TaxMamas TaxQuips

Today TaxMama hears from Charlotte in the TaxQuips forum, who tells us. “We adopted my niece’s 2 children this year. But my husband’s Social Security income wasn’t taxed. So how do I get the child income tax credit? or can I? I don’t work.”

Dear Charlotte,

Congratulations on expanding your family.

You say “my husband’s social security income wasn’t taxed federally”? Is that his only source of income? And you didn’t work, right? So you’re saying you have no earned income, right?

You won’t qualify for either the Child Tax Credit or the Additional Child Tax Credit if you have no taxable income whatsoever.

Read IRS Publication 972 for more information – http://www.irs.gov/pub/irs-pdf/p972.pdf, though it really doesn’t explain how your income or lack of it, comes into play.

However, you may qualify for the Adoption Credit – Form 8839, worth up to $12,150 per child. http://www.irs.gov/taxtopics/tc607.html

This is a non-refundable credit – meaning if you have no tax due, you can’t use it. But, I suggest this because you can carry it forward.

That means, if either of you works in 2010, your income will be tax-free because the adoption credit will absorb it. Also, if you have wages in 2010, you will be entitled to the Child Tax Credit, too. After all, with two more people in the house, you may just need a job to support you all!

Enjoy the children!

And remember, you can find answers to all kinds of questions about child tax credits, adoption credits, 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 join TaxMama.com link – it’s free!]

Please post all Comments and Replies in the New TaxQuips Forum – http://taxmama.com/forum

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

Ask TaxMama

Where taxes are fun and answers are free

www.TaxQuips.com

The number ONE free tax podcast online

TaxQuips Forum

Adopting Two Girls - submit your comments about this TaxQuip

IRS Publication 972

Child Tax Credit

IRS Tax Topics

Adoption a Child

The New TaxQuips Forum

Today TaxMama hears from Andrew in TaxQuips forum, with this problem. “I worked for a company that went bankrupt; now I’m not getting a W-2. I didn’t keep my final pay stub. I have no way of knowing how much I made while working for the company. What now?”

Dear Andrew,

That’s a real bummer. Just curious, why did you not keep your final paystub?

It seems to me, even as a teenager, I had the good sense to hang on to things like that to make sure the company produced the correct information on that year-end W-2. (Of course, things were done manually then, so there was more room for error, back in the dark ages.)

First thing to do? Contact the Bankruptcy court and see if they have any information for you. When a company files bankruptcy, the court assigns a trustee. They may have records. If they do, that will save you time and money.

If they don’t, then, it’s going to cost you to reconstruct your income.

If you have any paperwork showing your hourly rate, that would be nice. Do you have any idea how many hours you worked each week? Sit down with a calendar and try to reconstruct your hours worked each week. If you had overtime, or were apt to have had overtime, put it down. Do your best. We know it probably won’t be accurate. But try.

Do you have a copy of your W-4, showing how many exemptions you claimed. If not, perhaps you can remember. Did you claim a lot so you wouldn’t have much withheld? Or did you claim just 1 for yourself?

Go to a good, local tax professional. Bring copies of your
bank statements showing your deposits. (You DID deposit the checks didn’t you? If you cashed them instead, it’s going to be really hard to prove your case!) Bring all the things you prepared.

S/he will help you recompute your payroll and create a substitute W-2 form for you – for IRS and State, using Form 4852 – http://www.irs.gov/pub/irs-pdf/f4852.pdf

And yes, you do need to report the income. If not, it will catch up with you later, with penalties and interest. After all, your income information was probably reported to your state each quarter, with your Social Security Number.

Keep an eye on this question – or today’s TaxQuip. Perhaps someone else has some better ideas.

And remember, you can find answers to all kinds of questions about business expenses 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 join TaxMama.com link – it’s free!]

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

Ask TaxMama

Where taxes are fun and answers are free

www.TaxQuips.com

The number ONE free tax podcast online

US Bankruptcy Court

Information about Chapter 7

IRS Form4852

Substitute W-2

Today TaxMama hears from Shaunna in Washington State, who tells us. “I own a small rental business. Is the bounce castle I rent out considered an asset or inventory?”

Dear Shaunna,

That’s a good question.

We had a discussion about a similar issue recently – about video rentals. http://taxmama.com/video-rentals/

The concept is very much the same, so read the IRS audit guide described in that TaxQuip.

It’s not inventory, since you are not selling it. You have a depreciable asset here.

The question is, how long is the depreciable life to use.

