Ask the Taxman, '07 Edition!

Discussion in 'Finance, Investing & Economy' started by wcharriscpa, Jan 4, 2007.

  1. Geoduck

    Geoduck Member

    Sep 24, 1999
    I like a large tax refund, because usually I end up owing a lot, and turning the tables always feels good. :)

    wcharriscpa, any thoughts on my 2nd question? For example, would I still be responsible for capital gains taxes on stocks I bought in the joint account before the name switch, but sold after the switch?
     
  2. wcharriscpa

    wcharriscpa Member

    Dec 26, 2000
    Austin
    Club:
    Arsenal FC
    Nat'l Team:
    United States
    I'd probably need some additional information.

    If you like, PM me what state you live in and any details you'd like to share on the switch. I'll do some checking, and post a general reply.
     
  3. Sachin

    Sachin New Member

    Jan 14, 2000
    La Norte
    Club:
    DC United
  4. CrewToon

    CrewToon Member

    Jun 13, 1999
    Greenbrier Farm
    I just had my first client who donated a car under the new rules. Man, that was a lot of documentation. I just sent the 1098-C along with the 8453 this morning.
     
  5. harrylee773

    harrylee773 Member+

    Jul 28, 2004
    Chicago
    Club:
    Chicago Fire
    Nat'l Team:
    United States
    8453? Ugh. Does donating a car disqualify someone from using 8879?
     
  6. Lizzie Bee

    Lizzie Bee Member+

    Jul 27, 2004
    Utah
    Club:
    Real Salt Lake
    Nat'l Team:
    United States
    I know this is a two-month old post, so my reply is probably not too helpful. But on the off chance that you're still interested...

    We have a basement apartment that we rent out. We always cover it on the 1040 Schedule E. It's pretty straightforward if you keep good track of your expenses. Keep track of your utilities, property taxes, home insurance, and mortgage interest especially. That'll be your best friend to avoid paying a ton of taxes on the property.

    Question for the taxman: I had a business (partnership) that dissolved at the end of 2005. Part of the dissolution was an agreement about how we would each repay our investor. I repaid the debt during 2006, but the partnership through which the expense was accrued is now defunct. Can I write off this "business expense" for a business that no longer exists and will not be providing a schedule K? Should I have written it off last year? It's not a large amount of money so it won't impact my taxes much if I just ignore this loss.
     
  7. Lizzie Bee

    Lizzie Bee Member+

    Jul 27, 2004
    Utah
    Club:
    Real Salt Lake
    Nat'l Team:
    United States
    Got the answers I needed. I need to take some accounting classes.

    The IRS has pretty good telephone customer service if you're patient with being on hold a little while.
     
  8. wcharriscpa

    wcharriscpa Member

    Dec 26, 2000
    Austin
    Club:
    Arsenal FC
    Nat'l Team:
    United States
    Regarding the new rules on charitable contributions....

    Have any preparers out there experienced any "issues" with appraisers unwilling to sign the Form 8283?
     
  9. wcharriscpa

    wcharriscpa Member

    Dec 26, 2000
    Austin
    Club:
    Arsenal FC
    Nat'l Team:
    United States
    As we draw closer (uncomfortably so, for some) to the month in which individual tax returns will be due, it strikes me as a good time to briefly mention: the tax return extension.

    There are many reasons one may need to file an extension. Maybe you've put it off for too long? Maybe you're waiting on a K-1 or other information?

    For whatever reason, you can get an extension. But you need to understand what you're getting with an extension, and (perhaps more importantly) what you're not getting.

    Individuals can apply for an automatic extension of the due date for their tax return by completing the incredibly simple and straightforward Form 4868. This must be completed by the original due date, and will extend the due date to October 15th.

    What people often misunderstand is that this does not extend the due date for payment of any tax due.

    So if you ultimately find yourself in the position of having a tax liability, interest and penalties will begin to accrue from the original due date - not the extended due date.

    Consider yourselves warned.

    If you know that you're going to owe, send in a payment with your extension.
     
