5th Annual Tax Thread - 2007

[her209]

Originally posted by: CPA

Originally posted by: her209

Originally posted by: EagleKeeper

Originally posted by: her209
Okay, here's a doozey.

I worked a lot of overtime this year. Doing a quick estimate of my gross wages for 2007 and the amount of federal taxes withheld, it looks like I'm going to end up owing the IRS $3000. This is more than $1000 and more than 10% of the overall taxes owed, i.e. I will be assessed a penalty. Is there anyway to reduce or eliminate it?

If taxes were not being withheld from the overtime pay, then you have a problem. Find out why.

You can always cut the IRS a check for the expected underage by 31 Dec to avoid the penalties.

Federal taxes were withheld. I assume it was withheld at the rate based on the annual wage rate.

Did you pay more taxes in this year than last?

I'd have to go back to check my past filings. Roughly estimated, I will have made at least 33% more than I did in 2006.

 

[EagleKeeper]

Originally posted by: CPA

Originally posted by: E equals MC2

Originally posted by: EagleKeeper

Originally posted by: E equals MC2
This year will be the first time I'll try to do the taxes on my own. I usually give it to my parents' accountant but frankly I think he's an idiot. He's always aloof and I wonder if he listens to half the things I mention to him such as below:

1. I heard you can write off you rent. How do I ACTUALLY do that?

2. I spent about $2K on camera equipment so I can be an event photographer. Can I write this off as a business expense? I have a corporate day job and photography is more of a side-cash job. How can I accomplish this if possible?

3. What other things that a typical 26 yo-old bachelor can write off? I certainly didn't know rent could be written off.

4. Now, what's the best way to start off doing my own taxes for the first time? Just pick up one of those tax softwares? If so, how do I accomplish above 3 items?

Thanks guys! You guys are a wealth of knowledge!

1) Rent is not able to be written off on the Federal return. Some states may allow a renter's credit.

2) If you claim any income from being a photographer, you can use the Schedule C to write off related expenses. If you do not claim income, then it is just a hobby. Hobby expenses are not deductible.

3) The standard things require you to itemize using the Schedule A.
That covers:
Medical costs (> 7% of your income)
State Income taxes
Property Taxes
Mortgage Interest
Casualty Loss (> 10% of income)
Charity
Misc Business Expenses - no commuting costs (> 2% of income)

The total of the above must exceed your standard deduction (married/single) to be of value.

Reducing your tax load outside the Schedule A requires having business income, educational expenses or adding dependents.

4) You should either spend the $10-$20 for some tax S/W or download the PDF forms from the IRS Web site and play with them using pencil, paper and calculator.

Thanks EagleKeeper, but I have a follow-up question.

I read the FAQ fully and you do not deal with state taxes but it's a GENERAL question: Here's the MA rental deduction info. All I'm asking is, how do I claim this? If I buy a tax software and will such field come up for MA residents?

That's what I'm curious of... or do I file a separate paperwork for state taxes?

As you can see I'm not very knowledged in this at all.

Thanks again.

That pdf is interesting, because it seems the author of the rental deduction paragraph is not entirely certain. But, if accurate, figure out how much rent you paid, divide it in half. As long as it's not over $3K then you can deduct it on your state taxes......somewhere. Check the instructions for the form.

MA does have a slot for the Rental Expense Credit.
As CPA indicated, you can write off 50% up to the limit.

Online, S/W, tax S/W and their paper forms all have this.
The S/W will prompt you for this entry. (Experience w/ inlaws).

 

[SSSnail]

Originally posted by: CPA

Originally posted by: SSSnail
Alright, I do have some questions regarding taxes.

If I'm relocated to another country, what are my tax responsibilities? Assuming that I will be filing single and 1.

All world income is reportable. If you receive your wages in another currency, you must translate it to US dollars. Some of your income ($85,700) may be excluded if you are a US citizen and have legal residence in the foreign country for the entire tax year.

Thanks, what if I'm paid in US dollar and the money will be deposited to a US bank account? Will I be taxed regularly even though I will be living in another country for the duration of the tax year? (Is that more than 300 days?)

 

[CPA]

Originally posted by: SSSnail

Originally posted by: CPA

Originally posted by: SSSnail
Alright, I do have some questions regarding taxes.

