Taxes (TAX)

[ypsiCPA]

Capital Gains Tax Rates

In the United States, individuals and corporations pay income tax on the net total of all their capital gains just as they do on other sorts of income. Capital gains are generally taxed at a preferential rate in comparison to ordinary income (26 U.S.C. §1(h)). This is intended to provide incentives for investors to make capital investments, to fund entrepreneurial activity, and to compensate for the effect of inflation and the corporate income tax. The amount an investor is taxed depends on both his or her tax bracket, and the amount of time the investment was held before being sold. Short-term capital gains are taxed at the investor's ordinary income tax rate, and are defined as investments held for a year or less before being sold. Long-term capital gains, which apply to assets held for more than one year, are taxed at a lower rate than short-term gains. In 2003, this rate was reduced to 15%, and to 5% for individuals in the lowest two income tax brackets. The reduced 15% tax rate on qualified dividends and long term 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. This was extended through 2012 by President Barack Obama on Dec 17, 2010. As a result:

In 2008-2012, the tax rate on qualified dividends and long term capital gains is 0% for those in the 10% and 15% income tax brackets.
After 2012, dividends will be taxed at the taxpayer's ordinary income tax rate, regardless of his or her tax bracket.
After 2012, the long-term capital gains tax rate will be 20% (10% for taxpayers in the 15% tax bracket).
After 2012, 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

[ypsiCPA]

Hopefully they'll find a way to avoid shutdown; if there is one, folks screaming for their refunds might make it a short one.

Paper returns will definitely be delayed. E-file with direct deposit is safe, not sure about e-file with paper checks.

[cintrix]

Taxes if the government shuts down:
What happens if there is a government shutdown at the same time you file your tax return? It’s something we might find out this weekend, since there is a possibility of a government shutdown Friday night.

Right now, as the possibilities of another tax filing delay are on the horizon, it’s hard to tell what exactly might happen. Depending on who you ask, you might get a different answer.
Possible Tax Impacts of Government Shutdown

Based on all of the news reports, here’s a summary of what might happen with your tax return during a government shutdown:

* The IRS would stop processing paper returns.
* Efiling would likely continue.
* Audits will stop.
* The IRS will stop answering the taxpayer hotline.

However, even if large portions of the the IRS are shutdown, the IRS will still accept payments and you must still file by the tax deadline.
Tax Refund Processing

The biggest question people are likely to ask is if a government shutdown will delay your tax refund. And it could, based on how you file. Here’s what might possibly happen to tax refunds based on earlier predictions:

* Tax refunds for paper filers will be halted.
* Tax refunds for efilers will most likely be electronically deposited.

We probably won’t find out exactly what will happen until it occurs, but if you are counting on a tax refund it seems pretty obvious that it would be in your best interest to efile this year.

Of course, whether or not the government shutdown will happen is a whole different can of worms!
http://www.mydollarplan.com/will-a-government-shutdown-delay-your-tax-refund/

[cintrix]

Everything is so electronic now. I efiled my mom's tax return the other day and a few hours later I got a rejection notice because one of the employer id numbers on a 1099 was entered wrong. I put an 8 at the end instead of a 9 - amazing how quickly they pick up on these things.

[b4atf]

Thank you ypsiCPA, that sounds complicated. I appreciate the help!
b4

[ypsiCPA]

Usually no need to mail anything when you e-file. W-2 and 1099 info is all sent electronically.

[b4atf]

I have a question about e-filing. I never have done it before.

When you paper file you need to send in copies of w-2's and 1099s, Sched D etc.

If you efile how can you attach that stuff?

Thanks,
b4

[ypsiCPA]

Home Office is a possibility. Room must be used exclusively for business. If this applies to you, see Form 8829.

[cintrix]

Well, I write off any supplies I use regarding work expenses - like ink cartridges because I print all of my trade confirmations for each trading day.

[aquaspin]

Thanks for the reply. What else can you normally write off for daytrading expenses?

[cintrix]

I do every year. I put a portion of it as an expense. Let's see what Steve says.

[aquaspin]

I have a question...for daytrading expenses, can I write off a portion of my internet bill since most of the time spent is related to trading in one way or the other? Thanks.

[b4atf]

Thanks ypsiCPA! Its very generous of you to share your skill!


b4

[ypsiCPA]

b4

Yes, 1099-R withholding goes on line 61.

