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Claiming a Loss for Worthless Securities (Abandonment)
Securities abandoned after March 12, 2008 can be written off as worthless (US Treasury Reg §1.165-5)
Discussed in Pub 17 http://www.irs.gov/publications/p17/ch14.html
Worthless securities also include securities that you abandon after March 12, 2008. To abandon a security, you must permanently surrender and relinquish all rights in the security and receive no consideration in exchange for it. All the facts and circumstances determine whether the transaction is properly characterized as an abandonment or other type of transaction, such as an actual sale or exchange, contribution to capital, dividend, or gift.
I've been selling some old holdings all day today to try and lower my capital gains for this year.
Tax-Selling Reminder
For those lucky enough to have gains to offset, December 31 is the last day to sell stock and have the trade included on your 2008 tax return.
Cancellation of Debt
With our glorious economy, many are experiencing cancellation of debt (credit cards, car loans, mortgages), sometimes in conjunction with foreclosure.
When debt is canceled, taxpayer will receive a 1099-A or 1099-C. Frequently that income will not be taxable (if there is a bankruptcy, or taxpayer has a negative net worth after the debt cancellation). Form 982 should be filed with the tax return unless cancellation of debt income is fully taxable.
Wow, I never knew u could use that as a write off!
Investment Interest Expense
Interest on debt incurred to carry investments is considered investment interest expense, and can be deducted to the extent of investment income (dividends, taxable interest, capital gains).
Margin interest qualifies. Less obvious is credit card interest, when credit card debt is used to carry investments. Allocation can be appropriate (for instance, if you took an $8000 cash advance to buy stock and another $2000 to go Christmas shopping, 80% of the interest would be investment interest). Transaction fees (on cash advances or balance transfers) are an investment expense (miscellaneous itemized deduction subject to 2% adjusted gross income limitation).
Thanks, I will look into that.
Mother-in-law's cost basis of the pre-divestiture stock would be value on the date of her husband's death.
Go to http://www.att.com/gen/investor-relations?pid=5677 for instructions on calculating cost basis (allocating date of death value to T and the baby bells).
We had to sell some stock on my mother-in-law's behalf. I think we sold around 800 shares of T and it came to about 30k, now we have to sell another 200 shares of it and we have to sell her VOD stock. Problem is we have no idea what the cost basis is. She got this stock which was from her deceased husband who died in the 1970's (I'm thinking her cost might be the date of his death) - he worked for the phone company. So he must of had a good amount of his telephone company stock before the divestiture. Then all those baby bells came about and spin offs and mergers. I haven't a clue what to use as a cost basis. Do I have to use 0 on her return for a cost since I don't know? That would be a lot of tax to pay.
IRS & Your Capital Gains (or Losses...)
While investment decisions are seldom made on the basis of tax consequences, these consequences can be managed with a little planning.
Timing
No gain or loss is recognized until the stock is sold. This is a tremendous tool for managing tax consequences (wait until January to take that gain, or take the loss in December). The ultimate way to beat the capital gains tax is to die (many many years from now) owning the stock.
Capital Losses
If you have a net capital loss (losses minus gains) for the year, up to $3000 ($1500 if married filing separately) can be deducted. Anything beyond that is carried to the next year, and included in that year's calculation of net capital gain or loss.
Tax Lots
When only part of a position is sold, how do you determine which shares were sold?
Example:
8/15/06 Buy 100 shares XYZ at $1
5/15/08 Buy 100 shares XYZ at $8
7/11/08 Sell 100 shares XYZ at $5
If you take no action, shares are deemed to have been sold first-in-first-out. In this example, that results in a $400 long-term capital gain. However, you have the option of instructing your broker which shares to sell (if you don't, time for a new broker!). So if you tell your broker that you sold the 5/15/08 shares, you'll have a $300 short-term capital loss (short-term means held 12 months or less. held more than 12 months is long-term). (Brokers have different ways of handling this. E*TRADE allows you to specify lots when the sell order is placed; TD Ameritrade requires you tell them after the sell order is executed.)
Wash Sales
When you're behind on a stock you believe in, it would be nice to get a capital loss deduction and keep the stock. So why not sell and buy back the shares? Because of the wash sale rules - if shares are repurchased within 30 days, you don't get the capital loss deduction. Instead you get to adjust your basis.
Worthless Stock
What happens when that stinky pinky that you bought on a tip from your barber goes belly-up? If the stock is truly worthless (no bids is a good indication), you can report it as sold on the last day of the year it became worthless. Some brokers will buy the stock from you for $1 (and charge a fee) to eliminate the possibility of IRS questioning whether the stock is really worthless.
Tax Provisions in the Senate Bailout Bill
It would extend a number of renewable energy tax breaks for individuals and businesses, including a deduction for the purchase of solar panels.
