TaxMamas TaxQuips

$10,000 from IRA

Eva Rosenberg — Wed, 10 Mar 2010 05:43:00 -0800

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

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

File Download (0:00 min / 1 MB)

Donated Car Increased in Value

Eva Rosenberg — Mon, 08 Mar 2010 23:25:00 -0800

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 .

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 Publication 526 :: Charitable Contributions
TaxMama's Tax Forum :: Where you can post your comments

File Download (0:00 min / 1 MB)

Short Term Installment Agreement

Eva Rosenberg — Mon, 08 Mar 2010 07:08:00 -0800

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.

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

Splitting the Dependency Exemption

Eva Rosenberg — Wed, 03 Mar 2010 02:59:00 -0800

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 .

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

Calculate Interest and Penalties

Eva Rosenberg — Tue, 02 Mar 2010 02:59:00 -0800

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 .

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 Interest Rates through 2008 ::
IRS Interest Rates for 2009 ::

File Download (0:00 min / 1 MB)

Repaying Homebuyers Credit

Eva Rosenberg — Mon, 01 Mar 2010 02:59:00 -0800

Today TaxMama hears from Paul in the TaxQuips Forum with this question. “How do I start paying back the $7,500 homeowner credit from 2008? We know we’re supposed to pay it back in 15 installments of $500 each year; but we can’t find a line to enter it on the 1040 form for 2009.” http://taxmama.com/forum/taxquips/how-do-i-start-paying-back-the-7500-homeowner-credit/

more->

Well Paul,

There’s a good reason you can’t find a place on the 2009 Form 1040 to enter the $500 payback.

As Mark Taylor explains, this tax-free loan starts getting paid back in 2010 – and he provides a link to an IRS article that explains this. http://www.irs.gov/newsroom/article/0,,id=186831,00.html

Since you know you’re going to owe this extra $500 on your 2010 tax return, IRS recommends that you increase your withholding this year to absorb the additional tax.

Sounds like a good idea.

And remember, you can find answers to all kinds of questions about repaying the 2008 first time homebuyers credit and other tax issues, free. Where? Where else? At www.TaxMama.com.

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 Articles :: Repay the First Time Homebuyers Credit Over 15 years
TaxQuips Forum :: Where you can comment on this question

File Download (0:00 min / 1 MB)

Ask TaxMama Issue 542 - Poor Poor Purim

Eva Rosenberg — Fri, 26 Feb 2010 09:45:00 -0800

Dear Family,

Let’s start with a quick reminder – if you want to take a deduction for contributions to Haiti on your 2009 tax return, you must make your contribution by February 28th.

Speaking of February 28th, that is also the last day to take the 2009 EA Exam. Those of you planning to sit for the exam…get off your tushies and do it NOW!

I just heard from two people who truly did not believe they would be passing the exams by the end of this testing window. Our guy in Japan tells me that when I told in December that he would be able to finish his studies and pass before the testing deadline ended, he just couldn’t even imagine that he could learn that much, that quickly. He passed his last part yesterday – and is all done!

The other lady was in deep, deep despair two months ago. She was so burned out from family, studying, disappointments and failing the toughest exam, she wanted to throw in the towel and come back in the summer. She passed this week.

Why do I tell you this? Aside from intense pride in their success?
And aside from inviting you to join this year’s class?
http://irsexams.com/registration/

Because I want you to be inspired to accomplish the things YOU want to do in your own life. Sometimes, things look so dark, so dismal and problems impossible to overcome (especially tax problems), that you literally give up, withdraw into yourself and become emotionally catatonic. You may still function on some automatic level. But you’ve lost heart and all sense of life and purpose. You’re not alone.

In practically everyone’s life, we face such times. One person, speaking to a group this week told us that recently, he was so dejected, felt like such a failure, that he was going to walk away from everything he had built up – and just give up. He got over it because when he made the announcement, friends reached out to him from all over the world and brought him back to life. Which is why he is still around to teach me exciting new things.