  10. VFish

    VFish Member+

    Jan 7, 2001
    Atlanta, GA
    Club:
    Atlanta
    I found this interesting (and timely):

    1040 Form and Instructions circa 1913, Only 4 Pages

    1. Taxes were only paid on income above $3,000, equivalent to $61,000 in today's dollars, at the initial rate of only 1%.

    2. The highest marginal tax rate in 1913 was 6%, which applied to income above $500,000, equivalent in today's dollars to about $10 million.

    The entire 1040 tax form in 1913, including all forms and instructions, was only 4 pages, click here to view. All instructions in 1913 were contained on a single page, compared to the 2006 1040 Instructions, which run 143 pages long, without any forms.


    (Cross posted on the P&CE board)
     
  11. Sachin

    Sachin New Member

    Jan 14, 2000
    La Norte
    Club:
    DC United
    My daughter was born in September. We had to pay day care for November and December to secure a spot. (Welcome to DC). Can we still write that off on our taxes? Turbo Tax threw an exception about her not living with us for 1/2 the year but that sounds fishy.
     
  12. harrylee773

    harrylee773 Member+

    Jul 28, 2004
    Chicago
    Club:
    Chicago Fire
    Nat'l Team:
    United States
    Go ahead and claim the expenses. From Pub 17

    Death or birth of child. A child who was born or died during the year is treated as having lived with you all year if your home was the child's home the entire time he or she was alive during the year. The same is true if the child lived with you all year except for any required hospital stay following birth.
     
  13. Footer Phooter

    Jul 23, 2000
    Falls Church, VA

    Ugh. There's something I'm not looking forward to. You didn't start her until Jan, but had to start paying in November? Holy Geez.
     
  14. Sachin

    Sachin New Member

    Jan 14, 2000
    La Norte
    Club:
    DC United
    Well, we wanted to get her into a specific center that is in the same complex where my wife works and is only 10 minutes away from where I work. We hit the top of the waiting list when our daughter was just two months old, even though she wasn't starting until she was 4 months. We had to jump on it or we would lose our slot.

    It sucks, but the day care is awesome and our daughter is really happy there.

    Sachin
     
  15. OnTheEdge

    OnTheEdge New Member

    Apr 4, 2001
    Potomac, MD
    If you are looking to put your child in a popular day care, it is not uncommon to wind up paying for a spot before you actually start using it. Really good day cares are in high demand in the DC area (and probably elsewhere) and they are not going to forgo income because you are not ready for the spot. They will find another person willing to pay for the spot.

    After my wife has her baby this October, she will be taking my 3 year old son and the newborn to India for two months. We will have to pay for the pre-school for the 3 year old during that time or we will lose his spot.

    I actually know a few people who paid for a couple months of day care before the baby was born. I guess if the baby is born in January, and they paid for the spot in December there would be no tax benefit.

    OK, a real tax question. I contribute the max towards my TSP retirement account. Can I still contribute $4,000 to a ROTH IRA if I meet the AGI threshhold?
     
  16. Sachin

    Sachin New Member

    Jan 14, 2000
    La Norte
    Club:
    DC United
    I hope so! Otherwise we're in trouble.
     
  17. Footer Phooter

    Jul 23, 2000
    Falls Church, VA
    Yes
     
  18. wolfp10

    wolfp10 Member

    Sep 25, 2005
    Can feminine hygiene products be claimed as a medical deduction?
     
  19. wcharriscpa

    wcharriscpa Member

    Dec 26, 2000
    Austin
    Club:
    Arsenal FC
    Nat'l Team:
    United States
    Yes, if prescribed by a doctor.
     
  20. Bill Archer

    Bill Archer BigSoccer Supporter

    Mar 19, 2002
    Washington, NC
    Club:
    Columbus Crew
    Nat'l Team:
    United States
    I'm not sure whether this really qualifies more as an accounting/finance question or a tax question, but I think it qualifies so I'll fire away:

    Generally speaking, if I have the cash to purchase a home outright, is it better to finance it and take the interest decuction? It isn't too hard to beat the interest rate, even a high one, investing the money but then you're going to have to pay cap gains when you eventually cash out, so maybe you're kidding yourself.

