Taxes (TAX)

[OldPro]

Great board - Can I can contribute to a Roth or regular IRA from the profits on stocks for the year and hence lower my gross income and therefore, taxable income, while adding to an IRA acct. at the same time?

Trying to keep my gains away from the IRS! Any other methods of doing this? TIA - much appreciated.

[ypsiCPA]

Homebuyer Credit (IRS Update)

New legislation, the Worker, Homeownership and Business Assistance Act of 2009, which was signed into law on Nov. 6, 2009, extends and expands the first-time homebuyer credit allowed by previous Acts. The new law:

* Extends deadlines for purchasing and closing on a home.
* Authorizes the credit for long-time homeowners buying a replacement principal residence.
* Raises the income limitations for homeowners claiming the credit.

Under the new law, an eligible taxpayer must buy, or enter into a binding contract to buy, a principal residence on or before April 30, 2010 and close on the home by June 30, 2010. For qualifying purchases in 2010, taxpayers have the option of claiming the credit on either their 2009 or 2010 return.

For the first time, long-time homeowners who buy a replacement principal residence may also claim a homebuyer credit of up to $6,500 (up to $3,250 for a married individual filing separately). They must have lived in the same principal residence for any five-consecutive year period during the eight-year period that ended on the date the replacement home is purchased.

People with higher incomes can now qualify for the credit. The new law raises the income limits for homes purchased after Nov. 6, 2009. The credit phases out for individual taxpayers with modified adjusted gross income (MAGI) between $125,000 and $145,000 or between $225,000 and $245,000 for joint filers. The existing MAGI phase-outs of $75,000 to $95,000 or $150,000 to $170,000 for joint filers still apply to purchases on or before Nov. 6, 2009.

http://www.irs.gov/newsroom/article/0,,id=204671,00.html

[scott64]

Thanks a bunch, I can sleep now

[ypsiCPA]

Scott, as long as you sold the losing stock, you'll pay tax on the difference (100K - 50K). Be careful of the wash sale rules (buying back your loser within 30 days of selling it means you don't get the loss until a future sale).

[scott64]

Great board, I am showing only about 140k total gains for the year so far. I lost about 50k... Q' is the IRS taxing me on 140+50=190k as all profit, or do they just charge you for how you come out at the end. Ok, say if I cashed out on a short term stock and it paid 100k and I reinvested it into other stocks and lost 50k..are they going to nail me for the whole 100k as income? tia

[cintrix]

You should see three figures. Your cost basis, your gross proceeds and your gains/loss. The 40k is probably the difference between your basis and your proceeds - subtract the two and see if that is it. If the 40k is a positive number it is your profit - if it is negative <40k> then it is how much you lost.

[General Grievous]

hey looking at GAINSKEEPER now trying to see how much profit i've made. theres a number under Adjustaid gains at the bottom "$40,740" to the left of that number is "adjusted proceeds" and it says around $800,000 is the 800k the amount of money i've moved? and the 40k the amound ive made in PROFIT?

[General Grievous]

ok thanks for your help

[ypsiCPA]

You can get the trade info you need from TDA thru Gainskeeper after December 31. Deadline for filing your tax return (and paying taxes) is April 15.

[General Grievous]

so when is it that we all start getting out trade reports (im in tda) what is the deadline every year to pay taxes?

[ypsiCPA]

hi General - Trades through December 31 will be included on your 2009 tax return.

[General Grievous]

hey was watching cramer yesturday and he was saying how hedge funds close the year at the end of october so they dont incur anymore capital gains taxes? like they just stop trading? i dont understand this. this will be my first time paying taxes and i started in april...should i stop trading before the eoy ? i dont understand what he was saying. not sure if that applies to me.

for taxes i will jsut be taxed from april 09 to december 31st?

[ypsiCPA]

Gone Phishing

I just got this phishing e-mail, from Internal Revenue Service [[e-mail]]:

Your Tax Refund is now available!