If you’re feeling trapped, hopeless, or as if you can’t deal with another thing, please, take heart. Your problem, your set-back is temporary. Whether deal with it yourself (and that is often my nature, too…idiotic though that may be)or get help – break down your problem into components, like puzzle pieces. Work on just one piece of that puzzle at a time. Solving one problem, getting past one roadblock is much easier than trying to do it all once.

The first success will start a small spark of hope. The next one will raise that spark to a small flame of pleasure. By the third solution your hope and enthusiasm will be flaming bright. You will be on track again.

In fact, that’s a little bit like the events in the Book of Esther, the story of Purim. Listening to an online discussion by Rabbi Simon Jacobson this week, made me realize that the events that took place in Persia in the 5th century BC, took place over a period of years. Somehow, in the telling of the Story of Queen Esther, it feels as if all the events happened over a few months. And talk about Esther’s despair – learning that your entire race of people is about to be wiped out. Your choice is to go face the king uninvited and risk being put to death for your impertinence, or stay safe and watch everyone else die. And even then, even if you do risk your life to speak to your king, what’s if he annihilates all your people anyway? http://www.our-learning.com/blog

To all profound problems, there is a solution.
Faith and prayer were definitely a part of Esther’s solution.
But she didn’t rely solely on that (unlike the man in the flood).
Esther also had a plan.

She saved the Jews of Persia. And gave us THE most joyous holiday of the year – Purim.
http://www.jewfaq.org/holiday9.htm

In IRS News today we learn what to do when you move your home or office, and how to Check the Status of Your Refund.
http://taxmama.com/category/asktaxmama/irs-news/

This week TaxMama’s TaxWatch tells you all the different types of tax breaks you can use even if you don’t itemize.
http://www.marketwatch.com/taxes

In today’s Money Funny we meet a man waiting for God.
http://taxmama.com/category/asktaxmama/money-funnies/

In TaxQuips this week we get into an intense argument about whether your tax pro should give you a copy of your depreciation schedule with your tax return or not? What do you think?
http://taxmama.com/forum/taxquips/lack-of-depreciation-schedules/

The rest of the week, we learn about education credits, exotic medical travel, and funding retirement plans on the basis of rental income.
http://taxmama.com/category/tax-quips/

As always, we love your feedback, opinions and ideas.
You are what makes all this fun – and interesting!

Please use the Comments link online.
http://taxmama.com/ask-taxmama-issue-542-purim/

TaxNerd gear makes a bold statement year-round. And it helps attract the opposite sex!
Shop at www.taxnerd.net or http://www.zazzle.com/taxmama*

Hugs from your favorite TaxNerd,
http://www.zazzle.com/taxmama*

Eva Rosenberg, EA

Your TaxMama® is watching…out for you.

www.TaxMama.com
www.snurl.com/homebiz-tax
www.TaxMama.com/TaxQuips
www.IRSExams.com
www.TaxNerd.net

==========================————————————————————-
TAX CALENDAR
http://www.taxmama.com/taxcalendar.html————————————————————-

03/01/2010 File Paper copy W-3’s with Social Security Admin including copies of W-2’s
03/01/2010 File paper copy of US transmittal of US information Returns
03/01/2010 Farmers & Fisherman – Use Personal Income Tax Return – Sole Proprietor
03/16/2010 S-Corp Election Decision Due (if Applicable)
03/16/2010 S Corporate Returns Due / Calendar Year
03/16/2010 Issue K-1’s S Corporate Returns / Calendar Year
03/16/2010 Corporate Returns Due / Calendar Year
03/16/2010 Corporate Returns/S Corp Extensions Due / Calendar Year
03/16/2010 Foreign Persons US Income subject to withholdings
03/16/2010 Annual Tax Return of US Income subject to withholdings of Foreign Persons
03/16/2010 Employers Make Monthly Payroll tax deposit on the 15th of each month
03/16/2010 Electing Large Partnerships – Issue K-1s to partners – even if you’re on extension
03/31/2010 Electronic filing of W-3’s with Social Security Admin including issued W-2’s
03/31/2010 Electronic filing of US transmittal of US information Returns————————————————————-
From TaxMama® to You!————————————————————-

