Your Tax Question - 028

Dear John, I filed my tax return nice and early this year because I thought it would be nice and straight forward this year. After I patted myself on the back and let out a deep sigh of relief for having filed my taxes so early, I got a form 1099-A from our former mortgage company because they sold our house which they foreclosed on. The 1099-A has the ending balance of our loan which was $100,000.00, and the "fair market value" of $50000. It states that "If the fair market value is less than the principal outstanding, and your debt is canceled, you may have cancellation of debt income. If the property was your main home, see Pub. 523, Selling Your Home, to figure any taxable gain or ordinary income." As far as I can tell, we're not liable for any additional taxes because we went through a bankruptcy and this was our principal residence. The best conclusion I can see is that I have to submit an amended return and attach form 982 Reduction of Tax Attributes Due to Discharge of Indebtedness just to say that it was our principal residence. But I don't know what number to use as the amount. The full principal outstanding? The fair market value? Or the difference between the two? I don't know if you'll have a simple answer for me or if you'll really need to look at my stuff. If you want I can hire you to help me and I can bring all my stuff and come see you. Sincerely, Monica
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Hi Monica,

You're basically correct in what needs to happen.

1. Your taxable gain due to the Discharge of Debt is your loan balance (100k) less the fair market value (50k) which equals your taxable gain (50k).
2. But your gain is not taxable because it was you primary home. So you will report this discharge on a Form 982 explaining that it was not taxable for this reason.
3. Since you have already filed your 2009 taxes you will need to do a Form 1040X to explain why you need to include your 982. Since it does not affect your figures it will be a fairly straight forward fix.

I hope this helps,
John

PS. I am happy to help you further should you require my assistance. email me

Your Tax Question - 027

Dear John, I have heard that the Child Tax Credit that returns $1000.00 per child per family will be expiring this year - is that true? Thx, Clair
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Hi Clair,

Yeah, it's true. 2010 will be the last year for the $1000.00 credit and in 2011 the CTC will revert to a $500.00 credit. Unless Congress acts to extend it - that is the plan.

I'm not much of an activist but this is one of the issues that I think I will write Congress about. If you also want to write a letter, here is a list of suites that will help you do that.

1. How to write a letter to Congress.
2. How to find you congressional representatives.

And FYI - I've heard that it is good to sign your name in blue so that your reps know that it is not part of a mass mailing campaign.

Good luck,
John

Your Tax Question - 026

Dear John, I am a college student and I had a summer job. I did not make a lot of money and I was wondering if I had to file a tax return this year? Thanks, Jay
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Hi Jay,

From what I gather you are single. The IRS requires that you file a return if you earned at least $9,350 in wages. If you made less than that you are not required to file. However, I suggest filing because you may have some federal or state tax money that is due back to you and since you are a student you may have student loan interest to claim. Also, this year President Obama is giving you $400 for having earned income so you really do need to file.

Best wishes,
John

PS. I know an excellent tax guy you can trust. Email me

Your Tax Question - 025

Dear John, I have heard that the IRS actually taxes money that is made illegally. Is this true or was my leg just being yanked. Really, Ken
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Dear Ken,

I find it humorous that you would ask this question but the funniest part is that I actually know the answer to this question. According to the IRS, under the heading of Gambling Income (And Other Gains), gains made on illegal activity is actually a taxable event. However, I would have to have this verified with your legal counsel.

Best of luck,
John

PS. I know a Tax Attorney. Email me

Your Tax Question - 024

Dear John, I received a correction to my taxes and a check with extra money. Now that the IRS told me that I did not owe them as much as I thought, does this mean that the state owes me some money too? If so, how do I get that money back? Thanks, Heather.
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Hi Heather,

The answer to your question depends on the reason for the IRS returning money to you. If it was a simple clerical error then the IRS was just adjusting some wrong math or something taken from a wrong line. However, if you received money because your stated income was incorrect then the state likely does owe you some money. Contact your state's Treasury Office for more information.