After the last annual calculations of your fiscal activity we have determined that you are eligible to receive a tax refund of $165.00.
A refund can be delayed for a variety of reasons. For example submitting invalid records or applying after the deadline.
(link to phishing site removed)

Regards,
Internal Revenue Service
Copyright © 2009 - Internal Revenue Service U.S.A.

Official info: http://www.irs.gov/privacy/article/0,,id=179820,00.html?portlet=1

E-mail forwarded to [e-mail]

IRS will not e-mail you about your taxes. Also, their domain is irs.gov, not gov.irs.com

[cintrix]

That makes sense now that I am thinking about it. Your gross proceeds have to match what your broker sends you. If I were to mess with the proceeds I would have a different number.

[ypsiCPA]

I found $151 worth of fees debited from my account the other day. Finally got an answer from my broker and was told this:
I sold COLV which is not DTC eligible. Because of this, a normal transfer doesn't happen. It becomes a paper process where you have to get a certificate and have the TA do the transfer. They charged me $75 for the cert transfer, $36 for the TA and a whooping $40 for UPS charge. I was told that there are very few stocks that aren't DTC eligible, but when you sell one that is, these are the fees they charge you. I have been trading for 13 years online and never once had this happen to me before.

No on adjusting proceeds, but you can increase basis. From Schedule D instructions (page 7):
Increase your cost or other basis by any expense of sale, such as broker's fees...

http://www.irs.gov/pub/irs-pdf/i1040sd.pdf

[cintrix]

Hey, Steve. Read this post and let me know if I could use these charges and subtract them to my gross proceeds:
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=42306206

[ypsiCPA]

Conversion to Roth IRA (2010)

Effective January 1, 2010, income restrictions on converting a Traditional IRA to a Roth IRA are eliminated. The amount converted must be recognized as income - but if conversion is done in 2010, taxpayer has the option to recognize half the income in 2011, and half in 2012.

Income restrictions will remain on Roth IRA contributions. But Congress has provided a loophole: make a nondeductible Traditional IRA contribution, then convert to a Roth IRA.

http://www.money-zine.com/Financial-Planning/Retirement/2010-Roth-IRA-Conversions/

[ypsiCPA]

American Opportunity Credit (2009 and 2010)

American Opportunity Credit is the successor to the Hope Credit. It can be claimed for four years, and course materials (ie those expensive books) qualify as expenses.

Credit can be refundable.

http://www.irs.gov/newsroom/article/0,,id=211309,00.html

[wunderschatz]

Thanks a lot!

[ypsiCPA]

You'd need an IRA custodian that allows real estate investments. IRA rollovers normally won't require IRS permission. There are pitfalls (besides property losing value); see http://seniorjournal.com/NEWS/GuardWealth/6-06-16-RealEstateCan.htm

[wunderschatz]

Here is another question: How difficult is it to obtain permission from the IRS to take retirement (IRA) monies and put into a Trust for the purpose of buying realestate? I know its legal and that it requires permission first. And can a CPA set up a trust or would I need a finance lawyer?
Thanks in advance!

[ypsiCPA]

Income tax is it, you won't be hit twice.

[ArmyguyinAK]

Ok got it, makes sense now. I knew it was too good to be true!

So after I pay the 50K income taxes am I then hit again for a capital gains tax, or am I done after that?

[ypsiCPA]

Your short-term capital gain is included in taxable income, so you're looking at $50,000 taxable income (less deductions and exemptions).

That translates to a 25% tax bracket if you're single, 15% if you're married.

Use the calculator at http://www.moneychimp.com/features/tax_brackets.htm to get a ballpark idea of your tax.

Roth IRA contribution is not deductible.

[ArmyguyinAK]

Capital Gains Tax and Zero Taxable Income

I'm deployed overseas with the Army and therefore have 0$ taxable income for 2009. So far this year I'm up approximately $80,000 and down $30,000 on the stock market for a net of $50,000.

With the $0 taxable income, does this mean I'm in the lowest (10%) tax group for the year? If so, does that mean I only pay 10% ($5,000) on all those short term capital gains?

My last question is that I opened a Roth IRA with $5,000... does that offset the $5,000 tax I need to pay in the paragraph mentioned above?