If I'm relocated to another country, what are my tax responsibilities? Assuming that I will be filing single and 1.

All world income is reportable. If you receive your wages in another currency, you must translate it to US dollars. Some of your income ($85,700) may be excluded if you are a US citizen and have legal residence in the foreign country for the entire tax year.

Thanks, what if I'm paid in US dollar and the money will be deposited to a US bank account? Will I be taxed regularly even though I will be living in another country for the duration of the tax year? (Is that more than 300 days?)

I will be able to answer that question more thoroughly next week (I have close ties to our company's Payroll Director) when I'm back in the office. You may want to contact your department, but I suspect they withhold something. Just not exactly sure on what basis or for what country.

 

[CPA]

Originally posted by: her209

Originally posted by: CPA

Originally posted by: her209

Originally posted by: EagleKeeper

Originally posted by: her209
Okay, here's a doozey.

I worked a lot of overtime this year. Doing a quick estimate of my gross wages for 2007 and the amount of federal taxes withheld, it looks like I'm going to end up owing the IRS $3000. This is more than $1000 and more than 10% of the overall taxes owed, i.e. I will be assessed a penalty. Is there anyway to reduce or eliminate it?

If taxes were not being withheld from the overtime pay, then you have a problem. Find out why.

You can always cut the IRS a check for the expected underage by 31 Dec to avoid the penalties.

Federal taxes were withheld. I assume it was withheld at the rate based on the annual wage rate.

Did you pay more taxes in this year than last?

I'd have to go back to check my past filings. Roughly estimated, I will have made at least 33% more than I did in 2006.

The reason is that is you paid at least 90% of what you paid in 2006 taxes, then you do not have to pay the penalty. If you do have to pay the penalty, the best thing to do may be to have the IRS calculate it. There is no penalty or interest for not calculating it. They will do it and bill you. Who knows how long it would take them to bill you for it.

 

[Mermaidman]

My tax preparer is off this week, so maybe one of you can enlighten me:
My 2006 taxes (Line 63 of Form 1040) were ~$17K, but the total amount of quarterly payments for 2007 will total to only $6500.

Did my tax preparer make a mistake?? Should I make a giant 4th quarter payment to the IRS to cover the potential shortfall? All my income is 1099, so there is no withholding, and if it matters, my 2007 income is 20% higher than 2006. I have a feeling I owe the IRS $$$.

 

[Drakkon]

I moved to a different state midway trough the year while doing 1099 work for a company - The majority of the work was done while in new state. The checks were sent to my old state address where i still had a place while i worked and had an apt (but didn't get my DL) in the new state. The 1099 was filed under my old state address. Will i need to declare the income in my old state or new state?

 

[EagleKeeper]

Originally posted by: Mermaidman
My tax preparer is off this week, so maybe one of you can enlighten me:
My 2006 taxes (Line 63 of Form 1040) were ~$17K, but the total amount of quarterly payments for 2007 will total to only $6500.

Did my tax preparer make a mistake?? Should I make a giant 4th quarter payment to the IRS to cover the potential shortfall? All my income is 1099, so there is no withholding, and if it matters, my 2007 income is 20% higher than 2006. I have a feeling I owe the IRS $$$.

Look at the total quarterly payments. Are you looking at only one quarter of $6500 or 3 quarters of 6500 each?


20% increase over 2006 will put you around 21K in taxes owed.

That should help will tell you if you are short and by an estimated how much.

 

[EagleKeeper]

Originally posted by: Drakkon
I moved to a different state midway trough the year while doing 1099 work for a company - The majority of the work was done while in new state. The checks were sent to my old state address where i still had a place while i worked and had an apt (but didn't get my DL) in the new state. The 1099 was filed under my old state address. Will i need to declare the income in my old state or new state?

If it is 1099 work, flip a coin and take the state the has the lower tax rate.

Properly, you should split the state taxes based on where you lived when the income was earned.

 

[Mermaidman]

Originally posted by: EagleKeeper

Originally posted by: Mermaidman
My tax preparer is off this week, so maybe one of you can enlighten me:
My 2006 taxes (Line 63 of Form 1040) were ~$17K, but the total amount of quarterly payments for 2007 will total to only $6500.

