.  Debating whether to go through the statement process or just cutting a check for the grand.  The amount is right on my "pain in the ass nuisance value"/"don't want to pay" tipping point.

So what say you sages of the tax world?

I got a letter last year regarding a 401k-IRA rollover.  I made copies of a statement, wrote a letter in Word, mailed it in and got a "OK, we are good" letter back.  I assume the initial letter from the IRS is automated.

Disclaimer: I'm just a regular guy, with a big ol' dick.

Yes, it's automated. Just respond to the letter with your reasons, the supporting documents, and the fact Vanguard wouldn't correct it.

After some back and forth they sent me an all clear, you don't owe anything letter. Success! Thanks guys.

Excellent, only took them about 4 months. That's quick for the IRS!  :awesome_for_real:

Great news.  Congrats!  A grand will buy some good scotch.