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IRA Warnings

2016-01-19 by Eva Rosenberg

IRAToday TaxMama® hears from Jeff in the TaxQuips Forum with a very common type of problem. Let me paraphrase. “My wife had a traditional IRA at Vanguard and we rolled it over to another company where I set up the account. We didn’t notice that the account was in my name, instead of hers until we saw my name on a recent statement. What now?”

Dear Jeff and TaxMama Family,

You can read my answer to Jeff here. But I want to talk to you today about avoiding IRA problems. I hear about so many problems from people rolling over funds from one IRA to another, or from a pension plan or 401k to an IRA. Here are some common mistakes to avoid.

1) When moving money from one account to another, make sure to read the paperwork and to log into the new account to:


  1. Make sure that it IS an IRA account.

  2. Make sure the account is in the correct name – IRA’s belong to an individual – not a couple.


2) If you withdraw the money instead of making a direct transfer, be SURE to deposit the funds to an IRA before the 60 days runs out. Remember, it’s not two months – it’s 60 days.

 

3) If you plan to draw up to $10,000 to buy a home, you must understand the rules:


  1. The money must come from an IRA only – not a 401(k) or other pension plan.

  2. So if your money is not in an IRA, move it to one before your withdraw the funds.

  3. You are only exempt from the early withdrawal penalties – you must still pay tax on the money you withdraw.

  4. Even if you are married, you are only entitled to draw up to $10,000 from your own IRA. If you need more money, you must withdraw the rest from your spouse’s IRA.

  5. If your spouse doesn’t have an IRA yet, and you want to save up money for a house, consider funding a spousal IRA for a couple of years before you buy the home.


4) When it comes to all Form 5329) – the money must also be drawn from an IRA. So, again, move money from your pension plans to an IRA before taking any draws.

5) However, when you draw money during a divorce, under the terms of a QDRO – qualified domestic relations order, it MUST come directly from a qualified retirement plan, not an IRA.

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

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Happy New Year

2015-12-30 by Eva Rosenberg

Fireworks - Adelaide Skyshow 2010
Today TaxMama® wants to wish you a Happy New Year 2016 – and leave you with these snippets of fun.

 

I was thinking…

...about how the status symbol of today is those cell phones that everyone has clipped on. I can’t afford one so I’m wearing my garage door opener.

You know, I spent a fortune on deodorant before I realized that people didn’t like me anyway.

...that women should put pictures of missing husbands on beer cans.

...about old age and decided that it is when you still have something on the ball but you are just too tired to bounce it.

...about making a movie for folks my age and call it “Pumping Rust.”

I have gotten that dreaded furniture disease … that’s when your chest is falling into your drawers.

You know when people see a cat’s litter box, they always say, “Oh have you got a cat?” Just once I wanted to say, “Nope. It’s for company. Help yourself. Make yourself comfy. Take your time.”

Employment application blanks always ask who is to be notified in case of an emergency. I think you should write A Good Doctor … or 911!

Why do they put pictures of criminals up in the Post Office? What are you supposed to do, write to these men? Why don’t they just put their pictures on the postage stamps so the mailmen could look for them while they deliver the mail?

...about how people seem to read the Bible a whole lot more as they get older, then it dawned on me: they were cramming for their finals.

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

[Note: If you were subscribed to the e-mailed version of 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!]

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Innocent Spouse Relief - Sort of

2015-12-15 by Eva Rosenberg

consumersToday TaxMama® hears from Melissa in the TaxQuips Forum. “I was granted innocent spouse relief after my divorce in 2013. Yet when I filed my taxes this year, I didn’t get my refund and received no info on why; or if it went to my ex-husband’s unpaid state (WV) taxes, that he hasn’t paid for 3 yrs on his small business. They took my refund for 2013. But I thought if I was granted innocent spouse, they couldn’t take them for 2014.”

 

Hi Melissa,

You may have been granted innocent Spouse relief from the IRS. But were you granted the same thing in WV?

If you did not file for relief with them, you are still responsible.

Try filing a claim with them on the basis of your IRS relief. Send them the IRS determination letter, along with any forms that WV uses for innocent spouses.

Until you do, the IRS simply acts as a collection agency for the state. They have no choice, if you don’t resolve it on the state level.

If you have filed for relief with the state, then call the state and ask them to return your money. Have their relief letter handy to fax over to them.

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

[Note: If you were subscribed to the e-mailed version of 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 .

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October 15th is NOT the filing deadline for Everyone

2015-10-13 by Eva Rosenberg

October 15th is the annual filing deadline for all personal income tax returns. Let it Rain and StormThis year, some (un)lucky folks in several disaster areas around the country have extra time to file – as long as they were wise enough to put their personal tax returns on extension. What about the rest of us?