Did my tax preparer make a mistake?? Should I make a giant 4th quarter payment to the IRS to cover the potential shortfall? All my income is 1099, so there is no withholding, and if it matters, my 2007 income is 20% higher than 2006. I have a feeling I owe the IRS $$$.

Look at the total quarterly payments. Are you looking at only one quarter of $6500 or 3 quarters of 6500 each?


20% increase over 2006 will put you around 21K in taxes owed.

That should help will tell you if you are short and by an estimated how much.

Sorry--What I meant is that all four payments will total about $6500. 1Q=$1500, 2Q=$1500, 3Q=$1500, and 4Q will be $2000. And yes, I should have realized these were too low. So should i go ahead and make a final quarterly payment of around $15K?

 

[EagleKeeper]

Originally posted by: Mermaidman

Originally posted by: EagleKeeper

Originally posted by: Mermaidman
My tax preparer is off this week, so maybe one of you can enlighten me:
My 2006 taxes (Line 63 of Form 1040) were ~$17K, but the total amount of quarterly payments for 2007 will total to only $6500.

Did my tax preparer make a mistake?? Should I make a giant 4th quarter payment to the IRS to cover the potential shortfall? All my income is 1099, so there is no withholding, and if it matters, my 2007 income is 20% higher than 2006. I have a feeling I owe the IRS $$$.

Look at the total quarterly payments. Are you looking at only one quarter of $6500 or 3 quarters of 6500 each?


20% increase over 2006 will put you around 21K in taxes owed.

That should help will tell you if you are short and by an estimated how much.

Sorry--What I meant is that all four payments will total about $6500. 1Q=$1500, 2Q=$1500, 3Q=$1500, and 4Q will be $2000. And yes, I should have realized these were too low. So should i go ahead and make a final quarterly payment of around $15K?

It is your choice. Pay now and the IRS will not come looking for you. Pay later and also pay the penalty and have the IRS possibly flag you for verification down the road.

Hopefully, you can expense off some of the mistake.

 

[CPA]

Originally posted by: EagleKeeper

Originally posted by: Drakkon
I moved to a different state midway trough the year while doing 1099 work for a company - The majority of the work was done while in new state. The checks were sent to my old state address where i still had a place while i worked and had an apt (but didn't get my DL) in the new state. The 1099 was filed under my old state address. Will i need to declare the income in my old state or new state?

If it is 1099 work, flip a coin and take the state the has the lower tax rate.

Properly, you should split the state taxes based on where you lived when the income was earned.

I would add that the company you contract with is probably going to list the address you have on file with them on the 1099-Misc they will send you in February/March. I would file with that state so you don't have to write letters or anything like that.

 

[jjones]

I need professional tax filing assistance with my company, a Nevada based LLC (Partnership). Anyone interested, please PM me so we can further discuss details, fees, etc.

 

[her209]

Originally posted by: CPA

Originally posted by: her209

Originally posted by: CPA
Did you pay more taxes in this year than last?

I'd have to go back to check my past filings. Roughly estimated, I will have made at least 33% more than I did in 2006.

The reason is that is you paid at least 90% of what you paid in 2006 taxes, then you do not have to pay the penalty. If you do have to pay the penalty, the best thing to do may be to have the IRS calculate it. There is no penalty or interest for not calculating it. They will do it and bill you. Who knows how long it would take them to bill you for it.

I will get back to you when I have access to my records. Thanks for the help.

(Currently out of town.)

 

[SarcasticDwarf]

For some reason I am drawing a total blank on this one:

I have income from both a normal W2 job as well as some from a small business organized as a sole proprietership. I have never had the SP show a profit (do I even need to?). This year is the first that it probably will. Is this treated the same way as income from my W2 job?

Meaning: If I bring in say $10k from the W2 where taxes were withheld (I get a refund) and 1k from the sp, will it be taxed at the normal say 15% with the taxes pulled from my W2 job refund?

 

[CPA]

Originally posted by: SarcasticDwarf
For some reason I am drawing a total blank on this one:

I have income from both a normal W2 job as well as some from a small business organized as a sole proprietership. I have never had the SP show a profit (do I even need to?). This year is the first that it probably will. Is this treated the same way as income from my W2 job?

