Post Tax Questions Here

[thedoorchick]

I know it's not the traditional time of year to be thinking about these things (unless you've filed an extension), but I just wanted to start a thread where these kinds of questions can be asked and answered.

And besides, it's much better to get questions answered before the end of the year, than a month before the deadline! :)

[notkk]

OK - I have one...

On Thursday we are selling our current house and buying a new one.

Capital gains on the current house. We will have owned it for 2 years to the day (bought it 6/30/03 and closing 6/30/05) - so we won't have to worry about paying capital gains tax, but what do we need to keep in order to document that we don't have to pay any? Is it enough that we meet the 2 year requirement and the house is selling for less than the $300K cap?
Is there anything else that we should consider with this sale and tax implications?

On the new house - we aren't paying any points when we close. I know all the standard mortgage interest and property tax deduction stuff. Is there anything else we should be thinking about?

Thanks!

[ktina0803]

As far as capital gains go you are correct - you won't have to pay them. I don't know of any other documentation than the settlement statements from the purchase and selling of your home (as far as proof for you tax return). If you have your taxes done by an accountant, I usually ask for both statements (purchase & sell) so that I can get all the necessary information. Price, closing cost, RE taxes ect. So keep that where you can find it. A lot of the time people lose this in the move.

HTH

[notkk]

Thanks!
I'm trying to avoid misplacing paperwork in the move (this time around)...I've already made a tab for the paperwork in our filing cabinet. :p

[Katie1]

I believe that you will get something in the mail after your closing that is the official statement to be used for taxes. I attended many closings as a realtor, and the seller's attorney always had the seller provide some sort of information to prepare this form that he would later mail out.

Here's my tax question: We are expecting a baby in September. We're not married, but we do live together and own a home. The house is in my name only, although we both pay for it. Anyway, will only one of us be able to claim the baby as a dependent? Will we be better off if whoever earns the most money takes the deduction? I get a pretty good tax break already since the house is a two-family and there's all sorts of depreciation. We do plan on getting married eventually, so I'm wondering if it's worth it to do a courthouse wedding just for tax purposes, and then a bigger wedding down the road. Currently we are running into one financial problem after another stemming from not being married. For example, we want to refinance and add BF's name to the mortgage, but the mortgage company won't allow it because they say he has no interest in the home even though he's lived here and paid for it since day one. To them, he's just a roommate. It's really aggravating.

[thedoorchick]

A couple who isn't married obviously file separate returns, so only one of you can claim the child as a dependent. I would figure it both ways and use whichever is more advantageous (i.e. results in lowest total tax).

[FallingforPhil]

I'm in grad school this summer, and will be for the next 2 summers after this. What portion of my expenses can I deduct? Tuition, books? Transportation? (train, gas, parking???) Should I be saving all my receipts for train passes, etc?

Also, if my job reimburses me for a portion of my tuition (I'm a teacher) does that amount need to be deducted from the amount I personally deduct?

Thanks, Jasonsbride! (I mean, the doorchick) ;)

[Asha]

here's some advice. don't take it as the gospel truth. make sure to validate everything i have said bc i am not a tax professional. i jhave ust read a lot about money related things, and i ask my accountant tons of questions.

notkk - capital gains tax? i thought that there was no time requirement anymore now that they have changed the laws as long as you are using your home as your primary residence. though, i heard that if you abuse that too much they will see you as an investor, and charge you the capital gains tax if you have lived there for less than two years. obviously, if it is your first house i don't think that would be an abuse. also, i thought 500k or less profit per couple on the sale of your primary residence does not not get a capital gains tax.

Katie1 - we found that being married actually gets you taxed higher. so, i wouldn't rush and do a courthouse wedding. whoever is in the higher tax bracket should claim your child as the dependent. even if you already claim the house, if you are in a much higher tax bracket than your fh than i would claim your child. this year we filed married but filing separately. since, we lived in two different states this past year, it was monetarily advantageous for us to do that. we saved ourselves a huge chunk of change by filing separately. my dh took all the deductions bc he is in a much higher tax bracket. oh yes, my tax accountant said that those who are not married but living together can file jointly if they say they have a common law marriage. if one of you makes very little and the other makes quite a bit, it would actually be better to file jointly. kinda debunking my first statement, but it worked out for us bc of our incomes that filing separately was better.

FallingforPhil - you cannot deduct tuition that someone else pays for. you already are getting a tax advantage bc that grant money for your tuition is tax free. yes, i believe you can deduct books. not quite sure about travel expenses. my guess is no bc you cannot deduct living expenses (ie room and board). just make sure you and your dh do not fall above a certain dollar amount otherwise you are not allowed to deduct anything.

[greenbunny]

I just got tax paperwork in the mail yesterday and I'm really confused. I can't find a phone number on it to ask them questions.

Last year we owed about $1400, which was a total shock. The problem was that DH is a substitute teacher and districts only took taxes if he worked more than 14 days there. This didn't happen a lot, so he made a lot of untaxed money last year.

We had no idea this would happen, since in past years he was taxed as if he was working all year like a normal person, so his not working June-August ended up making us get a large tax return. I guess the laws changed somehow and things are different now.

Now we got this 1040-ES form that says that we need to start making estimated tax payments because we owed over $1000 last year. But this year he has a permament substitute position which means he's like a regular teacher, but without a contract. So he's not jumping among different schools, he's in one school all year like a regular job.

The paperwork seems to imply that we need to do this "to avoid a penalty". But we paid the full amount due last year in one check. It was hard, but we didn't need to make late payments or installments or anything.

Can I ignore this, or do I need to try to figure out how to contact someone and inform them that we don't need to do this? Or do I actually need to do it? Is there a special number I can call, or just try the general help line?

[Katy]

Now that we're taking care of my FIL (and he'll be staying with us through many of his treatments), is there a way to claim him as a dependent on our taxes? So far, we've been footing most of the bills ($197 :eek: for medicine today!) and his house is "mostly paid for" and will be transferred over to his other son within the next couple months. He retired at the end of last year and he said his only income now is his SS payments.

We're planning on getting a new accountant this year (as we've had quite a few biz expenses and whatnot) so we figure if we ask the questions now, we'll be more prepared when we meet our new CPA in a couple months.

Thanks in advance for your help...
Katy

[Annette]

GreenBunny - The same thing happened to us! We owed alot of extra tax money last year around 4k, because we cashed in savings bonds and I also was unemployed for part of the year and we didn't own a house yet. A few months ago, I got some papers in the mail saying we needed to pay estimated tax. I just ignored it because I ended up changing my withholding to 0. We also have the house now, so I hope we get a refund.

I have a question about stock options - If I exercise my options are the taxes withheld? What tax rate are they taxed at, the capital gains or the income tax bracket? I've had them for over a year.

[thedoorchick]

greenbunny, if you owe more than $1k then you have to pay estimated taxes...But, if you expect to have enough withheld to cover your 2005 liability, then don't worry, you're taken care of. Just be sure it's enough. If you end up owing more than that come April 15 then you will have penalties.

Katy, you may claim your FIL if he is a U.S. citizen (I assume so), he does not file a joint return, he had less than $3100 of gross income during the year (SS income that is not taxed does not count), and you provided more than half his total support. Detailed info on dependency exemptions can be found here (http://www.irs.gov/publications/p501/ar02.html#d0e3195).

Annette, stock options are a complicated area and there are a lot of "it depends" factors. Are they qualified or nonqualified (the plan should tell you this)? Did you exercise and sell or just exercise? In general if you are required to recognize ordinary income, HR will account for it and it will be reflected on your W-2 (or 1099 if you're not an employee).

[Bellefior]

Greenbunny if you don't expect to owe this year and your DH is having the proper amount of taxes taken out, then don't worry about it.

We got the estimated payment form earlier this week because we paid the IRS $2700 for last year (we had too little withheld). I talked to our accountant and he knows that after we got whacked with the tax bill, I changed my withholdings to single and zero, am maxing out the 401K at work, and that even though DH had 3000 in non-taxed earnings (independent contractor) this year, he was also out of work for a month and a half (no unemployment), and is currently on the books as an employee with taxes taken out. He told us that given all those changes, he doesn't think we will owe, or won't owe big time, so not to stress about it. It's only the people who do/will owe that need to worry about it. He told me that the IRS automatically kicks out those forms to the people who owe over a certain amount the previous year. I completely panicked when I saw the official IRS envelope in the mail!

[greenbunny]

Wow, I don't want to get socked with a penalty! That's scary. I really would think with only one district employing him and us having bought a home this year we'd probably be okay...but I'm not sure. We did both claim 0 for withholding and still had this happen.

I guess I'll need to find an accountant and ask. We won't be going back to our old one.

Is this a one-time shot? Like we got that one chance to owe over a thousand and now if for some freak reason it happens in eight years, we owe penalties? Or it is only that they don't want it to happen consecutively?

I know what you mean Bellefior about seeing that envelope! I just about fainted, I was sure we were being audited!

[thedoorchick]

Any year that you owe that much, you can have penalties for underpayment of estimated taxes.

I do estimates every quarter since we have rental property and also a side biz, to make sure we're on track.

Might not be a bad idea to do an estimate (project out income till year-end) and see where you think you'll end up. If you find a new accountant soon they can help you with that and the cost should be minimal.

[Bellefior]

Don't know anything about payment of penalties and I am not sure if there is a grace period the first time you underpay. I didn't see a penalty on our taxes this year for underpayment, but if there was one on there I am sure the accountant included it in what we owed, so we just paid what he told us to pay.

[ausi2b]

Thanks for setting this up thedoorchick! I just cashed in $1000 worth of savings bonds. They fully matured about 2 years ago. How much will I have to pay in taxes in April? I want to make sure that I save enough by then, even though I don't think it would be too much!

Thanks so much!

[kagbsc7]

The thing with estimated taxes is this...

YOu are required to have witholding of at least 90% (of total taxed owed) throughout the year to avoid penalties.

For example, if on your tax return you are LIABLE (not your amount due) for 1,000 and you have had at least 90% ($900) of that paid through the year through witholding (or estimated payments) you will avoid penalties. You will owe 100 on your return.

If you are LIABLE for 1,000 and you have ($500) of that paid through withholding, then you will get a penalty. You will owe 500 on your return plus penalties. Penalities are not a big deal...It is usually not a whole lot of money..

Penalties have nothing to do with when you filed your return or anything like that. It is all about how much you give them throughout the year

[fuzzy]

Totally random question that really isn't that critical, but I'm curious anyway...

I show horses. My horse is incentive-funded, meaning at the end of the year, depending on how he does, we get some money back to us that correlates to how many points we accumulated over the year at the shows.

The Quarter Horse Association, which runs the incentive fund program, sent me a form asking for my social security number so that they could properly tax my winnings. Fine.

According to my calculations, we will probably earn about $200 or so. Nothing big. But someone told us I wouldn't get taxed unless it was more than $600. Is that true?

[thedoorchick]

fuzzy, income is taxable regardless of amount. If it's under $600, you're "on your honor" because a 1099 won't be sent to you if it's under that amount.

[wendalah]

I have a question: My DH works freelance and fills out forms individually for each project he does. In 2003 he accidentally missed a project while filing and underreported his income by a small amount. He now owes a small amount to correct this, but what is confusing me--the report says he needs to pay $40 on "tip income." He doesn't receive tips. Is it worth it to contest this or is it going to be a huge headache?

[paiger]

How do we estimate our taxes? This is the first year that I'm going to have a job for the entire year as before I was making basically nothing as a grad student. As it didn't look like we made anything last year from school, I am worried that we'll owe this year.

We don't own a house or have kids, but I'm not sure what we are withholding so I'm clueless about all this. Is there a way to do a quick check to make sure that if we aren't withholding enough, we could start saving for the payment?

[lml41981]

Hi Emily,
Thanks for answering all these questions (and for the one in my capital gains taxes thread)...I have one for you... When one qualifies for paid medical leave, is the pay taxed at the normal withholding rate or at the gift tax rate?

[thedoorchick]

wendalah, that is indeed confusing. I honestly don't know, but personally $40 isn't too much for me to pay for them to just go away. It might be worth a phone call to ask - does the notice have a number on it you can call?

ardathpaige, it's not difficult to estimate your taxes. I do it quarterly because we have a rental property business, so I want to make sure we're withholding enough but not too much. It's easiest to do at the end of a quarter because annualizing everything is easier. Add up your joint income, and subtract any deductions (annualizing everything - for end of Sept, take the numbers and multiply by 4/3). Don't forget the personal exemptions. Calculate the tax due on that by using the IRS tax tables from their website. Compare that to your withholding (be sure and estimate to end of the year) and see where you are.

lml, paid medical leave should be taxed at the same rate as everything else as far as I know. Just like paid vacation, holidays, etc. are the same.

