IRS Tax Questions Thread

[Paelos]

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.

[schild]

I was just wondering. Heh.

[Numtini]

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.

[Yoru]

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.

[Paelos]

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.

[Lantyssa]

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.

[Ghambit]

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.

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?

[schild]

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.

[Paelos]

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.

[shiznitz]

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.

[Johny Cee]

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.

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.

[schild]

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.

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

[Johny Cee]

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.

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.

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.

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.

[Johny Cee]

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.

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

- 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.

[Paelos]

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

[Trippy]

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.

[Paelos]

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.

[Johny Cee]

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.

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?

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.

[Numtini]

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.

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.

[Johny Cee]

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.

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.

[Lantyssa]

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.

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.

[Johny Cee]

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.

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.

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.

[Yegolev]

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.

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

[Johny Cee]

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. 

[Hammond]

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.

[Nerf]

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?

[NiX]

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

[Ghambit]

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?

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.

[Johny Cee]

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?

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.

[Paelos]

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

[Chimpy]

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

Because we are Americans and ridiculous is our forte.

[Nerf]

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.

[Paelos]

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

[Segoris]

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

[Bann]

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!