Happy Hunting,
John

PS. I'm a pretty good shot if you need some help with this. Email me

Your Tax Question - 023

Dear John, I got an email a while ago telling me that I would have to pay a tax and register my firearms with the IRS. Something about since President Obama was not able to pass the anti-gun law that he wanted he decided to tax them. Is this true? Mike
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Hi Mike,

I verified this with SNOPES and with the MASTER TAX GUIDE and this is FALSE. The only tax implications that you may have with a firearm is if you sell one, there is an excise tax per firearm that you should be aware of, but if you simply own the firearm you have no tax obligations. Thank you for the question.

John

PS. There is still room on my client list if you need a tax preparer. Email me.

Your Tax Question - 022

Dear John, My in-laws have retired to Tahiti but have retained their permanent address here in the states. I have the Power of Attorney and am responsible to make sure their taxes get done. I expect it to be nothing more than a 1040A form but they will not be here to sign their forms. Since I have the Power of Attorney can I just sign for them. Thanks, William
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Hi William,

First off, since your in-laws live in another country they have an automatic 6 month extension for getting their taxes completed and filed. They will have to pay interest on any taxes due after April 15, but they will not be penalized for being late. You will need to file form 2350 to register the extension and you should check out publication 54 as it will have details about this situation.

And second, this is the first year that you do not need to send in a physical signature on a separate form to the IRS. Instead, if the return is submitted electronically their signature forms just need to be held on file for 3 years. All you would have to do is have them fill out form 8878 and form 8879 then fax them to you for your tax preparer's records.

Good luck,
John

If you need help with this, please email me.

Your Tax Question - 021

Dear John, I rented a house to a gentleman who has agreed to fix-up the rental house in exchange for rent. How will this affect my taxes? Thanks, Rich
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Hi Rich,

What you are describing is a bartering arrangement. This means that even if cash does not change hands, you have to include the value of improvements as income on your Schedule C. Also, your tenant will need to include the fair market value of rent in his income.

Best wishes,
John

PS. Act now and reserve a spot on my limited client list for this tax season. Email me

Your Tax Question - 020

Dear John, I recently became a waitress and I've been told that I have to keep track of my tips and that my employer will be automatically deducting taxes from tips that I am supposed to be making? Is this right? Just wondering, Sally
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Hi Sally,

The way I understand it, you are to keep a daily log of your daily tips and then report those to your employer. Keeping track of your tips is very important - especially if you "tip-out" to buss-boys and/or bartenders. When I worked at a restaurant many of the waitresses simply told the employer to stick $20.00 a day in their wages for tips but somehow I think the IRS has gotten wise to that practice. At the end of the year you will have to fill out form 4070A (found in publication 531) to determine the proper amount of tips that you owe taxes on.

Best of luck,
John

PS. I am a record keeping fanatic - if you need help I still have room on my limited client list. Email me

You Tax Question - 019

Dear John, This year is going to be a very interesting tax return year. I started the year being self-employed, in the middle I had a part-time job and the last half I was hired as an independent contractor (paid on commission). Is there anyway I could do my return without an accountant? Thanks, Colleen
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Hi Colleen,

There are three sources of Income: Two of these sources will be directly addressed by your Net Profit (from your self-employment and independent contracting) on your Schedule C and then the wages (W-2) from your part-time job will be addressed on your 1040. The W-2 & Schedule C are pretty common & straight forward.

So yes, I am sure that you can do this without an accountant. (But in my biased opinion you should hire a tax professional - wink wink).

Hope this helps,
John

PS. Did you know that tax preparation expenses are deductible? Business tax prep fees are not deductible but directly reduce the Net Income on your schedule C. If you need help with this I still have room on my client list. ;-) Email me

Your Tax Question - 018

Dear John, Can I really deduct the costs of preparing my taxes? Thank you, Jill
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Dear Jill,

If you itemize your deductions on Schedule A then you can add into your deductions the fees of preparing your taxes. However, any tax expenses associated with a business are not deductible as those expenses reduce the Net Income of the business claim.

HTH,
John

PS. Now that you know that the fees that you pay for tax preparation is deductible, it makes my introductory price levels more appealing doesn't it? Email me

Your Tax Question - 017

Dear John, I paid off my house at the end of last year and the reduction in the interest payments make it unnecessary for me to itemize this year. Is there any other deductions for homeowners? Phil.
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Hi Phil,

Congrats at burning the mortgage note. To answer your question -If you cannot itemize your taxes this year but pay property taxes there is more money for you. You can get another $500 added to your Standard Deduction for paying property taxes (plus another $500 if you are married filing jointly). You can consider this a discount on your annual property tax bill. (can you say "Ca-ching?")