[jimmysgirl424]

DH and I just got married last April, so 2005 will be the first year we will claim as married. Before, we both always filed (obviously) as singles. Can we expect our refund to go up, go down, or stay the same? FYI- we have no children and do not own a home.

ETA- Through the year, we both have taxes withheld from our check at the highest rate possible. (single, 0 dependents)

[thedoorchick]

Generally it will go down but that depends on a lot of factors.

If you've been claiming 0 withholding allowances, you should adjust that so that you don't have so much withheld. If you've been getting a large refund, that's not the best money management. I'm a big fan of the W-4 worksheet/calculators that the IRS provides.

[jimmysgirl424]

Well, I wouldn't call our refunds 'large' per se, but all said and told, we probably get back about $2000 total combined state and federal, for both of us, not each. Can you tell me why it's not good money management to get a bigger refund? I have no idea what we are doing!! :confused:

[thedoorchick]

It's an interest-free loan to the government. Better to have the money in your pocket when it's earned, not a year later.

[fuzzy]

If it's under $600, you're "on your honor" because a 1099 won't be sent to you if it's under that amount.

Ohhhhhhhhhhhh, gotcha. Muchas gracias.

[lml41981]

It's an interest-free loan to the government. Better to have the money in your pocket when it's earned, not a year later.
I wish I had listened to you each year when you said this on WC! Now we need that money and we can't get it until after we would've already needed it. I changed my withholdings to 2 today to go ahead and claim DD and me instead of claiming zero and withholding at the single rate, but that won't kick in until October 15...we were gonna use the little bit extra toward our new house. Blah. Shoulda paid attention instead of continuing to view it as free money later on.

I'm having trouble figuring out how much more I'll even see, though. I've got tax tables and stuff, but I'm just confused.

[jimmysgirl424]

It's an interest-free loan to the government. Better to have the money in your pocket when it's earned, not a year later.



Thank you!! :o

[paiger]

What effects how much you have withheld? Just 'what you claim'? I'm never sure what to put down, and I read the little blurb they have about if you have this, put a 1 here and so on until you add up how many. I just get so confused. My dad is an accountant, and he just does everything. I ask him questions, but he says I don't need to worry about that. I would like for us to get another accountant in NC in the next couple of years, but I want to understand at least a little bit.

[thedoorchick]

Bumping this 'cause there seem to be some more tax questions lately! :)

ardathpaige, your withholding is affected by your income, your filing status, and the number of withholding allowances claimed. If you fill out the worksheet, it should give you a good idea of how many allowances are appropriate given your deductions, other income, etc.

[MsPeachy]

First of all, thank you so much for starting this thread and for everyone who's taken the time to ask and answer questions. I've already learned a few things just from reading through.

So here's my question - my DH recently started his own business & I'm responsible for the accounting. The business is set up as an LLC but for tax purposes the LLC is a pass through for a sole proprietorship. There are no employees but DH does use subcontractors from time to time who we have set up as 1099 vendors. He has an accountant who he is supposed to meet with quarterly to review everything (we'll provide in electronic format). She will calculate any estimated taxes and prepare any necessary forms for submission to the IRS. However, I would like to be able to check her work and make sure the numbers are correct, etc. Eventually I would like to not require her services and prepare everything myself. Are there any websites or online worksheets, etc. that I can use to calculate the estimated taxes? Can you e-file estimated payments or are they always sent in by mail. If you can get the required forms from the IRS website, how do you know which ones you need?

Thanks in advance!

[BethElena]

thedoorchick - so if i'm reading the irs website correctly if we were to file married filing separately, I wouldn't be able to claim the education credits (i.e. Hope, lifelong learning)?

Thanks!

[thedoorchick]

MrsPeachy, there are probably tools out there to help calculate estimated taxes; but I haven't seen them - I just use a plain old Excel spreadsheet. It's pretty low-tech but serves me well. Here is a worksheet that may help; it also gives info on electronic payments:

http://www.irs.gov/pub/irs-pdf/f1040es.pdf

BethElena, that is correct; you cannot claim the Hope or Lifetime Learning credits if your filing status is married filing separately.

[MsPeachy]

That looks like it's what I need. I'm going to print it out & read it over & give the worksheet a try. I can see how it could be adapted to an Excel sheet to make things quicker & easier. Once I learn more, I may give that a try too! Thanks so much! :)

[BethElena]

Thanks, doorchick!

[bunny nose]

I just started working a new job a month ago. I am a helper for a school photography studio. Its a part time job. They don't take taxes out, however I wll get a 1099 for tax purposes, so I figure I am considered an independent contractor. Is that correct?

My question is: Can I deduct miles and gas used for my job? I only travel to the site I work at and back home. I don't go from the site to another site or the studio then home. Its to the school or studio, then home. I remember learning something in paralegal class about these type of deducitons. But can't recall the exact jist of it.

So, should I be keeping tract of my miles and saving gas receipts, or no?



Thanks so much!
Karen

[thedoorchick]

Yes, you are an independent contractor for tax purposes.

No, that is commuting expense, nondeductible.

Incidentally, if at some point you have a job or business where mileage is deductible, you cannot deduct both mileage and gas. Mileage includes expenses for gas and oil and depreciation on the car.

[southerner]

awesome thread, can't believe I haven't some in here sooner....

I've heard it's a good "general rule" to give at least 10% in taxes from your total income to avoid having to pay a lot at the end of the year?? Does that sound correct or am I way off? I ask because I have gotten a second job and I need to be sure that we're on the right track of not getting a big surprise come tax season. Although I do realize it's a little late in the year to make any changes, but I'll know for next year.

Also, do you know the income levels for the different tax brackets? I'm wondering if this second job is putting us in a higher tax bracket, thus also making it more likely that we will owe a lot at the end of the year?? Does that sound right too?

Sorry to ask such dumb basic questions. I consider myself knowledgabel about a lot of my finances and future goals, but when it comes to paying taxes, I'm an idiot :rolleyes:

[thedoorchick]

southerner, there isn't really any general rule such as the 10% you're describing; since people pay taxes at different rates, and with different deductions and income, there's no way to generalize it that way. Personally I would set up the withholding at your second job the same way as at your first job; but if you want to be more precise, you can always do an estimate. We have a side-biz and rental properties, plus a lot of itemized deductions, so I do estimates quarterly to make sure our withholdings are in line.

Here is a link to the IRS website where it has the tax rate schedules:

http://www.irs.gov/formspubs/article/0,,id=133625,00.html

Tax brackets are marginal. There isn't really any such thing as an additional job or income "putting you in a higher tax bracket," although that is a commonly believed myth. If you have income that is into the higher level of tax rate, the additional income is taxed at that higher rate, but not any income below that. It's taxed exactly the same as it was before.

[southerner]

oh!!!! I get the whole higher tax bracket thing now.

How do you do an estimate? Add up what you paid in taxes for the quarter and compare it to your overall earned income?

[thedoorchick]

I have an excel spreadsheet that more or less mimics the lines of the 1040 form. I add up our W-2 income, business income/loss, rental income/loss, and anything else (interest, etc). Then subtract itemized deductions and personal exemptions. All the income and deductions are my best estimate of what they will be at year-end. Obviously, the closer to year-end you get, the more accurately you can estimate. Then I apply the appropriate tax rates from the tables I posted above, and compare to my withholding (estimated to year-end) to see if we're on track.

[ignutzz]

Our taxes this year seem like they're going to be a bit complicated.

I will have tax forms from my severance payments, unemployment insurance, and "full-time" freelance work from Jan. through the forseeable future.

DH will have a W-2 and 1099 form as he gets regular, untaxed, bonuses from his office.

I have been setting aside a min. of 30% of my 1099 income and have begun putting all of DH's bonus money aside too (he hadn't been saving anything and that has me pretty worried). I have NOT been doing quarterly payments even though I know I should have done.

What am I, as a contractor/sole proprietor, allowed to deduct from my income? Cell, clothing, travel, mag. subscriptions, software, comp. repair, etc? What is he allowed to deduct from his income since it's taxed differently? Looking at the schedules, one way we get hit pretty hard, another less so. Generally speaking, in a circumstance like this is married, but separate, more beneficial than joint?

THANKS!!

[thedoorchick]

Cell, clothing, travel, mag. subscriptions, software, comp. repair, etc?

Cell phone use is deductible from 1099 income if the phone is used for business, but you need to allocate the business vs. personal use and only deduct the business percentage.

Clothing is only deductible if the clothes are unsuitable for "regular" every day wear, such as uniforms. Ordinary street clothes are not deductible.

Magazine subscriptions, books, reference materials - definitely deductible if used for business.

Software - must be depreciated over 3 years. Computers are depreciated over 5 years. Repairs are deductible. As with the cell phone above, you need to subtract the personal usage from your deduction.

Travel is deductible. If you travel by car, you can take either actual expenses or mileage (personally, I'd use mileage). Meals are generally deductible only 50%, but there are a lot of special rules surrounding meals because this is an area that historically has been abused a great deal.

Unreimbursed employee expenses (such as any expenses your husband may have) are deductible in a different place, on Schedule A as miscellaneous itemized deductions. They are only deductible in excess of 2% of adjusted gross income. As a practical matter, I rarely see anyone being able to take advantage of these deductions.

If you are not making quarterly payments, then you're almost certainly going to owe a good amount because it sounds like a good portion of your income is from 1099's and has no withholding. If you end up owing more than $1,000, you'll incur interest and penalties. My advice is to estimate as best you can how much you'll owe at year-end, and pay it now. The sooner it is paid, the less penalty you will owe. For quarterly estimates, 75% of the total yearly amount is due at third quarter and the additional 25% is due at fourth quarter. Each quarter you should estimate how much your total taxes will be (that isn't covered by withholding) and pay 25% of that amount on the appropriate due date.

As for the filing status (separate v. joint return), it's nearly impossible to tell without crunching the numbers. Have it done both ways and file the most advantageous way.

[ignutzz]

Thanks for all that info! I'm planning on working through the sheets this week and hopefully getting a payment off. It's most likely well into the 10K range, if not more.

I figured we have to work up both filing options, which we did last year also. DH, with his business stuff, had a negative income last year which meant we got to keep most of the money we set aside for taxes but we're not going to be that lucky this year. :)

thanks again!!

[southerner]

thedoorchick thanks so much!! thanks for running this thread too, very helpful and informative.

[MsPeachy]

If you travel by car, you can take either actual expenses or mileage (personally, I'd use mileage).I thought that in order to take mileage it had to be applied toward depreciation of the vehicle as an asset as opposed to a straight expense?

The allowance is $0.40 per mile now, isn't it?

[southerner]

In NC, it's 48.5 cents/mile. I thought it was a national (as opposed to state) rate?

[dzil]

The IRS recently raised the mileage rate.

The rate will increase to 48.5 cents a mile for all business miles driven between Sept. 1 and Dec. 31, 2005. This is an increase of 8 cents from the 40.5 cent rate in effect for the first eight months of 2005, as set forth in Rev. Proc. 2004-64.

[thedoorchick]

I thought that in order to take mileage it had to be applied toward depreciation of the vehicle as an asset as opposed to a straight expense?

The allowance is $0.40 per mile now, isn't it?

No, it's just a straight expense. Alternatively, you can depreciate the car and deduct any actual expenses for gas and oil, repairs, etc. (disallowing, of course, any personal portion of these).

The allowance was raised to 48.5 cents per mile for miles driven between September 1 and December 31, 2005. Any miles before September 1 are at the old rate.

[MsPeachy]

No, it's just a straight expense. Alternatively, you can depreciate the car and deduct any actual expenses for gas and oil, repairs, etc. (disallowing, of course, any personal portion of these). So if you're taking mileage, you then cannot take repair & maintenance costs? From an expense perspective, it's either fuel, repairs & maintenance OR mileage? (Sorry for beating this dead horse but this is a large part of DH's costs so I want to make sure I do it the best way!)

Glad to hear about the rate change too!

[thedoorchick]

Yes, it's either mileage OR actual expenses. The mileage allowance makes assumptions for expenses for depreciation, repairs, gas, oil, etc., so if you deducted mileage plus these expenses, you'd be double dipping.

The one exception is parking and tolls. Regardless of whether you use actual vehicle maintenance expenses or the standard mileage rate, you may deduct the actual expenses for parking and/or tolls.

[Aug2002Bride]

Im wondering what the best road for DH and I to take regarding who claims who...we have one child and DH makes WAY more than I do since I jsut work when they need someone....Should he claim her? Is that the exemption/allowance?

[greenbunny]

We have not been happy with our tax preparer and plan to change. He is very, very old and we don't feel he's sharp anymore; he made several mistakes on our return last year.

DH and I had planned to just buy Turbo Tax and do it ourselves, but I hesitate because this was a busy year for us. DH got a regular job for the first time (versus substitute teaching), we bought a home, and we also made several large charitable donations we want to deduct, and we've never deducted that stuff before.

