9th Annual Tax Thread - 2011

[EagleKeeper]

Well boys and girls it's that time of year again. While at times the thousands of regs and tens of thousands of cumbersome forms, worksheets and pages of codes seem infuriating, deep down you all know you love it. Whether it's keeping things in order all year for a quick mid-February filing or a knuckle-clenching, bullet sweating the current April 16th midnight filing, when you've finally filed it's better than sex! So, without further delay, we give you:

The 9th Annual Anandtech Tax Time Thread!!!

First order of business:
Gratutities can be sent to the Moderator beer fund for allowing this thread to be placed every year.:whiste:
That fund was very low last year ; New Moderators were brought onboard to even clean out the used mugs :'( New ones were unable to be purchased

Now the legal mumbo jumbo:

All responses to questions (primarily from myself and CPA along with some other valued contributers) are based on our knowledge and understanding of the current tax code. That said, we do not expressly give permission to use our opinions and responses as sole binding measure for any user, the intended or not. Seek out a local expert and a second opinion with any tax inquiry. We will not be held liable for any audit, fine, penalty or other consequence due to any user basing a filing primarily on our responses. In other words, you're on your own.

Please understand that the service provided here is not to be considered as the final say in any tax related question or issue. We advise everyone to take caution with accepting the answers posted here and seek a good tax accountant or tax lawyer when necessary, especially those pesky complicated questions. Additionally Anandtech nor Anand have endorsed myself or the other benevolent responders in this thread. So please don't complain to them if you feel like you got a bogus answer. Finally, this thread is NOT meant to offer advice nor do your taxes for you. It is solely to help clear up questions, concerns or misunderstandings that you may have concerning the 2007 Tax Code. None of the responders take responsibility for your final tax preparation. You do!

Secondly, this is important people:

Please post all tax questions in this thread! We will not, I repeat, WILL NOT, intend to respond to other threads. We strongly encourage all members to post your questions here for the benefit of others. We will NOT respond to PMs unless we request one from you or if there is personal information that can not be scrubbed to support a question. And finally, please, for the love of all that's good in the world, read through the thread, there is a good chance your question has already been asked and answered. We know that such is inconvientent, but you may also pick up unknown tidbits of useful infomation at the same time

Questions that have been answered, will be indicated as such / you will have to dig through the thread anyhow to find it. Should your question have been answered previously, anticipate that sarcasm will be the response. The other threads have been archived and the search function works (now we at on vB).

If the below saves one ATOT member from being a sucker, it will be worth the typing:

**** Warning - Snapshot of IRS Phishing E-Mail ****
IRS Privacy Page

PLEASE NOTE: Do not respond to unsolicited e-mails that claim to come from the IRS, or any e-mail from an unknown party asking you to submit personal, tax, or financial data. The Internal Revenue Service does not use e-mail to request this type of information. Forward suspicious emails to: phishing@irs.gov

If you E-File, the provider will inform you of the estimated time to have a refund issued.
If you mail, allow a minimum of an extra 2 weeks for a refund to be processed.
A good rule is to allow an extra additional week in addition to above, for each month that you delay filing.
Allow an extra week if the funds are being mailed to you instead of being direct deposit.


Now, if you're an ambitious one, you can always trudge through the IRS website for help

Oh, and again please, try not to PM us or any of the other responders unless you are asked to. Instead, post your question here for all to see, because chances are there is another member with a similar issue. The Mods have been requested to lock any/all other threads that show up dealing with tax issues.

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Okay, moving on. This thread is NOT intended to:

-Answer state tax questions. Sorry folks, states are their own beasts. They all have different rules and regs, heck 7 states don't even have income taxes. We are not about to keep up with 43 different state codes. Therefore, we won't be answering state questions. The best way to get an answer for a state question is to call up the State Treasury or Revenue Dept.

- Endorse any tax software. We can safely say that most of the software does it's job well. Without recommending any particular one, you can choose TaxAct, TaxCut, or TurboTax. Additionally, these and many more sites assist you in actually doing your taxes online. Even the IRS website has the ability for you to file online with simple filings.

-Help propagate any illegal tax schemes. Some of us do not appreciate the hospitality of the Federal Government. So keep your schemes out of this thread. Thanks for understanding.