The Senate bill would also continue a host of other expiring tax breaks. Among them: the research and development credit for businesses and the option that allows individuals to deduct state and local sales taxes on their federal returns.
In addition, the bill includes relief for another year from the Alternative Minimum Tax, without which millions of Americans would have to pay the so-called "income tax for the wealthy."
http://money.cnn.com/2008/10/01/news/economy/senate_rescuebill2/index.htm
This only matters if student has investment income over $1800
http://www.irs.gov/pub/irs-dft/f8615--dft.pdf
no, it means they'd pay tax at parent's rate
Is the kiddie tax more than what they would be paying if they were considered an adult?
For 2007 it was children under 18. They've expanded kiddie tax to include college students.
What does that mean, Steve?
Kiddie Tax Change
Starting in 2008, students up to age 24 are subject to kiddie tax.
Thanks Steve
That's what I thought.
Hi Susie,
You should be able to do a tax-free rollover to another IRA, and keep the existing account open (you may need to leave some money in it).
SIMPLE IRA distribution rules are similar to those for traditional IRA's. The only difference I saw is a higher penalty rate if you take cash out (and don't roll it into another IRA).
Steve
I plan on checking with my accountant but I thought I would throw this out here.
I have a Simple IRA at work where my employer matches a percentage of what I put in. That's the good part.
The bad part is that the choice of funds for me to invest in are not very good. They aren't very good even in a good market.
What I am thinking of doing is taking some of the money out of the IRA and rolling it into another retirement account with someone else. I don't want to close the Simple IRA because of the employer matching but it really is pretty bad.
Is that allowed?
Probably. But I expect I'll see some returns where that will help.
Yeah, but if you figure they live in a high RE area, even if you don't have a mortgage, with taxes over 10k wouldn't it still be worth it to itemize? I know my program does the number for me and always tells me that I am better off itemizing than taking the standard deduction.
It'll benefit people with paid off mortgages, who can't itemize.
That's what I thought it meant. That really is not so good, especially if you live in an area with high taxes. I itemized, but if I were to go that route it would do didley for me since my RE taxes are over 8k a year.
If you itemize, deduction is unlimited. If you take the standard deduction, you can also deduct $1000 real estate taxes.
The extra write-off is capped at $1,000
What does that mean? You can't write off anymore than 1k in RE taxes?
Changes in Real Estate Taxation
1. Filers who do not itemize deductions can deduct real estate taxes they paid in 2008 in addition to their standard deduction. The extra write-off is capped at $1,000 for marrieds and $500 for singles.
2. First-time home buyers get a tax credit of up to $7,500 for buying a main home after April 8, 2008, and before July 1, 2009.
3. The credits for low-income housing and fixing up old buildings are juicier: They now can offset the minimum tax.
4. Congress restricted a tax break for turning a second home into a main home: Some of the gain will be ineligible for the home-sale exclusion if the house is converted to personal use after 2008 and is later sold.
Details at http://www.kiplinger.com/businessresource/forecast/archive/New_Law_Adds_Tax_Breaks_for_Real_Estate_080801.html
They goofed... although they didnt exactly admit it:
Our apologies for the confusion. Your request to transfer funds from your Individual account to your SEP IRA as a 2008 contribution has been submitted for processing. Please allow two to three business days for the transfer to be completed.
They don't allow transfers from outside banks to an IRA. You are supposed to request transfer from a regular brokerage acct to the SEP. They issued written instructions to this effect, and accepted the transfer request last year. Its probably just merger confusion.
hans
They are nuts, but I digress. Do they just want a check drawn on a business account rather than personal? There must be some way they'll accept a contribution.
TDAmeritrade is telling me I cant contribute to my SEP IRA, that my employer (me) has to do it. Are they nuts or what? They cite IRA pub 560 which doesnt support their case at all.
hans
Wow, that lucky dog! Good for him! He needs to find himself a very good Financial Advisor/Tax Guy. I'm sure Steve can offer some good advice here, but with that kind of money, he needs to be hiring a professional, imo.
Acquaintance needs bigtime TAX ADVICE!!!!
If anyone is able to answer with knowledge or recommend an expert tax advisor to speak with about the situation, please email me at stockpeeker AT gmail DOT com
I have an acquaintance (~45 yr old carpenter) who is about to receive a VERY LARGE windfall (well over $10 million) for selling rights to an invention he patented. He's got a wife & 2 kids, brother, sister, 6 nieces & nephews, and a mother.
The bigtime question is what kind of taxable entity should he create to just receive the money with the least overall fed and state income tax liability. In other words, to minimize tax liability, should he ask the buyer to make out the check (associated to a SSN or TaxID) to an individual, an LLC (partnership with him as managing partner), a corporation, a revocable trust, an irrevocable trust, or other taxable entity?