Meaning: If I bring in say $10k from the W2 where taxes were withheld (I get a refund) and 1k from the sp, will it be taxed at the normal say 15% with the taxes pulled from my W2 job refund?

Any income (not revenue) will be treated at individual tax rates since you are a sole propreitorship. The income will be counted as taxable income and as part of your AGI.

 

[cpals]

I bought my first house in Feb 2007 under my name and then got married in July 2007.

1. Is this a pretty straight forward process with getting married? I use TaxACT, will it be able to figure out these things?

2. Is there normally a better way to file (separate or together)?

 

[erikatcuse]

Originally posted by: CPA

Originally posted by: Evadman

There is still an energy tax credit for installing energy efficient fixtures/appliances.
$50 for each advanced main air circulating fan
$150 for each qualified natural gas, propane, or oil furnace or hot water boiler
$300 for each item of qualified energy efficient property.

Does that count HE washers/dryers? I spent about $2500 on a pair, and it would be nice to get some of that back. where can i find a list and/or criteria to determine it? They were Kenmore HE4's by the way.

No. My guess is because the "high efficiency" relates to water usage reduction, not energy reduction.

Here is a list.

Not so fast check this out Tax breaks for energy efficient appliances

 

[Fern]

Originally posted by: CPA

Originally posted by: SarcasticDwarf
For some reason I am drawing a total blank on this one:

I have income from both a normal W2 job as well as some from a small business organized as a sole proprietership. I have never had the SP show a profit (do I even need to?). This year is the first that it probably will. Is this treated the same way as income from my W2 job?

Meaning: If I bring in say $10k from the W2 where taxes were withheld (I get a refund) and 1k from the sp, will it be taxed at the normal say 15% with the taxes pulled from my W2 job refund?

Any income (not revenue) will be treated at individual tax rates since you are a sole propreitorship. The income will be counted as taxable income and as part of your AGI.

The income (net profit) from the SP will also be subject to self employment tax. You'll calculate that on Sch. SE.

50% of the self employment tax will be deductible on the bottom of page 1 Form 1040.

Fern

 

[Fern]

Originally posted by: EagleKeeper

Originally posted by: Mermaidman

Originally posted by: EagleKeeper

Originally posted by: Mermaidman
My tax preparer is off this week, so maybe one of you can enlighten me:
My 2006 taxes (Line 63 of Form 1040) were ~$17K, but the total amount of quarterly payments for 2007 will total to only $6500.

Did my tax preparer make a mistake?? Should I make a giant 4th quarter payment to the IRS to cover the potential shortfall? All my income is 1099, so there is no withholding, and if it matters, my 2007 income is 20% higher than 2006. I have a feeling I owe the IRS $$$.

Look at the total quarterly payments. Are you looking at only one quarter of $6500 or 3 quarters of 6500 each?


20% increase over 2006 will put you around 21K in taxes owed.

That should help will tell you if you are short and by an estimated how much.

Sorry--What I meant is that all four payments will total about $6500. 1Q=$1500, 2Q=$1500, 3Q=$1500, and 4Q will be $2000. And yes, I should have realized these were too low. So should i go ahead and make a final quarterly payment of around $15K?

It is your choice. Pay now and the IRS will not come looking for you. Pay later and also pay the penalty and have the IRS possibly flag you for verification down the road.

Hopefully, you can expense off some of the mistake.

I'd say wait a week to ask your acct and find out why.

You'll likely already be hit with a underpayment penalty because the money was NOT paid in equally. Unless you can document the bulk of your profit was actually earned in the last quarter.

Paying now instead of waiting a week to speak to them will only save you a very small amount (basically a weeks worth of interest).

Fern

 

[Fern]

Originally posted by: CPA

Originally posted by: SSSnail

Originally posted by: CPA

Originally posted by: SSSnail
Alright, I do have some questions regarding taxes.

If I'm relocated to another country, what are my tax responsibilities? Assuming that I will be filing single and 1.

All world income is reportable. If you receive your wages in another currency, you must translate it to US dollars. Some of your income ($85,700) may be excluded if you are a US citizen and have legal residence in the foreign country for the entire tax year.

