TaxMamas TaxQuips

Today TaxMama hears from PA in the TaxQuips Forum with a quick question. “I recently completed my home construction. I used a loan from my credit card to consolidate other credit card purchases for material. I have a paper trail documenting the transactions. Can I use a withdrawal of $10,000 from my IRA, penalty free to pay this credit card debt without penalty?”
http://taxmama.com/forum/taxquips/irs-10k-1st-time-home-1/

Dear PA,

Believe it or not, there is a difference between using the $10,000 to pay for home improvements, and to pay off a credit card.

With the right ADVANCE planning (yes, redundant), you would have been advised to draw the money from the IRA to use to pay your home construction bills.

Then, you would not have had to use your credit cards to buy the material. You would not have had to use another credit card to consolidate your other credit card bills.

Incidentally, three more rules that apply to this $10,000 IRA draw:

1) It’s only an exclusion from early withdrawal penalties – not from taxes.
2) It only applies to the purchase or construction of a first home.
3) It only applies to money drawn from an IRA, not any other kind of retirement plan.

http://www.irs.gov/retirement/participant/article/0,,id=211440,00.html

And remember, you can find answers to all kinds of questions about getting around the IRA penalties and other tax issues, free. Where? Where else? At www.TaxMama.com .

[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join TaxMama.com link – it’s free!]

Please post all Comments and Replies in the - New TaxQuips Forum

Download the MP3 (0:00min, 1MB) or listen now...

Ask TaxMama

Where taxes are fun and answers are free

www.TaxQuips.com

The number ONE free tax podcast online

IRS Articles

Tax on Early Distributions

Today TaxMama hears from Dawn in the TaxQuips Forum with a simple question. “I donated a vehicle to charity. The vehicle increased in FMV from the time I purchased it 14 years ago. I donated it for the use of the charity (not for resale). It’s a charity that uses vehicles in their daily activities. Can I take a deduction of the FMV or do I have to use my purchase price? It looks like I can use FMV, but I want to be sure I get it right!”
http://taxmama.com/forum/taxquips/charitable-vehicle-increased-in-value

Hi Dawn,

No kidding? A car that went up in value? Wow! What was it?

The charity needs to give you paperwork about the use and the value.

Here are the rules for property that has increased in value.

Amount of deduction – general rule. When figuring your deduction for a gift of capital gain property, you generally can use the fair market value of the gift.

Exceptions. However, in certain situations, you must reduce the fair market value by any amount that would have been long-term capital gain if you had sold the property for its fair market value. Generally, this means reducing the fair market value to the property’s cost or other basis. You must do this if:

Then it goes on to list some instances… It sounds like double-speak, because it is. This question is not as simple as it looks, is it?

Essentially, you’re probably not going to get to deduct the fair market value – or if you do, your deduction will be limited to 30% of your income.

I have to admit, that neither the IRS publications nor the Tax Code has ever made any sense to me about this issue. Thank goodness I never had a client donating appreciated property – except in a decedent’s estate, where basis was easy to determine.

Perhaps someone else here can give you a better answer. Here’s one brave soul:

David Toelkes makes a stab at this: Since you held the tangible personal property for more than a year, you can deduct the FMV of the property as a charitable contribution, provided you also claim the capital gain that you would have reported if you had sold the property instead.

Capital gain tax rate on personal property is 28%, so depending upon your tax bracket, you may come out ahead taking a charitable deduction on the FMV then paying capital gains on the appreciated value.

My understanding may be flawed because the language is so obtuse

Who knows, perhaps someone can actually translate these rules into English – with confidence?

And remember, you can find answers to all kinds of questions about charitable contributions and other tax issues, free. Where? Where else? At www.TaxMama.com .

[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join TaxMama.com link – it’s free!]

Please post all Comments and Replies in the - New TaxQuips Forum

Download the MP3 (0:00min, 1MB) or listen now...

