3rd Annual AT Tax Time Thread

[Muse]

Continuing with my Turbotax Deluxe 2005 return, Turbotax pops up a screen saying that they've determined that I've made an excess Roth IRA contribution of $1000! They said earlier on a screen to include any contribution to the Roth IRA for tax year 2005 even if I haven't made it yet as long as I make it by April 17, 2006. It plainly said I can make up to a $4500 contribution if I'm over 50 YOA, and I am. So, I put in $4500 for my contribution. It later asked me what my Roth IRA account was worth on 12/31/2005 and I looked it up at Ameritrade and entered that amount. Then it says I over contributed $1000. What's up with this? Anybody know? Thanks for any help on this.

 

[Muse]

Originally posted by: EagleKeeper

Originally posted by: Muse
I started at Roth IRA 5-6 years ago. Being over 50 I think I can contribute up to $4500 for 2005. I have another IRA, a rollover of my 401K from a job that terminated in September 2001. I have $2367 in that account and it's registered at my securities investment firm, Ameritrade. I lost a few hundred dollars in the account this year on a stock trade. My Roth IRA is also in an investment account at Ameritrade.

I'm using TurboTax Deluxe 2005 and I get the impression I might be able to convert this IRA rollover account into my Roth IRA account. I haven't yet made my contribution into my Roth IRA for tax year 2005. Is it possible for me to convert the funds from my IRA rollover account into the Roth IRA and then add funds from other sources for a total of my maximum contribution of $4500? What's the story with this? Thanks for any help.

Two different colors of money.

The normal IRA avoided taxes up "front".
The Roth IRA avoids taxes at the "end".

FRONT $$ != END[ $$/B]

Just like on StarTrek. Never mix matter with anti-matter.

OK, I guess this means just leave that rollover IRA alone for the time being and fund my Roth IRA from other means. Thanks.

 

[Muse]

Originally posted by: Muse
Continuing with my Turbotax Deluxe 2005 return, Turbotax pops up a screen saying that they've determined that I've made an excess Roth IRA contribution of $1000! They said earlier on a screen to include any contribution to the Roth IRA for tax year 2005 even if I haven't made it yet as long as I make it by April 17, 2006. It plainly said I can make up to a $4500 contribution if I'm over 50 YOA, and I am. So, I put in $4500 for my contribution. It later asked me what my Roth IRA account was worth on 12/31/2005 and I looked it up at Ameritrade and entered that amount. Then it says I over contributed $1000. What's up with this? Anybody know? Thanks for any help on this.

mmm, I guess the problem is that I've only entered $3500 in earnings so far for this year. That was for a W2, but when I entered $717 I made on a 1099-MISC TT started asking me all kinds of questions, wanting to deduct for health insurance, office equipment, etc. So I decided I'll add the 1099-MISC thing after I do all the other stuff. That was just a 3 day consulting job and I've never done anything like that before. I figure I should have all my deductions based on my regular job type stuff. Even so, I guess I'll have to contribute less than $4500 to my Roth IRA (TT says it has to be =< than my earnings).

 

[skyking]

< nods to EagleKeeper and my old friend CPA>

We procrastinated, oh yes.
One of my many employers withheld too much FICA, and turbotax online is squawking about getting an adjusted W2 and a refund for the amount before proceeding.

I owe a good chunk and a penalty due to underestimation. Should I send in a check for the estimated payment and file an extension?

 

[EagleKeeper]

File the extension and send in the $$.

How an employer withhold to much FICA is confusing. It is a set percentage.

Usually the only way that problem happens is when you work for multiple employers and both take out the proper FICA for the amount of wages paid. However, the sum of wages will then exceed the FICA limit.

At that point, Uncle will usually credit back the excess FICA in terms of the amount owed against the taxes when you file.

From an online assistance guide

If you overpaid your Social Security tax because one employer withheld too much, you need to ask your employer to repay you the overwithheld amount. You can't claim the excess as a credit on your income tax return. If the employer doesn't adjust the overcollection, you can file a claim for refund using Form 843.

This topic is about what happens when you overpaid Social Security tax because you had two or more employers. In that case, each employer is supposed to ignore taxes you paid through your other employer(s), so you're entitled to a credit against your income tax rather than getting money back from an employer.

 

[Dubb]

Asking this question for the female that allows me to associate with her:

-she started as a Phd student in september, and the university sent her a 1099-MISC for the stipend she recieved (~7700, of which they withheld about $600)

-she's trying to do her taxes online, and it keeps asking for her "business information" as if she is self employed (the accounting method she uses for this business...)

-first time she has ever delt with this form, and as far as either of us can tell, this is a form for independent contractors (?!?!?)

can someone shed some light on how this form works for/applies to students?

Thank you all in advance. you guys rule.

 

[EagleKeeper]

The business codes are used by the IRS to track reasonable expenses.

Find a catch all category and use it.