Ouch on the capital loss! You'll get $3000 a year til it's used up.

You can amend your 2009 return to claim the $500 loss. Federal Form 1040X, Minnesota Form M1X.

[b4atf]

Hi board, happy spring! My first visit here but not to Ihub for sure.

I just have a 1040 question. I closed an old 403b last year. The provider already withheld the taxes on my 1099. The way I read the instructions you declare the full payout on line 16b. Where do you report the taxes that have already been withheld? Is it just line 61?

Haha! I managed to take home $4040 on a 75k investment in 2010. Any ideas to cut that report down?

While I am thinking I took a 2009 $500 loss on US oil(USO) more of a fund than a stock that I did not claim last year. (weird form arrived after I filed.) Is it worth the hassle of trying to recover that?
b4

[ypsiCPA]

Attention Landlords

TIGTA audit concludes that IRS should increase examinations of tax returns with losses from rental real estate activity [Audit Report No. 2011-30-005]: IRS should perform more examinations of individual tax returns that report losses from rental real estate activity, the Treasury Inspector General for Tax Administration (TIGTA) said in an audit that was made public on March 9. The impetus for the audit was a 2008 TIGTA report that found at least 53% of individual taxpayers with rental real estate activity for tax year 2001 misreported their rental real estate activity. According to TIGTA, that misreporting resulted in an estimated $12.4 billion of net misreported income. One of the objectives of the new audit was to recommend ways to assist in the identification, selection, and examination of tax returns with rental real estate activity. During fiscal years 2008 and 2009, IRS's rental real estate Compliance Initiative Program (CIP) examined a small percentage of the 318,339 examinations conducted by revenue agents and tax compliance officers, TIGTA said. Auditors projected that if the agency increased the percentage of rental real estate CIP tax returns it examined, potential tax assessments could grow by $27.3 million over a five-year period. “Given the magnitude of underreporting in our voluntary system of tax compliance, even small improvements in the IRS's examination of tax returns with rental real estate activity could increase taxpayer compliance and generate substantial additional revenue to the federal government, helping reduce the tax gap,” said J. Russell George, the inspector general. The audit is located at http://www.treasury.gov/tigta/auditreports/2011reports/201130005fr.pdf

[ypsiCPA]

Welcome WorkNoPlay (and thanks Cintrix!)

Capital Losses can offset Capital Gains without limit. For instance:

2010 $10,000 capital loss. $3000 offsets wages and other income, $7000 carried forward to 2011.

2011 $10,000 capital gain. $7000 of it is offset by the capital loss carryforward, $3000 of gain remains and will be taxed.

So here's to a successful, tax-sheltered 2011!

[GhostMOMENTUM]

ok cool thanks.
that example cleared up my question but i'll keep him in mind for later.

[cintrix]

Steve (ypsiCPA) is the master here - he knows way more than I do on tax issues.

[GhostMOMENTUM]

ok you cleared it up in that last paragraph, the example made it clear as day. Thank you so much. just trying to learn more so I am able to advise others as i continue my edu in accounting and finance and my series 7.
Person mark for your help

[cintrix]

So.. if you have more losses than earnings then ya wont get money from the gov't and the losses of 3k plus additional losses will only carry over to the next year to help off set earnings (assuming you make money and will have to pay taxes the next year)?

I am not quite sure what you mean here. What do you mean you won't get money from the gov't? If you have losses that exceed gains you can write up to 3k worth (and I think it is half if you are married filing separately). That would be a 3k tax loss deduction. Whether or not you get money back from the irs all depends on your return - how much taxes you prepaid, your tax bracket, etc.

Next year, any excess losses over 3k can be carried over and you can use it against your gains/losses for 2011. So if your total loss for 2010 was 5k you would take a 3k deduction and carryover the 2k for next year. Say you made 3k next year - then you could use your carryover and only have to pay taxes on the remaining 1k.

[GhostMOMENTUM]

thank you for the link and the info.
So.. if you have more losses than earnings then ya wont get money from the gov't and the losses of 3k plus additional losses will only carry over to the next year to help off set earnings (assuming you make money and will have to pay taxes the next year)?