I find it hard to believe I won't have to pay anything in taxes this year...

Thanks in advance!

[wunderschatz]

Hey, thanks a lot, this is exactly the answer to my question.

[ypsiCPA]

Tax bracket calculator

http://www.moneychimp.com/features/tax_brackets.htm

(Added to iBox, with thanks to cintrix)

[ypsiCPA]

Income to determine marginal tax rate includes long-term capital gain.

Joint return with $50,000 interest income and $1,000,000 long-term capital gain:
Marginal tax rate = 35%
Long-term capital gain would be taxed at 15%

[wunderschatz]

I have a quick question about taxes on long-term capital gains. All publications I could find refer to the personal tax bracket, which determines the tax rate on those gains.
Is the personal tax bracket determined by the taxable income INCLUDING or EXCLUDING the long-term capital gains?
For example, if someone makes 50k (regular income) a year and is in the 10% bracket and got lucky by making a couple of million dollars long term capital gains in 2010 - is that a couple of millions of tax free income? Or do the capital gains increase the tax rate to 35% and therefore the tax rate on the capital gains is 15%?
Any idea anyone?

[cintrix]

Hmm, that may explain why the nursing is inquiring about any income coming from the house.

[ypsiCPA]

Looks like the elderly person would report the income

A life estate is a concept used in common law and statutory law to designate the ownership of land for the duration of a person's life. In legal terms it is an estate in real property that ends at death. The owner of a life estate is called a "life tenant".

Although the ownership of a life estate is of limited duration because it ends at the death of the person who is the "measuring life", the owner has the right to enjoy the benefits of ownership of the property, including income derived from rent or other uses of the property, during his or her possession. Because a life estate ceases to exist at the death of the measuring person's life, this temporary ownership agreement cannot be left to heirs (intestate)or devisees (testate), and the life estate cannot normally be inherited (but see Life Estate Pur Autre Vie, and Estate for Term of years). At death, the property involved in a life estate typically falls into the ownership of the remainderman named in the life estate agreement.

A land owner of an estate cannot give a "greater interest" in the estate than he or she owns. That is, a life estate owner cannot give complete and indefinite ownership (fee simple) to another person because the life tenant's ownership in the property ends when the person who is the measuring life dies. For instance, if Bob conveyed to Ashley for the life of Ashley, and Ashley conveys a life estate to another person, Brenda, for Brenda's life [an embedded life estate], then Brenda's life estate interest would last only until whoever dies first, Brenda or Ashley. Then Brenda's interest conveys to the remainder interest or reverts to the original grantee. Once Ashley dies, however, whoever possesses the land loses it (with the land likely reverting to its original grantor). This is a life estate "pur autre vie," or the life of another. Such a life estate can also be conveyed originally, such as "to A until B dies."

Another limitation on a life estate is the legal doctrine of waste, which prohibits life tenants from damaging or devaluing the land, as their ownership is technically only temporary.

http://en.wikipedia.org/wiki/Life_estate

[cintrix]

How does taxing work in a Life Estate situation? A house that was once owned by a person is put in a Life Estate - the elderly person's name, and three of her children. The house gets rented. Who is supposed to report the income? The person who the Life Estate is named for or the children, or all four?

[ypsiCPA]

For Ponzi Scheme Victims

Major tax relief available - see Revenue Procedure 2009-20

http://www.irs.gov/pub/irs-drop/rp-09-20.pdf

[ypsiCPA]

Capital Gains Tax Rates

The reduced 15% tax rate on eligible dividends and capital gains, previously scheduled to expire in 2008, was extended through 2010 as a result of the Tax Reconciliation Act signed into law by President George W. Bush on May 17, 2006. As a result:

* In 2008, 2009, and 2010, the tax rate on eligible dividends and long term capital gains is 0% for those in the 10% and 15% income tax brackets.

* After 2010, dividends will be taxed at the taxpayer's ordinary income tax rate, regardless of his or her tax bracket.

* After 2010, the long-term capital gains tax rate will be 20% (10% for taxpayers in the 15% tax bracket).