Should I just plunge in and buy the program, or have it done by a professional and wait to do it myself until next year, when things are normal and we don't have so many "milestones"? Are the things I need to do too complicated for an impatient math dunce like myself? There's no way DH will do it.

[dzil]

greenbunny, Turbo Tax is extremely easy to use. You can easily do these things yourself with the help of the program. It will ask very direct questions and will even tell you where to find the information. Deductions for your home as well as charitable contributions are fairly straight forward. I really think you can do it on your own. Start early enough so that should you run into trouble you will have time to consult a professional. I don't think you'll need that, though.

[thedoorchick]

Aug2002, all things being equal, I'd let him take the dependency exemption. I guess you are filing separately?

greenbunny, I concur, just go with Turbotax. Those aren't really complicated issues at all; the program will easily tell you where they go.

[greenbunny]

Thanks guys, I will get the TurboTax. Good to know it's fairly idiot-proof. :)

[BethElena]

greenbunny - i'm going through pretty much the same things and we're going to be using turbotax also. I've found that the online version was actually cheaper last year then buying the disc in the store....plus, i believe that you can claim the cost of last years preperation costs on this years taxs.

[philnikki]

Turbotax - As a tax preparer myself, I can tell you that I use Turbo Tax to prepare our taxes. We itemize too. I would suggest it for most situations. I know that there are a lot of people who pay me to do their taxes (even after I suggest TurboTax to them) who absolutely do NOT need a professional to complete. There are some that are not that computer savvy (ie the elderly, etc.) that prefer to have a human being do it, but I trust the computer way more. Anyhoo -- just my two cents!

[greenbunny]

Do you think I should buy the basic or premier turbo tax online version? The test asks if I own a home, to which I said "yes", but it doesn't discuss having bought it that year. I'm also not sure what they mean by investments, like if that includes standards like IRAs and 401ks, or more advanced stuff like trading stocks or funds on your own.

[dzil]

greenbunny, you can actually get what you need for free by going through the IRS website. If you do this you'll be using the online version of Turbo Tax (or another service, though I've used Turbo Tax most years). I've filed this way for the past few years and it's easy to use.

Check it out: Free File (http://www.irs.gov/efile/article/0,,id=118986,00.html).

ETA: As far as I know this will also be available for 2005.

[MsPeachy]

greenbunny - I've been using TurboTax Basic to do my taxes for the past 5 years at least. When you're doing the "Interview" part, there's a section where they ask "Have you done any of these things in the past filing year?" and then gives you a list of options and you check all that apply. Buying a Home and Selling a Home are both on that list.

[philnikki]

greenbunny - I am not sure of your entire tax situation, but my gut is telling that the basic version will likely do, unless you typicall prepare schedules C,D or E. Schedule C is typically for reporting a sole propietorship (ie you own your own business). Schedule D is typically for reporting investments in stocks, etc. And Schedule E is for reporting Rental Property (income and expenses), Income/Loss from an Estate or Trust or A Parnership or S Corp.

As for buying your house this year, you will be able to deduct mortgage interest you paid on your home this year on Schedule A which is available in the basic version.

As far as 401k's and IRA's are concerned, you don't need to report anything associated with them unless you withdrew your money and did not not reinvest within a certain time period (I would have to look it up..I am thinking 60 days is the grace period) Otherwise, the funds are taxable income to you this year. You can get a deduction for your IRA contributions, just not Roth Contributions. You can go to the IRS website and read more about the specifics. I beleive that the basic version should cover all of this. Here is the link to the checklist for the basic version http://www.turbotax.com/tax_products/checklist_basic.html I would say that if you have some situation that is not covered on this list, then get the premier.

HTH!!! :)

[dzil]

FYI: I've prepared Schedule D via the free version of Turbo Tax online.

To clarify, Schedule D is for capital gains and losses.

[greenbunny]

You are all so full of helpful info. :) That list is great, I think basic will suffice. And I will first go through the IRS version. Thanks guys!

[paiger]

As far as 401k's and IRA's are concerned, you don't need to report anything associated with them unless you withdrew your money and did not not reinvest within a certain time period (I would have to look it up..I am thinking 60 days is the grace period) Otherwise, the funds are taxable income to you this year. You can get a deduction for your IRA contributions, just not Roth Contributions.
What about 403(b) contributions? Do they count as a credit or anything? I just started mine, so really I'm only going to have like $1600 in there. Am I going to get something in the mail that tells me what to put down like you do a W-4 (the thing from your job)?

Do donations only count if you are doing an itemized deductions or are they credits? If you fill out an online tax form, to get credit for charitable donations do you have to use receipts? We haven't given that much, should we try to round up receipts to prove it.

[dzil]

ardathpaige, a 403(b) plan is similar to a 401(k) plan. Deferred amounts aren't taxed until distributed.

Yes, donations are deductible only if you itemize. They cannot be taken as a credit. It is a good idea to keep any receipts or other substantiation in case of an audit.

[paiger]

ardathpaige, a 403(b) plan is similar to a 401(k) plan. Deferred amounts aren't taxed until distributed.

Yes, donations are deductible only if you itemize. They cannot be taken as a credit. It is a good idea to keep any receipts or other substantiation in case of an audit.
Oh! Thanks. We are taking the standard deduction so we won't have to worry about the donations. Next year we'll have to do better about keeping up with those.

I am a bit nervous now that the 403(b) isn't used, b/c we did the estimated tax through the form someone posted and owed quite a bit.

Can someone explain the student credit? DH said that between that and credit for the 403(b) stuff it would take care of what we owed, but now that I see we don't get anything for the 403(b), I'm worried. I really hope the student credit is enough to cover the difference.

Also, obviously, we need to change one of our claims (word?). We both claimed 1 this year, but I guess 1 of us should have claimed 0. I make quite a bit more than DH now, so who should claim 1 and who should claim 0?

[thedoorchick]

Bumping for year-end planning. :)

[kam]

Can I just not file my taxes penalty-free this year? ;) I know, I know. I just hate it so.

[Annette]

Our property taxes are due Jan 31st. We plan on paying them by Dec 31st. What date does the IRS go by for deduction purposes? The date you wrote the check or the date that it's cashed? If the latter, is there a way to make sure they cash it by the 31st? We want the deduction this year...

[philnikki]

Annette As an auditor, if I were going to question whether or the payment was a deduction for this year or next, I would go by the date on the check, but I would follow up to make sure that it was subsequently cashed. I could be wrong, but that is what my gut is telling me. Good question! Any other thoughts??

[thedoorchick]

The deduction is based on when the money is out of your control; most often this is when the check is mailed or otherwise leaves your possession. Technically, if you write the check and date it 12/31, but don't mail it till after the first, you aren't entitled to the deduction because the funds were within your control since you had possession of the check. As a practical matter, of course, it's difficult for the Service to verify or disprove that, but if it wasn't cashed for 2-3 weeks after its date, that's a pretty big red flag.

Additionally, you didn't ask about this, but expenses charged to credit cards are deductible in the year charged, not the year the cards are paid off. This might apply to people whose property taxes may be paid this way.

[Annette]

We plan on mailing these checks within the next week...

[philnikki]

I would think you would be fine then. If it were me, I would take the deduction. Maybe you should send them certified mail though, so you have receipt of when the money was technically "out of your control".

[thedoorchick]

Be sure to make those year-end payments - property taxes, charitable contributions, or whatever you're inclined to. Just a couple of days left!

[t3h_wookiee]

I've been looking on the IRS website, and now I'm just more confused. We're trying to figure out if we even need to file taxes this year or not.

Neither or us had a job this year, until now. DH started a job on December 27, however he will not get a paycheck until January 13. So does he need to file since he worked in 2005, or does he not need to bother since he wasn't paid that year, thus he won't get anything back (not that it'd be much anyways, but still.)? None of our friends seem to have any idea.
Thanks!

[philnikki]

t3H - If you go to the irs website and look under the instructions for the 2005 1040, on pages 12 & 13, it will give you a little chart that breaks down whether you have to file. Chances are, you guys did not make enough income to meet the filiing requirements, however, there are other exceptions which would necessitate filing. Here is the link: http://www.irs.gov/pub/irs-pdf/i1040gi.pdf

Good luck!!

[PG-rated]

How screwed am I? I never filed a new W4 form after I got married at the beginning of April, and I'm worried that I've had too little withheld for the last 9 months. But when I looked at the form on the IRS website, I can't figure out if my withholding would've changed or not, since there's a line where you can choose to enter either 1 or 0 if you're married. What should I pick when I file the new form?

[jenny0505]

I have the option of filing taxes yearly, quarterly, etc. What/if any advantage is there to filing more frequently? I don't receive any type of w-2 from my employer, and I don't even get pay stubs -- just checks. What do I need to give my accountant in order for her to file my taxes? Just the total amount earned???

TIA.

[thedoorchick]

PG-rated, the W-4 has a worksheet that is very helpful in deciding how many withholding allowances to claim. It takes into account any large deductions or additional income that you might have (we own rental property and my husband has a side-biz as well, so those things have to be considered). If you have only salary and no significant itemized deductions, you're likely just fine continuing to claim 1.

jenny, you don't file federal taxes quarterly, only annually. If you have income that's not subject to withholding (independent contractor, etc), then you need to make tax payments quarterly to avoid underpayment penalties. You need to give your accountant any records of income and deductions you have. Assuming you earned more than $600 during the year, you should be receiving a 1099 as well.

[singerwife]

I have a question. I do our taxes on TurboTax, and I actually look forward to it each year. (sick, I know) My question has to do with filing a Schedule C.

Typically, DH has had a regular job with wages in addition to his self-employment music business. This spring he obtained his massage therapy license and has been working an an independent contractor in addition to his music business.

I'd always entered his wages, and then did the Schedule C for the music income/expenses....but how would I approach it this year? Is it two separate businesses, thus two Schedule Cs? Or is an indepentent contractor different from an actual business? TurboTax probably addresses this, but I thought I'd get a heads-up.

Thank you!

[thedoorchick]

You file a separate schedule C for each business.

[Annette]

Can someone explain how e-filing works? Can I do this if we use TurboTax? Is it free?

What are the capital gains tax % for short and long term? What about dividends? What's the difference between dividends versus interest?

Thanks! Crossing fingers for a refund.

[thedoorchick]

I have not used Turbotax, but I am pretty sure it supports e-filing. There is an extra charge for this. Some people, based on financial hardship and other factors, are eligible for free e-filing, see here for details:

http://www.irs.gov/efile/article/0,,id=118986,00.html

Capital gains rates depend on the type of gain. We could have a whole thread on that; if you do have capital gains, I would consult a professional or at the very least, go through the transaction in Turbotax or the like VERY carefully.

Dividends are a share of a corporation's profits paid to shareholders; interest is the time value of money. They are taxed as ordinary income, except certain qualified dividends which are taxed as capital gains.

[greenbunny]

I just wanted to share this resource I found:

Deduction Finder (http://moneycentral.msn.com/investor/calcs/n_deduct/main.asp)

[jellybeany]

Sorry if this is dumb but I don't know too much about taxes and this year was a big year for us we got married and bought a house. My mom used to do my taxes because there wasn't much to them, but this year we are going to get them professionally done.

Someone mentioned that we will get back our closing costs and interest paid on our mortgage - is this true and how does that work?

[thedoorchick]

Interest paid on a mortgage loan and points (aka "loan origination fee") are deductible on Schedule A.

That is if the home is a new purchase...if it is a refinance of an existing loan, then the points must be amortized over the term of the loan (most likely 30 years). If the home is subsequently sold, the unamortized points may all be deducted at that time.

Also, property taxes are deductible. Be careful with this because if you bought the home during the year, you may only deduct the amount of taxes applicable to the time period that you owned the home. The closing statement probably has a credit to you from the seller for the taxes applicable to them, and you have to net that against the amount you paid. Some homeowners have their property taxes paid directly from the bank to the taxing authority through escrow, some don't. (I don't).

Most other closing costs are not deductible (survey fee, courier fee, document processing, etc, etc).

[BethElena]

Re: Property taxes

Should we expect a form in the mail stating how much we paid in property taxs for the tax year, or do we figure that out on our own? (which I could easily do, I just know you need proof in case of audit)

I'm in similar boat...got married and bought a house tax year 2005. Plus, I'm claiming life long learning credits, so we should get a nice check back this year. :)

[thedoorchick]

If you escrow, any property taxes paid should be included on the Form 1098 that you receive from the mortgage company (which also includes your mortgage interest paid).

If you don't escrow, the bill/receipt from the county (or whoever levies the tax) along with your canceled checks are your proof.

[BethElena]

I figured that's what you were saying when you said about escrow. thanks.

[asksmd94]

Can you do anything with the property taxes you pay on your car? What about the money I pay for liablity insurance as a counselor? Are these considered 'professional' (when you pay dues to professional organizations) fees?

