TAX ISSUES Q&A (2008 edition) - Post all tax related questions, answers, helpful links, etc. HERE!

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.

wdsaltman95 said: xerty said: 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? 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.I'm not at all convinced the management fee is an investment expense. I think it's most likely a kind of additional rent and therefore nondeductible (unless the rent is deductible because it's for a business, etc.), because it's really for the escrow services of standing ready to turn your money over to the landlord -- i.e., as a condition of your lease, your landlord requires you to pay a kickback to his bank. I can see another argument that it's really a reduction in interest, in which case it fully offsets the income. But they're not really providing any investment management services, so I don't see how you can characterize it that way.

On form 1065, does "initial return" box (G(2)) mean first for the entity in its existance or first for the current tax year? Instructions do not cover it.

EugeneV said: On form 1065, does "initial return" box (G(2)) mean first for the entity in its existance or first for the current tax year? Instructions do not cover it.
Initial return refers to the first return for the entity.

Can Home Insurance (required by mortgage) be claimed as a deduction?

neo75 said: Can Home Insurance (required by mortgage) be claimed as a deduction?
I assume you are not talking about Private Mortgage Insurance.
Your insurance cannot be deducted unless the house was used for business purposes (rental or other business activities allowing a home office deduction).

Two quick questions about "losses". We had a hail storm in 2006 (wonderful golf-ball-sized bastards) that seemed to do no damage to the roof. However, after the 2006-2007 winter, we discovered that it did damage the roof, causing leakage and subsequent mold issues. We worked with the insurance and they covered the repairs and remediation minus our $1000 deductible.

Do we (can we?) take the $1000 deductible as a loss or the entire payment (I presume just the uninsured part).

Second and similair. We purchased a new car in late September 2007. In December, someone hit the car in the mall parking lot and drove off. Damage was minimal (about $950 to repair) and our insurance deductible is $500. We haven't yet had the repair done but should in the next couple weeks. Annoying in general and made more-so by being a brand-new car. Assuming we can take a loss on this (and like above, I'd guess only the $500 deductible), do we take it against 2007 (when the accident occurred) or 2008 (when we'd make the repair) or does it not matter?

I do itemize.

Now, my related question is how to handle the interest I'm earning (and keeping entirely as a graduation gift) from managing my mom and dad's AOR's? (and for other's doing wife'o ramas, if you are filing seperately)

My plan: Mom/Dad/and I have a joint checking. All checks were desposited there. From checking, all BT funds were withdrawn to a joint (and/or POD) savings account with me as the primary owner and the one who will pay the entireity of the taxes on all interest earned (and keeping all interest earned). The 1099's with interest earnings will be issued to me exclusively, and since I'm keeping the interest, I'm paying the full amount of taxes on the interest at my given tax rate (under schedule B personal income, NOT schedule C despite having business cards).

Complications: I have heard many say the funds from my parents cards that I am earning interest on are subject to "market rate loan interest rate tax" and/or gift tax. With respect to gift tax, my answer is that gift tax does not apply becuase it is NOT a gift, I am returning the funds in their entirity to my parents (ie back to our joint checking), and they are paying off thier cards in full. The only way gift tax can possibily come into play possibly (which I'm still not sure it applies) is if I make over $12,000 from any single person on the funds they let me borrow, then the tax applies to the excess funds over $12,000.

So in the end, like with the business cards, I'm going to try to keep it simple, straighforward, and follow the paper trail (and hope to file correctly as possible). The interest is earned in my name as the primary savings owner, I am keeping the interest for personal uses (school tuition), and I am reporting the income on my personal taxs and paying tax on it without attempting to do any business or special deductions (I'm taking the standard deduction).

Can anyone advise on the gift tax or market rate loan issues? What else needs to be brought to my attention? Thanks!

i have a couple of questions regarding my move to NY in 2007
I decided to drive over 500 miles, all moving company related expenses are paid by employer. Only expenses i did not claim from employer are gas expenses & milage expenses.
1. Can i claim those expenses for tax deduction while filing taxes, can i claim for milage on my car?
2. New rental has 2 bedrooms as opposed to 1 bedroom. However mostly i use the additional bedroom for work related to my job, liking signing documents electronically after reviewing them. This accounts to atleast 10hrs a week. Can i claim partial rent as deduction since this is job related?
3. Also purchased a laptop this year, can i claim that because i use it for job related expenses?

I'm sorry if this is a dumb question. I bought Turbo Tax last year (so I guess it was TT 2006, Deluxe). Should I buy the 2007 version this year or should I just use the older software and update the new numbers after I run it through the software (i.e. the exemption credit going up. Itemization won't matter b/c we do itemize but are not doing itemizations like business where you need cents/mile this year). I'm just trying to figure out if I should buy this years version or not.

Thanks for your thoughts

4boysandme said: I'm sorry if this is a dumb question. I bought Turbo Tax last year (so I guess it was TT 2006, Deluxe). Should I buy the 2007 version this year or should I just use the older software and update the new numbers after I run it through the software (i.e. the exemption credit going up. Itemization won't matter b/c we do itemize but are not doing itemizations like business where you need cents/mile this year). I'm just trying to figure out if I should buy this years version or not.

Thanks for your thoughts

You need to buy a new copy each tax year.