[cintrix]

You won't pay taxes if your losses are more than your gains and you can deduct up to 3k and any additional losses you have for that year can be carried over to write off next year up to 3k:
http://www.irs.gov/newsroom/article/0,,id=106799,00.html

[GhostMOMENTUM]

for someone who lost more money trading than they made: will they have to pay any taxes on it? Will they receive money back since that person lost more?
Im curious to how that works.
Tax season blows -> we always owe so much $$

[cintrix]

Thanks Steve.

[ypsiCPA]

If any form in the return is over the maximum allowed (I don't have chart handy), software should alert you that return can't be e-filed. Or if software fails, IRS will reject the return.

[cintrix]

it use to be the people with a lot of attachments had to paper file - i don't know how it works now - maybe steve knows

[Schekin]

I'd be surprised if everyone. But I hope you're right! I'd love to be allowed to e-file. Our return is complex; well over 100 pages. So many K-1's...

[cintrix]

4 months? i wouldn't be surprised if in a few years everyone will be required to electronically file

[ypsiCPA]

Nebraska encourages e-filing

Allow at least 4 months to receive your refund if you file a paper return

[cintrix]

ROTF here's to another tax write off:


IRS says breast pumps tax deductible expense
February 10, 2011 by The Associated Press / STEPHEN OHLEMACHER (The Associated Press)

(AP) — The cost of breast pumps will now be considered tax-deductible medical expenses under a ruling issued by the Internal Revenue Service Thursday.

The ruling, long sought by advocates, means that women will be able to use money set aside in pretax spending accounts to buy the pumps and related equipment, which can cost several hundred dollars. For women without flexible spending accounts, the cost of pumps will be tax deductible if their total medical costs exceed 7.5 percent of adjusted gross income.

Previously, the IRS considered breast pumps to be feeding equipment, not medical devices. However, the American Academy of Pediatrics argued that breastfeeding has many medical benefits for both mother and baby. Advocates hope that making breast pumps more affordable will enable more women to breastfeed longer.

The American Academy of Pediatrics recommends that women breastfeed their babies for at least a year.

"Unfortunately, due to financial restraints and work demands, not all women are afforded the opportunity to nurse their children, despite the proven health benefits," the academy said in a 2009 letter to IRS Commissioner Doug Shulman that was also signed by nine other medical groups. "In order to continue to breastfeed successfully, millions of mothers working outside the house require a breast pump."

Last year, 45 members of Congress wrote the IRS to protest its classification of breast pumps. On Thursday, several issued a statement praising the new ruling. They were Rep. Sander Levin, D-Mich., Rep. Carolyn Maloney, D-N.Y., Sen. Jeff Merkley, D-Ore., and Sen. Tom Harkin, D-Iowa.

"Today's decision is a huge victory for nursing mothers everywhere. Modern medicine has documented numerous health benefits linked to breastfeeding, including a reduced risk of illness in infants and a reduced risk of cancer in mothers," the lawmakers said in a statement. "And because breastfeeding is so effective in preventing disease, it also happens to save billions in health care costs."
http://www.newsday.com/news/nation/irs-says-breast-pumps-tax-deductible-expense-1.2676955

[ypsiCPA]

Exporting Stock Sales from TD Ameritrade

1. Log into TD Ameritrade
2. Accounts | Gain/Loss
3. Under the Realized Gain/Loss tab, YTD
4. Change tax year to 2010
5. View
6. At top right, "Export data"
7. Save (to desktop)
8. xls file contains transaction details, suitable for e-mailing to preparer

[Fossil-Fuel]

Hello! Anyone here know of the easiest way of entering all my trades in to Turbo Tax? I know I can import a spread sheet after 02-15-11 but Last year this didn't work. Any ideas? TIA

[cintrix]

rotf

[ypsiCPA]

What to do with tax forms

[ypsiCPA]

Processing not as delayed

The IRS also announced today it anticipates starting to process tax returns impacted by December’s tax law changes by mid-February. The IRS continues working to reprogram its computers to reflect new tax law changes enacted by Congress and signed by the President in December.

http://www.irs.gov/newsroom/article/0,,id=234483,00.html

[cintrix]

So there were probably more itemizers years ago! There are so many crazy changes and guidelines - I don't know how you keep up. Don't hate me, but I am all for the Consumption Tax!

[ypsiCPA]

Standard deduction has risen since 2002, so more people would use. Allowing up to $1000 of real estate taxes to be taken as additional standard deduction tipped many seniors from itemized to standard.