[thedoorchick]

Are the property taxes based on the value of the car? If so, they are deductible on Schedule A.

The insurance is a business expense - where it's deductible depends on the nature of the business. If you're an independent contractor/self employed, it's deductible as a normal expense on Schedule C. If you're an employee, it's an unreimbursed (I assume it's unreimbursed) employee expense and falls under "miscellaneous itemized deductions" on Schedule A. These are only deductible in excess of 2% of adjusted gross income. As a practical matter, I rarely see people being able to take these deductions, because of the AGI limitation.

[MsPeachy]

because of the AGI limitation. I hate this!!!

Sorry. Had to get that off my chest since I've had several years with various potentially deductible expenses but I couldn't deduct them b/c they didn't meet that rule!! Grrr.

[thedoorchick]

Yep, we had some medical expenses this last year that I would love to deduct but they're not over the limit.

I rarely see anyone being able to take advantage of that deduction either...the main exception seems to be elderly people on fixed, small incomes who have a lot of medical expenses.

[Annette]

My cousin telecommutes to his job (he's an employee of the company, not self-employed) M-F and has a home office. I've heard that if you use your home as an office, you can deduct heating/cooling costs, cablemodem costs, etc. What about office furniture? Where would he deduct these expenses?

[claribella]

COOL!

I have a question. Its just my son and I. I'm divorced. I have claimed Head of Household 1.

Will this be ok at end of the year? I know I get money for having a child. Last year I got a nice chunk of money back for having a child. I have always claimed single 0 but I need a little more money on my paychecks as I'm saving up.

Thanks!

[thedoorchick]

Annette, for what reason does he telecommute? Is it for the convenience of his employer, or his own? Home office expenses for employees must be incurred for the convenience of the employer or they are not deductible.

Assuming that is satisfied, the home office must be the principal place where business is conducted (if he only works there, every day, that seems to be satisfied). You can deduct a percentage of real estate taxes, mortgage interest (of course, these are deductible anyway), rent, utilities, insurance, and some other expenses. These are allocated based on the portion of the home used for business, typically by square footage. Furniture may be depreciated, as well as computers, etc.

The home office deduction has been WIDELY abused in the past, so the IRS looks at these deductions very carefully.

claribella, without knowing specifics, it's impossible to say, but for most people who don't have complicated tax issues (no side biz or large deductions), but only W-2 income, claiming 1 should be sufficient.

[claribella]

claribella, without knowing specifics, it's impossible to say, but for most people who don't have complicated tax issues (no side biz or large deductions), but only W-2 income, claiming 1 should be sufficient.

I don't have a business or anything like that. I was more worried about the Head of Household thing.

What other info might you need?

[Annette]

Thanks! His employer set up the telecommuting gig.

[ButterflyJen]

I'm not sure if this has been asked yet...

How long should I keep things like bank statements, bills, etc? I know there's a rule, but I haven't followed it. Turning over a new leaf and saving stuff like that this year.

Also, we sold our house last year. Usually we do our own taxes on hrblock.com without issues. Do you think we'd be able to do it this year, too, with the house sale in there? Is that pretty straightforward?

Thanks! :)

[IrishMeg]

FH and I aren't married yet (duh, he's FH:rolleyes: ), so I'm assuming we still file separately. What I'm wondering is if our buying a house in October 2005 makes any difference in how we do our taxes? Usually I just do a 1040EZ or file online with TurboTax. Will I still be able to do that or is it more complicated from buying a house?

Also, once you're married, do you have to file together? Just wondering!

[baboo]

I have a question about the Head of Household issue. My friend keeps telling me that I qualify but the IRS website makes me think that maybe I am not ...

I work full time, my DH goes to school full time (does not work) and this year we had a baby.
Do I claim HOH, DH, DS and myself?

[kimbyj]

FH and I aren't married yet (duh, he's FH:rolleyes: ), so I'm assuming we still file separately. What I'm wondering is if our buying a house in October 2005 makes any difference in how we do our taxes? Usually I just do a 1040EZ or file online with TurboTax. Will I still be able to do that or is it more complicated from buying a house?

Also, once you're married, do you have to file together? Just wondering!

No tax expert here but from my own experiences:
If you pay interest on a mortgage it may be deductible. I think it would be wise to pass on the EZ filing this year and check out one of the more sophisticated filing software programs (yea - like TurboTax). You can answer questions and it should include your new purchase. Congrats!

DH and I married last 2004. For 2005 taxes our accountant figured out we would get back almost $1200 more by NOT filing a joint return. It all depends on your circumstances.

[thedoorchick]

claribella, uh, all details of your income and deductions. Which I'm quite sure you don't want to share with a total stranger on the internet. ;) Seriously, there's no way to really know without crunching the numbers. Since 2005 is over, it's moot for now. Once you get your taxes done for 2005 you will know for sure.

ButterflyJen, the statute of limitations on IRS audits is 3 years, so I would keep anything that supports numbers in your tax return at least 3 years from the date the return was filed. If you have lived in a house for 2 of the last 5 years, the sale of it is not taxed (assuming the gain is under $500,000 - if your gain is more than that, I want to buy a house where you live! ;) )

IrishMeg, buying a house is not all that complicated; you just have to remember to take all the deductions for interest (and points, if applicable) and taxes. The hard part for people not filing a joint return is that you have to decide who gets the deduction. Once you are married, you may file either "married filing jointly" or "married filing separately."

baboo, your question isn't entirely clear; it sounds like you're combining two questions: "what is my filing status" and "how many exemptions am I entitled to". HOH filing status applies mostly to single parents. It requires that the person filing HOH is unmarried and a "qualifying person" (usually a child) lived with the person in the home. If you and your DH file a joint return, you have three dependency exemptions: yourself, your DH, and your DC.

[Phen]

In December, the dentist took impressions for a new crown and I paid half of the estimated cost. The crown will be put in (installed?) next week, and I'll pay the other half at that appointment.

Can we put the whole crown payment in our 2005 tax year even though half of it was paid in 2006 and the work wasn't complete 'til 2006 or do I have to wait 'til we file our 2006 taxes to apply it?

~ phen

[thedoorchick]

You can deduct what was paid (so, half the total).

[MsPeachy]

You can deduct what was paid (so, half the total).
Wouldn't it only be deductible if the amount was more than 7% of her AGI? (along the lines of our comments on the previous page)

[Phen]

MsPeachy, normally we wouldn't even think about trying to deduct medical expenses, but in 2005, I had a crazy ton of them (five surgeries and six rounds of chemo). Good point, though! :)

Thanks, Emily!

~ Phen

[thedoorchick]

MsPeachy, yep, it's deductible only in excess of the AGI limit. I was mainly making the point that we're on a cash basis with these things - what's paid in a year, is deductible in that year.

Incidentally, charging an expense to a credit card counts as paying it for tax purposes.

[ButterflyJen]

ButterflyJen, the statute of limitations on IRS audits is 3 years, so I would keep anything that supports numbers in your tax return at least 3 years from the date the return was filed. If you have lived in a house for 2 of the last 5 years, the sale of it is not taxed (assuming the gain is under $500,000 - if your gain is more than that, I want to buy a house where you live! ;) )
So you're talking a pay stub from the end of the year, W-2s, etc? Not bank statements or anything like that?

And um, no, not even close to that kind of gain. ;)

[thedoorchick]

Keep bank statements for sure. That's one of the first things an auditor will ask for.

[ButterflyJen]

That's the one I was really unsure about. So every bank statement for the past three years?

Thanks a lot for answering my questions! :)

[isobel]

Audits are only three years out? I thought it was for seven!! Now I cna get rid of some records.

[IrishMeg]

Thanks, Emily!! :)

[MsPeachy]

MsPeachy, normally we wouldn't even think about trying to deduct medical expenses, but in 2005, I had a crazy ton of them (five surgeries and six rounds of chemo). Good point, though! :)

Oh my goodness!! I hope you are doing better. Given all that, you should hopefully get some deductions there!!

[vwinkel]

My company was recently sold and I received money for my shares in the form of a check. I have not done anything with this money yet, because I'm concerned as to how much will be deducted for taxes.

Questions:
1. What percentage will be taxed? Do I pay this at tax time?
2. I am looking to give a large amount to my parents, will this be tax free?
3. If I give the money to my parents, will they be taxed on that amount as if it was income? What is the amount they will be taxed?

TIA!

[Tanya]

I have a quick question regarding real estate, and I suppose this isn't exactly a tax question, but I know you are knowledgable about this stuff, thedoorchick. If we wrapped our closing costs into the sale of the house (meaning, we got our mortgage to include this), then on the records, is that what are home is shown to have sold for? So they would actually use this inflated value for comps, etc? Or should they have it separated out?

On that note, we're in TX. AFAIK, TX is a state where the final sales values of real estate do not have to be disclosed to the general public. Is this correct, or is there a way for me to find out how much our neighbors' house sold for short of contacting a realtor?

[riotgrrl]

hey i have a few questions
i am a new college student this year, i know because of this i can claim the hope credit. what form must i use?
ususally i use 1040ez.
also do i have to wait for anything from the college before i can file?

[thedoorchick]

vwinkel, you're a little out of my realm of expertise, but I can't think of any reason you wouldn't be taxed at ordinary income rates (on the 2005 tax return, assuming that's when you received the money). You can give $11,000 tax free each year (I believe) to each person. The recipient is not taxed.

Tanya, the HUD statement that gives all the closing details should state the purchase price. Anything else (closing costs, old/new mortgage, etc) are stated separately. I don't know how to find out the sale price of property without using a realtor.

riotgrrl, to claim an education credit you need to file the long form (1040). The college should send you some documentation of tuition, etc. that was paid.

[tbell]

OK, I have a question (sorry if this has come up, I didn't read the whole thread.)

DH and I got married this year. My taxes are very easy, no deductions.

Dh is an independent salesperson (1099) and has tons of deductions. Gas, our new computer, our house (in his name only), and a lot of others. He usually owes about $4K to Federal and $1K to state each year.

Should we file married separately or jointly? I realize that my refund (which was in the $900 range when I was single) won't be the same as it used to be, but would it be better to file jointly to offset some of the money DH owes? How do you know when you should file separate or jointly?

[thedoorchick]

There's no way to know without crunching the numbers. Most of the tax software out there will recommend the most advantageous way.

It's pretty rare that MFS is the best way, but again, no way to know without putting the numbers in there and seeing what you get.

[tbell]

I figured we would have to take everything to a tax advisor, but though I would give it a shot. Thanks for answering!

[abbydog]

We bought our first home 7/03 and sold 5/05. Our realtor and our tax person from last year said we won't have to pay capital gains b/c we invested the $ into our new home. Is that correct? And if not, hoe do capital gains taxes work? Are they a % or what? Also, if we do Turbo tax this year, will there be a way to figure this? TIA!

[MsPeachy]

Questions du jour: Is a contribution to a SEP-IRA deductible? If so, what schedule C line does it go to (or if not on Schedule C, where do you designate the deduction)?

How can you tell if your state participates in the sales tax deduction and are there requirements for taking that deduction?

Are there free websites which are good for self-tax preparation? We're having an accountant do our taxes, but I'd like to work them up myself to check it.

not-really-tax-related-but-thought-I'd-ask-anyway: I need the formula to calculate amortization. I'd like to set up an Excel sheet to track my mortgage principal and additional payments and see how I'm doing over time. (I can be PM'ed or emailed about this so as not to take up space here)

[thedoorchick]

abbydog, you have to live in the property 2 of the last 5 years for the sale to not be taxable - sounds like you didn't quite live there 2 years so that will be a problem. I'm curious why you were told otherwise, but there may be other factors that I'm not aware of. I'd get a second opinion. If you use Turbotax it will walk you through all the questions to get the information needed to calculate the gain. Capital gains are taxed at a lower percentage than ordinary income. It varies depending on the type of gain.

MsPeachy, the IRS website (and tax forms) have a chart you can use to figure the sales tax deduction. It's a deduction for federal tax purposes so it's not a matter of a state "participating" in the deduction. The amounts vary by state and by your level of income.

I used www.taxact.org to prepare my taxes one time. I hated it, because I always figure it out in Excel and then just enter it all into the software and that site wouldn't let me do that. I had to enter all my fixed assets into their depreciation schedules, when I already had my own schedules set up. It took flippin' forever. Nowadays, I just use my Excel schedule to estimate our taxes and then do them in the software (the one my company uses, similar to Turbotax) and hopefully it comes out the same.

On your amortization question (great question, I have loan amortization schedules set up for all my rental properties so I can split the mortgage payments between interest/principal in my Quickbooks), the short answer is to look into the PMT, IPMT, and PPMT functions in Excel. Go to the Wizard and click on the Financial category. The Wizard is VERY handy at walking you through setting up formulas like that.