We still face the usual deadline – and it’s nearly here. Let’s outline the special provisions available to victims in the various disaster areas.

One tax professional posted on Facebook that he was burning the midnight oil trying to get the bookkeeping done for a business client. He was frustrated with all garbage (personal expenses) in the records that was taking him forever to clear out of the business Profit and Loss data, so he could complete tax return before October 15. Suddenly, he realized – the client was in the flood area of South Carolina. What a relief, the tax return would not be due for four more months.

Why? Several South Carolina counties were victims of floods[1]. All tax payments and filings that were due from October 1, 2015 are also deferred until February 16, 2016. They include the following benefits, many of which apply to all disaster areas:


  • They can make their 4th quarter personal estimated tax payment on February 16, 2016. Since that’s normally due on January 15, 2016, they have an extra month.

  • Quarterly payroll tax returns and excise tax returns for the 3rd and 4th quarters.

  • Late payment penalties, late filing penalties and interest will be forgiven during this period.

  • People living outside the affected areas may also qualify for these benefits if their records were in the flood areas and were destroyed or damaged.


September brought fires to parts of Northern California[2], while August brought the Napa earthquake. Those affected have until January 15, 2016 to file their personal tax returns, as well as any corporate tax returns that were due on September 15th. Their third and fourth IRS estimated tax payments are deferred until then, as well.

The Commonwealth of the Northern Mariana Islands was hit by Typhoon Soudelor[3]. Believe it or not, there are American taxpayers. They get to defer their filings and payments for anything that was due on or after August 1, 2015 until November 30, 2015. As with California, that includes all personal and business tax filings, payments and reports.

Victims of the severe storms in Kentucky last summer, have a couple of extra weeks to file their personal tax returns – until November 2, 2015[4].

If you live in anywhere that has been declared a Presidential Disaster Area, you are entitled to extra time for a variety of filings. Relief from penalties and interest – and get special disaster filing privileges to report your casualty losses. Please visit the IRS’s Tax Relief in Disaster Area page to see what your deadlines and benefits are – https://www.irs.gov/uac/Tax-Relief-in-Disaster-Situations
————References:

[1] https://www.irs.gov/uac/Newsroom/IRS-Provides-Tax-Relief-to-South-Carolina-Flood-Victims-Oct.-15-Tax-Deadline-Extended-to-Feb.-16

[2] https://www.irs.gov/uac/Tax-Relief-for-Victims-of-Valley-and-Butte-Fires-in-California

[3] https://www.irs.gov/uac/Tax-Relief-for-Victims-of-Typhoon-Soudelor-in-the-Commonwealth-of-the-Northern-Mariana-Islands

[4] https://www.irs.gov/uac/Tax-Relief-for-Victims-of-Storms-Tornadoes-Winds-Flooding-Landslides-and-Mudslides-in-Kentucky

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Taxable Complimentary Stuff

2015-10-12 by Eva Rosenberg

Diagonal shift test folds
Today TaxMama® hears from Rick in the TaxQuips Forum. Let me summarize his issue. He just learned that he is getting a $9,000 1099MISC for items he receives to review. He can’t use most of those things, but he’s not allowed to sell them. Yet, he will be paying taxes on the retail value of these things. What can he do?

 

Dear Rick,

I honestly don’t know what to tell you. This IS a bad deal. The taxes might be higher than your actual compensation. If you had discussed this with a tax pro before starting this, you might have negotiated the contract differently.

For instance, under the circumstances, you need to talk to them about changing your arrangement. If these are non-consumables (things you don’t use up in the course of the review), INSIST that you will return the items and not get 1099’d for them.

In the meantime, you have a problem. Your business can’t really take a charitable contribution for the donations. YOU may take the contribution on your Schedule A – Itemized Deductions. And if you don’t have enough expenses to itemize, you don’t even get that benefit.

You MIGHT try to deduct the items you donate to charity on you Schedule C. Defend the Schedule C deduction because the contract requires you to donate them, I suppose.

Or look up what it would cost you to buy each item and print it out. Report the full 1099 income on your Schedule C, but on the second page where you have blank lines you use, enter “adjustment for actual market value of 1099 goods” and deduct the difference.
Keep the records in your file. Pray you are never audited.

And remember, you can find answers to all kinds of questions about 1099s and other tax and business issues, free. Where? Where else? At www.TaxMama.com.

[Note: If you were subscribed to the e-mailed version of 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, 3MB) or listen now...

Ask TaxMama
Where Taxes are Fun
TaxQuips
The #1 Free Tax Podcast Online
TaxQuips Forum
Where you can you ask your tax questions
TaxQuips Forum
Where you can you can add your comments



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