My thought is that if he wishes to share with family (while he is alive), he should set up a trust or corporation or LLC with defined percentage allocations to each person he would like to share. By doing so he may be able to forego gift taxes and get money directly to those with whom he'd like to share the initial payment.
Once the funds are received, the taxable entity that received the funds would need to diversify the funds into various investment vehicles/accounts to manage growth and taxation over time.
Any help or referrals in this matter will be very much appreciated. This acquaintance expects to receive payment within the next two weeks, so time is of the essence to make sure he doesn't contribute too much tax money right up front (for bailing Freddie and Fannie, so to speak).
Thanks!!!
'peeker (stockpeeker AT gmail DOT com)
"Avoid panic selling AND avoid overconfident buying." Paul Litman
Got it today - direct deposit - with about twelve dollars worth of interest.
The automated system doesn't have my return amount in their system, but I think that is because it doesn't match with the original return. I'll try again tomorrow morning. It's actually two months since I filed it.
Three months for a refund on an amended return isn't outrageous. Allegedly they have automated refund status at 800 443-3200 -- while that's in the IT-201-X instructions, it may only apply to original return. Personal income tax information is 800 225-5829.
I looked around their website, there doesn't seem to be a way to get refund status there, or even a way to e-mail an inquiry.
Try to call them first thing in the morning; when you get that first operator, see if you can get an e-mail address or a fax number. Worst case is US mail.
Of course, maybe you can find a politician who really wants your vote...
Steve,
How long do u think it should take to get a refund from an amended NYS return? I filed it in May and still haven't received it. I don't know if amended returns generally take this long, but I can't get these bozos on the phone. They make you wait 15 minutes for an operator to transfer you only to get a recording telling you to call back again.
That's true - so you can make the 7.5% easier on one salary being reported.
Large medical bills is one situation where filing separate returns might make sense, since that might make 7.5% AGI a much lower hurdle (so a much larger deduction than on a joint return).
Right - that I know about medical - you can't use the deduction unless you have major medical bills.
Itemized deductions for medical and charitable miles - so medical has to be over 7.5% before any benefit for medical travel.
business, charitable, medical or moving purposes.
Wow, I didn't know you could take gas millage deductions for charitable and medical purposes.
IRS Increases Mileage Rates through Dec. 31, 2008
IR-2008-82, June 23, 2008
WASHINGTON — The Internal Revenue Service today announced an increase in the optional standard mileage rates for the final six months of 2008. Taxpayers may use the optional standard rates to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.
The rate will increase to 58.5 cents a mile for all business miles driven from July 1, 2008, through Dec. 31, 2008. This is an increase of eight (8) cents from the 50.5 cent rate in effect for the first six months of 2008, as set forth in Rev. Proc. 2007-70.
In recognition of recent gasoline price increases, the IRS made this special adjustment for the final months of 2008. The IRS normally updates the mileage rates once a year in the fall for the next calendar year.
"Rising gas prices are having a major impact on individual Americans. Given the increase in prices, the IRS is adjusting the standard mileage rates to better reflect the real cost of operating an automobile," said IRS Commissioner Doug Shulman. "We want the reimbursement rate to be fair to taxpayers."
While gasoline is a significant factor in the mileage figure, other items enter into the calculation of mileage rates, such as depreciation and insurance and other fixed and variable costs.
The optional business standard mileage rate is used to compute the deductible costs of operating an automobile for business use in lieu of tracking actual costs. This rate is also used as a benchmark by the federal government and many businesses to reimburse their employees for mileage.
The new six-month rate for computing deductible medical or moving expenses will also increase by eight (8) cents to 27 cents a mile, up from 19 cents for the first six months of 2008. The rate for providing services for charitable organizations is set by statute, not the IRS, and remains at 14 cents a mile.
The new rates are contained in Announcement 2008-63 on the optional standard mileage rates.
Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.
http://www.irs.gov/newsroom/article/0,,id=184163,00.html
Just spoke to my mom and she said without a doubt that she didn't pay taxes back then. She said that the taxes were actually paid but the UN paid them for the employees.
cintrix,
I've done a little nosing around: it appears, for a US citizen, wages from the UN are reported on Form 1040 as wages, and are subject to self-employment tax (since the UN doesn't pay employer portion of social security taxes).
Most likely the rules have changed; they tend to do that with tax law!
Steve
Maybe it was a thing of the past. I could swear I heard that. I will ask my mom next time I speak with her.
Not according to this woman.
She doesn't have to file but taxes are withheld from her salary.
She was telling us that she is taxed just like a US citizen who works for the UN
My mom used to work for the UN, and I can swear that one of the perks of working there is that they DON'T pay taxes. Could that be a thing of the past? I'll have to ask her if I am remembering that correctly or not.
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