TaxMamas TaxQuips

Today TaxMama® hears from AShepherd in the TaxQuips Forum, with a sensible question. “I filed married filing separately this year because, at the time, my husband was incarcerated. He is out now. Can we file jointly still and if so, how can we ( will a 1040x do the job)? I couldn’t claim anything, our kids the EIC etc…. I only got 56 bucks back. Please help we really need the money.”

Dear AShepherd,

Mike Reed, EA explains.

Yes, Per Pub 501 you can change from MFS to MFJ – you must file within 3 years of the original due date. This will be an amended return, thus you do not “return” the $56, the 1040X will compute any balance or refund due.

And remember, you can find answers to all kinds of questions about filing statuses 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!]

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Today TaxMama® hears from Jack in the TaxQuips Forum, who is frustrated. Let me summarize. After not filing for a while, he got caught up. Now, the IRS has sent his wife a notice saying she didn’t report the sales of her stock. Jack says all that information was right there on their joint return. Why is he getting a threatening, registered letter now?

 

Dear Jack,

Mike Reed, EA explains what is probably going on.

As you are finding out, the world operates much simpler when things are filed on time and refunds are timely refunded. Late filings result in more “looks” and more “questions” causing more time and stress – as you said, above.

I seriously doubt the IRS “lost your records” – in the end I bet you’ll find the “mistakes” are right there in black & white – the wrong forms, the wrong entries, the wrong expectations. The IRS is pretty efficient – over 124 Mil returns filed last year.

Make yourself a promise to be prompt in the future. If necessary enlist an EA to help with your taxes – in the end you’ll pay less, sleep better and enjoy life more.

Rita Lewis, EA points out that the notice may be a result of a Substitute for Return that the IRS filed on your behalf when you didn’t originally file a tax return.

TaxMama® adds this. After not filing for years, the IRS doesn’t really have a record of your wife’s tax return. Believe it or not, even in the 21^st century, the IRS computers only look at the first Social Security Number on the tax return – unless you have a history of filing jointly. That’s why the IRS computers never saw a tax return filed under your wife’s SSN. You may well be able to resolve this with a phone call. Be sure to follow up in writing – after getting the IRS agent’s name and employee ID# – to confirm your conversation.

And remember, you can find answers to all kinds of questions about IRS procedures 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!]

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TaxQuips

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TaxQuips Forum

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Today TaxMama® hears from Laura in the TaxQuips Forum, with a tough question. “In 2011 my Elderly client (78) pulled all the money out of a retirement account which his wife had set up for him some years back. My client learned about the account upon her passing and withdrew all the funds not knowing there would be tax implications.

The 1099R has the box checked (TAXABLE AMOUNT NOT DETERMINED with a DISTRIBUTION CODE 7). I am trying to figure out the client’s basis. The contact at the bank has no idea what I am talking about. What should I do? Is there anything I can do to reduce my client’s taxable income?”

 

Dear Laura,

What is the source of this 1099R? Is it company retirement account, an IRA or an annuity?

With an annuity, the company should know the original cost paid for the annuity.
That would be the basis.

With a company retirement account, his former employer might know if there was any after-tax money contributed.

The IRA, on the other hand? First see if their tax return contains a Form 8606 – NonDeductible IRAs. That form is designed to track the basis. Not everyone includes it in the return – especially for older IRAs.

You would need to dig out prior year tax returns as far back as you can go to determine if there were any non-deductible contributions. On the other hand, you can ask him if he was aware of any. Most likely there were no such contributions made, so the whole thing is taxable.

Mike Reed, EA adds, if your client does not have past returns, possibly you can get a transcript.

And remember, you can find answers to all kinds of questions about retirement accounts 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!]

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Ask TaxMama

Where taxes are fun and answers are free

TaxQuips

The number ONE free tax podcast online

TaxQuips Forum

Where you can ask questions, too

TaxQuips Forum

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Today TaxMama® hears from a couple of people in the TaxQuips Forum, with similar questions. The second one combines both person’s concerns. “My wife is a graduate student who received a few research grants this year. Some of them want to give the money directly to her instead of through the university, and have asked for a W9. This money will be used entirely for lab equipment, field work, etc., None of it will be used for personal income to her. How is this handled? Do we include it in our income? Are the lab supplies and travel and such deductible as education expenses (my guess is not)? Or would I be able to set this up as a business and handle the income and expenses that way?”

 

Dear Beagle and JMG,

In order to get the grant, you must submit a proposal involving doing certain research or performing certain actions. Clearly, personal services are involved in order to merit the grant. So, yes, it does go on Schedule C.

Your wife would report ALL the income. She can report it on Schedule C. She can claim a deduction for the directly-related expenses. She can deduct the reimbursed expenses – since they will be included in her 1099-MISC.

Track all her income AND all her expenses. Read IRS Publication 334 to learn more about allowable expenses.

And if she pays anyone, have her be sure to get a signed Form W-9 from them when she engages their services – OR put them on payroll if they are her employees.

And for the answer to the question about employee business expenses, please read the reply in the TaxQuips Forum.

And remember, you can find answers to all kinds of questions about research grants and scholarships 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!]

Download the MP3 (0:00min, 3MB) or listen now...

Ask TaxMama

Where taxes are fun and answers are free

TaxQuips

The number ONE free tax podcast online

TaxQuips Forum

Where you can ask questions, too

TaxQuips Forum

Where you can add your comments, too

Today TaxMama® hears from Angel in the TaxQuips Forum, with a naive question. “I travel out of the country, on average, 6 months a year. My company handles everything pretty well, but I do have one question. If we take a day off for whatever reason, we lose our per diem for that day. Is this legal as we are still out of the country on business? We work 6 days a week and are off most Sundays; but we get per diem on Sundays even though we don’t work. Just wanted to get someone else’s opinion as this doesn’t make sense to me.”

 

Dear Angel,

How your company chooses to pay you is strictly company policy. There is nothing legal or illegal about it. And if they do the same thing for everyone in your position, it’s not even discriminatory.

I know, it’s not the answer you want. This is not a tax question. It’s a labor law issue, right?

I bring this up because it’s important to understand the difference between company policy and labor laws. In most states, a company is required to provide break times when you work more than a certain number of hours. Unless there is a union contract, they are not required to provide paid sick leave or vacation, if they don’t want to. Most companies do, because employees expect it and they want to attract employees who stay with them for the long term. So, the time to complain, or negotiate for better benefits is when you get hired. Or, once you start doing an outstanding job, you can lobby for more perks – for yourself and others in your position.

And remember, you can find answers to all kinds of questions about per diems 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!]

Download the MP3 (0:00min, 3MB) or listen now...

Ask TaxMama

Where taxes are fun and answers are free

TaxQuips

The number ONE free tax podcast online

TaxQuips Forum

Where you can ask questions, too

TaxQuips Forum

Where you can add your comments, too