Not sure about your SEP question; I haven't seen many of those in my time.

[Tanya]

We bought our first home 7/03 and sold 5/05. Our realtor and our tax person from last year said we won't have to pay capital gains b/c we invested the $ into our new home. Is that correct? And if not, hoe do capital gains taxes work? Are they a % or what? Also, if we do Turbo tax this year, will there be a way to figure this? TIA!
Sound like your realtor and tax person weren't up on the new laws that changed in 1997.:confused: Used to be that you could avoid taxes if you rolled it into a more expensive home, but that's not the case any longer. The rules are much better from a taxpayer standpoint, though.

I do have yet another question on capital gains, thedoorchick. Pretty sure I know the answer but thought I'd ask anyway. When we sold my townhouse in 2004, DH had only been living there for 8 months. So even though he owned my house as soon as we got married (community property state), when using TurboTax, it told us we could only take a max untaxed gain of $250k vs. $500k since he didn't meet the resident rule. Ok, soooo not a problem in TX. Here's my question: we sold that 4 weeks after we bought our new place. We both own it equally, obviously. If we sell after the 2 years of living in this house are up but before the 2 years from selling the last house, can we disregard me and only use his deduction ($250k) like we did last time since his "portion" didn't come into play at all in 2004 taxes?

[swampy]

Hi TheDoorChick ...

Our taxes for '05 seem pretty complicated.
* DH and I were married this year, so we're merging our finances, taxes, etc.
* I sold some mutual funds under my name in October, and DH and I bought into a different fund jointly. Now we have investments with three different funds, 2 in my name only and one joint.
* I did not have any taxes deducted in '04, so I was required to pay estimated income taxes in '05. The amount is about equal to taxes for 3-4 months of pay.
* I did not have deductions taken out of my paycheck until June '05. After that, state and fed taxes were deducted.
* On my monthly pay statements, it lists all my income after June as "taxable income" and everything before then as not-taxable (???) I think this has to do with my grad student/TA status, and which grant the money is coming from.
* DH was paid for only 4 months, hourly, with deductions taken out.


between all of this, we're pretty confused about how to deal with everything.
1. Do you think it would be possible for us to figure out by ourselves, or would there be any value to having someone else do them for us and getting some advice firsthand?
2. What is the difference between taxable/non-taxable income? I was being paid from the same grant from 9/04-6/05, all listed "non-taxable." I didn't receive a W2 form for that income in '04, but did claim all of it in April and paid taxes on it. Now I'm thinking I may not need to this year?

Thanks for your help!!!

[amew]

I am trying to figure out if we can deduct any of DH's grad school tuition. I don't think we can use the Lifetime Learning Credit, and we obviously can't use the Hope Credit since it's grad school. Isn't there some other type of tuition deduction or is it just wishful thinking on my part?

[abbydog]

Thanks Doorchick! That stinks about the capital gains :(. I think we will be having someone do our taxes this year b/c of that & I'm afraid I'll screw them up.

[Tanya]

Thanks Doorchick! That stinks about the capital gains :(. I think we will be having someone do our taxes this year b/c of that & I'm afraid I'll screw them up.
I'm not thedoorchick, but since I've been looking into this a lot, most likely you will owe 15% of your profits, not including realtor fees and certain improvements you made to the house that you have receipts for (such as new floors, landscaping, new driveway, but not painting or new hardware). It's really not that hard to do on TurboTax. And I still am shocked both your realtor and tax guy told you incorrect info that could have really made a difference to you when selling. Check this (http://www.bankrate.com/brm/news/real-estate/20041018a1.asp) out.

[Lilla]

Question for anyone who can provide some insight:

Relocation Expenses. DH and I moved this year in conjunction with my job transfer. My company provided me with a pre-loaded debit card with $x to charge expenses against - for example, our househunting trip lodging, meals, etc. as well as the final move lodging, gas, meals, etc.

The $x that was pre-loaded on the card was added to my salary as income. So, since it was added as income, can those expenses be deducted?

TIA!

[usafwife]

I didn't scan the entire thread so if this question has already been posted then let me know and I'll try amnd find it.

Here's my question, are we able to use the child earned income credit for DD if she was born in late June? From what I've been able to determine is that we can count her as living with us for the entire year. Am I correct?

[amygrrl]

The $x that was pre-loaded on the card was added to my salary as income. So, since it was added as income, can those expenses be deducted?

some can and some can't. only certain types of expenses associated with relocation are deductible. others, even if your company paid for them, are taxable. the costs for your actual move (when you physically moved your belongings and yourself) are generally deductible with just a few small exceptions, however other things like temporary housing in your new city are taxable. you'll need to check with turbo tax and/ or your accountant on each line item to determine which expense falls into which catagory.

[amberfiddles]

if i get paid for unused vaca/sick time that i did not take in 2005, shouldn't those monies by considered under my 2005 taxes?

just curious. tia!

[thedoorchick]

I am in some meetings today so I am just flying by. I don't know all the answers asked off the top of my head but here are the ones I do know.

Lilla, relocation expenses are deductible to the extent they involve actual moving expenses (Uhaul/movers, travel). Meals are not deductible. And househunting trips are not deductible (anymore).

amberfiddles, you're on a cash basis, so income received is taxed in the year you receive the money - if you get a check for sick/vaca during this year it doesn't matter that the time applies to another year; it was received in 2006 so it's taxed in that year.

[Ohana]

I have a question about stock options. Yesterday, I got a 1099 from the company that manages our stock options. I exercised 200 options this year at 58 a share. I ended up with a check for just over 2K. But the 1099 says I had proceeds of 11K. Yowza! How do I figure this out? When the options were granted to me, the stock price was 37 a share, and the company also gave me a "cash award" to cover the taxes at the time the award was given.

I'm just worried that now I have to claim all 11K as income this year, even though I only saw 2K.

[sabrespa]

We're getting back way too much this year. On DH's W4 he is currently claiming "married but at the single rate." and "0 allowances." I don't work and we have 2 kids.

So I went to the irs.gov site and did their withholding calculator. It said that with what he makes, he should claim "married" and "10" allowances. That would mean no income tax would be taken out of his checks. and that our refund we'd file next year would equal 0.

Does that sound right? 10 allowances seems like an awful lot.

We don't have any other deductions, no house or anything like that.

[Tonysweetie]

I've got a question. This is my first time claiming myself as independent since I lived wiht my parents up until me and DH got married. Well I was unemployed up until July when I started working a few hours a week with a cleaning business. The lady pays me 10 dollers an hour and it's all under the table. My Mom told me I have to claim that money. I never added up what I make each week but on average it's about 150-200 a week. How do I go about this since she doesn't take out taxes. I haven't had the chance to talk to my boss about it but she did say the other day she is getting our W2 forms ready but I never filled one out at the beginning. I had only expected to work with her for a few months. I plan on quitting over the summer and look for a full time medical assistant job. DH said if we dont' claim something I could get into trouble. I'm freaked out! This is all very new to me so I'm not quite sure how to go about this. DH and I are going to see an accountant next month so I wanna know what to expect. TIA!!!

[Kimberland30]

This may have already been answered, but my computer is acting up and each page is taking FOREVER to load. If it is already answered, please let me know and I'll look it up from a different computer when I have time.

DH and I both work. He makes 2.5x what I do. This is our first married year filing. The only deduction we have is my DD, who is 15. I never changed my W-4 after we married, and I'm taking out my standard deduction, one for my DD, and Head of Household.

Now, should we file jointly, or married and filing separately? If we file separately, should my DH claim my DD? I have to complete another W-4 for this year, and plan on taking out 3 deductions.

Is there a website (maybe TurboTax since I've filed through them each year) that I can put in our numbers and see which option is best for us?

TIA!

[FallingforPhil]

Is there a website (maybe TurboTax since I've filed through them each year) that I can put in our numbers and see which option is best for us?


I used taxact.com, last year and it has a comparison function. It itemized each deduction, etc. with us filing joint and separately so we could see what was best for us.

[Hello Kitty]

Thedoorchick - I hope you don't mind if I answer some of the ones I know - you're probably off doing taxes right now. :p
I am trying to figure out if we can deduct any of DH's grad school tuition. I don't think we can use the Lifetime Learning Credit, and we obviously can't use the Hope Credit since it's grad school. Isn't there some other type of tuition deduction or is it just wishful thinking on my part?
Yep, you can do lifetime! You have to file the regular 1040, but you end up getting a tax credit of 20% on the amount of tuition you paid with a limit of $10k (paid tuition, not the credit you get back) I believe it's subject to income though - look at irs.gov and search for 'lifetime learning' or 'education credits' for more.

Here's my question, are we able to use the child earned income credit for DD if she was born in late June? From what I've been able to determine is that we can count her as living with us for the entire year. Am I correct?
I believe you are - you can take the full EIC credit test here (http://apps.irs.gov/app/eitc2005/Forward_Eligibility.do), as it will take into consideration all the factors of any EIC, but this question is part of it:

Did your child live with you in the United States for more than half of 2005? and you would answer 'yes' because:
Quote - IRS - A child who was born or died in 2005 is treated as having lived with you for all of 2005 if your home was the child's home the entire time he or she was alive in 2005.

But anyway, July - Dec is half the year, and if she was born in late June, that's still more than half the year. :)

Tonysweetie - yikes! I am going to *hope* that she really isn't paying you under the table and that she is just paying you in cash an amount equal to your hours worked times hourly rate less tax she witholds. If she is giving you a W2, it should have the correct information on it.

If it's that you are truly being paid cash under the table, your employer may not be reporting income she receives from clients, and therefore, that is why she is not reporting paying your wage. It is not something that accountants and the IRS takes lightly. Oy! No advice or judgement here, just info on how taxes work.

[Tonysweetie]

Tonysweetie - yikes! I am going to *hope* that she really isn't paying you under the table and that she is just paying you in cash an amount equal to your hours worked times hourly rate less tax she witholds. If she is giving you a W2, it should have the correct information on it.

If it's that you are truly being paid cash under the table, your employer may not be reporting income she receives from clients, and therefore, that is why she is not reporting paying your wage. It is not something that accountants and the IRS takes lightly. Oy! No advice or judgement here, just info on how taxes work.

She pays me with a personal check each week. Like for example say I work 20 hours, she would pay me 200. She's been doing this business for like 20 years and she's had employees all this time so I'm assuming she is doing something right. Ik now she files taxes on her business b/c she has metioned a time or two. I'm going to talk to her this week. I'm all freaked out that something bad will happen. Like they'll send me to jail or something. I had no idea about all this when I started the job. I'm not that educated on the tax thing so I'm freaked out!

[amew]

Yep, you can do lifetime! You have to file the regular 1040, but you end up getting a tax credit of 20% on the amount of tuition you paid with a limit of $10k (paid tuition, not the credit you get back) I believe it's subject to income though - look at irs.gov and search for 'lifetime learning' or 'education credits' for more.

I don't think I can take the lifetime learning credit because we're over the income limit. I *think* we can use the tuition and fees deduction (line 34 of the 1040), which has a higher income limit, but I'm not sure. Does anyone know how the tuition and fees deduction works?

[Hello Kitty]

It's not likely that you would be sent to jail, so don't pack your bags just yet. :) Sorry, just trying to be light.

Well your employer could be doing things right, according to your new post. If she is reporting income from clients, she can deduct your wages as a business expense, which means you would have to claim the income on your tax returns (which you are totally willing to do - awesome for you). I would definitely just talk to your employer and make sure you are going to get a proper W2 that matches up to what you've been paid.

I'm just sayin' that being 'paid under the table' is probably not a term I would throw around lightly, especially if it's not the case.

[Tonysweetie]

Thank you! You took tons of pressure off my shoulders, lol. She did tell me a few days ago she has my W2 and she'll give it to me soon. So we'll see what happens. DH and I are seeing an accountent next month so hopefully we'll get this all straighten out. Thank you again! Phew! lol

[Hello Kitty]

amew - I just figured this out for our taxes. Here's (http://www.irs.gov/publications/p970/ch06.html)the explanation for the tuition and fees deduction. The maximum you can take is $4k off of your total income, lowering your adjusted gross income.

Of course this is limited by income as well :p
If your modified adjusted gross income (MAGI) is not more than $65,000 ($135,000 if you are married filing jointly), your maximum tuition and fees deduction is $4,000. If your MAGI is larger than $65,000 ($130,000), but is not more than $80,000 ($160,000 if you are married filing jointly), your maximum deduction is $2,000. No tuition and fees deduction is allowed if your MAGI is larger than $80,000 ($160,000).

[njlorelei]

I've never filed electronically before but was thinking I might this year. This might be a stupid question but if I file my federal taxes electronically do I have to file my state taxes electronically too?

[thedoorchick]

Depends on the state.