 

[Dubb]

thanks...so she should pretend like she has an independent business? (maybe I'm not understanding you properly - she said it was asking for a specific business identification number)

 

[EagleKeeper]

Originally posted by: Dubb
thanks...so she should pretend like she has an independent business? (maybe I'm not understanding you properly - she said it was asking for a specific business identification number)

Business Description: Student
Category: Other
Code 999999-Unable to Classify
Leave the Employer EIN blank

 

[Taggart]

Can you deduct Roth IRA contributions for federal or state taxes? I am single and contributed the max amount for 2005. Thanks!

 

[EagleKeeper]

Originally posted by: Taggart
Can you deduct Roth IRA contributions for federal or state taxes? I am single and contributed the max amount for 2005. Thanks!

No - Roths are not deductible

 

[Taggart]

Thanks for the answer EagleKeeper!

EagleKeeper and CPA for UBER-Elite!!

 

[edprush]

Originally posted by: edprush
I found this odd:

I use part of my home (about 10% of the total square footage) for a small business. When I input the various business-related expenses into an online tax preparation site (taxact.com) it calculated the total expenses but it said that $0 are deductible.

Why would that be?

Originally posted by: EagleKeeper
Without knowing what you are entering it is unwise for us to offer any explanations.

These are my inputs:

Area used for business: 170 sq feet
Total area of home: 1300 sq feet

Indirect Insurance: $300
Indirect Utility: $3236

Here is taxact.com's output:

The allowable 2005 expense for the business use of your home is $0.

[/quote]

 

[Muse]

My Turbotax Deluxe 2005, in the deductions questionaire portion has a screen for Major Purchases. It says I can deduct the cost of "building materials for major home improvements." I hired a contractor to remove and replace the entire roof of my house. Can I deduct the portion of the cost that's attributable to materials cost? I paid for the entire job out of a loan which put a lien on my house. Thanks!

 

[zendari]

Originally posted by: EagleKeeper

Originally posted by: Taggart
Can you deduct Roth IRA contributions for federal or state taxes? I am single and contributed the max amount for 2005. Thanks!

No - Roths are not deductible

Question about this:

I am 19 years old, had a nice summer job last year, and put $4k into my newly created Roth IRA at Vanguard. It's a VFINX fund.

The fund has matured since then and I've gained in the neighborhood of $300. Now I haven't touched that money after I put it in the account, so I should not have any tax filing or anything tax related with it, correct?

 

[Muse]

Originally posted by: zendari

Originally posted by: EagleKeeper

Originally posted by: Taggart
Can you deduct Roth IRA contributions for federal or state taxes? I am single and contributed the max amount for 2005. Thanks!

No - Roths are not deductible

Question about this:

I am 19 years old, had a nice summer job last year, and put $4k into my newly created Roth IRA at Vanguard. It's a VFINX fund.

The fund has matured since then and I've gained in the neighborhood of $300. Now I haven't touched that money after I put it in the account, so I should not have any tax filing or anything tax related with it, correct?

Correct. You don't need to pay taxes on your Roth IRA. The contributions you make into it are already taxed. The neat thing about a Roth IRA is that when you finally do take money out of it (after age 59.5 at the earliest, I believe) you don't have to pay capital gains tax (or any other, I presume) on any profits gained by virtue of investment of the funds in the account.

 

[EagleKeeper]

Originally posted by: Muse
My Turbotax Deluxe 2005, in the deductions questionaire portion has a screen for Major Purchases. It says I can deduct the cost of "building materials for major home improvements." I hired a contractor to remove and replace the entire roof of my house. Can I deduct the portion of the cost that's attributable to materials cost? I paid for the entire job out of a loan which put a lien on my house. Thanks!

This may apply to the "sales tax deduction" that was intended for states that do not have a state income tax. There is a percentage (based on the state) that can be used for a Schedule A along with itemization for major purchases.
Other states can use the "sales tax deduction" instead of the state income tax deduction for the Schedule A/1040.

Remember that the interest on the loan is a deductible interest.

 

[BChico]

Question about early withdrawls from IRA accounts...

This year we removed 60k from our IRA account, for various purchases. Question is whether or not this counts as regular earned income? Our income is generally within the limits of qualifying for the EIC credit and tuition credit. TurboTax tells us we do not qualify for either now. Is this correct?

Also, there was 9k withheld in federal tax on the 60k, and the program says we owe an additional 5k. What is generally the tax rate on early withdrawls?

We were also wondering how this will affect financial aid in terms of the FAFSA?

Thanks

 

[EagleKeeper]

Originally posted by: BChico
Question about early withdrawls from IRA accounts...

This year we removed 60k from our IRA account, for various purchases. Question is whether or not this counts as regular earned income? Our income is generally within the limits of qualifying for the EIC credit and tuition credit. TurboTax tells us we do not qualify for either now. Is this correct?

Also, there was 9k withheld in federal tax on the 60k, and the program says we owe an additional 5k. What is generally the tax rate on early withdrawls?