- Start any arguments between the current system, flat tax, national sales tax or any other tax opinion. The thread is to help people, not debate, flame or troll. The Moderators will be asked to intervene for the latter items as needed.

We also very busy this year, so may not be responding to questions as fast as in the previous years. However, we have good knowledgeable people that will help to fill in the gaps.

There have been some changes which as we dig them out will be updated in this original post. The IRS no longer makes these easily identified in one common area.

• Placeholder

For those of you who enjoy torturing yourself, We present the IRS Web Site. However, this site has most of the answers also.


Previous ATOT Tax Threads

• 2003
• 2004
• 2005
• 2006
• 2007
• 2008
• 2009
• 2010

The two sites below have restrictions on their usage and any returns must be started through above links for them to be considered for no charge.
they are not available until mid-January

Federal/Intuit Tax Freedom
State/Intuit Tax Freedom

TaxAct states free filing using their online version for Federal.


H&R Block Product Comparison Chart: (not an endorsement)

Chart

All the three main biggies (TurboTax, TaxCut and TaxAct) do the job. Each has slightly different user interfaces and their quirks/irritations. They continually look at the competition and attempt to match them in features the following year. All three area able to import datafiles from each other.

Some will allow multiple Federal efiles for the same license.

All three have state filing.
However, if you have multiple states to work with, you MUST USUALLY purchase a copy for each state that you need to work with.


Some IRS and other Tax Links may not be fully operational until mid January or later



Okay, now that that stuff is out of the way, let's get to some helpful insight.

Deadlines (midnight of the date listed for filing deadlines)

W2 - Companies are required to have your W2 POSTMARKED by January 31st. It is NOT required that you have it in your hands by that date. Let's dispel that myth please.
If you do not receive it by mid February; for ex-employers, call the employer and ask for a copy to be Faxed to you. For current employers, contact your HR department.

1099 - Companies are required to have your W2 POSTMARKED by January 31st. It is NOT required that you have it in your hands by that date. If you do not receive it by mid February, call the employer and ask for a copy to be Faxed to you. Note: 1099s do not have to be sent to you. Individuals that could receive a 1099 are responsible for tracking their own income.

Most Federal returns - 17 April 2012

IRS FAQ Index - contains links for below areas

• IRS Procedures
• Filing Requirements/Status/Dependents/Exemptions
• Itemized Deductions/Standard Deductions
• Interest/Dividends/Other Types of Income
• Pensions and Annuities
• Social Security Income
• Child Care Credit/Other Credits
• Earned Income Tax Credit
• Estimated Tax
• Capital Gains, Losses/Sale of Home
• Sale or Trade of Business, Depreciation, Rentals
• Small Business/Self-Employed/Other Business
• Aliens and U.S. Citizens Living Abroad
• Electronic Filing (e-file)
• Magnetic Media Filers
• Other (Alternative Minimum Tax, Estates, Trusts, Tax Shelters, State Tax Inquiries)
• Individual Retirement Arrangements (IRAs)

Free Filing - via IRS

Check back January 17, 2012 to file your 2011 Free File return.

EVERYONE is Eligible to Free File!

Let Free File do the hard work for you with brand-name software or online Fillable Forms. You can prepare and e-file your federal return for free. Participating software companies make their products available through the IRS. Some also support state tax returns.

Some useful tidbits accumulated from previous years.

Dependants:

Significant others are able to be declared as a dependent if you provide the support according to the IRS guidelines. (I would not push it with multiple SO at the same time ...)SO's children are now allowed based on a IRS notice of 3/08. This can also be used retroactively for the past 3 years.

You are a dependent of your parents if you are under 18 (24 if in school) unless:
You have stood on your own for more than 6 months. Just because you paid for your tuition costs does not mean that you are not a dependent.
Your parents have the option of not declaring you and letting you stand on your own.

If you cover more than 50% TOTAL of living expenses for a "legal" (per IRS definition +/- two generations) relative they can be declared as a dependent.

You can not claim a spouse as a Dependant if filing as Head Of Household

1099

If you get paid with a 1099, you have the option of filing it with your 1040/1040A under misc income or using the Schedule C. Use of the Schedule C (requires a 1040) and allows you to write off expenses directly and some portion indirectly related to that income before taxes. Previous tax threads have provided guidance on items that could be used as expenses in on capacity or another.
Income earned via a 1099 is also subject to the self employment tax as well as the normal expected W2 type taxes.