    I had an accountant tell me once that it would be "crazy" to pay off my mortgage; better to refinance the place. Another guy though said that was ridiculous, that the only relevant issue was whether you could consistently beat the difference between the yearly cost of the interest, discounted by the deduction, by investing the money.
     
  21. OnTheEdge

    OnTheEdge New Member

    Apr 4, 2001
    Potomac, MD
    As a general rule, I would recommend financing the house and investing the excess cash. There are a few reasons for this recommendation. As you indicate, you can generally get a return greater than the mortgage interest rate if you are investing for the long haul.

    You do want to analyze what is the after-tax costs of financing the house versus what the after-tax returns you get investing the house. I am not in the mortgage business, but it seems like you can get a 30 year fixed mortgage in the 6-6.5% interest rate if you have good credit. The stock market in the long term should result in a return of 9+ percent. Of course, the stock market is very volatile in the short-term.

    Another reason is that you don't want to be house-rich, cash poor in case your finances turn sour for a spell. Granted, you could always get a home equity loan or a line of credit against the house, but those interest rates will be higher than a regular mortgage. If you finance the house with a mortgage and invest it, you always have the option of selling your stocks/mutual fund/other investment. I would NOT recommend a long-term investment that would be costly to sell.

    You mention paying capital gains. From a tax perspective, that isn't a disincentive. You get the mortgage interest deduction every year, but don't pay capital gains until you sell the stock. Getting deductions now (15-28% depending on your marginal tax rate) and paying capital gains later (probably at 15%) is a good deal.

    Somewhere along the lines, i am supposed to say something like "This advice is general, for more specific information tailored to your financial information, please consult a .... blah blah blah"

    The mortgage people could probably give you a couple reasons not listed above why it is better to finance even if iit is only a small percentage of the market value of the house than to pay 100% cash.

    One last thing. It seems obvious, but if you are the type of person who would spend any excess cash, then I would recommend paying cash for the house. I know a lot of people who just can't manage cash and spend it all. You have to ask yourself, "What would I really do with the cash?" as opposed "What could I do with the cash if I were disciplined enough?"

     
  22. wcharriscpa

    wcharriscpa Member

    Dec 26, 2000
    Austin
    Club:
    Arsenal FC
    Nat'l Team:
    United States
    http://www.accountingweb.com/cgi-bin/item.cgi?id=103357
     
  23. Sachin

    Sachin New Member

    Jan 14, 2000
    La Norte
    Club:
    DC United
    I had some insulation work done last year which I can claim on my taxes, but the company won't give a breakdown of the material costs vs. the labor. From what I understand, I can only claim the costs for the material. Can I make a semi-arbitrary 2/3 material, 1/3 labor breakdown, based on breakdowns for other similar home energecy efficiency projects?

    This is the last thing I have to tackle before filing!

    Sachin
     
  24. striker

    striker Member+

    Aug 4, 1999
    The following questions are for filing federal tax.

    Is donation to political campaign (candidate or party) tax deductible (like donation to a charitable organization)?

    In the instruction for claiming state/local taxes paid, there is something about the cost of registering one's car. It has something to do with whether the registration fee (or part of it) is for the value of the car or something like that. What exactly does it mean? Can I claim any part of my registration fee?
     
  25. wcharriscpa

    wcharriscpa Member

    Dec 26, 2000
    Austin
    Club:
    Arsenal FC
    Nat'l Team:
    United States
    http://www.irs.gov/newsroom/article/0,,id=106990,00.html


    Your second question: Could be wrong, but I think you're talking about Personal Property taxes deductible on Sch A.
    Auto registration fees are deductible to the extent that the amount you're paying is based on the value of the auto, as opposed to some other standard (such as gross vehicle weight).

    For an example, check out http://www.irs.gov/pub/irs-pdf/i1040sa.pdf page A-3, at the bottom of the middle column. Look immediately below "Line 7 Personal Property Taxes."
     

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