Follow TaxMama®’s Tweets – http://twitter.com/TaxMama

You are invited to put a TaxQuips Widget on your phone, social networking page, website, or… You’ll get the TaxQuips as soon as they published – long before they are distributed in by e-mail. It’s a nifty gadget. Just pick up the code and paste into your site or application.
http://www.widgetbox.com/widget/taxmamas-taxquips-daily-tax-podcasts

Download TaxMama’s 2010 iphone Tax Calendar. My gift to you.
http://snurl.com/taxcalendar

Never miss a tax deadline again!
The customizable tax calendar is here.
Add or Remove dates. Add your own reminders – get alerts.
http://snurl.com/itaxmamapro

Ask TaxMama :: Where taxes are fun and answers are free
www.TaxQuips.com :: The number ONE free tax podcast online

Five Tips for Taxpayers Making a Move

Eva Rosenberg — Fri, 26 Feb 2010 09:29:00 -0800

The IRS offers five tips for taxpayers who have moved or are about to move. If you’ve changed your home or business address, make sure you update that information with the IRS to ensure you receive any refunds or correspondence from the IRS.

more->

How to Change Your Address You can change your address on file with the IRS in several ways:• Correct the address legibly on the mailing label that comes with your tax package;

• Write the new address in the appropriate boxes on your tax return;

• Use Form 8822, Change of Address, to submit an address or name change any time during the year;

• Give the IRS written notification of your new address by writing to the IRS center where you file your return. Include your full name, old and new addresses, Social Security Number or Employer Identification Number and signature. If you filed a joint return, be sure to include the information for both taxpayers. If you filed a joint return and have since established separate residences, both taxpayers should notify the IRS of your new addresses; and

• Should an IRS employee contact you about your account, you may be able to verbally provide a change of address.

Notify Your Employer Be sure to also notify your employer of your new address so you get your W-2 forms on time.

Notify the Post Office If you change your address after you’ve filed your return, don’t forget to notify the post office at your old address so your mail can be forwarded.

Estimated Tax Payments If you make estimated tax payments throughout the year, you should mail a completed Form 8822, Change of Address, or write the IRS campus where you file your return. You may continue to use your old pre-printed payment vouchers until the IRS sends you new ones with your new address. However, do not correct the address on the old voucher.

Postal Service The IRS does use the Postal Service’s change of address files to update taxpayer addresses, but it’s still a good idea to notify the IRS directly.

Visit IRS.gov for more information about changing your address. At IRS.gov, you can also find the address of the IRS center where you file your tax return or download Form 8822, Change of Address. The form is also available by calling 800-TAX-FORM (800-829-3676).

Links:

Form 8822, Change of Address (PDF 60K)

Tax Topic 157, Change of Address — How to Notify IRS

Subscribe to Tax Tips

Ask TaxMama :: Where taxes are fun and answers are free
www.TaxQuips.com :: The number ONE free tax podcast online
IRS Form 8822 :: Change of Address
IRS Topic :: How to Notify IRS When you Move
IRS Topic :: Moving Expenses

Seven Things You Should Know About Checking the Status of Your Refund

Eva Rosenberg — Fri, 26 Feb 2010 09:03:00 -0800

Courtesy of IRS

Are you expecting a tax refund from the Internal Revenue Service this year? If so, here are seven things you should know about checking the status of your refund once you have filed your federal tax return.