Mileage - (New numbers are posted)

Jan1 - Jun 30

51 cents per mile for business miles
19 cents per mile driven for moving purposes
19 cents per mile driven for medical purposes
14 cents per mile driven in service to a charitable organization

Jul1 - Dec 31

55.5 cents per mile for business miles
23.5 cents per mile driven for moving purposes
23.5 cents per mile driven for medical purposes
14.0 cents per mile driven in service to a charitable organization

Commuting is not deductible expenses.
Commuting between two jobs is.
Mileage to/from school while working (if the education if not primary - ie it supports work) is a deductible expense on the Form 2106 (which requires 1040 and Schedule A).
If school can be considered as supportive of business income, the tuition, fees, books and mileage become a business expense on the Schedule C. Otherwise use the 2106
You can not claim mileage and expenses on the same vehicle.

Moving

Expenses incurred when changing work locations (for any reason) if the location meets the distance test of 50 miles is filed on the Form 3903 and does NOT require a schedule A.

Sales Tax (Still Valid for 2011)

Sales tax is still allowed as an itemized deduction this year. While it can be a little complicated, the main points of this deduction are:
a. Publication 600 is the main reference for this deduction and contains the tables for those of us who didn't keep your receipts all year long.
b. Anyone who itemized can take it, regardless of what state you are in, BUT, if you live in a state with local/state income tax you have to choose to use the sales tax or income tax deduction. You CAN'T have both.
Sales Tax Calculator

Interest Reporting

You are responsible to report interest /dividends over $1.
The payee is responsible for providing you a 1099 form when the payment is over $10.

Business Expense write offs.

Unless your have Self Employment income (use the Schedule C) expenses must fall under the Form 2106 using the Schedule A (Itemizations)

Expenses for clothing is not deductible, unless those items can not be worn out in public for normal use and/or private functions.
Example:
If you have to wear a suit for work, you can not deduct the cost of the suit and dry cleaning.
If you have a military or other Government service type uniform, it is deductible.

Students:

Hope Credit is for tuition for the first 2 years of college. = 50%
Lifetime Learning Credit is for any other type of educational advancement. = 20%
Note: If your parents claim you as a dependent, they get the Credits, no matter who pays the tuition.
Note: If filing separately, NO educational credits can be claimed for self.

Books, laptops, etc do not qualify. Those would have to be entered as expenses on the Form 2106 for those that use Schedule A.

There is a new credit similar to the Hope - American Opportunity Tax credit
This covers up to 4 years to a max of $2500. Up to $1000 can be credited even if you have no income

No Double Benefit Allowed
You cannot do any of the following:

Deduct higher education expenses on your income tax return (as, for example, a business expense) and also claim a lifetime learning credit based on those same expenses.

Claim a lifetime learning credit in the same year that you are claiming a tuition and fees deduction for the same student.

Claim a lifetime learning credit and a Hope credit based on the same qualified education expenses.

Claim a lifetime learning credit based on the same expenses used to figure the tax-free portion of a distribution from a covered education savings account (ESA) or qualified tuition program (QTP). See Coordination With Hope and Lifetime Learning Credits in Chapter 7 and Chapter 8 (QTP).

Claim a credit based on qualified education expenses paid with a tax-free scholarship, grant, or employer-provided educational assistance. See Adjustments to Qualified Education Expenses, later.

Well, sorry for the long post, but just like the IRS code, it takes a lot to do something simple. We have tried to organize it for easier reading by using the quoting method to section areas off.

AGAIN
Questions already answered in the thread may be responded to as "all ready answered". If so, you will <gasp> actually have to read this thread
Now, let the questions begin.

 

[Coup27]

I live in the UK. Does that mean I win?

 

[Bignate603]

Here's a question. I'll do it in bullet points so it's easier to follow

- I've taken $6,000 worth of masters level classes this year
- My company has reimbursed me for this and the classes meet the IRS regs so this reimbursement is non-taxable
- Because someone else is reimbursing me with tax free dollars I have not claimed any tuition deductions for these classes
- I am planning on leaving my job next year, when I leave I will have to repay my current company the reimbursements they've made for classes in 2011.
- Can I file an amended return after I repay them to claim the tuition deduction for 2011?