[jenjen0713]

Got a question....DH is a teacher. This past summer he did a roofing job for a company. (He doesn't have a business, just was doing a favor for a friend of his at this company.) Anyway, the company issued a 1099-MISC I believe with non-employee compensation with the amount they paid him for the job. How do I report on our 1040....line 21??? Schedule C even though he doesn't have a business???

Thanks.

[thedoorchick]

Schedule C.

[kagbsc7]

You can file a schedule C and reduce the money he made by any expenses he incurred. If you don't have any expense do deduct you can file it on "Other Income" (I believe that is line 21)

[Annette]

Does TurboTax automatically calculate the AMT or do I have to go through that section and enter in the data manually?

[bird_feet]

I receivd a 1099-G. What is this and what, if anything, do I have to do with it when filing my 2005 taxes?

[thedoorchick]

You can file a schedule C and reduce the money he made by any expenses he incurred. If you don't have any expense do deduct you can file it on "Other Income" (I believe that is line 21)

It needs to be on Schedule C regardless.

Annette, Turbotax will calculate the AMT for you, if applicable.

birdfeet, the income from it should be included on your tax return as well as any federal income tax withheld.

[lady1297]

Where to I put the info on a 1099-B? Do I have any additional work past plug-and-chug? I'm so clueless sometimes...I did it last year, but in our move we've packed the tax stuff from last year so i can't look right now. Thanks

[EmilyBronte]

My DH and I are married and have one child, in case it matters....

-- We sold my condo in October 2005 and took a loss of about $2700. Neither of us lived in the condo for 2 of the last 5 years (plus it's a loss anyway).

-- We sold DH's house in December 2005. DH lived there for 9 years and I only lived there for a year and a half.

-- DH's mom was on the deed and DH and his mom are still working out the division of the proceeds. The HUD-1 from the closing statement shows that each received half of the proceeds but, in fact, the money is still being held in the closing attorney's trust account because DH and his mom have been unable to come to an agreement on how the proceeds should be divided.

-- We will be using Turbo Tax to file.

So my questions are....

1. If April comes around and there is still not a decision on who gets what from the sale of DH's house, how do we determine capital gains? Technically he hasn't gained anything at this point although on paper it appears he has. Will we use the reported amount on the HUD-1 even though it could be incorrect and DH doesn't have the money in hand?

2. Assuming we do use the amount listed on the HUD-1, do we take that amount, say $15,000 and then subtract from that the $2700 loss from the sale of my condo, or is there some other way to handle that?

3. DH has receipts from maintenance, improvements, etc. for his house. Which items are deductible?

-------

And completely unrelated to the above.....

4. DH just began graduate school in January, and beginning January 1 began receiving a stipend each month for living expenses. The stipend is being deposited directly from his Trust into our checking account. For tax purposes, does this count as income?

5. Also, the Trust is covering our health insurance and our car payment directly from the trust account. Does this count as income?

6. Since his tuition is being paid directly by the Trust I know it is not tax deductible, but he is charging his books and getting reimbursed for the expenses. Can we deduct those even though we are ultimately not paying for them?

Just so I'm clear, I do know that questions 4-6 do not count for 2005 taxes - I'm just asking in advance. :)

Thank you!

[Tanya]

EmilyBronte, if your DH lived in the house for 9 years (and 2 of those were in the last 5 years), then you don't owe capital gains unless there are over $250k in profits. Since you don't meet the residency requirements, then your "part" of the $500k exclusion doesn't count. That's how TurboTax did it for us when we had this issue last year.

[romansluv]

My question:

Do I need to include the disability I was receiving during my pregnancy leave? Also I was on workers comp for about 1 month and a half. IS that also taxable?

TIA!

[myshel]

My question: We paid my father, who lives with us, to watch our son while we worked full time. This occurred during half of 2005. We just paid Dad with a check each week (and it was a small sum compared to daycare expenses in our area). If we claim these expenses on our return, what does that mean for my dad in terms of reporting this income on his return? The total amounted to something like $1260. My dad, during that time, was unemployed and in December of 2005 was awarded SS disability benefits.

[almostthere]

As I understand any baby sitter you pay less then $1400 a year to you do not need to claim on YOUR taxes, technically I believe they should claim on theirs.

[MsPeachy]

I thought if it was live-in help, you could deduct as an expense if you itemized.

[MtySheera]

I have a tax question!

My DH made a same day sale for his stock options (exercised and sold the same time). His company reported the gain as income, and deducted taxes. Both appear on his W-2. Do we need to do anything about the sale on our tax forms, or is already taken care of since it is included as income? I tried doing it on TurboTax, but the end result for our income was overstated, so I did something wrong. We're going to take it to a tax person now, but I am going crazy worrying that we owe a lot of taxes now!

Thanks for the help!

[cocoa_femme]

How much can you deduct for charitable donations, without receipts? I remember reading somewhere that it was $500. Is this true?

TIA!

[thedoorchick]

cocoa_femme, no, it's $250.

MtySheera, assuming these are incentive stock options, you should not need to take any further action. The income has been included on the W-2.

Re: child care expenses, if you claim the child care credit you must report the provider's social security number and address on the form. Of course, this allows the IRS to track whether that person claimed the income properly on their own taxes.

romansluv; the disability pay should be taxable; the worker's comp should be exempt, though there are exceptions.

EmilyBronte, sorry, you are over my head. That's quite a complicated situation!

[cocoa_femme]

Thanks!

[ajb524]

I have a question about changing the with holdings on our W-4. We just did our taxes and ended up getting over $3500 back (I would much rather have the $$ in my pocket during the year). We are also expecting a baby next month and just bought a house. We only paid one mortgage payment in 2005 so we didn't have enough interest to itemize.

I've tried to use the IRS with holding calculator thing, but I am a little confused. I'm not sure where to list our mortage interest that we will pay this year. There is a box for credits (under the child care expense part) and it has "mortgage interest credit" along with other stuff like adoption expense credit, education expense credit etc. But then when I click to go on to the next section there is a box for "interest you paid". Where do I enter the amount of mortgage interest we will pay this year?

Thanks in advance :)

[thedoorchick]

The withholding calculator includes the itemized deductions on the page after you list your salary, etc. Just keep including all relevant info and hit "continue" and you'll get to that page.

[Kopper]

I apologize in advance if this has been asked already. What do we have to actually mail in with our taxes? I still don't have the 1098's for both of my student loans. We also don't have our mortgage interest letter or the credit union interest letter. I know the amounts because all of the institutions have them online. Can I go ahead and file or do I have to wait for the paper copies?

TIA!!

ETA - I just read this at one of my student loan websites
If you paid $600.00 or more in interest during 2005 on your [loan type] loan(s), this information is being reported to the IRS under the Coordinating Board Federal Identification Number [xx-xxxxxxx].

I paid less than $600 in interest on each of my loans last year. Does this mean I can't claim the interest or just that the lenders aren't reporting it?

[thedoorchick]

Generally all you need to mail in with the tax return is anything that documents withholdings (usually W-2's, can be a 1099-R or possibly other documents).

You can still claim the interest, assuming you have documentation from them of the amount.

[KRM&TPS]

OK I have a few questions about taxes. I went to H&r Block last year. I was ok with what they did. This year I have heard alot of people talk about Turbotax. So I am willing to try to do it. But I am not sure. Here is the deal.

* I have 3 W2's- One from my job last year, one from a part time job, and one from my job I started in Nov.

* I also have a 1099-R form from withdrawing from my retirement.

I am not sure how to go about doing these. Anybody that has used Turbotax will it be easy to figure all this out. Or should I just have someone else do it?? Any help would be appreciated. Thanks in advance.

[jellybeany]

KRM&TPS I think you would be fine with turbotax. It walks you through EVERYTHING and has links if you need more help. We had 3 w-2's, we bought a house, had student loan interest, and cashed in stock - I used TurboTax for the first time and found it very user friendly and easy to use! :)

Good luck!

[ks_piper]

Question about the EIC, total earned income and funds from a liquidated IRA...

How do you account for the IRA funds (1099) for the EIC? DH was under the impression from the 1040 booklet that it didn't count because it wasn't earned income (i.e. not part of our income on our W-2s). When he plugged the numbers into the turbo tax free file site though it came up with a different calculation.

Which is correct?

[meganth]

Alright, i've got a question!

My hubby works from home 2 days a week to avoid his 175 mile roundtrip trip to work. He has a home office.

A)Can we right off part off his office and expenses for working out of the home even though it's not his business, he's an employee of another business working out of his home office?

and

B)Is it worth it if we're only going to be living in this house 3-5 more years? Won't writing off part of the house affect the sale of the house? I thought i heard that somewhere.

TIA!

[linekelei]

Wondering if anyone knows the answer to this. I filed our federal taxes online, but still had to mail in the signature page and supporting documentation (like our W-2s). However, I made copies of all of the W-2s and our other tax docs and then just mailed the copies to the IRS, rather than the original W-2s that break/tear off into little sections (I'm hoping this makes sense). Anyway, was that a big no-no? Can I just mail copies of the W-2s, or did I need to send the originals? I can't find anything about it on the IRS website. I am worried!

TIA!

[Kopper]

Alright, i've got a question!

My hubby works from home 2 days a week to avoid his 175 mile roundtrip trip to work. He has a home office.

A)Can we right off part off his office and expenses for working out of the home even though it's not his business, he's an employee of another business working out of his home office?

and

B)Is it worth it if we're only going to be living in this house 3-5 more years? Won't writing off part of the house affect the sale of the house? I thought i heard that somewhere.

TIA!

Hmmm... My DH works from home 100% unless he is traveling. I wonder if this an option for us. His HR department said he might want to look into it.

Anyone know the answer? Thanks meganth for posting!

[thedoorchick]

ks_piper, I am not 100% sure what you mean by IRA funds, but here is some info from the IRS website about what is earned income for the purposes of this credit:

For the year you are filing, earned income includes all income from employment, but only if it is includable in gross income. Examples of earned income are wages, salaries, tips, and other taxable employee compensation. Earned income also includes net earnings from self-employment. Earned income does not include amounts such as pensions and annuities, welfare benefits, unemployment compensation, worker's compensation benefits, or social security benefits. For tax years after 2003, members of the military who receive excludable combat zone compensation may elect to include it in earned income.

meganth, the first question to ask for any home office deductions is, is the home office for the convenience of the employer. Sounds like the question is no in this case, since he's set it up to avoid a long commute.

linekelai, you need to send the originals. If you've already filed, I'd just wait a bit. They'll probably send you a notice and you can respond then with the originals.

Here's a link to some additional info on the home office:

http://www.irs.gov/faqs/faq-kw84.html

[ks_piper]

I am not 100% sure what you mean by IRA funds,

I liquidated an IRA account this year so we could pay off debt to buy a house. So I pulled the funds out early. Does that make more sense?

I'm guessing (correct me if I'm wrong) that the funds from the IRA don't count in our income for the EIC. They aren't gross income, and I don't think they are taxable employee income.

Earned income does not include amounts such as pensions and annuities, welfare benefits, unemployment compensation, worker's compensation benefits, or social security benefits.

Would an IRA fall under pensions and annuities?

Thanks so much for offering your expertise - it's a wonderful thing and so helpful.

Keely

[Sue]

Question about a 1099-B...

My husband sold shares - ISO & NQ - in June. His year end statement lists the taxes that were paid, but on the 1099-B, it has $0.00 in box 4 for Federal Income Tax Withheld.

On his W-2, box 12c has "V" and a dollar amount... is this the $ amount he that he was "paid" before the taxes were taken out? And were the taxes withheld included on his W-2? Do I not have to list it separately in Turbo Tax since it's on his W-2?

Thanks so much!!

[Natrat80]

quick question-
I'm using TaxCut and entering the deduction for the interest paid on our mortgage. I entered the amount of interest we paid to the lender, then TaxCut asks for Credit rate percentage from mortgage credit certificate I can't find it anywhere on the 1098 form. Can anyone help me?

[amorey]

I’m trying to figure out if we need to itemize this year. This year we can deduct mortgage interest, DH’s tuition and fees, and student loan interest. If all those things add up to more than $10,000 (standard deduction), we should itemize, right? Otherwise it’s not worth it?

[Natrat80]

amoreyThat's my understanding of it. I did my taxes with TaxCut and itemized. It didn't add up to more than $10000 so TaxCut recommended that I use the standard deduction instead or itemized.

oh and to answer my own question:
quick question-
I'm using TaxCut and entering the deduction for the interest paid on our mortgage. I entered the amount of interest we paid to the lender, then TaxCut asks for Credit rate percentage from mortgage credit certificate I can't find it anywhere on the 1098 form. Can anyone help me?

Turns out I didn't have to enter a percentage after all...I think you have to have an 8398 or something like that. I called my super smart aunt who is a CPA and she helped me through it!

