3rd Annual AT Tax Time Thread

[CPA]

Originally posted by: Squisher
Dearest CPAs:

I have tax question, yet not really an income tax filing question, but I thought I'd ask it in this thread rather than starting a new one.


My wife is a co-owner (with rights of survivorship) along with my mother-in-law of a house (maybe $300K). She would like to be taken off the deed and have her brother installed as co-owner.

I didn't have a problem with it yet the thought occurred to me that this could be considered as a gift and we my be responsible for gift taxes as such.

Am I off base here?

I definitely see this as a gift, but it's not going to be taxable to her because she gets a one million dollar lifetime exclusion. Problem with that, though, is that amount can come back to bite her when she dies and her estate is "gifted" out.

Quick little bit of research pulled up this:

Gifts Subject to the Gift Tax

The following gifts are considered to be taxable gifts (when they exceed the annual gift exclusion amount, which is $11,000 in 2005). Remember: Taxable gifts count as part of the $1,000,000 you are allowed to give away during your lifetime, before you must pay the gift tax.

Adding a joint tenant to real estate. This transaction becomes a taxable gift if the new joint tenant has the right under state law to sever his interest in the joint tenancy and receive half of the property. Note that the recipient only needs to have the right to do so for the transaction to be considered a gift.

Her gift , though, is based on her basis (purchase price + additions), NOT what the current value of the home is. The brother will have to pay gains tax if he sells his interest down the road (selling price - basis).

Last thing, if your mom uses the lifetime exclusion to shield the gift from taxes, she will need to fill out form 709.

Oh, and last, last thing - this was definitely a good tax question that belongs in this thread.

 

[Accipiter22]

OK, what is the standard deduction this year? is it still 5000 bucks, I'm a single male, so my standard deduction should be 5000, and personal exemption 3200, correct? I'm not a student, and Im 24 years old.

 

[CPA]

Originally posted by: Accipiter22
OK, what is the standard deduction this year? is it still 5000 bucks, I'm a single male, so my standard deduction should be 5000, and personal exemption 3200, correct? I'm not a student, and Im 24 years old.

correct.

 

[horatiub]

I need some advice please. For year 2005, I was single and I have claimed 0 on my W-4 form. I got married this year and I have a child also. My question is: Is it wise to claim Married and 1 dependent on my W-4 form or...should I go a different route? Any advantages vs disadvanteges?

Thank you

 

[CPA]

Originally posted by: horatiub
I need some advice please. For year 2005, I was single and I have claimed 0 on my W-4 form. I got married this year and I have a child also. My question is: Is it wise to claim Married and 1 dependent on my W-4 form or...should I go a different route? Any advantages vs disadvanteges?

Thank you

I'ts really too difficult to say yes or no. There are too many factors. The best thing to do is monitor your taxes throughout the year and adjust accordingly. You can submit a new W4 to your payroll department as many times as you like.

What I do is estimate my new year taxes by estimating my income, itemized deductions and bumping up the exemption by about $100/person for the year. Then take in account any credits (childcare, child credit, etc.). Then when I have an estimated tax liability I compare it against my current tax withholding times the number of pay periods. If my total withholding is higher than my estimated tax liability, I increase my withholdings, if it's less than increase the withholdings.

There really isn't a better way to do it. The W4 estimator is bunk, don't use it, you will way overwithhold.

 

[Squisher]

Originally posted by: CPA

Originally posted by: Squisher
Dearest CPAs:

I have tax question, yet not really an income tax filing question, but I thought I'd ask it in this thread rather than starting a new one.


My wife is a co-owner (with rights of survivorship) along with my mother-in-law of a house (maybe $300K). She would like to be taken off the deed and have her brother installed as co-owner.

I didn't have a problem with it yet the thought occurred to me that this could be considered as a gift and we my be responsible for gift taxes as such.

Am I off base here?

I definitely see this as a gift, but it's not going to be taxable to her because she gets a one million dollar lifetime exclusion. Problem with that, though, is that amount can come back to bite her when she dies and her estate is "gifted" out.