 

[AznAnarchy99]

Ive asked this before but Ill ask again since tax time is around the corner.

My mom has been claiming me as a dependent for the past few years but she does not financially support me nor do I live with her. I want to file by myself this year. What would happen if she decides to be stubborn and claim me anyways if I decide to file myself. She would not have my W2s or any such.

 

[EagleKeeper]

Here's a question. I'll do it in bullet points so it's easier to follow

- I've taken $6,000 worth of masters level classes this year
- My company has reimbursed me for this and the classes meet the IRS regs so this reimbursement is non-taxable
- Because someone else is reimbursing me with tax free dollars I have not claimed any tuition deductions for these classes
- I am planning on leaving my job next year, when I leave I will have to repay my current company the reimbursements they've made for classes in 2011.
- Can I file an amended return after I repay them to claim the tuition deduction for 2011?

If you repay them in 2012; then your return should show tuition payed for 2012;
Keep copy of the repayment in 2012 with a documented explanation on why and tuition payments in 2011

 

[Bignate603]

If you repay them in 2012; then your return should show tuition payed for 2012;
Keep copy of the repayment in 2012 with a documented explanation on why and tuition payments in 2011

Thanks. For documentation would the letter from my company requesting payment which stated what it was for and some sort of proof of payment (copy of cleared check from my bank maybe?) be sufficient?

 

[EagleKeeper]

Ive asked this before but Ill ask again since tax time is around the corner.

My mom has been claiming me as a dependent for the past few years but she does not financially support me nor do I live with her. I want to file by myself this year. What would happen if she decides to be stubborn and claim me anyways if I decide to file myself. She would not have my W2s or any such.

If your W2 income puts you above the dependent level; she can not claim you.
If your income is below the dependent level and you pass the other tests; she has the option to claim you.

Maybe you can agree to cover the difference in her taxes if you are not a dependent (only if she can legally claim you)

Look at the detailed rules for claiming a dependent and go over it with her if there is a dispute.

If you claim single and she claims dependent; the IRS will send a statement asking for clarification. If the two of you do not come to an agreement they will look at what ever documentation is provided and make a decision. It is also a perfect way to trigger an audit for the next few years

 

[EagleKeeper]

Thanks. For documentation would the letter from my company requesting payment which stated what it was for and some sort of proof of payment (copy of cleared check from my bank maybe?) be sufficient?

That should cover everything but the actual tuition 1098 statement for 2011.

Remember, the year that the repayment is made, determines the filing year that you can file with the tuition payment credit.

 

[Meghan54]

OK, here's one that we're going to have to deal with this year.

We "inherited" some property (quit claim deed transfer from wife's father to us for $1).

We sold a portion of the property, 0.81 AC, that was unattached to the main 2.85 AC parcel. Tax assessor's office had assigned a value to the parcel of $157K.

We sold the property for $75K, $35K as cash down payment and we are carrying the remaining $40K as a 10 year mortgage.


As I mentioned, the property was previously owned by my wife's father (and mother, but she passed away approx. 7 months ago in May of this year.)

What I'm having problems with is basis and how it'll reflect on our taxes. The attorney we used for the property sale said that since the property had been jointly held for decades between Robert and Ruby, my wife's father and deceased mother, and with Ruby's passing this year, the basis of the property's value was 1/2 Robert's, 1/2 Ruby's, and when she passed, the basis became just what was Robert's----1/2 the assessed value, or ~$78K.

Now, we were also told that we assumed the basis straight up from Robert when we took title and deed to the property and have essentially no capital gains from its sale as we sold the property for just under the assigned basis Robert had in it and what we assumed when we took possession of said property. (Why we sold it so cheaply is another story, but it revolves around having to get rid of it and having only one person really interested in it.....the person who was already renting the property for $1/year to pasture two horses on it.)

So, what forms do we hit and how do we calculate our supposed no-tax burden from the sale of the property?

If you need clarification, as I'm sure my explanation is terrible right now, I'll be glad to go into more depth.

 

[Red Squirrel]

This year, I know to buy way more RRSPs. I got screwed last year, and actually had to pay. Glad it was only like 100 bucks, but still sucks, when I'm used to normally getting a couple grand back.