Most of my clients take standard deduction, but most of my time is spent on those who itemize (they seem more likely to have other stuff going on, like stock trading and rental properties).

[cintrix]

Well that data is 8 years old, and with the real estate crisis, maybe it might even be lower now? So I guess more people file the standard deduction? Do most of your clients?

[ypsiCPA]

35% in 2002 (http://www.taxpolicycenter.org/taxtopics/encyclopedia/Itemized-Deductions.cfm ), maybe a bit less now.

Usually homeowners (especially those under 65) itemize, others don't.

Delay can be a big deal (I'm not looking forward to "where's my refund" calls!). I'm hoping most returns can be e-filed by early February.

[cintrix]

I think I fall under all three categories, but this one cracks me up:
as well as those taxpayers who itemize deductions on Form 1040 Schedule A

Don't more than half the taxpayers file an A?

[ypsiCPA]

Processing Delays for Many

Tax Season Starts on Time for Most Taxpayers; Those Affected by Late Tax Breaks Can File in Mid- to Late February

IR-2010-126, Dec. 23, 2010

WASHINGTON — Following last week’s tax law changes, the Internal Revenue Service announced today the upcoming tax season will start on time for most people, but taxpayers affected by three recently reinstated deductions need to wait until mid- to late February to file their individual tax returns. In addition, taxpayers who itemize deductions on Form 1040 Schedule A will need to wait until mid- to late February to file as well.

The start of the 2011 filing season will begin in January for the majority of taxpayers. However, last week’s changes in the law mean that the IRS will need to reprogram its processing systems for three provisions that were extended in the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 that became law on Dec. 17.

People claiming any of these three items — involving the state and local sales tax deduction, higher education tuition and fees deduction and educator expenses deduction as well as those taxpayers who itemize deductions on Form 1040 Schedule A — will need to wait to file their tax returns until tax processing systems are ready, which the IRS estimates will be in mid- to late February.

“The majority of taxpayers will be able to fill out their tax returns and file them as they normally do,” said IRS Commissioner Doug Shulman. “We will do everything we can to minimize the impact of recent tax law changes on other taxpayers. The IRS will work through the holidays and into the New Year to get our systems reprogrammed and ensure taxpayers have a smooth tax season.”

The IRS will announce a specific date in the near future when it can start processing tax returns impacted by the late tax law changes. In the interim, people in the affected categories can start working on their tax returns, but they should not submit their returns until IRS systems are ready to process the new tax law changes.

The IRS urged taxpayers to use e-file instead of paper tax forms to minimize confusion over the recent tax changes and ensure accurate tax returns.

Taxpayers will need to wait to file if they are within any of the following three categories:

Taxpayers claiming itemized deductions on Schedule A. Itemized deductions include mortgage interest, charitable deductions, medical and dental expenses as well as state and local taxes. In addition, itemized deductions include the state and local general sales tax deduction extended in the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 enacted Dec. 17, which primarily benefits people living in areas without state and local income taxes and is claimed on Schedule A, Line 5. Because of late Congressional action to enact tax law changes, anyone who itemizes and files a Schedule A will need to wait to file until mid- to late February.

Taxpayers claiming the Higher Education Tuition and Fees Deduction. This deduction for parents and students — covering up to $4,000 of tuition and fees paid to a post-secondary institution — is claimed on Form 8917. However, the IRS emphasized that there will be no delays for millions of parents and students who claim other education credits, including the American Opportunity Tax Credit and Lifetime Learning Credit.

Taxpayers claiming the Educator Expense Deduction. This deduction is for kindergarten through grade 12 educators with out-of-pocket classroom expenses of up to $250. The educator expense deduction is claimed on Form 1040, Line 23, and Form 1040A, Line 16.
For those falling into any of these three categories, the delay affects both paper filers and electronic filers.

The IRS emphasized that e-file is the fastest, best way for those affected by the delay to get their refunds. Those who use tax-preparation software can easily download updates from their software provider. The IRS Free File program also will be updated.

As part of this effort, the IRS will be working closely with the tax software industry and tax professional community to minimize delays and ensure a smooth tax season.

Updated information will be posted on IRS.gov. This will include an updated copy of Schedule A as well as updated state and local sales tax tables. Several other forms used by relatively few taxpayers are also affected by the recent changes, and more details are available on IRS.gov.