We were also wondering how this will affect financial aid in terms of the FAFSA?

Thanks

There is a penalty for early withdrawls from IRA plus the income is classifed as normal earned income. When it was put into the IRA, it was deducted from the Earned income, therefore the use of it has it reclassifeid as such.

The additional income may push you over the allowed income levels for the credits.

It looks like they withheld 15% when the funds were distributed to you. That amount is not enough for the proper Federal Tax level that your income is now at plus the penalty for early withdrawl. The penalty used to be 10% of the withdrawl.

 

[abc]

Originally posted by: CPA

Originally posted by: Leejai
I have a quick question. I bought some investment property which closed in 2006 (new property which had to be built). However, all my dealings regarding this investment (travel expenses, etc..) were made in 2005. Can I claim these on my 2005 tax return using my SS# or do I have to obtain a federal tax ID number to do this?

Also, if I travelled to other areas in which I did not purchase a home but the reason for my being there was for investment (just wasn't good). Are these deductable too? I have all docs to prove, etc...but wanted to check before I start plugging those deductions in.

Thanks!

My understanding is that you can not deduct the costs of travel until you own an income producing property. The costs associated with finding an investment are not tax deductible. You can only deduct the costs of travel related to collecting rent, manage or maintain (not improve) the property.

nice, so i buy a condo in hawaii... fly there to uh, 'maintain it' and 'checkup' on it... then as long as i report at least 1 cent rent, i can deduct my plane ticket against this 1 cent rent income, and the rest becomes a passive loss, or the type of loss that can help directly reduce my W2 income?

 

[EagleKeeper]

Originally posted by: abc

Originally posted by: CPA

Originally posted by: Leejai
I have a quick question. I bought some investment property which closed in 2006 (new property which had to be built). However, all my dealings regarding this investment (travel expenses, etc..) were made in 2005. Can I claim these on my 2005 tax return using my SS# or do I have to obtain a federal tax ID number to do this?

Also, if I travelled to other areas in which I did not purchase a home but the reason for my being there was for investment (just wasn't good). Are these deductable too? I have all docs to prove, etc...but wanted to check before I start plugging those deductions in.

Thanks!

My understanding is that you can not deduct the costs of travel until you own an income producing property. The costs associated with finding an investment are not tax deductible. You can only deduct the costs of travel related to collecting rent, manage or maintain (not improve) the property.

nice, so i buy a condo in hawaii... fly there to uh, 'maintain it' and 'checkup' on it... then as long as i report at least 1 cent rent, i can deduct my plane ticket against this 1 cent rent income, and the rest becomes a passive loss, or the type of loss that can help directly reduce my W2 income?

Residental rental property vs investment property may be looked on in slightly differently ways by the IRS.
Falls in the definition of INTENT. And your definition of intent can be overridden by the the definition of an IRS auditor.

 

[SurgicalShark]

I am an international student on F-1 visa living here for more than 183 days, do I qualify as a resident for tax purposes?

Second question is: if a CPA (not our ATOT CPA ;-)) files taxes for me, and makes a mistake by filling a form which is not supposed to be filled by international student, then who is liable for the mistake? Him or me? Thanks.

 

[EagleKeeper]

Originally posted by: SurgicalShark
I am an international student on F-1 visa living here for more than 183 days, do I qualify as a resident for tax purposes?

Second question is: if a CPA (not our ATOT CPA ;-)) files taxes for me, and makes a mistake by filling a form which is not supposed to be filled by international student, then who is liable for the mistake? Him or me? Thanks.

Yes - you qualify
IRS Tax Guide For Aliens

The person that signs the form is ultimately responsible for the accuracy.
Passign along the paperwork to another person does not relieve you from the responsiblity.
If there are problems later on, you have to answer first to the IRS; then you can take up the issue woth the tax preparer.

 

[SurgicalShark]

Originally posted by: EagleKeeper

Originally posted by: SurgicalShark
I am an international student on F-1 visa living here for more than 183 days, do I qualify as a resident for tax purposes?

Second question is: if a CPA (not our ATOT CPA ;-)) files taxes for me, and makes a mistake by filling a form which is not supposed to be filled by international student, then who is liable for the mistake? Him or me? Thanks.

Yes - you qualify
IRS Tax Guide For Aliens

The person that signs the form is ultimately responsible for the accuracy.
Passign along the paperwork to another person does not relieve you from the responsiblity.
If there are problems later on, you have to answer first to the IRS; then you can take up the issue woth the tax preparer.

Eagle it was a fast response! Thanks.

I have been here since 2000. And I have been in US in last 3 years for 'over' 183 days. So I qualify as resident alien for tax purposes.

I was also reading through Pub 519 regarding education credits. If I can prove that I am resident alien, then I can apply for education credits and qualify for deductions.

Just wanted to confirm this last part with you. Do you think being here for more than 5 years, will create any problem in qualifying for resident alien status? Thanks, Neil.

 

[EagleKeeper]

Beyond my scope, sorry