4th Annual Tax Thread - 2006

[Nithin]

Hi,
Question about filing joint vs separate. i got married dec 2006. my wife used to work in Illinois and I work in California. She is not working currently and is my dependent now living in California.

Taxcut shows that the tax amount filing jointly is about 8k less than filing separately. But it warns that we have to see how it affects state tax liability.

My question is since our employers are in different states, can we still file federal jointly? and state tax separately?

And how do we file the state taxes? Does the total sum of our incomes appear on both state tax forms? or we have to pay state taxes for our respective incomes?

Thanks,
Nithin.

 

[UTmtnbiker]

Schedule C question.

Wife started a business in 05. That was our start up year, and we did about 2k in sales and about 1.5k in expenses for a $500 profit.

Things were better this year. We did about 30k in sales and about 25k in expenses.

To report this, do I report 30k in revenues on Schedule C, which gives us a big, big amount we owe. I haven't entered in expenses yet, but that should take directly away from the 30k, right? Or....

Do we just report our net profit of 5k as revenue and not worry about expenses and sales, which I like a lot better.

I should also describe the business to see if this helps. She does wedding design. So....as an example.

She charges a client $5k to do an entire wedding (this should be reported as revenue, correct?). However, expenses for buying supplies, ink, paper, whatever it takes, to do the wedding costs $3k (which we would report as expenses, correct?) for a net profit of $2k. Basically, I would enter in $5k as revenue, see a big "I OWE" number in TurboTax, and then when I enter in expenses, that big "I OWE" number should go down, correct?

Sorry for being dense. Just freaking out after entering in the revenue portion of Sched. C and seeing how much we owe and really, really wanted to make sure we're doing this the right way.

TIA.

 

[shortylickens]

SHORTYLICKENS IS DONE!

PSA: If you dont have a lot of really weird shiat, TurboTax is probably the easiest route.
Only took me about an hour for state and federal, but the bastards did want 17 bucks to e-file each return. I decided to use that money on the postage and signature confirmation and return reciept. I hope the IRS likes the nice big brown envelope I bought.

I really should have done this a month ago. I need to procrastinate less and accomplish more.
Anyone else putting it off for no other reason than being lazy?

 

[EagleKeeper]

Originally posted by: elwood

Originally posted by: EagleKeeper

Originally posted by: elwood
I did a few contract jobs last year and was paid without any taxes withheld. I made less than $600. I haven't received any tax forms. Do i need to worry about filing?

IF you have W2 income you need to file, including the contract jobs as misc income or use the Schedule C.

Thats the only job i worked last year. That was my only taxable income...

You do not need to file.

However, if you are not considered a dependent, then by not filing, you may miss out on some credits.

 

[EagleKeeper]

Originally posted by: JEDI
Scenario:

My only job in 2006 was as a waiter for 2 weeks. If my W-2 is $100, can i put down $3900 in tips to max the $4000 in Roth IRA?

(My personal and standard deductions will cover the taxes on $4000 gross, right?)

If you "received" $3900 in tips, yes.

However, Uncle may question such a number.

 

[EagleKeeper]

Originally posted by: Nithin
Hi,
Question about filing joint vs separate. i got married dec 2006. my wife used to work in Illinois and I work in California. She is not working currently and is my dependent now living in California.

Taxcut shows that the tax amount filing jointly is about 8k less than filing separately. But it warns that we have to see how it affects state tax liability.

My question is since our employers are in different states, can we still file federal jointly? and state tax separately?

And how do we file the state taxes? Does the total sum of our incomes appear on both state tax forms? or we have to pay state taxes for our respective incomes?

Thanks,
Nithin.

Much depends on the state tax rules. Follow the below advice to attempt to determine the best option.

If you use Tax SW, do the Federal first and do not indicate that you will be doing a state.
Make a master backup copy.

You can install your tax S/w on different systems; then on each system, install the relevant state S/W package if you purchased a Fed/State package together.
State tax S/W becomes expensive (you have to pay through the nose for each state) and also for the e-filing if you use desktop S/W.

On each system, now make a copy of the Master backup.
Then you can see how each state handles the seperate vs joint scenario and you can play the what-if game.



Note that if your wife starts working in CA during 2007, she can then use the Form 3903 - Moving expenses for the costs of her coming to CA. If she waits until 2008, she can not longer justify the move as business related.

