2008 EDITION thread. The old thread was getting too large. For reference, it can be found here

Every year, FWF sees 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!

Thanks! Very useful, SIS

We wouldn't need this thread if the Fair Tax became law..

My sister in law is a foriegn resident currently on a student visa in US. She does not have a SSN yet since she does not have a campus job. I took her to the bank to put some money in a CD since she does not need that till next semester.
The bank made her sign this form W8BEN, since she does not have a SSN or ITIN, looks like 30% of the interest on that money would be held for tax purposes. Since the prinicpal in the CD is her money from another country, i am looking to find a way to avoid that.
Can someone suggest what steps we should be taking at this time?
Based on my research looks like we have to apply for ITIN number now, if we did that now, in the future when she gets an SSN will there be any adverse effects of having ITIN & SSN?

Final Version of TaxACT Online 2007 is now available. Put in all my info last month and when I just logged into my account saw my Fed went down a little over $3k. Guess because of the change in AMT?

dealshopper77 said:I have invested 4K for the year 2006 for my wife's ROTH IRA, the funds did not do well and the market value today is 3420. I am also unhappy with pudential and planning to move the funds to Vanguard. The questions i have are
1. Will i be able to claim a loss while filing my taxes with the IRS this year?
2. Since i am transferring the money to a different ROTH IRA, will i be paying the 10% federal Tax penalty?

1. When you make a profit in your Roth IRA, you don't have to claim any income when filing your taxes and when you suffer a loss, you don't get to claim any loss. It goes both ways.

However, if you completely close out all of your Roth IRA accounts and the total amount you ever withdrew is less than the total amount of your contributions, you may claim an itemized deduction for the difference.

2. No tax or penalty applies to transfers between Roth IRA accounts if you follow the rules: either have the money directly transfered between custodians or take a distribution and redeposit it to another Roth IRA account within 60 days (but no more than once in any 365 consecutive day period).

ksubaash74 said:I got married last year. My wife (House) was in different country and moved to US. Can I get any tax rebate on her moving expenses? Do I have to do itemized deductions?
Moving expenses are only deductible if the move is related to working in a new location. Your post implies that your wife moved because you got married and is not related to work. If that's the case, then, no, you would not be able to deduct moving expenses.

Do you count money as income when you earned it or when you receive the money?

Example - I earned $1,000 on December 12th, 2007. My employer "for tax reasons" basically put a hold on 5,000+ employees getting a $1,000 employee ownership dividend and did not pay me until January 3rd, 2008. The official reason is based on the company’s tax and legal advisors it was recommended that they pay out this yearly amount in 2008 rather then 2007.

Do I claim this as money in 2007 or 2008?

My employer is telling me it counts towards my 2008 taxes and not my 2007 taxes as I was paid the money in 2008 although I technically earned the money in 2007.

A question regarding interest on a security deposit -

My apartment has had 1 month's rent of my money for the past year, apparently invested in a crappy 1.5% bank account. I just got an unexpected bank statement for this, which looked like this:

$45 taxable interest (corresponding to 1.5% APY!)
$30 mgmt fee (1% fee charged by the rental company)
----
$15 check to me

The letter mentions that I should expect a 1099 for the whole amount of the interest ($45), but that I might be able to deduct the fee. Would that just be under a itemized deduction for misc investment expenses, or something else? Thanks.

PS Somehow I'm not surprised that in a year when bank accounts paid 4.5-5.5%, my management company only bothers to find one that pays a little more than their 1% cut .

xerty said:A question regarding interest on a security deposit -

My apartment has had 1 month's rent of my money for the past year, apparently invested in a crappy 1.5% bank account. I just got an unexpected bank statement for this, which looked like this:

$45 taxable interest (corresponding to 1.5% APY!)
$30 mgmt fee (1% fee charged by the rental company)
----
$15 check to me

The letter mentions that I should expect a 1099 for the whole amount of the interest ($45), but that I might be able to deduct the fee. Would that just be under a itemized deduction for misc investment expenses, or something else? Thanks.

PS Somehow I'm not surprised that in a year when bank accounts paid 4.5-5.5%, my management company only bothers to find one that pays a little more than their 1% cut .
The deductibility of the fee as an investment expense for purposes of a miscellaneous itemized deduction is going to depend on the connection of the fee to the investment income. While it’s not obvious from the facts given, I think it is a reasonable assumption. Given the low dollar amount, I would do as you propose and deduct as an investment expense. Absent other pertinent information to your specific tax situation, the deduction would not be available by other means.

However, unfortunately for you, this deduction would be subject to the 2% AGI floor so, unless you have other qualifying deductions that fall into the miscellaneous bucket, it’s unlikely that you will actually be able to deduct it due to the small amount.

SecondCor521 said:Two questions:

1. Married couple divorces in 2006. Husband pays alimony to ex-wife in 2007. Husband reports alimony paid on his 2007 1040 form and lists ex-wife's correct SSN. If ex-wife does not list this same alimony as income on her 2007 tax return, will the IRS hassle the husband at all, or just the ex-wife?

2. Single taxpayer files his 2006 return in early 2007 and pays the balance owing with his federal return. He files amended federal and state 2007 returns a few months later and as a result receives a state income tax refund. Taxpayer took the itemized deduction on his returns during this entire period (2006, 2007, 2008). Is it correct that taxpayer can deduct the additional amount paid with the original 2006 federal return on his 2007 federal schedule A? Is it correct that the taxpayer should include the taxable portion of the state income tax refund received in 2007 -- as indicated by the amount shown on the 1099-G he expects to receive -- as income on his 2007 federal 1040?

Thanks for the help!

1. Their primary attention will be focused on the ex-wife. However, if she makes some sort of claim like "he never sent me any money" then it is conceivable that they would also investigate the ex-husband's claims.

2. I may not be correctly understanding "Is it correct that taxpayer can deduct the additional amount paid with the original 2006 federal return on his 2007 federal schedule A?" It sounds like you are asking whether the taxpayer can claim a federal deduction for paying additional federal income taxes. There is never a federal income tax deduction for federal income tax payments, even if they are made with an amended return.

If the taxpayer took a deduction for state income taxes in a previous year and part of those taxes are refunded, they are taxable income in the year in which they were refunded to the extent the taxpayer received a net tax benefit in the previous year. Part of the refund may not be taxable if, for example, the taxpayer would have been better off taking the standard deduction for 2006 or the sales tax deduction for 2006 if it hadn't been for the refunded portion.

It also gets more complicated if some of the 2006 state taxes were paid in 2007. For example, if you made a 2006 estimated tax payment in 2007 or you made a payment when you filed your 2006 return. The refund is considered to be partly a refund of taxes paid in 2006 and taxes paid in 2007. Only a pro-rated portion would be considered a return of taxes deducted in 2006.