TaxMamas TaxQuips

Today TaxMama hears from Kathy in New Mexico, a lucky lady. “I am a housewife. I have no income. My husband has a 100% disability income. I won a jackpot of $1,500.00. I have to pay taxes on this amount. Is this earned income?”

Dear Kathy,

How wonderful for you!

In fact, I just heard from someone else who went to a local Indian casino and won about $2,500 on New Years Day. What a great way to start the year.

You’re correct. The jackpot is considered taxable income. But, regardless of how long you worked to win it, it’s not considered ‘earned income’.

If your husband’s disability income is taxable, and you itemize deductions, be sure to report your gaming losses on Schedule A. Use Line 28 – the losses are not subject to the usual 2% of adjusted gross income. So, if you play regularly, you just might not owe any taxes on those winnings at all! http://www.irs.gov/pub/irs-pdf/f1040sab.pdf

Enjoy the winnings.

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

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IRS Schedule A

Itemized Deductions

Today TaxMama hears from David in Dallas. “I’m preparing my own taxes this year and have a couple of questions. Does the I.R.S receive my 1099 forms from me or my employer? When does the I.R.S receive them and how often should they receive them in a year’s time? What are itemized deductions and what are charitable contributions? How do they affect your return? And which 1099 form should the I.R.S. receive from me or my employer (INT, MISC, etc.)?”

Dear David,

With all these questions, and the level of these questions, you should not be preparing your own tax return at all. While you’re quite ambitious, without even having a starting point about the U.S. income tax system, you’ll only end up overpaying your taxes.

To get a good start, read IRS Publication 17. All of it. You can read it online at http://www.irs.gov/publications/p17/index.html .
Or call 1-800-TAX FORM (1-800-829-3676) and ask IRS to send you a copy of this publication. This publication will explain all about charitable contributions, itemized deductions and more.

As to the questions about 1099s. Your ‘employer’ would send you a 1099-MISC. But, if you are being paid without deductions being taken, you’re not an employee. You’re in business for yourself. And you have so many other tax issues to deal with – and extra taxes, or potential tax credits, that you really should get tax advice. In fact, if you think you have an employer, odds are that the company you work for should have you on payroll rather than paying you as a freelancer. And there are all kinds of other ramifications and issues you should be discussing with them.

You’ll find many of these consideration in my book, Small Business Taxes Made Easy.
http://www.taxmama.com/AskTaxMama/book/

As to your other 1099 questions…IRS receives them once a year. Businesses file 1099s between January 1 and March 31st, depending on whether they are filed electronically or on paper.

And remember, you can find answers to all kinds of questions about tax issues, free. Where? Where else? At 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 subscribe link and join us.]

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IRS Publication 17

Your Federal Income Tax

Whatever you give a woman, she will make greater.

If you give her sperm, she’ll give you a baby.

If you give her a house, she’ll give you a home.

If you give her groceries, she’ll give you a meal.

If you give her a smile, she’ll give you her heart.

She multiplies and enlarges whatever is given to her.

So, if you give her any crap, be ready to receive a tonload of shit!

[Note: These opinions are not necessarily those of the management.]

Courtesy of Floyd Greenman, EA in Northridge, CA

Please remember to send us your humor. Clean jokes preferred.

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Today TaxMama hears from Shirley in Florida who had a thought. “If the government has $750 billion to get this economy going again—would it not be simpler and quicker to give lets say 250 million taxpayers (out of a population of maybe 300M) $3,000 each to spend any way they like? We then protect the integrity of the marketplace by not bailing out failed businesses, etc! Or is this method too simple and maybe idiotic?”

Dear Shirley,

What an excellent idea!

Actually, as of 2007, there were about 140 million tax returns filed. That would mean about $5,000 to each household.
http://www.irs.gov/taxstats/article/0,,id=184855,00.html

Or how’s this? According the November report from the Bureau of Labor Statistics, there were nearly 11 million people unemployed as of November 2008. Let’s estimate that the collapse of the US auto industry and other related industries will bring that number up to, worst case, 15 million. That would provide $50,000 to each person to help them survive, keep their homes, or even to build a business – until the economy turns around.

Heck, they might even buy cars – or repair their homes. Or, goodness, help other people!

Even if they simply squandered the money on food and housing, that would keep other people employed – like farmers, store clerks, landlords, delivery drivers, stock clerks, packaging manufacturers…and many more.

Yeah, there really are ways to use $750 billion dollars, so it actually hits the economy and helps people.

If there’s any money left by the time Obama hits office, I think part of the goal is to use some of that money for desperately needed infrastructure repairs – like to fix bridges and overpasses about to collapse. Just think, people could be employed to effect the repairs – and we won’t have to deal with lots of needless deaths as bridges collapse – or the related lawsuits.
http://www.poynter.org/column.asp?id=2&aid=127742

Regardless, I love your idea of giving the money to working people, instead of those who clearly haven’t a clue how to use it.

And remember, you can find answers to all kinds of questions about using taxpayer money and other tax issues, free. Where? Where else? At 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 subscribe link and join us.]

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IRS Statistics

Individual filings - historical data

Poynter.org

Al's Morning Meeting Report on Potential Bridge Collapses

Today TaxMama hears from Sue in Nevada with a couple of questions. “I inherited rental property and must prepare for the 2008 tax return. Do I use fair market value as the cost basis in figuring the depreciation? Also, how do I calculate depreciation?”

Dear Sue,

Now that’s a nifty thing to inherit – a source of income and learning experience!

Yes, you use the fair market value at the date of death. You will have to split out the value of the land at date of death. You can’t depreciate land. If your appraiser (or the trustee or executor) had enough foresight to provide a valuation for the various components of the property (elevator, appliances, furnishings, etc.), you may be able to depreciate those components more rapidly.

Otherwise, you’ll depreciate the residential property over 27.5 years.
http://www.irs.gov/publications/p946/13081f06.html
If it’s commercial property, the life is typically 39 years. Though, at times, it could be 31.5 years.
http://www.irs.gov/publications/p946/13081f08.html

You can read more about the tax aspects of Residential Property in IRS Publication 527.
http://www.irs.gov/publications/p527/index.html

You can read more about the rules for depreciation, in IRS Publication 946
http://www.irs.gov/publications/p946/index.html You’ll also find the tables for the calculation.

If I had not experience with rental property, at least for the first year, I would work with an experienced tax professional and ask them to set up the first year and show me how to do it myself for future years.

And remember, you can find answers to all kinds of questions about rental property and other tax issues, free. Where? Where else? At 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 subscribe link and join us.]

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IRS Publication 946

Residential Rental Tables

IRS Publication 946

Commercial Rental Tables

IRS Publication 527

Residental Real Real Estate

IRS Publication 946

Depreciation