Tax Time II
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Posted by Wendy Wilson (+6167) 13 years ago
Okay, since the first thread I started about tax topics has degenerated into a discussion about the TRUTH and the LIE, I'm starting a new thread. This is solely for questions from people who accept the legality of federal taxation and have specific questions about the rules.

If you do not believe in the legality of federal taxation please do not post here. This thread is meant to be informative, not a forum for political discussion. Thanks!
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Posted by Bob L. (+5096) 13 years ago
OK - Wendy - Here's one for ya.

Let's say you're a stockholder in a Sub S Corp. The Sub S Corp has a relatively large loss due to using LIFO for inventory purposes. If said Sub S Corp was a C Corp, it would be subject to AMT.

Does the individual taxpayer/S Corp stockholder have to worry about AMT because of this? I think the answer is "no," just checkin'...
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Posted by Stephenie (+56) 13 years ago
Question for you I closed my business Dec. 2008 due to moving. I did not sell my business or any equipment associated with it, will I have more write offs then last year. Just wondering what my accountant will be able to do. Thanks
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Posted by Wendy Wilson (+6167) 13 years ago
Bob L.

As a shareholder in an S-Corp (I'm not sure what a Sub S-corp is) your share of the income or loss flows to your personal return. S-corps are not taxed themselves as separate legal entities. But the income from the S-corp may cause the individual shareholder to owe AMT. I am not an expert on S-corps so there may be some adjustments on the individual's return that affect AMT. Not sure if LIFO issues would cause problems for the shareholder. Interesting question.

Stephenie,

What you can expense depends on the business. Without knowing the specifics it would be hard to tell you what you can write off. In general terms you can write off and are required to write off any legitimate business expenses you incurred while operating the business. One thing you may have to deal with is recapturing excess depreciation if you have any equipment that you wrote off completely in the year of purchase. If the useful life of that equipment hasn't passed then you may have recapture. Your accoutant will know that. Hope this helps.
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Posted by Richard Bonine, Jr (+15369) 13 years ago
Bob L: you are correct, the answer is no.
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Posted by Bob L. (+5096) 13 years ago
Bob L: you are correct, the answer is no.

---------------

Oh, thanks for the affirmation Ricardo.

I can sleep tonight knowing that I've arrived at the correct answer, directly confirmed by Senor W-4 Tax Expert.

Did you run your answer by Gordon Kahl, one of the Freemen, or Mr. Shipley before you posted it? 'Cause that would make me feel even better about things...
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Posted by Richard Bonine, Jr (+15369) 13 years ago
You're welcome.
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Posted by Wendy Wilson (+6167) 13 years ago
Be nice, Bob, or I'll haiku you.
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Posted by Bob L. (+5096) 13 years ago
As a shareholder in an S-Corp (I'm not sure what a Sub S-corp is) your share of the income or loss flows to your personal return.

-------

"Sub S-Corp" = Abbreviation for "Subchapter S Corporation." You know, like Subchapter S of Chapter 1 of the Internal Revenue Code...

Noooooooooo, not Haiku!
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Posted by Bob L. (+5096) 13 years ago
Wendy:

Here's another one...probably outside of what you work with...

Company hires a salesperson to sell a new product line - he/she worked in a similar position with previous employer (same product line - previous employer lost sales territory) and was classified as an independent contractor.

Seems he/she s/b an independent contractor, but it's never a sure thing. Should the new employer file an SS-8 with the IRS for one employee? In general, how often are SS-8s filed? What's the turnaround time? Do they carry any weight?
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Posted by Bob L. (+5096) 13 years ago
Wendy:

Here's another one. A friend of mine worked for a short period of time selling financial products as an independent contractor. He/she generated about $5,000 in income. No federal income taxes or payroll taxes were withheld. How does the taxpayer pay FICA, etc... to Uncle Sam? Does it flow through on Sch C, or do they have to do something else? I'll research this myself, but just looking for some expertise...

And no, Ricardo, this doesn't mean you...

I'm done axing you questions, Wendy - thanks in advance for any guidance you can provide!
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Posted by Wendy Wilson (+6167) 13 years ago
Bob,

With regard to the SS-8, if an employer is really unsure about the classification of a new hire it can file an SS-8 to get an IRS determination. The new hire can also file an SS-8 if he thinks that he should be an employee but the company doesn't, or vice versa. This may cause problems for him with the company because many try to classify their employees as independent comtractors to avoid paying their half of the FICA.