Quick little bit of research pulled up this:

Gifts Subject to the Gift Tax

The following gifts are considered to be taxable gifts (when they exceed the annual gift exclusion amount, which is $11,000 in 2005). Remember: Taxable gifts count as part of the $1,000,000 you are allowed to give away during your lifetime, before you must pay the gift tax.

Adding a joint tenant to real estate. This transaction becomes a taxable gift if the new joint tenant has the right under state law to sever his interest in the joint tenancy and receive half of the property. Note that the recipient only needs to have the right to do so for the transaction to be considered a gift.

Her gift , though, is based on her basis (purchase price + additions), NOT what the current value of the home is. The brother will have to pay gains tax if he sells his interest down the road (selling price - basis).

Last thing, if your mom uses the lifetime exclusion to shield the gift from taxes, she will need to fill out form 709.

Oh, and last, last thing - this was definitely a good tax question that belongs in this thread.

Ouch, ouch, ouch!

So if the property was worth $100K back when my wife inherited it, and she's giving her half ($50K) back to her mother (or brother, which ever way it'd have to done) we would exclude $11K and put the value of the gift at $39K which would mean we would be liable for approximately $8K of taxes.

OUCH, OUCH, OUCH!!! for trying to be a good joe and help her brother out.
I think we'll figure something else out!!!

 

[CPA]

Originally posted by: Squisher

Originally posted by: CPA

Originally posted by: Squisher
Dearest CPAs:

I have tax question, yet not really an income tax filing question, but I thought I'd ask it in this thread rather than starting a new one.


My wife is a co-owner (with rights of survivorship) along with my mother-in-law of a house (maybe $300K). She would like to be taken off the deed and have her brother installed as co-owner.

I didn't have a problem with it yet the thought occurred to me that this could be considered as a gift and we my be responsible for gift taxes as such.

Am I off base here?

I definitely see this as a gift, but it's not going to be taxable to her because she gets a one million dollar lifetime exclusion. Problem with that, though, is that amount can come back to bite her when she dies and her estate is "gifted" out.

Quick little bit of research pulled up this:

Gifts Subject to the Gift Tax

The following gifts are considered to be taxable gifts (when they exceed the annual gift exclusion amount, which is $11,000 in 2005). Remember: Taxable gifts count as part of the $1,000,000 you are allowed to give away during your lifetime, before you must pay the gift tax.

Adding a joint tenant to real estate. This transaction becomes a taxable gift if the new joint tenant has the right under state law to sever his interest in the joint tenancy and receive half of the property. Note that the recipient only needs to have the right to do so for the transaction to be considered a gift.

Her gift , though, is based on her basis (purchase price + additions), NOT what the current value of the home is. The brother will have to pay gains tax if he sells his interest down the road (selling price - basis).

Last thing, if your mom uses the lifetime exclusion to shield the gift from taxes, she will need to fill out form 709.

Oh, and last, last thing - this was definitely a good tax question that belongs in this thread.

Ouch, ouch, ouch!

So if the property was worth $100K back when my wife inherited it, and she's giving her half ($50K) back to her mother (or brother, which ever way it'd have to done) we would exclude $11K and put the value of the gift at $39K which would mean we would be liable for approximately $8K of taxes.

OUCH, OUCH, OUCH!!! for trying to be a good joe and help her brother out.
I think we'll figure something else out!!!

No. You could exclude the 39k using her lifetime $1M exemption. She will have to fill out form 709. Her estate exemption will be reduced by $39K when she dies. Depending on her estate size, that may not be a big deal.

Also, make sure you go over inherentance rules as they regard to her basis. This ensures she is using the correct basis when transfering the property to the brother.

 

[Squisher]

Originally posted by: CPA

Originally posted by: Squisher

Originally posted by: CPA

Originally posted by: Squisher
Dearest CPAs:

I have tax question, yet not really an income tax filing question, but I thought I'd ask it in this thread rather than starting a new one.


My wife is a co-owner (with rights of survivorship) along with my mother-in-law of a house (maybe $300K). She would like to be taken off the deed and have her brother installed as co-owner.

I didn't have a problem with it yet the thought occurred to me that this could be considered as a gift and we my be responsible for gift taxes as such.

Am I off base here?

