TAX ISSUES Q&A - Post all tax related questions, answers, helpful links, etc. HERE!

Like last years' sticky, FWF is seeing a sharp increase in tax threads. Rather than have multiple threads clogging the forum, use this thread to post tax questions and provide assistance to others.

When responding to posts, please link relevant IRS publications where appropriate.

Please post any tax strategy , tax tip, and tax-information threads/links in the QUICK SUMMARY so people can easily find them. If you have a tax question, check the QUICK SUMMARY before posting, to see if the topic already has its own thread. Thanks!

And remember, FW and helpful readers are a great resource, but are not a substitute for professional tax advice. Never rely on anything just because you read it in an internet forum!
Edit by Moderator: A new thread has been started due to the size of this one. You can find it Here.

Great topic.

I highly recommend people to search the usenet group "misc.taxes.moderated". For those who don't know or don't have access to usenet, go through google's group:

http://groups.google.com/group/misc.taxes.moderated?hl=en

The answers are screened so you have a better chance to getting the correct answer on 1st try. Most of the people who provide answer there are EA or Enrolled Agent or are CPAs:

http://www.irs.gov/taxpros/agents/

I've used both Turbotax and TaxCut...I'm leaning towards TaxCut for 2005 because I've read Turbotax doesn't include the free e-file anymore.

My question is this....I have a little business now. It's not an llc or incorportated, just a county business license. I'll be deducting milegae, hotels, meals, parts, expenses I incur in amateur racing. Do I need the 'premier' version of this software or can I get away with the cheaper 'deluxe' version?

blueking said: Wow, amateur racing related business?

Well, really it's a hobby. I certainly don't make money from it but I do fundraisers for diabetes research.

So this year there is no e-file rebate for Turbotax but there is still e-file reabte for Taxcut?

A quick question - this being my first post my apologies if it is elementary. I am paid bi-weekly, and receive a paycheck on the 10th of each month which pays me wages for the trailing two weeks of the previous month. My question is whether my paycheck on 1/10/06, paying me for my earnings 12/15-12/31/05, will be included on my 2005 W-2. The relevance is that i have control over how much of my time I take as pay, and how much I take as vacation (future compensation). I need to stay under 150K on this year earnings for my wife and i to max out our roth IRA contribution, and I happen to be very close to the number right now. I tried looking in multiple places, but haven't found the answer. Anyone out there know how this goes? Thanks

rab75 said: A quick question - this being my first post my apologies if it is elementary. I am paid bi-weekly, and receive a paycheck on the 10th of each month which pays me wages for the trailing two weeks of the previous month. My question is whether my paycheck on 1/10/06, paying me for my earnings 12/15-12/31/05, will be included on my 2005 W-2. The relevance is that i have control over how much of my time I take as pay, and how much I take as vacation (future compensation). I need to stay under 150K on this year earnings for my wife and i to max out our roth IRA contribution, and I happen to be very close to the number right now. I tried looking in multiple places, but haven't found the answer. Anyone out there know how this goes? Thanks

It will not be included in your 2005 W-2, the IRS goes by check date (the date the on the check).

I am a payroll auditor for a workers comp insurance company so I know that it is only the check dates in a given quarter or year that are reported as I balence payrolls to quarterly tax returns every day.

However, I am just some dude on the internet, check with a CPA or IRS.gov for a official answer.

ckojali said: blueking said: Wow, amateur racing related business?

Well, really it's a hobby. I certainly don't make money from it but I do fundraisers for diabetes research.

Since you're admitting that this is a hobby and that you are not receving income from it, then you should not be deducting any items you mention in your previous post. In general, you can only deduct expenses incurred for your hobby to the extent you have hobby income. I believe there are some exceptions, but nothing you mention above.

While it's admirable that you do fund raisers, it sounds like what you are donating is your time, which is not a deductible item for the purposes of charitable contributions either.

ckojali said: Let me put it this way....if someone were to deduct expenses from their hobby as business expenses, would they need the premier versions of taxcut or turbotax or would the deluxe version be fine?

The lectures are fine but at least answer my question at the same time.It's a question better left for the Turbotax folks.

