IRS Tax Questions Thread

[ghost]

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.

[Morat20]

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.

[ghost]

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. 

[Selby]

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."

[Morat20]

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.

[Johny Cee]

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.

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:

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."

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.

[Johny Cee]

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.

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

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.

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.

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.

[Ghambit]

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.   

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.

[Yegolev]

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

[Mazakiel]

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.   

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.

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. 

[Segoris]

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.   

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.

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.

[Morat20]

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.

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.

[Ghambit]

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.   

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.

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.

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.

[Paelos]

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.

[Viin]

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.

[Yegolev]

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.

[Ghambit]

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.

[Yegolev]

Must one pass these college courses?

[Ghambit]

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.   
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!

[Nerf]

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)

[Yegolev]

Socialism ftw!

You're welcome.

[Yegolev]

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.

[Johny Cee]

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)

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.

[Paelos]

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.

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.

[Nerf]

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)

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.

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.

[schild]

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.

[shiznitz]

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.

[Ingmar]

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.

[Yegolev]

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."

[Paelos]

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.

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

[schild]

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.

[Paelos]

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.

[Johny Cee]

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.

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.

[Paelos]

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

[Johny Cee]

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.