 

[EagleKeeper]

Originally posted by: shortylickens
SHORTYLICKENS IS DONE!

PSA: If you dont have a lot of really weird shiat, TurboTax is probably the easiest route.
Only took me about an hour for state and federal, but the bastards did want 17 bucks to e-file each return. I decided to use that money on the postage and signature confirmation and return reciept. I hope the IRS likes the nice big brown envelope I bought.

I really should have done this a month ago. I need to procrastinate less and accomplish more.
Anyone else putting it off for no other reason than being lazy?

Many will put off when they owe money.
Only the lazy put off doing the filing when Uncle owes them money.

Some need to find the time to get it done to find out which side of the fence they sit on.
Scheduling of priorities

 

[EagleKeeper]

Originally posted by: UTmtnbiker
Schedule C question.

Wife started a business in 05. That was our start up year, and we did about 2k in sales and about 1.5k in expenses for a $500 profit.

Things were better this year. We did about 30k in sales and about 25k in expenses.

To report this, do I report 30k in revenues on Schedule C, which gives us a big, big amount we owe. I haven't entered in expenses yet, but that should take directly away from the 30k, right? Or....

Do we just report our net profit of 5k as revenue and not worry about expenses and sales, which I like a lot better.

I should also describe the business to see if this helps. She does wedding design. So....as an example.

She charges a client $5k to do an entire wedding (this should be reported as revenue, correct?). However, expenses for buying supplies, ink, paper, whatever it takes, to do the wedding costs $3k (which we would report as expenses, correct?) for a net profit of $2k. Basically, I would enter in $5k as revenue, see a big "I OWE" number in TurboTax, and then when I enter in expenses, that big "I OWE" number should go down, correct?

Sorry for being dense. Just freaking out after entering in the revenue portion of Sched. C and seeing how much we owe and really, really wanted to make sure we're doing this the right way.

TIA.

The proper way is to enter all the income/revenue and then enter in the expenses.
remember to also take into account other expenses that support but do not direcdtly benefit the Schedule C income.
Vehicles, Internet, entertainment of clients, etc.

 

[MrsBugi]

I invested some money in land 2 years ago, but it is not expected to mature for 5-10 more years. Do I need to report this anywhere on my taxes even though I have not profited or lost any money since investing it since the investment money has been locked up? Thanks!

 

[EagleKeeper]

Originally posted by: MrsBugi
I invested some money in land 2 years ago, but it is not expected to mature for 5-10 more years. Do I need to report this anywhere on my taxes even though I have not profited or lost any money since investing it since the investment money has been locked up? Thanks!

If you have paid taxes on the land, it can be reported on the Schedule E.
In terms of profit/loss, since no $$ have changed hands, no taxes are owed.

 

[MrsBugi]

Thanks Eagle!

I don't think I ever received my 1099-G. Is there anywhere I can get an extra copy of it at this point?

"State and Local Tax Refunds Form 1099-G

Enter the payer's information and state or local tax refunds received that appear in Box 2 of your 1099-G.
Payer name
Payer address
Payer city
Payer state
Payer ZIP code
Payer's ID no
Box 2 - Refund Amount Tax year (if not 2005)"

I think I found the refund amount in my old bank statements, but I don't have any of the other info. Is there anywhere I can get the info online, by any chance? If I just enter the amount, will that suffice?

EDIT: It looks like a 1099-G is "Form 1099G, Report of Taxable Unemployment Compensation Payments from the State of California." However, in HR Block, it is "State and Local Tax Refunds."

I'm a little confused. I never had any unemployment payments, but I did have a tax refund last year (2005). Is this the same form?

 

[EagleKeeper]

1099-G is for government payments to you.

It can cover tax refunds, unemployment comp and other payments from the government to you.


If you itemized last year and used the state income taxes withheld on the Schedule A, you MUST claim the state income tax refund as income.

If you did not use the state income taxes withheld on the Schedule A or did not use the Schedule A last year, you do not need to worry about the state income tax refund.

 

[troytime]

You guys rock, thanks for all of your efforts.

My scenario: I work full time, my wife and I have 2 kids. My w-4 with my employer claims 0 dependants, this way my employer takes out MAX taxes.

My wife started her own business in 2005. Last year we filed it as a sole proprietorship on our main return. We claimed our basement as home/office, the first year was a loss.