I really don't know how often they are filed by employers. I do know that they aren't filed often enough by employees who have been wrongly classified. As far as the weight they carry, if the IRS determines you are an employee then you are an employee. Period.

Regarding how independent contractors pay their FICA: An independent contractor is considered self-employed and files a Schedule C as you correctly stated. If he has a net income then there is a self-employemnt tax calculated on that net income using Schedule SE. This tax is the social security and medicare tax for self-employed people, who pay the full amount and not just half as do employers. As far as paying it, you can pay it when you do your tax return or you can pay tax in advance on a quarterly basis using Form 1040ES. If self-employment is your whole income then you probably want to pay in quarterlies to avoid penalties. If you have just a small amount of self-employment and the rest is employee income you can usually cover the income and SE tax for your self-employment by just increasing your employee withholdings on your W-4. Either way, paying in tax as you earn your income is important because penalties will be levied if you don't.

Hope this helps you, Bob.
Tax questions are really fun.
Have another one?
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Posted by Richard Bonine, Jr (+15369) 13 years ago
"And no, Ricardo, this doesn't mean you... "

Now Bob, as of 9-Mar-09 I am the proud owner of my own Wyoming S-corp...
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Posted by Wendy Wilson (+6167) 13 years ago
Good for you Richard. Make sure you pay yourself on a W-2!
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Posted by Wendy Wilson (+6167) 13 years ago
Bump. Ask me your tax questions.
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Posted by Brian A. Reed (+6121) 13 years ago
Now Bob, as of 9-Mar-09 I am the proud owner of my own Wyoming S-corp...

I stepped on a Wyoming S-corp once ... damn near lost my foot.

:rimshot:

...

:tumbleweeds:
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Posted by Bob L. (+5096) 13 years ago


"Tip the veal"

"Try your waitress."



*rim shot*
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Posted by Stephenie (+56) 13 years ago
Besides mortgage interest what else could I write off on a house?
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Posted by Wendy Wilson (+6167) 13 years ago
The property tax you pay on your house. Also, if you purchased your house in 2007 or later you can deduct your mortgage insurance payments (but not your hazard insurance). You didn't specify whether this is a house you live in. Mortgage interest is only deductible on your main home and one vacation home. Vacation homes can include boats and RVs if they have cooking area, bathroom and a sleeping area.

Also don't forget that if you buy a house between 1/1/09 and 12/1/09 you get an $8000 credit on your tax return.

There are also some credits for energy saving improvements that would apply for 2009.
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Posted by Wendy Wilson (+6167) 13 years ago
It's getting closer. Bwahhahahahaha!
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Posted by Brian A. Reed (+6121) 13 years ago
It's getting closer. Bwahhahahahaha!

And by "it," I am assuming you mean a response to this thread by Mr. Shipley?
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Posted by David Harasymczuk (+39) 13 years ago
Hi Wendy,

The Company I work for has outsourced their mileage reimbursement. They pay a flat fee plus a fluctuating per mile stipend. It doesn't come close to the IRS standard.
My question is this; Can I claim the difference between what I'm reimbursed vs the IRS rate of .55/mile?
Thanks for your help.
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Posted by Wendy Wilson (+6167) 13 years ago
The Company I work for has outsourced their mileage reimbursement. They pay a flat fee plus a fluctuating per mile stipend. It doesn't come close to the IRS standard.
My question is this; Can I claim the difference between what I'm reimbursed vs the IRS rate of .55/mile?
Thanks for your help.


Hi David,
This answer assumes that you are an employee and not an independent contractor. If your company does not reimburse you up to the IRS rate you can claim as an employee business expense the difference between what you get and the IRS rate. You would use the form 2106 to report your business miles. Be careful. If your reimbursement is included in your W-2 as wages you claim the full IRS rate on your return. If your company did not include the reimbursement in your W-2, you must reduce the calculated IRS amount by your reimbursement. This is also done on the 2106. Make sure you know how your company reported the reimbursement. Remember that employee business expenses are subject to a 2% floor which you can see on your Schedule A, line 21. I hope this helps!
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Posted by Stephenie (+56) 13 years ago
Wendy,
Just wondering if I can write off any of my moving expenses?
Thanks
Steph
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Posted by Wendy Wilson (+6167) 13 years ago
Well, first Stephanie you have to meet a few tests:

The move must be job related.

