IRS Tax Questions Thread

[Paelos]

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.

[schild]

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

[Paelos]

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.

[Sky]

Can you hit the highlights of what middle class (not $260k  ) 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).

[Trippy]

Post Offices have the forms and common booklets as well.

[slog]

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.

I believe it's Feb 15th this year.

[Shannow]

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

[slog]

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

[Merusk]

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.

[Trippy]

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.

[Rendakor]

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

[Paelos]

Can you hit the highlights of what middle class (not $260k  ) 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).

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.

[Paelos]

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

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

[Paelos]

I believe it's Feb 15th this year.

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.

[Nebu]

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

Thanks for this. 

[Paelos]

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.

[Lantyssa]

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

[Numtini]

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.

[Strazos]

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. 

[Morat20]

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.

[Viin]

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

[Chimpy]

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.

[Johny Cee]

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. 

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.

[Paelos]

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

[ghost]

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. 

[Paelos]

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?

[Yegolev]

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 () 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?

[ghost]

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?

Ahem, whole life insurance.   

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?   

[Paelos]

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.

[ghost]

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?

[Paelos]

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

[Strazos]

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. 

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.

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.

[ghost]

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

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

[Paelos]

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.

[JWIV]

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?

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.