Last year, she decided to no longer operate the business; however, she didn't change it's status with anyone official.

Right now we have 15k in inventory that we would like to keep, however from what i'm told, it needs to be recorded as 'sold', even if we buy it.
If we report the very minimal sales last year, as well as the home/office deductions and expenses, it'll look really bad and surely flag an audit and be considered a 'hobby' by the IRS.

We'd like to terminate the business, but keep the assets (we took out a home equity loan to buy the inventory)
Any advice?

 

[desk]

i ran a home business last year, for which i need to drop stuff off at the local FedEx using my car. anyhow, i just realized since the car isn't officially in my name, i can't use the standard mileage deduction for the vehicle. so, that means i'm stuck using actual expense.

i have a repair bill for $375 from my local mechanic that i'm assuming i can use, but how do i handle the gasoline charges? now, i know i drove 1191 total miles and all my gas purchases were on my credit card, but the vehicle wasn't strictly for business use, so how do i say how much of the gas cost is for business?

thanks!

 

[EagleKeeper]

Originally posted by: desk
i ran a home business last year, for which i need to drop stuff off at the local FedEx using my car. anyhow, i just realized since the car isn't officially in my name, i can't use the standard mileage deduction for the vehicle. so, that means i'm stuck using actual expense.

i have a repair bill for $375 from my local mechanic that i'm assuming i can use, but how do i handle the gasoline charges? now, i know i drove 1191 total miles and all my gas purchases were on my credit card, but the vehicle wasn't strictly for business use, so how do i say how much of the gas cost is for business?

thanks!

Costs of use of a vehicle should be prorated as a percentage of business use vs personal & commuting use.

Example:
Total mileage 12000

Communting mileage 3000
Personal mileage 6000

Business mileage = 3000 which is 25% of total mileage. Therefore any expenses will be prorate to 25% that is chargable for cusiness.
Tax S/W will do such calculations for you.

If you are married or a dependant, you can treat the vehicle as your own for tax purposes as long as no one else does so.

 

[EagleKeeper]

Originally posted by: troytime
You guys rock, thanks for all of your efforts.

My scenario: I work full time, my wife and I have 2 kids. My w-4 with my employer claims 0 dependants, this way my employer takes out MAX taxes.

My wife started her own business in 2005. Last year we filed it as a sole proprietorship on our main return. We claimed our basement as home/office, the first year was a loss.

Last year, she decided to no longer operate the business; however, she didn't change it's status with anyone official.

Right now we have 15k in inventory that we would like to keep, however from what i'm told, it needs to be recorded as 'sold', even if we buy it.
If we report the very minimal sales last year, as well as the home/office deductions and expenses, it'll look really bad and surely flag an audit and be considered a 'hobby' by the IRS.

We'd like to terminate the business, but keep the assets (we took out a home equity loan to buy the inventory)
Any advice?

My advice to reduce the headaches:

During 2006, sell the inventory to yourself at a "going out of business sale"
Record the sales/loss
Take the normal business deductions like you did the previous year.
Close the business as of 31 December 2006.


Do not do anything related to the business in 2007, no Schedule C or anything.


IRS - Closing a Business Checklist
With the exception of sale of assets, nothing in the checklist applies to you.
The information is more for formal coprorations that have employess or sub-contractors

 

[desk]

Originally posted by: EagleKeeper

Originally posted by: desk
i ran a home business last year, for which i need to drop stuff off at the local FedEx using my car. anyhow, i just realized since the car isn't officially in my name, i can't use the standard mileage deduction for the vehicle. so, that means i'm stuck using actual expense.

i have a repair bill for $375 from my local mechanic that i'm assuming i can use, but how do i handle the gasoline charges? now, i know i drove 1191 total miles and all my gas purchases were on my credit card, but the vehicle wasn't strictly for business use, so how do i say how much of the gas cost is for business?

thanks!

Costs of use of a vehicle should be prorated as a percentage of business use vs personal & commuting use.

Example:
Total mileage 12000

Communting mileage 3000
Personal mileage 6000

Business mileage = 3000 which is 25% of total mileage. Therefore any expenses will be prorate to 25% that is chargable for cusiness.
Tax S/W will do such calculations for you.