 

[AznAnarchy99]

If your W2 income puts you above the dependent level; she can not claim you.
If your income is below the dependent level and you pass the other tests; she has the option to claim you.

Maybe you can agree to cover the difference in her taxes if you are not a dependent (only if she can legally claim you)

Look at the detailed rules for claiming a dependent and go over it with her if there is a dispute.

If you claim single and she claims dependent; the IRS will send a statement asking for clarification. If the two of you do not come to an agreement they will look at what ever documentation is provided and make a decision. It is also a perfect way to trigger an audit for the next few years

Well here's two of the things that would go against her claiming me which she has for the past few years. I lived on my own since I was 16 and get no money from her.

3. The child must have lived with you for more than half of the year.
4. The child must not have provided more than half of his or her support for the year.

 

[Born2bwire]

I came in here to ask a question but I checked the IRS website and answered it myself. I'm so proud. But this made me realize that I overpaid on my 2008 returns because I could have claimed foreign residency for part of the year but I did not take the exemption for that. I am currently totaling up what my adjusted gross income should be but for some reason I am still short what I originally figured. I haven't dealt with this form in three years but...

On the 1098-T, I have my tuition statement for when I was a graduate student. Box 2 (Amounts billed for qualified tuition and related expenses) is $6068.00 Box 5 (Scholarships or grants) is $6963.89. Since my grants were greater than the tuition and expenses (my ass it was... seriously, it doesn't cover several hundred dollars in fees but anyway), was I correct in including the difference of $896 into my "Wages, salaries, tips, etc." line of my 1040A?

 

[EagleKeeper]

I came in here to ask a question but I checked the IRS website and answered it myself. I'm so proud. But this made me realize that I overpaid on my 2008 returns because I could have claimed foreign residency for part of the year but I did not take the exemption for that. I am currently totaling up what my adjusted gross income should be but for some reason I am still short what I originally figured. I haven't dealt with this form in three years but...

On the 1098-T, I have my tuition statement for when I was a graduate student. Box 2 (Amounts billed for qualified tuition and related expenses) is $6068.00 Box 5 (Scholarships or grants) is $6963.89. Since my grants were greater than the tuition and expenses (my ass it was... seriously, it doesn't cover several hundred dollars in fees but anyway), was I correct in including the difference of $896 into my "Wages, salaries, tips, etc." line of my 1040A?

For your 2008 income; try to get a copy of some tax S/W for that year and use that to rework the return.


On the educational issue:
Much depends on what the fees were and when the fees were paid.

If they were required to obtain the grants; then they have reduced the value of the grant and should be treated as an expense.

However, how much of a difference with the extra $900 have in terms of your tax.
Playing around with educational line items are looked at closely due to the fact that errors are made (deliberate or accidental).

 

[EagleKeeper]

Well here's two of the things that would go against her claiming me which she has for the past few years. I lived on my own since I was 16 and get no money from her.

3. The child must have lived with you for more than half of the year.
4. The child must not have provided more than half of his or her support for the year.

First talk to her and inform her that yo will be filing own your own this year.

You may be making a mountain over a molehill.

If she pushes back; then show her the IRS guidelines.

 

[EagleKeeper]

OK, here's one that we're going to have to deal with this year.

We "inherited" some property (quit claim deed transfer from wife's father to us for $1).

We sold a portion of the property, 0.81 AC, that was unattached to the main 2.85 AC parcel. Tax assessor's office had assigned a value to the parcel of $157K.

We sold the property for $75K, $35K as cash down payment and we are carrying the remaining $40K as a 10 year mortgage.


As I mentioned, the property was previously owned by my wife's father (and mother, but she passed away approx. 7 months ago in May of this year.)

What I'm having problems with is basis and how it'll reflect on our taxes. The attorney we used for the property sale said that since the property had been jointly held for decades between Robert and Ruby, my wife's father and deceased mother, and with Ruby's passing this year, the basis of the property's value was 1/2 Robert's, 1/2 Ruby's, and when she passed, the basis became just what was Robert's----1/2 the assessed value, or ~$78K.