Under the GDS (General Depreciation System) rules, you would use a 7-year life for anything that doesn’t fit anywhere else. (See link in Resource Center below)

Following the logic in the IRS audit guidelines for video rentals, you would use straight-line depreciation for 7-12 years

You can read more about depreciation in IRS Publication 946 http://www.irs.gov/publications/p946/index.html

No doubt, other tax pros will have some thoughts on this.

And remember, you can find answers to all kinds of questions about business expenses 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 join TaxMama.com link – it’s free!]

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

Ask TaxMama

Where taxes are fun and answers are free

www.TaxQuips.com

The number ONE free tax podcast online

TaxQuip Archive

Video Rental Businesses

IRS Publication 946

Chapter 4 GDS Depreciatiable Life

IRS Publication 946

How to Depreciate Property

Today TaxMama hears from Kim in South Carolina, who has been remiss. “I am a bookkeeper and did not claim mileage as unreimbursed employee expenses last year. Can I claim the 2008 mileage and 2009 on my 2009 taxes? Or did I just lose that mileage? I don’t want to amend the 2008 return if I don’t have to.”

Dear Kim,

It’s interesting the way you phrased the question. You are asking about employee expenses – so that means you had a job. You were not self-employed, right?

OK, here’s the rule.

If you could have submitted the mileage or other business expenses to your employer for reimbursement, but didn’t, you may not deduct the expenses on your tax return.

However, if your employer has a policy of not paying for mileage or out of pocket expenses, you are entitled to the deduction in the appropriate year.

Before you amend your 2008 tax return, get written proof of your employer’s policy not to pay for the mileage. If the employer doesn’t have a written policy, just a verbal one – do this. Write it up on his letterhead, effective the date you started working there – and have your boss sign it. The policy must apply to all employees in a similar position for it to be valid.

You will need to attach this proof to your amended return.

Naturally, once you have this documentation, you may include these 2009 expenses on your 2009 return – without ever having to amend it. Do not include the 2008 expenses in 2009.

And remember, you can find answers to all kinds of questions about employee business expenses 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 join TaxMama.com link – it’s free!]

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

Ask TaxMama

Where taxes are fun and answers are free

www.TaxQuips.com

The number ONE free tax podcast online

Today TaxMama hears from Linda in Kentucky with a reasonable question. “My son-in-law had on-line college classes that required him to have internet services and a computer. Do these count towards the tax credits? Also, how would he go about getting the books, supplies, gas, etc. credited?”

Dear Linda,

In a very odd and inconsistent twist, when Congress wrote the American Recovery and Reinvestment Act of 2009, they added computers and Internet access to the approved expenses for Code Section 529 education plans. Those are the Qualified Tuition Programs that allow you to put away 5 years worth of contributions in one chunk to grow tax-free until college. In 2009, the contribution limit was $65,000.
http://www.irs.gov/publications/p970/ch09.html

Here’s the twist. You could use the Sec 529 money for computers and Internet. But read this:
http://www.irs.gov/newsroom/article/0,,id=213012,00.html

In general, expenses for computer technology are not qualified expenses for the American opportunity credit, Hope credit, lifetime learning credit or tuition and fees deduction.

Bizarre, isn’t it? Why would they make it OK for one benefit and not the others? After all, how could you possibly go through college today without a computer and Internet access? I can’t even begin to imagine!

As to the rest of the expenses, which now includes books, even if you don’t buy them directly from the college, use Form 8863 to claim his credits. http://www.irs.gov/pub/irs-pdf/f8863.pdf

You will find the instructions here – http://www.irs.gov/pub/irs-pdf/i8863.pdf . The instructions include a chart outlining the kinds of expenses you can use.

Use Form 8917 to claim the expenses instead of the credits. Instructions are included with this form.
http://www.irs.gov/pub/irs-pdf/f8917.pdf

As to the gasoline, or mileage? Unless these were job related classes…forget it. But, if the classes were job-related, you have one more option. Once you’ve used up the expense limits for the Education Credits, or the education expenses, you can use the leftover costs on Form 2106 – Employee Business Expenses. That gets more complicated. Read about that here. http://www.irs.gov/taxtopics/tc514.html

And remember, you can find answers to all kinds of questions about education expenses 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 join TaxMama.com link – it’s free!]

Ask TaxMama

Where taxes are fun and answers are free

www.TaxQuips.com

The number ONE free tax podcast online

IRS Publication 970

Tax Benefits for Education

IRS Articles

Special IRS Web Section Highlights Back-to-School Tax Breaks

IRS Form 8863

Education Tax Credits under ARRA

Instructions to IRS Form 8863

IRS Form 8917

Tuition and Fees Expenses

IRS Tax Topic 514

Employee Business Expenses