We get almost $1000 back this year

[amorey]

Thanks, Natrat80. I'm going to use Tax Cut too, so that's good to know

[Hello Kitty]

DH’s tuition and fees
This isn't an itemized deduction. :) It's either an adjustment to income or a credit (lifetime learning or hope), but Tax Cut will walk you through it.

and student loan interest.
This one either, but it is a nice adjustment to income. Just wanted to clarify for anyone else reading this. I had both these situations and Tax Cut handled them the same way I did when I did my return by hand.

In thinking about itemization vs. standard deduction don't forget your property taxes, among other things.

[amorey]

I thought I read somewhere that you could do a lifetime learning credit and an itemized deduction. Hopefully I can just enter all the info from the forms I’ve received and Tax Cut will sort it all out. :)

I also received 1099s this year because of freelance and contract work I did. I’m trying to figure out what I can deduct as small business expenses, since I have to pay self employment tax. I worked from my home office as well as on-site. I’m thinking I can deduct for my home office, travel expenses, high speed internet access, and healthcare I paid for my self while I was an independent contractor. DH was in school and didn’t have healthcare, so my income paid for his, as well. Can I deduct that too? Are there any other expenses I can deduct?

[notkk]

It is my understanding that for tuition and fees you can either deduct (up to $4000) or take a lifetime learning credit (if you qualify) for a single student. If both you and your husband are in school, you can claim both (use one person's tuition fees for the deduction and the other person's for the credit), but you cannot double up on a single student's fees and tuition.

[lady1297]

Okay, I got stock as an inheritance from my grandparents, in 1998. It has since split/been sold/etc. I have a 1099-B in front of me and have to figure the basis. Since it is inherited, Taxcut says "If you inherited the property, your original basis is the fair market value at the date of death. " So, i have the date of death, and according to the AT&T webite, the adjusted cost would be 39.50. not adjusted it was selling at 63.875 the day my grandma died. Which do I use as my basis, the adjusted one, or the actual one?

[thedoorchick]

Sue, assuming the exercises/sales were treated as wages, which it sounds like was the case, it should all be included along with his salary income and regular tax withholding on the W-2.

amorey, you can deduct job-related expenses such as internet (if required for the job), travel, supplies, and some others. Home office is dicey - you can take it, but I wouldn't. Not everyone is as conservative as I am, though. It's a legitimate deduction but requires a LOT of documentation and you have to meet some rather strict criteria because there has been a lot of abuse of this deduction in the past.

This link has some home office info: http://www.irs.gov/publications/p334/ch08.html#d0e6233

You should be able to deduct the health insurance premiums, subject to some rules and limitations - See IRS publication 535, chapter 7, for details.

Also, you can take both the lifetime learning credit and tuition deduction, but may not use the same expenses for both (that's common sense really, as that would be double dipping).

lady1297, in this case, the basis is the fair market value on the date of death. Sounds like the adjusted value is taking into account the split, which is what you have to do, otherwise you're doubling the real value.

[Sue]

Sue, assuming the exercises/sales were treated as wages, which it sounds like was the case, it should all be included along with his salary income and regular tax withholding on the W-2.



Thank you!!

[Kimberland30]

Ha. DH got a notice in the mail yesterday from the IRS that he owes back taxes for 2003....to the tune of almost $6,000.00. DH never filed a federal or state return in 2003 or 2004 (don't know why not, I did mine and he said he was taking care of his...guess that means "not doing it"). Anyway, I have his 2004 W-2 and he's getting a copy of his 2003 one from his employer. I'm sure once I do the #'s, he'll come out ahead. Maybe. (ETA: We were not married until 2005).

The same thing happened with me with state taxes, I didn't file because I would have received less than $4 back in a refund, so I didn't bother. I got a letter years later saying I owed them $3,000 with interest and penalties...I did my state tax form for that year and sent it to them, I got a check for $3.95.

Anyway, I printed out the Federal Forms for 2003 and 2004 so I can do them this weekend. Do I send them with our 2005 return, or separately? Should he call the IRS and let them know what we are doing?

Also, I haven't filed state taxes in over 4 years because any refund I got (all under $10) wouldn't matter to me. It's not worth the hassle of filing the documents. BTW, I use TurboTax.com, and they always tell me at the end what my state tax will be. It costs more for me to file it through them than I'd get back, so I just do my Federal through the web. I don't bother with the state. So far I haven't received any nasty grams, but should I go ahead and bear with it and send them out?

TIA for any help! I want to do our first joint return but need to get all this straight before turning it in.

[Hello Kitty]

YES! You need to file your federal and state taxes regardless of what you anticipate getting back. The IRS/state comptroller knows who has been paid for doing work, and if those people aren't reporting that income (via regular tax return) they are missing half of the transaction. By filing your taxes you state that you received the income, but also that your employer withheld taxes on your behalf and the fed/state can match those two up. So yeah, the net result may be $4, but until proven otherwise, they assume you owe the full amount of tax.

Besides the stamp, it doesn't cost you anything to mail a paper form. If you do Turbo Tax, I believe there is a view where you can view the 1040 or state form, and then just copy the numbers on the paper and mail it in. One doesn't have to E-file.

I would think the letter your DH got from the feds has the contact info on it -either a phone number to discuss/dispute or a mailing address to mail the old returns.

[Kimberland30]

Thanks! I'll go ahead and do all the paperwork this weekend so we can get it out. For the life of me, I thought that if one was anticipating a refund of less than a specific amount, they didn't have to file. Apparently I was wrong, so I'll go back and figure out what years I didn't file my state tax and get it done. I guess I should have just done the paperwork in the first place so I didn't have to take an entire day to do 3-4 years worth, huh? :o

[Hello Kitty]

No - you don't have to file if your income is less than a certain amount, which depends on marital status, disability, etc... but it's usually advantageous for everyone to file so they get back what is owed to them. It also allows you to claim credits and deductions, which can decrease what you owe.

At least you'll be REALLY good with tax returns at the end of this. You can pretend you're a tax accountant. ;) Green visor and everything.

[BlackMagicRose]

I sold a house and heard something about first time seller's tax exemption? Is this true? I always file online at H&R Block. Where will I put this on my form? If their is no exepmtion, how much would I owe the IRS if I sold a house for $45,000?

[Asha]

I sold a house and heard something about first time seller's tax exemption?

i have never heard of that. if you have owned the house for more than two years, you are exempt from any gains less than $250k. was $45k your profit or how much the house sold for?

[thedoorchick]

I have never heard of such a thing either; can you elaborate?

Was this your home or an investment property?

Additionally, I want to know where homes are selling for $45K! If I could raise the capital I would buy a boat load of them.

[BlackMagicRose]

This was my home and I had it for more than two years. I sold the house for $45,000. I heard that I would owe the IRS money since this is part of my income. What do I owe from this sale, if anything?? I am very nervous about taxes now because I owe a sh**load from getting an inheritance (I thought these were tax exempt now). It will take me years to pay this off plus interest. It really sucks. I will not see any money from the IRs in a long time. So, you can tell why I do not want to owe any more.

[thedoorchick]

This was my home and I had it for more than two years. I sold the house for $45,000. I heard that I would owe the IRS money since this is part of my income. What do I owe from this sale, if anything?? I am very nervous about taxes now because I owe a sh**load from getting an inheritance (I thought these were tax exempt now). It will take me years to pay this off plus interest. It really sucks. I will not see any money from the IRs in a long time. So, you can tell why I do not want to owe any more.

If you lived in the home for two of the last 5 years, the gain is exempt.

Otherwise, if you have owned the house less than one year, the gain is ordinary income. If longer than one year, it is capital gain.

And yes, the inheritance is not taxable. Generally speaking; there are a few exceptions, such as if you inherit property and sell it for more than its value at the date of death.

Where are you getting this information from? If it's a professional CPA, I'm quite concerned.

[BlackMagicRose]

I should talk to a tax professional I guess. When I sold my home I was told that I would probably not have to pay taxes on the house. It was me who assumed I would. The inheritence is very tricky. I actually was too young to have the money when it was given to me so it was but in an estate that was used mostly for my college education and living arrangements while I was in school. An attorney was handeling my estate (some of it was invested but we sold all of the stocks when I was old enough to be given the money) until the rest was given to me after I graduated (not much was left), then SLAM I got a HUGE bill from the IRS saying I owed them a hellish amount of money. There is soooooooooooo much more to this story, but can't really go into details here.

[thedoorchick]

Oh, you definitely need some professional help. These are huge issues, and it's entirely possible the IRS is wrong because they don't have full information and/or explanation. A professional CPA, one that is used to dealing with the IRS (as opposed to just cranking out tax returns) can really help you.

Inheritances are not taxable, but income from them is, so if you inherited investments that were later sold, the gain is taxable. And if you inherited income-producing property, the income is taxable. Yours sounds like a pretty complicated situation.

[Southlooper]

I'm about to throw my computer and turbotax out the window...

DH and I got married in 2002. Before we got married DH and I seperatly owned condo units in the same building. DH moved into his in July 2000.

When we got married in 2002, he moved out of his condo and into mine. We rented his condo.

We were hit with a special assessment to fix the building roof. The portion for the rental unit amounted to $19,000. We decided to sell and did so in May 2005.

Here are my questions:
- Our profit was under 250K and he lived in the unit for more than 24 month during the last 5 year thus we shouldn't be taxed correct ? According to turbotax our income went up because of the sale and we owe 20K

- Can we claim the 19K roof assessment as a deduction anywhere in our taxes?

I'm ready to hire an accountant...:mad:

[Kimberland30]

Has anyone ever filed an extension or had a payment plan? I did our taxes yesterday, and DH owes about $6,000 from previous years, and this year we owe over $5,000. :eek: :eek: Come to find out, he has been claiming way to many exemptions and it screwed him and us.

TIA!

[1MegMeg]

I have a tax question regarding investments:

In 2005 we swiched our investing to a specific kind of "portfolio plan" with SunTrust. We have invested with SunTrust since 2001, but just last year switched to this new plan. Anyhow, to get into this new plan SunTrust sold all of our shares of Mutual Fund X (they were managing it since 2001), took the money, and purchased shares of mutual fund Y. The portfolio plan has certain mutual funds and to buy those shares they needed to sell the shares of the other mutual fund we had.

Soooo, my question is - will we have to pay capital gains on that since the shares were sold, even though we didn't really get the money per se, as shares in a different mutual fund were purchased right away....

Thank you!

[MsPeachy]

Southlooper - I think the $19k adjusts the total cost basis for the house thereby reducing your total profit from the sale.

[vwinkel]

We are having H&R Block do our taxes this year since we bought a house last year. Since this is going to be the long form - can I deduct my travel/commute to work? I travel 120 miles each day. Do I need gas station receipts?

[thelittlebabu]

We are having H&R Block do our taxes this year since we bought a house last year. Since this is going to be the long form - can I deduct my travel/commute to work? I travel 120 miles each day. Do I need gas station receipts?
If you are a W-2 employee and not a 1099 contractor, then you cannot deduct travel to/from work.

[vwinkel]

Thanks!

[strwbrygirl]

Hopefully this is an easy question- I just can't seem to find the answer.

DH and I moved (from Ohio) at the end of August 2005 to Massachusetts. Do we file state taxes in OH (since we were there 8 mos), MA (because that's where we now live), or file in both?

ETA: It seems clear from the MA website (http://www.dor.state.ma.us/help/nonres.htm#1) that they want us to file a Part-year resident return. However, I can't find any info about this on the OH website. Thoughts?

[thedoorchick]

strwbrygirl, it's probably both, but I'm not an expert on OH individual taxes. If you can get a copy of the form and instructions (I assume you filed there in the past), it should be clear.

[sarahh]

Quick question...my hubby works on 100% commission. Do we need to submit our 1040's any differently this year?

[thedoorchick]

I can't think of a reason why. He gets a W-2, right?

[MsPeachy]

Questions du jour:

What does the "self employment tax" go towards? Is this some sort of penalty by the govt for living the american dream?

I work for a regular company and each paycheck has federal/state withholdings as well as FICA and Social Security. My Dh is self-emplyed and needs to pay estimated taxes. On the 1040-ES, there is only a place to write in the federal tax. How does a self-employed person contribute to SSA and FICA? Is there a penalty for not doing so?

[thelittlebabu]

Questions du jour:

What does the "self employment tax" go towards? Is this some sort of penalty by the govt for living the american dream?

I work for a regular company and each paycheck has federal/state withholdings as well as FICA and Social Security. My Dh is self-emplyed and needs to pay estimated taxes. On the 1040-ES, there is only a place to write in the federal tax. How does a self-employed person contribute to SSA and FICA? Is there a penalty for not doing so?
The "self-employment tax" goes towards FICA & medicare. This is your DH's way of paying those taxes.