Now, we were also told that we assumed the basis straight up from Robert when we took title and deed to the property and have essentially no capital gains from its sale as we sold the property for just under the assigned basis Robert had in it and what we assumed when we took possession of said property. (Why we sold it so cheaply is another story, but it revolves around having to get rid of it and having only one person really interested in it.....the person who was already renting the property for $1/year to pasture two horses on it.)

So, what forms do we hit and how do we calculate our supposed no-tax burden from the sale of the property?

If you need clarification, as I'm sure my explanation is terrible right now, I'll be glad to go into more depth.

Pub 544 covers how to report the sale

Because you have complete title to the land; the manipulation of previous ownership does not come into play. You have a quit claim with a clear title; the value of the $1 is what you paid for the land. Essentially anything you sell will be considered a capital gain.

You should declare the gains on $75K (sale price) and every year also declare the interest received from the financed portion of the sale.

 

[Born2bwire]

For your 2008 income; try to get a copy of some tax S/W for that year and use that to rework the return.


On the educational issue:
Much depends on what the fees were and when the fees were paid.

If they were required to obtain the grants; then they have reduced the value of the grant and should be treated as an expense.

However, how much of a difference with the extra $900 have in terms of your tax.
Playing around with educational line items are looked at closely due to the fact that errors are made (deliberate or accidental).

What is tax S/W? The educational line item isn't the real problem. The real problem is that I should be able to deduct around $6K of income because it is eligible for for foreign income exemption. What I am wondering though is if my grants and scholarships exceed the reported tuition fees on my 1098-T, is the excess counted as wages, income, etc? I can't remember how that was supposed to be handled.

 

[EagleKeeper]

What is tax S/W? The educational line item isn't the real problem. The real problem is that I should be able to deduct around $6K of income because it is eligible for for foreign income exemption. What I am wondering though is if my grants and scholarships exceed the reported tuition fees on my 1098-T, is the excess counted as wages, income, etc? I can't remember how that was supposed to be handled.

Tax Software - as described in the OP.

Are we talking about the same year or two different years?
One for tuition and the other for foreign income

 

[Born2bwire]

Tax Software - as described in the OP.

Are we talking about the same year or two different years?
One for tuition and the other for foreign income

This was all the same year. I worked for two different companies Stateside that I have the W2's for and I have my paystubs for the company that I worked with overseas (which I did not claim the exemption for because at the time I did not qualify as a bona fide residence but I stayed on for three years which should allow me to claim bona fide residence even for the relevant 2008 period from my understanding from Pub 54).

I'm just trying to work out the income that I reported because I don't have the original worksheets. It appears though that I included the excess money from my grants and scholarships into my wages. I had more gift aid credited to me that year than I had tuition and fee charges that were reported. I just want to know if that was the correct thing to do (regardless of the additional fees and whatnot)? The 1098-T form states that the scholarships and grants may be subject to income tax but I was never clear on how.

EDIT: The 1098-T references a Pub 520: Scholarships and Fellowships on the issue but I can't find the publication on the IRS site.

 

[EagleKeeper]

Try Pub 970 - Tax Benefits for Education Pg 4

I believe the excess $$ should be treated as misc income

 

[paperfist]

I own a small business and use a regular tax filer/book keeper to do my taxes. Should I be using a 'real accountant' with a CPA? I end up paying quite a bit in taxes each year, though I don't have a lot of write offs.

 

[EagleKeeper]

I own a small business and use a regular tax filer/book keeper to do my taxes. Should I be using a 'real accountant' with a CPA? I end up paying quite a bit in taxes each year, though I don't have a lot of write offs.

Shop around for a different tax filer that may have a more detailed understanding of your type of business. See if they come up with a drasticly different picture.

 

[pwilson316]

My GF and I are planning on getting married soon. Before the end of the year. We are planning on filing jointly and it looks like the refund will be nice.

Any "gotchas" in this?

 

[EagleKeeper]

My GF and I are planning on getting married soon. Before the end of the year. We are planning on filing jointly and it looks like the refund will be nice.

Any "gotchas" in this?

Are you expecting a larger refund due to being married?

 

[pwilson316]

Are you expecting a larger refund due to being married?

It seems like we will as I have had single deductions and will be able to claim her. She was in college and did not really have an income.

 

[hclarkjr]

are we getting the $400 bonus again this year? making work pay i think it was called, can't remember at the moment