Here's a simple search done on Google Group:

Link

Seems like IRS don't like to see a "business" that keep showing a loss. Sounds like a aduit bait to me. Heck, if you feel lucky, go right ahead.

wdsaltman95 said: Since you're admitting that this is a hobby and that you are not receving income from it, then you should not be deducting any items you mention in your previous post.Of course, it's possible for a taxpayer to think of as a hobby an activity that, for tax purposes, is a business -- if, maybe, you actually do something because you enjoy it, but it has objective indicia of a profit motive, like substantial, consistent profits. But it's pretty unlikely.

From casual reading of the responses in the misc.taxes.moderated group. It appears that if a hobby generate income then it's a no brainer that expense can be deducted. I say it's worthwhile for him to do more detailed research on this topic. Depending on the potential payoff, it may be worthwhile to consult a local professional.

One thing *seems* certain. If this hobby/business keep showing a loss year after year then it will not pass the "smell" test. Yes, that's actually a term the IRS uses.

Everyone is assuming he is one of the amateur racers. I don't think he explicitly said that. Even amateurs need to buy auto parts and supplies, rent tools, get professional service, rent racetracks, etc. Organizing charitable events and fundraising can also be a legitimate business.

I have a question regarding Donations. I already looked up IRS.gov, and it didn't make much sense to me (forgive me, this is my second year itemizing).

I wanted to know a little about donations. (In goods - not cash donations).

I am single, no kids, and will be deducting- Property tax, Mtg Interest, + deductions from my recent refi this year. I have also donated and received the verification slips for around 3k (at their value, after depriciating any used goods wear/tear) in household, and purchased new donatated goods for Katrina, Salvation Army, and Non-profit Church Foster Home.

I wanted to know, how this works.

I may be total wrong here - forgive me;

But isn't it a few things (be it mtg interest+ other deductable interest+ goods) has to be > than standard exemption?

Or am I confused? I just want to make sure I donate enough to see the benefit on my taxes. I neither know the standard exemption for single, no kids - (live in MI), nor how the donations help me. I honestly (and I know you guys will rip me one for this - lol - just blindly hand the slips when I get my taxes done, and a spreadsheet of what I donated, condition, value new, value at donation *(depriciated for wear and tear). I don't know if I am getting any benefit out of this or not. I know of other people in need, that I could give the items to directly, but would not see the tax benefit out of, and I struggle with this every year. (like giving a stove to a friends low income family, verses donating to Salvation Army).

I recently had a friend approach me, and she wants to donations as well, but she is married, filling jointly, and I don't know how this works, to explain to her, she needs to have a value of X in donations + (whatever else) to be able to really benefit from the donations, verses the standard deduction. She owns a home, however, due to financial constraints let the house default to the bank. She made 7 payments this year, and her property taxes.

Can anyone explain how I can calculate this out, to know what I need to donate or have combined from all sources to be greater than the standard exemption?

Everyone's Q&A's can be found in that book. But it still isn't clear

I've got a question on CA state refund.

Two years ago I got a state refund check back and I ended paying state tax on that refund amount last year. And this year I probably gonna have to pay state tax again on last years state refund check. What gives? Why do we have to pay tax on a refund check since it was money the state borrowed from us and kept in bank earning interest for the entire year? This sucks.

rab75 said: A quick question - this being my first post my apologies if it is elementary. I am paid bi-weekly, and receive a paycheck on the 10th of each month which pays me wages for the trailing two weeks of the previous month. My question is whether my paycheck on 1/10/06, paying me for my earnings 12/15-12/31/05, will be included on my 2005 W-2. The relevance is that i have control over how much of my time I take as pay, and how much I take as vacation (future compensation). I need to stay under 150K on this year earnings for my wife and i to max out our roth IRA contribution, and I happen to be very close to the number right now. I tried looking in multiple places, but haven't found the answer. Anyone out there know how this goes? Thanks

just checked my tax textbook...you will have to pay tax for the last two weeks in december because you earn the money and there is no condition.

dcwilbur said: kost said: rab75 said: A quick question - this being my first post my apologies if it is elementary. I am paid bi-weekly, and receive a paycheck on the 10th of each month which pays me wages for the trailing two weeks of the previous month. My question is whether my paycheck on 1/10/06, paying me for my earnings 12/15-12/31/05, will be included on my 2005 W-2. The relevance is that i have control over how much of my time I take as pay, and how much I take as vacation (future compensation). I need to stay under 150K on this year earnings for my wife and i to max out our roth IRA contribution, and I happen to be very close to the number right now. I tried looking in multiple places, but haven't found the answer. Anyone out there know how this goes? Thanksjust checked my tax textbook...you will have to pay tax for the last two weeks in december because you earn the money and there is no condition.Wrong. For most individual taxpayers, the cash method is used. That is, income is reported in the year that it is actually or constructively received.

yup I called DHs HR this morning about this--they confirmed that our paycheck on 1/7/06 (for pay period ending 12/31) will be on 2006 W-2's NOT 2005. I now have to re-adjust my calculations as I didn't know this before--thanks for asking this question!

asdfzxcv1999 said: I've got a question on CA state refund.