If you look on your W-2, you pay 6.2% FICA and 1.45% (or close to this) medicare. Your employer ALSO matches that, so really 12.4% FICA and 2.9% medicare is paid in your name, or 15.3% total. Since your DH is self-employed, he's paying the 15.3% all by himself since he doesn't have an employer to pay half of it.

[greenbunny]

DH and I both got 1098-T forms for our graduate classes. My job fully reimburses all education expenses. His job reimburses tuition, but not enrollment fees or book costs. How can I use these forms to claim that amount we actually did pay? They don't break anything down. Can I just estimate? Or would it just be easier to let it go altogether?

[Annette]

How long does a refund take? We snail mailed our returns in about a month ago and still nothing. Anyone know?

[Hello Kitty]

Annette - you can check the status of your refund from IRS.gov - I mailed mine last year and it hit my account in about 6 weeks.

[solongtogo]

Asking for a friend...

if you run a small at home business, how much do you have to make a year to pay taxes on? I thought I had heard that if you made under 5000 a year you didn't have to pay taxes....does anyone know?

[meganth]

I know this might have been answered in this thread, but i can't find it. I've never done taxes by myself till now. I've got them e-filed, do i need to send in a copy with my W2s?

[Asha]

Has anyone ever filed an extension or had a payment plan? I did our taxes yesterday, and DH owes about $6,000 from previous years, and this year we owe over $5,000. Come to find out, he has been claiming way to many exemptions and it screwed him and us.


i know you asked this awhile ago, so you may have found the answer already. last year we couldn't afford the full amount of owed taxes by april 15th, so we just sent in what we could afford. they then send you the bill for the rest. keep in mind you will be paying interest on that money until it is paid in full.

[BTB]

DH and I are moving to a new city. Between me starting work after maternity leave, and DH's new job paying more than his current one, our gross income is going to double. We want to figure out a budget, but don't have any idea what our tax rate will be. How can we determine what our net income will be? I looked online for calculators, etc. but found only one - at paycheckcity - that wasn't helpful. Any ideas?

[amorey]

BTB, there's one at salary.com.

[Tanya]

DH and I both got 1098-T forms for our graduate classes. My job fully reimburses all education expenses. His job reimburses tuition, but not enrollment fees or book costs. How can I use these forms to claim that amount we actually did pay? They don't break anything down. Can I just estimate? Or would it just be easier to let it go altogether?
When I did this in Turbo Tax, it has you input all the amounts from you 1098-T and then it asks how much you were reimbursed. You do this for each person. So for you, there's no point in putting it on there, but for your DH, he will be able to use what he wasn't reimbursed for. You will have to list it as a fee/books since the tax breaks are different.

P.S. This was the first year TurboTax asked me how much I was reimbursed for.

ETA: I think you're not using a program, so my advice wasn't too helpful. It won't be much back, I would guess under $50, so if you don't want to bother figuring it out, I wouldn't.

[DallasLady]

Hi ladies!

DH and I were doing our taxes this weekend, and we have a question. We gave his parents a $12,000 last year to help them when his dad got sick. Is there any way that we can deduct this? I though that I heard you can deduct a one-time cash gift to a relative.

[greenbunny]

Thanks Tanya, that is helpful. I'm using TurboTax also. I guess I must have missed a step, or else I just didn't read carefully enough.

[Hello Kitty]

DallasLady, according to Pub 950 (http://www.irs.gov/publications/p950/ar01.html), I don't think so:
Making a gift or leaving your estate to your heirs does not ordinarily affect your federal income tax. You cannot deduct the value of gifts you make (other than gifts that are deductible charitable contributions).
ETA, quickly reading that further, you may have to file the Gift Tax form - I would dig into that publication a little bit more or check with your accountant. :)

Meganth -
Ordinarily, no. I would re-check with whomever you e-filed, but I have used TaxAct & HR Block and they explicitly say NOT to send your tax forms in to the IRS. Print out your return (it will probably say 'copy only, do not file' in watermark on it) and staple it with your W2s so you have it in case you need it.

[meganth]

DallasLady, according to Pub 950 (http://www.irs.gov/publications/p950/ar01.html), I don't think so:

Bummer, i was hoping that was a yes. We just sent a bunch of $$ to the Philippines after the mudslides, but sent it to family instead of the Red Cross.

Meganth -
Ordinarily, no. I would re-check with whomever you e-filed, but I have used TaxAct & HR Block and they explicitly say NOT to send your tax forms in to the IRS. Print out your return (it will probably say 'copy only, do not file' in watermark on it) and staple it with your W2s so you have it in case you need it.
Thanks! We used Turbo Tax and i never saw a spot where it flat out side not to, so i was confused.

[amew]

You can't deduct cash gifts to relatives. The "gift tax exemption" allows you to gift a total or $1,000,000 over your lifetime (or $11,000 per person per year) without either the giver or the receiver having to pay additional gift taxes on that amount above and beyond the taxes already paid on the income. So when people talk about tax exemptions for gifts to relatives, they are talking about giving amounts that are exempt from the gift tax--not deducting the gifted amount from their federal income taxes. If you give money to relatives above and beyond the gift tax exemption levels, you have to pay a hefty tax on the amount--the tax was put in place to deter people from gifting huge sums of money to relatives prior to their deaths in an attempt to avoid the estate tax.

The explanation in this TurboTax article is helpful: http://www.turbotax.com/articles/TheGiftTax.html

[RemyBlue]

Hi,

I've been self-employed for a few years now but never made any real money until last year. Now I find myself having to pay about $5K for last year's taxes, and as things stand now, I'll have to pay about $1100 in estimated tax per quarter this year.

My new accountant said something about how if my husband changed his withholdings on his W-2, that would lessen the amount of my quarterly payments... but I'm not sure how or why. She tried to explain, but I felt like a fool because I just couldn't get it.

Right now he is withholding at 6. If he lowers the amount of his withholdings, will he get more money per paycheck, or less? And how will that effect the amount I owe?

Also, the amount of his withholdings for 2005 exactly equalled the amount I owe the IRS for 2005. Does that mean anything? Besides the fact that it stinks that he makes more money but we're having to pay the same amount in taxes because his employer covers half? :confused:

Can anyone help?!

Thanks!

Remy

[thedoorchick]

Assuming you file jointly, all your income and all your payments of tax are combined. So if your husband withholds more, then that will cover some (or all) of what you owe. The withholding calculator on the IRS website is good for helping estimate how many withholding allowances should be claimed.

My husband was self-employed for a while, and we also own rental property that we would have to make quarterly tax payments on, so we have done this for a long time.

[MsPeachy]

So if your husband withholds more, then that will cover some (or all) of what you owe. Yes!! It's the opposite situation for me - I had enough money withheld throughout the year to cover the taxes my self-employed DH would have had to pay. As such, it reduced our overall refund but he didn't have to make estimated payments (in 2005).

[carrie9142]

I bet I have the weirdest tax question :)

This year both DH and I were students...so we made no income. Lucky us, no? Do we still have to file? If so, what form? I don't want to just not file and risk the IRS asking questions.

Thoughts? I really appreciate all the advice given in this thread.:D

[thedoorchick]

If your gross (joint) income was less than $16,400, you do not have to file.

Some special rules could apply; see http://www.irs.gov/individuals/article/0,,id=96623,00.html

[PG-rated]

thedoorchick, could you explain again how you figure your estimated tax payments? I'm having a hard time wrapping my brain around it. Is there tax software that will do it for me?

DH is self-employed, and his accountant set up last year's payment schedule for him. Now we're facing a bill of several thousand dollars due to underpayments. Part of that is because several of his invoices were paid late (by the federal government, no less :mad: ), which messed up one of the payments, but it's clear that something was off in the accountant's calculations, as well. So I think we should do it ourselves this year, but DH is concerned. Can anyone help?

[Asha]

Hi ladies!

DH and I were doing our taxes this weekend, and we have a question. We gave his parents a $12,000 last year to help them when his dad got sick. Is there any way that we can deduct this? I though that I heard you can deduct a one-time cash gift to a relative.

could this be deducted as a medical expense? or does that only apply for medical expenses for yourself, spouse, and children? we anticipate having to pay for my il's medical expenses in the future, and i also wondered if you could deduct the medical expenses you paid for a relative.

[Tanya]

Hi ladies!

DH and I were doing our taxes this weekend, and we have a question. We gave his parents a $12,000 last year to help them when his dad got sick. Is there any way that we can deduct this? I though that I heard you can deduct a one-time cash gift to a relative.
Keep in mind that if you are able to deduct this, then your relatives would have to pay taxes on it. Charities can get away with this since they are non-profit.

[thedoorchick]

Medical expenses are only deductible for your dependents (and must be supported by the appropriate documentation, same as all deductions).

For my estimates, I simply put together an Excel file that sort of mimics the Form 1040. Each of these categories are year-to-date and then annualized:

Salary (self & spouse)
Schedule C income (from Quickbooks)
Schedule E income (from Quickbooks)
Adjusted gross income
Less: Itemized deductions (interest, taxes, charity)
Less: Personal Exemptions
Taxable income

Then I apply the current year tax tables from the IRS for the estimated tax due for the year. One-fourth of this is due each quarter. I compare that to our withholdings to ensure we are on track.

[Asha]

Medical expenses are only deductible for your dependents (and must be supported by the appropriate documentation, same as all deductions).

Would elderly parents be considered dependents if they don't make any money and can't take care of themselves?

[thedoorchick]

Not necessarily - by dependents I mean those claimed on your own tax return as dependents.

It is possible to claim one's parents, if they pass all the required tests (income, support provided, etc).

[Asha]

thanks for answering the question.

[MsPeachy]

For my estimates, I simply put together an Excel file that sort of mimics the Form 1040. Each of these categories are year-to-date and then annualized:

Salary (self & spouse)
Schedule C income (from Quickbooks)
Schedule E income (from Quickbooks)
Adjusted gross income
Less: Itemized deductions (interest, taxes, charity)
Less: Personal Exemptions
Taxable income
thedoorchick - I'm working on making one of these up now but I'm having a hard time with the Personal Exemptions. I'm not sure how I determine how many of these that we have.

[thedoorchick]

There's one exemption for you, one for spouse, and one for each person you may claim as a dependent (usually applies to children, but under some circumstances others may be claimed, for instance parents who live with you and for whom you provide support).

[PG-rated]

Thanks for the estimated tax payment instructions! I also found out that TurboTax will calculate this for you, which is great.

[MsPeachy]

Thanks thedoorchick! I guess I was making things harder on myself than necessary since I thought it was more complicated than that! :o

[colz85]

OK..we have a connundrum. In 2005, we (Husband) sold a life insurance policy. At the time of the sale, he had federal tax withheld...and was told that witholding at that time would keep us from being hit with taxes at tax time.

Well. He's doing our taxes with Tax Cut, and when he fills in the info from the policy sale, things swing from 1700 refund to OWING 1700. Whaaa? This can't be right, can it?

Thanks for any help!

[thelittlebabu]

OK..we have a connundrum. In 2005, we (Husband) sold a life insurance policy. At the time of the sale, he had federal tax withheld...and was told that witholding at that time would keep us from being hit with taxes at tax time.

Well. He's doing our taxes with Tax Cut, and when he fills in the info from the policy sale, things swing from 1700 refund to OWING 1700. Whaaa? This can't be right, can it?

Thanks for any help!
Going to need a lot more info. Did you sell stocks/mutual funds and have capital gains that must be taxed? Did you have too little tax withheld from your paychecks? Did you get hit with the dreaded AMT?

ETA: Just to be clear...the swing happened ONLY after entering the policy info?

[colz85]

Yes....the only out of the ordinary thing we did this year was sell the policy. Our witholding hasn't changed, no one got a huge raise, we didn't sell anything except the policy. And yeah, after he entered the policy info into tax cut it swung over into owing.

[thelittlebabu]

Yes....the only out of the ordinary thing we did this year was sell the policy. Our witholding hasn't changed, no one got a huge raise, we didn't sell anything except the policy. And yeah, after he entered the policy info into tax cut it swung over into owing.
Going from a $1700 refund to owing $1700 is a $3400 swing. Add $3400 to the amount of tax withheld when the policy was sold and figure out the percentage of that amount compared to the gain on the sale. If that percentage is close to your highest tax bracket, then the numbers are likely correct. If not, then something else is up (e.g. AMT, phased out deductions).

Here's an example for my above gibberish:

- Tax withheld when policy was sold: $1000
- Total tax attributed to policy sale: $1000 + $3400 = $4400.
- Profit from selling policy: $29300.
- Percentage of gain that was taxed: $4400/29300 = 15%
- Highest tax bracket: 15%...looks like you were taxed correctly.

[colz85]

Weird. Fifteen percent would be another 1000, NOT 3400. It looks like they took 10 percent out when we sold the policy.

So we are confused. I think Husband is going to call his account rep type person to see if he can get some clarification.

It may end up being a very expensive lesson. :(

Thank you for your advice!!