Your new job must be at least 50 miles farther from your old home than your old job location was from your old home. If you had no previous workplace, your new job must be at least 50 miles from your old home.

If you are an employee, you must work full-time for at least 39 weeks during the first 12 months right after you arrive in the general area of your new job. If you are self-employed, you must work full time for at least 39 weeks during the first 12 months and for a total of at least 78 weeks during the first 24 months after you arrive in the general area of your new work location. There are exceptions to the time test.

Hope this helps. These expenses will be calculated on form 3903 so I'd go to IRS.gov and pull up the instructions.
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Posted by Richard Bonine, Jr (+15369) 13 years ago
"It's getting closer. Bwahhahahahaha!"

I will wait until at least the 10th when Walmart puts the Taxcut software on sale just to get rid of it. Nothing like doing your taxes on Black Friday.
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Posted by David Harasymczuk (+39) 13 years ago
Thanks for your help, Wendy. How do I recoup the lost deduction $$ from last year from this very issue? Do I file a 2007 amendment or do I have to redo '07? OR ( I know this is a stupid question ) is there an easier way?
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Posted by Wendy Wilson (+6167) 13 years ago
Well, David, you have to amend your 2007 return. The form you use is Form 1040X. It comes with a book of instructions and is not very fun to use. Make sure you get the 2007 version. To get the numbers that you'll need to put on the 1040X you'll basically have to redo your 2007 return including the new expenses and then transfer the new numbers to the proper column on the 1040X. Any new forms that you use or any forms that are changed due to the new calculations will have to be attached to the 1040X. Don't include a new 1040; the 1040X replaces that. Keep copies of what you send!!!!

The good news is that the IRS will also pay you interest on the additional refund you get. You also have until April 15, 2011 to file an amended return for 2007.

Good Luck!

Oops. One thing I may have not been clear about above. Even if your company reimburses using the IRS rate, if they include that income in your W-2, you will still want to claim mileage expenses on 2106. You're paying tax on the reimbursement in that case and are entitled to the expense deduction. If your reimbursement is not in your W-2 then it's a wash in this case and no 2106 need be filed.
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Posted by David Harasymczuk (+39) 13 years ago
"if your company reimburses using the IRS rate, if they include that income in your W-2,..."
They do not.
Hey thanks a lot for clearing this up as I have heard it both ways and then some... lots of "pros" out there including the IRS.

I will be capturing that money actually back to '06 'cause it's a sizeable amount.

I have two more questions, please;

Are homeowner association fees deductible?
and
I'm getting ready to buy some unimproved land to plant an orchard on roughly 1/3 of the acreage plus a Windbreak across the entire acreage. The orchard will not be commercial. Can I deduct the improvements including the trees? or only improvements like water, road etc? Or am I SOL unless I make it a "for profit" endeavor?

I talked to the IRS on these matters on three occasions and got three different answers so I don't know what to believe. On one occasion they told me no deduction because the trees will eventually die. I asked for clarification but was like speaking another language. (maybe Shipley knows. lol)

Thank you for taking the time to answer, this has been valuable and educational. Just for the record I hate the IRS but I really don't need to raise any reds by being stupid, if you know what I mean.
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Posted by Wendy Wilson (+6167) 13 years ago
Are homeowner association fees deductible?
and
I'm getting ready to buy some unimproved land to plant an orchard on roughly 1/3 of the acreage plus a Windbreak across the entire acreage. The orchard will not be commercial. Can I deduct the improvements including the trees? or only improvements like water, road etc? Or am I SOL unless I make it a "for profit" endeavor


HOA fees would only be deductible for a rental property, not for your personal home.

As far as the unimproved land, a true improvement would not be deductible regardless of the profit status of the venture. An improvement such as new roads or assessments for water connections would actually be added to the cost basis of the land and factor into any profit when the land is sold.

The trees would be a current year expense but is a depreciable assets, like a tractor. No current expenses related to the production of fruit would be deductible unless you actually sold some of the produce. You could have two situations then. Either this is a hobby in which case you could deduct your expenses up to the amount of your hobby income or you have a business in which case you could deduct all your expenses, possibly incurring a loss.
Are you planning to sell the produce?


p.s. I never call the IRS more than once
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