Online Access to Refund Information Where’s My Refund? or ¿Dónde está mi reembolso? are interactive tools on IRS.gov and the fastest, easiest way to get information about your federal income tax refund. Whether you split your refund among several accounts, opted for direct deposit into one account, used part of your refund to buy U.S. savings bonds or asked the IRS to mail you a check, Where’s My Refund? and ¿Dónde está mi reembolso? give you online access to your refund information nearly 24 hours a day, 7 days a week. It’s quick, easy and secure.

When to Check Refund Status If you e-file, you can get refund information 72 hours after the IRS acknowledges receipt of your return. If you file a paper return, refund information will generally be available three to four weeks after mailing your return.

What You Need to Check Refund Status When checking the status of your refund, have your federal tax return handy. To get your personalized refund information you must enter:• Your Social Security Number or Individual Taxpayer Identification Number• Your filing status which will be Single, Married Filing Joint Return, Married Filing Separate Return, Head of Household, or Qualifying Widow(er)

• Exact whole dollar refund amount shown on your tax return

What the Online Tool Will Tell You Once you enter your personal information, you could get several responses, including:• Acknowledgement that your return was received and is in processing.• The mailing date or direct deposit date of your refund.

• Notice that the IRS could not deliver your refund due to an incorrect address. In this instance, you may be able to change or correct your address online using Where’s My Refund?.

Customized Information Where’s My Refund? also includes links to customized information based on your specific situation. The links guide you through the steps to resolve any issues affecting your refund. For example, if you do not get the refund within 28 days from the original IRS mailing date shown on Where’s My Refund?, you may be able to start a refund trace.

Visually Impaired Taxpayers Where’s My Refund? is also accessible to visually impaired taxpayers who use the Job Access with Speech screen reader used with a Braille display and is compatible with different JAWS modes.

Toll-free Number If you do not have internet access, you can check the status of your refund in English or Spanish by calling the IRS Refund Hotline at 800-829-1954 or the IRS TeleTax System at 800-829-4477. When calling, you must provide your or your spouse’s Social Security number, filing status and the exact whole dollar refund amount shown on your return.Refund checks are normally sent out weekly on Fridays. If you check the status of your refund and are not given the date it will be issued, please wait until the next week before checking back.

Links:

Where’s My Refund?

¿Dónde está mi reembolso?

Subscribe to Tax Tips

Ask TaxMama :: Where taxes are fun and answers are free
www.TaxQuips.com :: The number ONE free tax podcast online
IRS Tool :: Where's My Refund
IRS Spanish Tool :: ¿Dónde está mi reembolso?

No Profit in Waiting For God

Eva Rosenberg — Fri, 26 Feb 2010 08:24:00 -0800

After a major storm, a flood had overtaken the town. As the flood waters were rising, a man was on the stoop of his house and another man in a row boat came by.

The man in the row boat told the man on the stoop to get in and he’d save him.

The man on the stoop said, “no, I have faith in God and will wait for God to save me.”

The flood waters kept rising and the man had to go to the second floor of his house.

A man in a motor boat came by and told the man in the house to get in because he had come to rescue him.

The man in the house said, “No thank you. I have perfect faith in God and will wait for God to save me.”

The flood waters kept rising. Pretty soon they were up to the man’s roof and he got out on the roof.

A helicopter then came by, lowered a rope and the pilot shouted down in the man in the house to climb up the rope because the helicopeter had come to rescue him.

The man in the house wouldn’t get in. He told the pilot, I have faith in God and will wait for God to rescue me.”

The flood waters kept rising and the man in the house drowned.

When he got to heaven, he asked God where he went wrong. He told God that he had perfect faith in God, but God had let him drown.

“What more do you want from me?” asked God.
“After all, I sent you two boats and a helicopter!”

Ask TaxMama :: Where taxes are fun and answers are free
www.TaxQuips.com :: The number ONE free tax podcast online
Money Funnies at TaxMama.com :: More Tax and Money Humor and Inspiration
More Money Funnies at TaxMama.com :: Where you can post your comments