* After 2010, the qualified five-year 18% capital gains rate (8% for taxpayers in the 15% tax bracket) will be reinstated.

http://en.wikipedia.org/wiki/Capital_gains_tax_in_the_United_States

[z4lover]

ok ya I know it has happened. I just was wondering if you had heard anything.

I was warned that it has happened in the past... and am Looking at some huge capital gains this year... (at least for me) so... I wanted to hear if you'd heard anything.

Thanks for the response. And you made me feel a lot better. ha so thanks.

[ypsiCPA]

I've seen no proposed legislation, and believe there will be no changes affecting 2009.

Retroactive tax legislation that works against the taxpayer is quite rare (but has happened). Most congressmen like to be re-elected.

President Bush's tax cuts will expire at the end of 2010 if there's no intervening legislation.

[z4lover]

I thought I asked a legit question. Let me re-word.

Do you see a chance of the 2009 capital gains rates being changed retro-actively like has in past years?

[bkc46]

lol.....many thanks!

[ypsiCPA]

no tax rules - not many orders are that large, E*TRADE probably is just suggesting you might have made a typo.

[bkc46]

Oh, I wish!! Congratulations are not quite in order just yet! But....millionares are being made on SPNG! If, big if, there is a MOASS, I have some outlandish sell numbers plugged in. Etrade states; You have entered an order for x shares which would be X millions (lol), do you want to continue.

I was concened there may be an automatic tax applied...maybe I should break up the orders to come in under 1mm.

When my ship comes in, I will be distributing first from my ROTH, in an amount not to exceed my initial deposit rolled in 10 years ago. Use the proceeds now, and then for kids college, and hold off until 59.5 to touch the IRA, also recklessly, heavily invested in SPNG.

Appreciate your thoughts...

[ypsiCPA]

First, congratulations!

What does the pop-up say? Is it relating to the sale, or did you request a distribution from the Roth IRA?

[bkc46]

Could someone please explain if there is a $1MM stock sale transaction threshhold that is taxed automatically? Even in a Roth Account? Etrade has a pop-up that is flagging my attention for some reason!!! Many thanks.

[Seminole Red]

oh thank you kind sir....the website answers all my questions....good trading to ya.

[ypsiCPA]

50K of short-term gains are entirely offset by your long-term losses. 3K limitation applies after that offset (you can't deduct more than 3K a year).

[Seminole Red]

no state taxes here...

i recently changed around some of my core holdings to take advantage of higher divvies and have about 200k in long term losses can those be used to offset short term gains or only a percentage of them...

just curious.

[ypsiCPA]

2009 tax rate schedules are at http://taxes.about.com/od/2009taxes/qt/2009_tax_rates.htm

If you don't have offsetting losses, multiply your short-term gain by your tax rate. Also consider state taxes.

[Seminole Red]

ok then....lets say you make 50 grand one month flipping stocks in a margin account....

appx how much of that can i spend with out going in debt to the tax man...

roughly....

[ypsiCPA]

No. Gainskeeper will generate a report that you can give to your accountant. Stock trades are only a portion of your tax return; Gainskeeper has no way to know your entire tax situation.

[General Grievous]

yes i have ameritrade, im loooking at gain/loss tax reports...is therfe somewhere it just does the calculation for you of how much you owe the irs

[cintrix]

Oh, wash sales are what u were talking about? lol What it means in layman's terms is that you can't sell something, take the tax loss for it, and then buy it right back again. They have the wash rule so you don't do that. If you buy the stock within 30 days before or after the sell (Steve, correct me on that if I am wrong), u can't take the loss on your tax return. What they do allow is for you to use the loss and add it to your cost basis on the new purchase - this way if say you sell the new holding, your profit on paper is lower because your cost basis has been adjusted. I think u mentioned u have TD Ameritrade. If you do, then u really don't have to worry about calculating wash sales because Ameritrade gives free Gainskeeper sch D's. Gainskeeper calculates wash sales for you so that u don't have to worry about it. One of the few things I did like about Ameritrade when I used them.