Ask TaxMama

Where taxes are fun and answers are free

www.TaxQuips.com

The number ONE free tax podcast online

IRS Publication 526

Charitable Contributions

TaxMama's Tax Forum

Where you can post your comments

Today TaxMama hears from Joe in the TaxQuips Forum with lots of questions. Edited down he’s asking: “Is it true that you cannot efile prior year returns? I need to file for this year and last year. I expect to owe money for each year, but don’t need a long-term installment agreement. What form shall I use? And what shall I do?”
http://taxmama.com/forum/taxquips/e-filing-prior-year-taxes/

Dear Joe,

At this time, IRS is not set up to accept prior year e-filed returns. They will be in the near future.
If you are filing the current year tax return and expect to have money by October, don’t ask for an installment agreement. Put your tax return on extension. You will have until 10/15/10 to file.

You will have the same level of underpayment penalties and interest as if you filed your tax return in April – you just won’t start the IRS collections process until later.

Go out and earn or borrow the money you need to pay the taxes – and file and pay in full in October.
See how much less complicated this is?

As to installment agreements in general? They are not designed for 36-60 years – they are designed for 36-60 MONTHS! Use Form 9465 http://www.irs.gov/pub/irs-pdf/f9465.pdf

Yes, you need to file tax returns separately for each year.

So figure out your 2009 balance due – file it and pay in October. Next, if you owe money for 2008, file it, along with a Form 9465 and propose a payment plan that pays it off in 12-24 months. Your installment agreement will be automatically accepted as long as your balance due is under $25,000.

And remember, you can find answers to all kinds of questions about balances due and other tax issues, free. Where? Where else? At www.TaxMama.com.

[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join TaxMama.com link – it’s free!]

Please post all Comments and Replies in the - New TaxQuips Forum

Ask TaxMama

Where taxes are fun and answers are free

www.TaxQuips.com

The number ONE free tax podcast online

IRS Form 9465

Installment Agreement Form

Today TaxMama hears from Suzan in California with is bewildered. “Someone sent me an email stating that they were told by H&R Block that divorced couples can split their children’s dependency exemption based on a new ruling for 2009. That the exemption can be split six months for Mom and six months for Dad. I’ve looked and can’t find any information on splitting the dependency exemption. Has anyone heard of this? What is the name of the ruling? I did suggest the person who emailed me, request the ruling from the tax prep person giving that information.” http://taxmama.com/forum/taxquips/divorce-couples-sharing-the-dependency-exemption/

more->

Dear Suzan,

Nonsense!

Chalk it up to yet another tax scam or urban legend.

If anyone comes up with a valid citation, I’ll eat my hat!

And remember, you can find answers to all kinds of questions about tax myths and other tax issues, free. Where? Where else? At www.TaxMama.com .

[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join TaxMama.com link – it’s free!]

Please post all Comments and Replies in the - New TaxQuips Forum

Ask TaxMama

Where taxes are fun and answers are free

www.TaxQuips.com

The number ONE free tax podcast online

Today TaxMama hears from Joe in the TaxQuips Forum with this question. “How do you calculate the penalty and interest when amending a tax return? I was told by a local chain that does taxes, that only the IRS can calculate these.” http://taxmama.com/forum/taxquips/penalties-and-interest/

Hi Joe,
That’s utter nonsense.
You can calculate your own penalties and interest. You just need to know where to find the rates.
Your underpayment penalty is .5% (one half percent) per month of the balance due – up to 25% (that’s 50 months).
The interest rate is right here, through 2008:
http://www.irs.gov/individuals/article/0,,id=200320,00.html
For 2009, here it is.
http://www.irs.gov/newsroom/article/0,,id=201115,00.html

What you can do is, come up with a reasonable estimate of penalties and interest and pay a few extra dollars. Then IRS will send money back to you.
When you amend, simply include a sensible explanation of why this income was omitted. This shouldn’t be difficult.
Some things are not a mystery. People should not make them needlessly difficult.
And remember, you can find answers to all kinds of questions about computing penalties and interest and other tax issues, free. Where? Where else? At www.TaxMama.com .

[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join TaxMama.com link – it’s free!]

Please post all Comments and Replies in the - New TaxQuips Forum

Download the MP3 (0:00min, 1MB) or listen now...

Ask TaxMama

Where taxes are fun and answers are free

www.TaxQuips.com

The number ONE free tax podcast online

IRS Interest Rates through 2008

IRS Interest Rates for 2009