I definitely see this as a gift, but it's not going to be taxable to her because she gets a one million dollar lifetime exclusion. Problem with that, though, is that amount can come back to bite her when she dies and her estate is "gifted" out.

Quick little bit of research pulled up this:

Gifts Subject to the Gift Tax

The following gifts are considered to be taxable gifts (when they exceed the annual gift exclusion amount, which is $11,000 in 2005). Remember: Taxable gifts count as part of the $1,000,000 you are allowed to give away during your lifetime, before you must pay the gift tax.

Adding a joint tenant to real estate. This transaction becomes a taxable gift if the new joint tenant has the right under state law to sever his interest in the joint tenancy and receive half of the property. Note that the recipient only needs to have the right to do so for the transaction to be considered a gift.

Her gift , though, is based on her basis (purchase price + additions), NOT what the current value of the home is. The brother will have to pay gains tax if he sells his interest down the road (selling price - basis).

Last thing, if your mom uses the lifetime exclusion to shield the gift from taxes, she will need to fill out form 709.

Oh, and last, last thing - this was definitely a good tax question that belongs in this thread.

Ouch, ouch, ouch!

So if the property was worth $100K back when my wife inherited it, and she's giving her half ($50K) back to her mother (or brother, which ever way it'd have to done) we would exclude $11K and put the value of the gift at $39K which would mean we would be liable for approximately $8K of taxes.

OUCH, OUCH, OUCH!!! for trying to be a good joe and help her brother out.
I think we'll figure something else out!!!

No. You could exclude the 39k using her lifetime $1M exemption. She will have to fill out form 709. Her estate exemption will be reduced by $39K when she dies. Depending on her estate size, that may not be a big deal.

Also, make sure you go over inherentance rules as they regard to her basis. This ensures she is using the correct basis when transfering the property to the brother.

Thanks, I surely will look it over. But, to say I'm a little confused by the yearly exclusion vs. the lifetime exclusion would be an understatement.
Why bother limiting a yearly exclusion to $11K if you can just file a form that will accumulate amounts over $11K until a later time when you can claim them in the $1M amount? Unless of course the fact that you kept a yearly amount under $11K keeps you from having to claim it at all and allows you minimize paper work.

 

[Gaard]

This question has bugged me for the last few years and I've never bothered to ask about it. I'm not sure this is the right place to ask, but..

The Michigan Homestead Proprty Tax Credit Claim MI-1040CR

Question # 26. "Enter medical insurance or HMO premiums you paid for yourself and your family (not Medicare). Include the portion of auto insurance paid for medical coverage. Do NOT include insurance premiums deducted on line 25 or premiums paid for income protection and long-term care insurance or amounts paid through pre-tax payroll."

Does this mean I can enter the $70 per week my employer takes out of my check for insurance? I never have because I figured it's better to err on 'their' side.

 

[EyeMWing]

TaxCut seems to think that I owe the feds $68.... They owe ME $67.67 according to common sense (my total income was a vast $1395.51, and $67.67 of that was withheld.)

Double-checked everything, I assume this is a pretty good indicator that I should be doing this manually, eh?

 

[EyeMWing]

Originally posted by: EyeMWing
TaxCut seems to think that I owe the feds $68.... They owe ME $67.67 according to common sense (my total income was a vast $1395.51, and $67.67 of that was withheld.)

Double-checked everything, I assume this is a pretty good indicator that I should be doing this manually, eh?

A manually-filled-out 1040EZ (calc.exe and Afrobat FTW!) tends to agree. The federal government owes ME $67.67, because I suck at moneymaking. Now, on to do battle with the Commonwealth of Pennsylvania, to choke my $42.68 out of their coffers.

 

[Meractik]

do i have to claim any special forms for savings accounts i have for 2005? both accounts i started in 2005 and all the money placed into both was after the money was already taxed on my pay... ? Ingdirect is one and emigrantdirect is the other, ingdirect has something in my account stating that since i earned over $20 in interest that i need to file a 1099 for 2005, im doing it in turbo tax right now and my question to you is since the money i placed inside this savings account was already taxed on my pay.. should i be checking the box 'state income taxes were already withheld on this interest' ?