If you are married or a dependant, you can treat the vehicle as your own for tax purposes as long as no one else does so.

thanks EagleKeeper! a couple followups if you don't mind.

do i have to have proof of the percentage or should it be a best estimate? because, while i know the mileage for business, i'm not sure the total mileage accumulated in that time period.

if i'm filing as single (independent) it sounds like i can't treat the vehicle as my own, even if nobody else is claiming the vehicle for tax reasons?

thanks again!

 

[troytime]

Originally posted by: EagleKeeper

Originally posted by: troytime
You guys rock, thanks for all of your efforts.

My scenario: I work full time, my wife and I have 2 kids. My w-4 with my employer claims 0 dependants, this way my employer takes out MAX taxes.

My wife started her own business in 2005. Last year we filed it as a sole proprietorship on our main return. We claimed our basement as home/office, the first year was a loss.

Last year, she decided to no longer operate the business; however, she didn't change it's status with anyone official.

Right now we have 15k in inventory that we would like to keep, however from what i'm told, it needs to be recorded as 'sold', even if we buy it.
If we report the very minimal sales last year, as well as the home/office deductions and expenses, it'll look really bad and surely flag an audit and be considered a 'hobby' by the IRS.

We'd like to terminate the business, but keep the assets (we took out a home equity loan to buy the inventory)
Any advice?

My advice to reduce the headaches:

During 2006, sell the inventory to yourself at a "going out of business sale"
Record the sales/loss
Take the normal business deductions like you did the previous year.
Close the business as of 31 December 2006.


Do not do anything related to the business in 2007, no Schedule C or anything.


IRS - Closing a Business Checklist
With the exception of sale of assets, nothing in the checklist applies to you.
The information is more for formal coprorations that have employess or sub-contractors

So I should do the form 8594?
Do I have to do two, one as the buyer, one as the seller?
Do i have to move any money, or is it all 'just for the books'?

We've been using taxcut, can i attach this form to the printed forms from taxcut, or should everything be hand prepared?

btw, you are hero
If you ever need website help, PM me.

 

[EagleKeeper]

Form 8594 is more for assets than inventory.

If you were to sell all your inventory (to whom matters not), then at the end of the tax year, you have no inventory.

If you purchased no equipment for the business, then there is nothing but inventory to dispose of which has been accounted for above.

The business books will show a sale of inventory and some cash receivables as a result.
If the inventory was written down the previous year, the cash will be treated as income on the Schedule C.

TaxCut (normal) will handle everyting but the 8594. If you determine that you do not need the 8594, you should be allset.

 

[Rob9874]

I'm recently divorced, but my ex-wife was living with me through September of last year. Do we have to file jointly? If not, how do we handle the house payment deduction?

Also, she was an independent contractor, and never paid her quarterly tax payments, so we would owe every April. Not having the money to pay it off, we would add each year's amount to our monthly payment plan with the IRS (stupid, I know...hence the divorce). So now we collectively owe like $12,000, of which the monthly payment is coming out of my bank account, and she's not contributing. Can I have the IRS split that debt for me? 50% in my SS#, and 50% in hers? Or can I file Equitable Relief, proving that the tax debt was due to her income, and get out of owing it all together?

 

[Trey22]

.

 

[EagleKeeper]

Originally posted by: Rob9874
I'm recently divorced, but my ex-wife was living with me through September of last year. Do we have to file jointly? If not, how do we handle the house payment deduction?

Also, she was an independent contractor, and never paid her quarterly tax payments, so we would owe every April. Not having the money to pay it off, we would add each year's amount to our monthly payment plan with the IRS (stupid, I know...hence the divorce). So now we collectively owe like $12,000, of which the monthly payment is coming out of my bank account, and she's not contributing. Can I have the IRS split that debt for me? 50% in my SS#, and 50% in hers? Or can I file Equitable Relief, proving that the tax debt was due to her income, and get out of owing it all together?

If you are divorced, you must both file a single.
House payment are based on the divorce decree wording.
If joint responsibility, then you can split 50/50 or by percentage of income.

You can file for injured spouse, however, because you accumulated the debt jointly prior to the divorce, you both are responsible for it; depending on the wording of the divorce decree. You both had to have signed to payment plan, apparently more than one time; so it is difficult to show that you were not aware of the problem.

 

[MrsBugi]

In what section should I report active student loans that are not yet accruing interest? "Additional income?"

 

[EagleKeeper]

Student loans are not income.

 

[MrsBugi]

Found where it goes, n/m.