Best wishes, John

PS. You know? If you are in need of a tax guy, I still have openings on my client list and I would love to help you with that.. Email me

Your Tax Question - 016

Dear John, My mom just got a job at job as a WalMart greeter. She will be 89 years old but still she works and lives on her own . Her job is new this year and I was wondering what to expect as far as taxes go. Warmly, Pat.
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Hi Pat,

Since your mom lives alone she will file her own return. There are some things that I don’t have enough information to respond about but since she is over 65 she will qualify for the additional standard deduction of $1,400. Check out IRS Pub. 554 for more information.

I hope this helps,
John

PS. You know my client list also is open to seniors. Email me

Your Tax Questiion - 015

Dear John, Thanks for this great blog -It is like a car wreck that I don’t want to stare at but I can’t help myself. Here’s my question: What are the standard deduction rates for 2009 taxes? Thanks, Billie.
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Hi Billie,

Thanks for the kind words - It warms my heart to know that I can suffer tragedy for your viewing pleasure.

To answer your question, the Standard Deductions for 2009 are as follows.

• $11,400 Married Filing Jointly
• $5,700 Married Filing Separately
  
• $8,350 Head-of-Household
• $5,700 for Single filers.
  

Best wishes,
John

PS. There is still room on my client list if you want to take a ride - no worries, no wrecks here. Email me

Your Tax Question - 014

Dear John, Do you know how much money the IRS collects each year? Do you know where that money goes? Just wondering, Rich
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Rich,

Although your question is a bit off topic I want to field this one (because I actually know the answer to the question).

The IRS creates a Data Book each year and in it there is a table about all the money that they collect and from whom. In the 2008 Data Book there is the details in Table 1. The skinny is that the IRS collected a gross $2,745,035,410 in taxes and netted some 2.316 billion of that. Check out the Data Book for more details than you really wanted.

Also, I cannot verify the accuracy of the following, there is an image that illustrates where all that money goes. Check it out as well.

John

PS. I still have room on my client list for you - Email me.

Your Tax Question - 013

Dear John, For fun I am trying to understand how the tax system works. Do you have any pointers to make my quest easier? Pauline.
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Hi Pauline,

yes, I have a suggestion – forget the tax code and memorize the Periodic Table – That’s a little easier. Seriously though, I to think the tax system is fun to maneuver but it always changes because the Congress is always changing things. You’ve heard that “Death and Taxes” are the only two inevitabilities in this world - someone has commented that death if preferable because it is the only thing that does not get worse when Congress meets.

Visit the IRS website - it has a lot of good stuff. And if you have a little lawyering blood in you I suggest reading the U.S. Tax Code itself. And if that is still not enough for you you can read all the opinions and decisions of the tax courts that you want at Legalbitstream.com.

Have fun,
John

PS. Until you are comfortable doing your own taxes my services are available and there are still some slots open on my client list. Email me

Your Tax Question - 012

Dear John, I know that I will owe taxes this year but I really do not have the money, what can I do? Sincerely, Desperate.
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Dear Desperate,

You can do a couple of things. First, you can fill out Form 4868 for an automatic 6-month extension and then simply pay the interest on what you owe in October. Or, if you will have the money soon after April 15th you could file but leave it to the IRS to figure your tax for you - that way the IRS would bill you which would give you an extra 30-45 days to come up with the money.

In the worst case scenario (and I don't endorse this) you could borrow the money from your grandmother and never repay her - she is likely less intimidating than the IRS. ;-)

Best of Luck,
John.

PS. I would be happy to help you with the IRS part (not your grandma). email me

Your Tax Question - 011

Dear John, I do my taxes myself but I am never sure what form to use. How can I figure this out? Thanks, Martin.
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Dear Martin,

Did you know that 80% of people use a paid tax preparer or third-party software to prepare there annual tax return? Did you know that I am a paid preparer? (Just say’n). However, if you are going to do your taxes by yourself then I suggest reading IRS Pub. 17. Use this link to determine which form to use.

Best of luck,
John

PS. My services are not that pricey. If you hurry, you can become 1 of my 30 clients for this tax season. Email me