P.S. i just checked my emigrant direct account and im going to assume i haven't got to file any forms for it because ive only earned like $5 in interest.. this is all in PA btw.

 

[CPA]

Originally posted by: Gaard
This question has bugged me for the last few years and I've never bothered to ask about it. I'm not sure this is the right place to ask, but..

The Michigan Homestead Proprty Tax Credit Claim MI-1040CR

Question # 26. "Enter medical insurance or HMO premiums you paid for yourself and your family (not Medicare). Include the portion of auto insurance paid for medical coverage. Do NOT include insurance premiums deducted on line 25 or premiums paid for income protection and long-term care insurance or amounts paid through pre-tax payroll."

Does this mean I can enter the $70 per week my employer takes out of my check for insurance? I never have because I figured it's better to err on 'their' side.

sorry, Gaard, we don't attempt to answer state tax questions here.

From the face of it, though, this part of the rule "...or amounts paid through pre-tax payroll." would exlude the amounts your employer took out (or more correctly, your portion you pay for coverage).

 

[CPA]

Originally posted by: EyeMWing

Originally posted by: EyeMWing
TaxCut seems to think that I owe the feds $68.... They owe ME $67.67 according to common sense (my total income was a vast $1395.51, and $67.67 of that was withheld.)

Double-checked everything, I assume this is a pretty good indicator that I should be doing this manually, eh?

A manually-filled-out 1040EZ (calc.exe and Afrobat FTW!) tends to agree. The federal government owes ME $67.67, because I suck at moneymaking. Now, on to do battle with the Commonwealth of Pennsylvania, to choke my $42.68 out of their coffers.

lol, sorry your posts made me laugh. I wonder if you forgot to put in something or check the right box in TaxCut.

 

[CPA]

Originally posted by: Meractik
do i have to claim any special forms for savings accounts i have for 2005? both accounts i started in 2005 and all the money placed into both was after the money was already taxed on my pay... ? Ingdirect is one and emigrantdirect is the other, ingdirect has something in my account stating that since i earned over $20 in interest that i need to file a 1099 for 2005, im doing it in turbo tax right now and my question to you is since the money i placed inside this savings account was already taxed on my pay.. should i be checking the box 'state income taxes were already withheld on this interest' ?

P.S. i just checked my emigrant direct account and im going to assume i haven't got to file any forms for it because ive only earned like $5 in interest.. this is all in PA btw.

Any interest is usually taxable (tax-free municipal bonds are an exception). You are not paying the tax on the money you put into the accounts, rather the money (interest) you earned on the accounts. Any amount over $1 should be reported. May vary by state, so if you're only concerned with the state filing you should check with them.

You don't have to file a 1099, the bank should be sending you a 1099-INT. Since it's under $1500 you only need to report it on 1040 Line 8a.

 

[jhu]

why did the amt cut-off go down? it's rather messed up

 

[CPA]

Originally posted by: jhu
why did the amt cut-off go down? it's rather messed up

Not sure, everything I had read seemed to indicate there was support to eliminate the AMT soon. Then, wham, the lower the exemption amount! I got hit hard this year.

 

[jhu]

2006 isn't shaping up to be any better according to the "what's new for 2006" section of the instructions:

* Personal exemption and itemized deduction phaseouts reduced. The phaseouts of the personal exemptions and itemized deductions will be reduced by ? <- actually this one's a little ambiguous.

* Certain credits no longer allowed against alternative minimum tax (AMT). The credit for child and dependent care expenses, credit for the elderly or the disabled, education credits, mortgage interest credit, and carryforwards of the District of Columbia first-time homebuyer credit are no longer allowed against AMT and a new tax liability limit applies. For most people, this limit is your regular tax minus any tentative minimum tax.

* AMT exemption amount decreased. The AMT exemption amount will decrease to $33,750 ($45,000 if married filing jointly or a qualifying widow(er); $22,500 if married filing separately).

grrr...

i have a question concerning roth ira. my current earnings allow me to keep funneling money into a roth ira. suppose that one day my salary exceeds the current maximum allowed. what happens to my roth ira? do i have to roll it over to something else or am i allowed to keep it but not put any money in it?