Thanks, what if I'm paid in US dollar and the money will be deposited to a US bank account? Will I be taxed regularly even though I will be living in another country for the duration of the tax year? (Is that more than 300 days?) Se IRS Publication 54 about the FEI. There are two tests" Bonafide Resident and Physical Presence. If you're not goonna meet the BFR test, make sure you meet the PPT buy staying out of the USA long enough

I will be able to answer that question more thoroughly next week (I have close ties to our company's Payroll Director) when I'm back in the office. You may want to contact your department, but I suspect they withhold something. Just not exactly sure on what basis or for what country.

Where you money is deposited, and what currency it is in has NO effect on the taxation of it.

When you begin overseas and are paid by a US company not familiar with international payroll issues:

If you're paid by the US department you should complete a Form 673 IIRC claiming the FEI (foreign earned income exclusion under IRC section 911 assuming you meet the qualifications). This will reduce your federal income tax withholding.

You'll likely be subject to tax in the foreign country and some accomodation should be made for that so you aren't slammed at the end of the year. Some use a PAYGO system, others don't and you pay all at once when (even after in some cases) you file with no penalty.

Social security can get complicated, depending on SS treaties/totalization agreements etc. So I won't comment here other than to say check out the foreign country's rules.

You can check out Singapore's rules at thier site, it's in English. When you get there, call them. I bet they'll be happy to help.

Fern

 

[Fern]

Originally posted by: CPA

Originally posted by: Jawo
Thanks for having this thread its great!

When is the last day to contribute towards a Roth IRA for the 2007 tax year?
Does anyone have advice on the difference between a Roth 401k and a traditional 401K (assume mid 20's, want interest to do the most for me). My employer offers both, and matches 5% for both.

Thanks!

I believe April 15th is the last day to contribute to a Roth IRA and get the deduction (similar to a traditional IRA).

Yep, 4/15/08 (extensions don't count).

Roth contributions are NOT deductible (but withdrawls are tax-free unlike regular IRA).

Go HERE and check the calculator feature to see which (reg 401k or roth 401K) is better for you.

Rule of thimb IMO: if you're in a low bracket (fed & state) now the Roth is likely better since your deduction won't worth much.

Fern

 

[CPA]

Originally posted by: cpals
I bought my first house in Feb 2007 under my name and then got married in July 2007.

1. Is this a pretty straight forward process with getting married? I use TaxACT, will it be able to figure out these things?

2. Is there normally a better way to file (separate or together)?

Yep, it's pretty straightforward. TaxAct will figure either, you just have to check the correct box. In fact, at the end I believe it will ask if you want to see the filing as seperate.

 

[CPA]

Originally posted by: Fern

Originally posted by: CPA

Originally posted by: SarcasticDwarf
For some reason I am drawing a total blank on this one:

I have income from both a normal W2 job as well as some from a small business organized as a sole proprietership. I have never had the SP show a profit (do I even need to?). This year is the first that it probably will. Is this treated the same way as income from my W2 job?

Meaning: If I bring in say $10k from the W2 where taxes were withheld (I get a refund) and 1k from the sp, will it be taxed at the normal say 15% with the taxes pulled from my W2 job refund?

Any income (not revenue) will be treated at individual tax rates since you are a sole propreitorship. The income will be counted as taxable income and as part of your AGI.

The income (net profit) from the SP will also be subject to self employment tax. You'll calculate that on Sch. SE.

50% of the self employment tax will be deductible on the bottom of page 1 Form 1040.

Fern

Thanks for addendum, I completely forgot about the FICA component.

 

[CPA]

Originally posted by: erikatcuse

Originally posted by: CPA

Originally posted by: Evadman

There is still an energy tax credit for installing energy efficient fixtures/appliances.
$50 for each advanced main air circulating fan
$150 for each qualified natural gas, propane, or oil furnace or hot water boiler
$300 for each item of qualified energy efficient property.

Does that count HE washers/dryers? I spent about $2500 on a pair, and it would be nice to get some of that back. where can i find a list and/or criteria to determine it? They were Kenmore HE4's by the way.

No. My guess is because the "high efficiency" relates to water usage reduction, not energy reduction.

Here is a list.

Not so fast check this out Tax breaks for energy efficient appliances

Washers and Dryers are not included, as much as I can gather. The appliances refer to water heaters and such.