Two years ago I got a state refund check back and I ended paying state tax on that refund amount last year. And this year I probably gonna have to pay state tax again on last years state refund check. What gives? Why do we have to pay tax on a refund check since it was money the state borrowed from us and kept in bank earning interest for the entire year? This sucks.

I can understand your paying federal tax on a state refund.. since you probably deducted that from your federal income.. but the situation you describe isnt clear unless they paid you some interest on your state refund and are taxing you on that...

asdfzxcv1999 said: I've got a question on CA state refund.

Two years ago I got a state refund check back and I ended paying state tax on that refund amount last year. And this year I probably gonna have to pay state tax again on last years state refund check. What gives? Why do we have to pay tax on a refund check since it was money the state borrowed from us and kept in bank earning interest for the entire year? This sucks.

You don't have to pay California income tax on the refund.
You should be entering any refund of state taxes shown on your federal return as a subtraction on California Schedule CA on the line labeled "Taxable refunds, credits, offsets of state and local income taxes."

If you failed to do this two years ago, you can still file an amended return. California allows you to go back up to 4 years. (I wouldn't bother, however, if it's only a dollar or two.) In addition, I would advise you to adjust your withholding at work so that you stop getting refunds and you'll never have this problem again.

If you are filing Form 540A , you can claim the adjustment for state tax refunds shown on your federal return directly on Form 540A in the section called "California Income Adjustments" on the line called "State income tax refund" (line 13a on the 2005 version of the form).

Doonie said: ..dditionally, if we can take the mileage deduction (i keep track of how far the demo is from my house as we dont have an office), is there any other type of deduction we can take?

thanksYou have a lot of information that i don't think is pertinet to the issue at hand.

Yes, anyone can deduct "unreimbursed business expense" on their personal return. However, relating to mileage, the location your drive to can not be your regular office location. That is, IRS do not consider your regular daily commute an business expense.

Use the link I provided on the 1st page to search:

Group Google search on mileage

Also check IRS.gov more further information.

korins said: Hello,

I understand there is a wash rule the IRS imposes, restricting the re-purchase of identical assets within 30 days of selling them. I have a small Vanguard REIT in a taxable account that took a substantial loss last year. I'm considering selling to realize the loss, because something I read suggested that the wash rule doesn't apply if you re-purchase in a tax-sheltered account (e.g. Roth IRA for me). Can anyone verify this?

As a secondary question... I expect to be in the 15% bracket this year, allowing 0% long term capital gains tax. Will any realized loss that's unable to be allocated to LT gains, then offset income? Or will the loss just rollover to next year, again unable to offset LT gains, since there won't be taxed 2008-2010? I'm confused...

Thanks!
The wash sale rule does not restrict the purchase of shares after selling them. All it does is postpone the claiming of any tax benefit resulting from a sale at a loss until the replacement shares are sold.

Until just a few days ago, there was great debate about whether purchasing replacement shares in a tax-sheltered account triggered the wash sale rule. Recently, the IRS issued Revenue Ruling 2008-5 which outlines their position that the wash sale rules does apply in such situations (and that any tax benefit will be lost, not just postponed).

I guess the debate has not really ended. Some people think that the IRS is very wrong. But if you don't want to volunteer to challenge the ruling in court, you would be best advised to either wait the 30 days or perhaps find another REIT to invest in.

Nothing has changed about the rules for offsetting capital gains with capital losses. You must first offset long term gains with long term losses (even if those gains would have been taxed at 0%). Then you must offset short term gains with short term losses. If you have a net long term gain and a net short term loss (or vice versa), you must offset the gain with the loss. If you still end up with a net capital loss (all of your capital losses -- short and long term -- exceed your capital gains), then you can still use the first $3000 of those losses to offset ordinary income and carry the rest over.