In addition, the IRS reminds employers about the new withholding tables released Friday for 2011. Employers should implement the 2011 withholding tables as soon as possible, but not later than Jan. 31, 2011. The IRS also reminds employers that Publication 15, (Circular E), Employer’s Tax Guide, containing the extensive wage bracket tables that some employers use, will be available on IRS.gov before year’s end.

http://www.irs.gov/newsroom/article/0,,id=233449,00.html?portlet=7

[cintrix]

Cost Basis Reporting Rules Changing In 2011
November 10th, 2010 by Brian Castorena

Based on legislation passed back in 2008, the way that brokerage firms like Schwab, Morgan Stanley, etc. report your gain or loss on stocks will change starting in 2011. First, and perhaps most significantly, the REAL gain or loss on stocks going forward are going to be reported to the IRS, which leaves little room for interpretation or changing your mind on which lot of stock was sold, newer or older. The exception to this will still be that if your current broker does not have accurate basis/cost information for a stock you sell, you will still need to refer back to your records to determine that cost basis yourself.

Which leads to the second issue – you need to direct your brokerage house on which method you would like to use to determine which stock is sold in a transaction. For stocks there are two methods: First In, First Out (FIFO) and Specific Identification. In FIFO, your oldest lot of stock is sold first until you finally get to more current holdings. In Specific Identification, you choose which lot of stock to sell in each transaction. Most people are currently on a FIFO system but this rarely provides the best outcome tax wise. The Specific Identification method is often better since it allows you to use old stock or newer stock to mold the gain or loss according to what may be needed for the tax year. It requires a little more forethought on your part when you sell, but gives you control of the year end outcome. Here’s an example:

You bought 3 lots of Apple: 100 sh for $1000, 100sh for $2000 and 100sh for $3000. You then want to sell 100sh for $4000. Under FIFO, you would have to use the first lot that you bought for $1000, which results in a $3000 gain that you would pay tax on. Under specific ID, you could choose any lot or combination of lots to determine the outcome. You want to minimize taxes so you use the $3000 lot and only have a $1000 gain. You have a loss from your business so you go with the first lot of $1000 since the $3000 gain would be offset by your loss and you don’t pay any tax. That’s an easy example of how this can help or hurt.

You can choose the same method or another method for Mutual Funds. Mutual Funds have four options: FIFO, Specific ID, Average cost single category and Average cost double category. The double category method is rarely used because of its complexity, but may be best in certain situations. Most people will find that Specific ID or Average cost single category are the most beneficial, with FIFO trailing behind again. Specific ID works the same for stocks and mutual funds. For the Average cost method, you total the cost basis of each entire fund and divide it by the number of shares you own in that fund to determine your average cost per share. You would use this average per-share cost for all future sales as long as you hold the position, adjusted for any subsequent purchases. Once you start using the average cost method for a particular fund, you can’t switch to another method without permission from the IRS. Although the average cost method gives you far less flexibility than specific ID, it generally gives a better result over time than the default FIFO method.

So it’s time to take a more proactive approach to your investing and become better informed, especially when it comes to selling stocks or mutual funds. This can make tax planning all the more necessary throughout the year and certainly at year end. Be sure to check with your tax professional and financial adviser before entering into any transaction that may have significant tax consequences. Remember, a little forethought may save lots of tax dollars.
http://thecastorenagroup.com/?p=54

[cintrix]

Ah, didn't know that!

[ypsiCPA]

2010 returns due Monday, April 18

Friday, April 15 is Emancipation Day in the District of Columbia. So all the last minute filers get an extra weekend.

[ypsiCPA]

I think you'll want to talk with a Certified Financial Planner on that one. In addition to income tax on the sale (if owner is a US citizen or resident), there is gift tax to consider.

Putting land or cash into a trust might be worthwhile.

[Undercooked Falafel]

Tax question. I will be contacting an expert but wanted to see if anyone here knew anything on the topic.

There is land overseas that is being sold for $4 mil. The proceeds are being split equally four ways. One of the four ways, the person will be giving the cash equally to three children. What is the best way to process this transaction for tax purposes? Thanks.

[ypsiCPA]

George Harrison & Eric Clapton (live) - Taxman

[02opida]

good helpfull info ~ you have here to share ~ thanks

[cintrix]

that is hysterical