 

[CPA]

Originally posted by: jhu
2006 isn't shaping up to be any better according to the "what's new for 2006" section of the instructions:

* Personal exemption and itemized deduction phaseouts reduced. The phaseouts of the personal exemptions and itemized deductions will be reduced by ? <- actually this one's a little ambiguous.

* Certain credits no longer allowed against alternative minimum tax (AMT). The credit for child and dependent care expenses, credit for the elderly or the disabled, education credits, mortgage interest credit, and carryforwards of the District of Columbia first-time homebuyer credit are no longer allowed against AMT and a new tax liability limit applies. For most people, this limit is your regular tax minus any tentative minimum tax.

* AMT exemption amount decreased. The AMT exemption amount will decrease to $33,750 ($45,000 if married filing jointly or a qualifying widow(er); $22,500 if married filing separately).

grrr...

i have a question concerning roth ira. my current earnings allow me to keep funneling money into a roth ira. suppose that one day my salary exceeds the current maximum allowed. what happens to my roth ira? do i have to roll it over to something else or am i allowed to keep it but not put any money in it?

You can keep it. The contributions won't be allowed to reduce your income, I believe.

The first item actually seems like a good thing, if I'm reading it right. They are reducing the phaseout by a third, which to me reads they are going to increase the allowable exemption.

The other two are bad, bad, bad.

 

[jhu]

Originally posted by: CPA
You can keep it. The contributions won't be allowed to reduce your income, I believe.

what does that mean? does that mean i can still transfer other types of money into the roth ira?

 

[CPA]

Originally posted by: jhu

Originally posted by: CPA
You can keep it. The contributions won't be allowed to reduce your income, I believe.

what does that mean? does that mean i can still transfer other types of money into the roth ira?

I'm sorry, I was thinking of a normal IRA.

Even if you hit the income threshold, you do not have to roll over the Roth to another investment vehicle. Your allowable contributions, though, will be reduced. Assuming you are single, your contributions will start phasing out at $95,000 income and you will not be able to contribute anything at $110,000.

 

[Ramma2]

Student Loan Interest

I thought at one time I heard that you can only claim interest for 5 years. Then I read through the information, and I cound't find any limitation on time. Which is it, 5 years or the life of the loan?

Thanks CPA!

 

[jkersenbr]

Question: I have a hobby that produced a small profit this year. Income was $4234, Expenses were $4060, for a "profit" of $174.

Although I could declare this hobby a business (it has turned a small profit in each of the last 4 years) I don't really want to, as doing so might oblige me to get a seller's licence.

So, my question is this: can I just report the $174 "profit" as Other Taxable Income? Or must I report the $4234 as Taxable Income and $4060 as an itemized decution.

The reason I ask is that my itemized deductions are less than my standard deduction, so just reporting the profit would be advantageous. Which way is legit?

 

[CPA]

Originally posted by: jkersenbr
Question: I have a hobby that produced a small profit this year. Income was $4234, Expenses were $4060, for a "profit" of $174.

Although I could declare this hobby a business (it has turned a small profit in each of the last 4 years) I don't really want to, as doing so might oblige me to get a seller's licence.

So, my question is this: can I just report the $174 "profit" as Other Taxable Income? Or must I report the $4234 as Taxable Income and $4060 as an itemized decution.

The reason I ask is that my itemized deductions are less than my standard deduction, so just reporting the profit would be advantageous. Which way is legit?

Here is a good article that should help you out.

Keep in mind that the IRS could look at your hobby as a business, so be prepared to show otherwise if you throw in your hobby expenses. Also, realize that hobby expenses are dumped in the miscellaneous section of itemized deductions, which has a 2% of AGI floor. You may get your Itemized deductions above your standard deduction, but with the increase income (because you have to include the hobby income) you may pay more in taxes.

 

[CPA]

Originally posted by: Ramma2
Student Loan Interest

I thought at one time I heard that you can only claim interest for 5 years. Then I read through the information, and I cound't find any limitation on time. Which is it, 5 years or the life of the loan?

Thanks CPA!

I'm not aware of a limitation.