#*tax quips

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New Post has been published on http://taxmama.com/tax-quips/reasonable-care-and-rmd/

Reasonable Care and RMD

Today TaxMama® hears from Sonia in the TaxQuips Forum, who has this quickie question. “I contacted the custodian of my IRA AT 3 PM on 12/31 to request a required minimum distribution (RMD). The transaction ended up being dated 1/1. Will the 50% penalty apply? If so, how can I apply for relief?”

Dear Sonia,

There IS a way to get penalty relief on RMDs, IF reasonable steps were taken to take the required minimum distribution.

Calling the custodian at 3 pm on New Year’s Eve, when most people have already left for the holiday, and expecting the transaction to be done that day is, well…not exactly reasonable.

But you can certainly request penalty relief. And if this is the first error or the first RMD, you are apt to get the penalty waived. Mike Reed, EA confirms that he gets these penalties waived regularly.

Please follow this procedure, which is explained on the IRS RMD FAQs. The worst they can do is to say, “No.” Be sure to explain why the request was made at the last minute.

Did you not know about this responsibility until then? And how did you suddenly find out? Why will this never happen again?

And folks, any time you have deadline-based transactions, perform them at least a week early. Not at the last minute. Especially if you must rely on someone else to process the transaction for you. Otherwise, not only will there be penalties; but missing the deadline may make it impossible for you to get the relief or results you wanted to achieve. And remember, you can find answers to all kinds of questions about IRS penalties and other tax and business issues, free. Where? Where else? At www.TaxMama.com.

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New Post has been published on TaxMama

New Post has been published on http://taxmama.com/tax-quips/family-caregiver/

Family Caregiver

Today TaxMama® hears from KP in the TaxQuips Forum, with this question.  “My sister-in-law received a 1099-Misc with an amount in box 6 for medical health care payments for providing care for her husband, a veteran receiving VA benefits. I know the amount is taxable to the federal government, but is it subject to social security tax?”

                                                                             Dear KP and Family,

After answering the question, I got this interesting note from a friend at the IRS:

He pointed to this article about payments coming from  ”a state, a political subdivision of a state, or a certified Medicaid provider under a Medicaid waiver program to an individual care provider for nonmedical support services provided under a plan of care to an individual (whether related or unrelated) living in the individual care provider’s home.” These payments might not be taxable at all !!!

This might apply to many people.

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

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New Post has been published on TaxMama

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Tax Day 2014 Tips

Today TaxMama® wants to help you with last minute issues on Tax Day 2014

                                                                         Dear Family,

While most of the population has probably already filed their tax returns, there are people still needing to file – something. That usually includes those people who owe money, have businesses, complex investments, are dealing with disputes, and just plain procrastinators.

My first bit of advice is – don’t stress. It’s going to be all right. Whatever it is.

Next – don’t file your tax return today. Trying to finish up under pressure is a bad idea. You make mistakes; your tax pro might make mistakes. Most importantly, if there is something your tax pros could do to help you reduce your taxes, they will be too rushed to think about it. So you’re doing yourself a major disservice by filing at the last minute.

What to do instead? Get an extension, of course. This Equifax blog post will tell you how to get one for people. When it comes to partnerships, certain LLCs, and a variety of estates and trusts, use Form 7004. You don’t need to explain why you need it. You will get automatic approval. You can find corresponding tax forms for your state here.

Since you may need to pay a whole assortment of taxes today (IRS & State 2013, estimated taxes for 2014, IRA contributions, etc.), This MarketWatch article will explain what to do if you can’t afford to pay it all today.

These two articles will help you de-stress today and buy you enough time to get everything done correctly. But now  that you’ve put it all of this off for so long, perhaps it is time to start really looking at your data and getting organized, so you can resolve the 2013 tax year by June, don’t you think?

Have a less taxing Tax Day – and go out and celebrate this afternoon.

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

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New Post has been published on TaxMama

New Post has been published on http://taxmama.com/tax-quips/carrying-a-mortgage/

Carrying a Mortgage

Today TaxMama® hears from a couple of people in the TaxQuips Forum, with this problem this week.  They have sold real estate on an installment sale. They have been the mortgage-holder. And after a while, the buyer defaulted and they had to repossess the property. Let’s look at the problems arising when carrying a mortgage.

Dear Family,

With bank and CD rates of return being so low, it is tempting to make investments that provide a seemingly safe, secure, rate of return – guaranteed for several years – and secured by real estate.

So here you are, renting out your house. The tenant has been paying rent diligently for years. They want to buy the house. And you’re ready to sell. What a great deal! No real estate commissions; no need to worry about those pesky escrow fees. Let’s just do a quickie sale, with a fixed interest rate and pull some loan docs off the Internet – and awaaaaay we go!  (Don’t bother with the credit check, or employment check, informing the underlying lender that there’s a new buyer, or ensuring there is enough of a down payment so it hurts if they walk away from the property.)

Oops. Suddenly, they are not paying. To avoid getting foreclosed by the underlying mortgage (oh yes, there’s still one of those), you have to start covering the mortgage payments. They make the random payment…or not. You have no choice. You try to evict them and repossess the house.  Can you imagine? They get mad at you. And they utterly vandalize the house. (Yes, that’s one of this week’s situations.) By the time you get the house back, you will have paid out 3-10 times what they paid you – just to get the house back in some order. Perhaps you would have been better off letting it go to foreclosure.

Some brief tips:

1) As much as you love and trust them, do a complete credit check – and speak directly to their employer to ensure they will still have a job (that they are not flakes).

2) Don’t carry paper with anyone who is self-employed. If they don’t feel like running their business anymore, it’s really hard for you to collect money from them.

3) Handle the sale through the proper channels, escrow, title, etc.

4) If they are going to assume (or pay your mortgage), make sure you notify the lender and that the lender approves and puts them on the loan instead of you.  Otherwise, there goes your credit!

5) Be sure you have the willingness to start foreclosure proceedings when they miss two payments.

If you can’t be bothered with all the right details – and can’t harden your heart? Help them arrange for financing and get your money – and run. You are not equipped to carry a loan.

True, this doesn’t happen often. But when two different people in two different parts of the country bring this to me on the same day…it makes you take notice.

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

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Assisted Living

Today TaxMama® hears from Hollie in the TaxQuips Forum, with this concern.  “My husband had to go to an assisted living facility (following hospital and skilled nursing stays) and I understand the nursing portion of his assisted living monthly fee is a tax deductible expense. When I asked the administrator of his assisted living facility (run by Americare) what percent of his monthly fee was attributable to nursing, I was told 66%. But she would not give it to me in a simple written statement. She said if the IRS has any questions, have them call her, which I realize is not a reasonable reply. My question is do I have to have a written statement from the facility before I can add this to my medical deductions?”

  Dear Hollie,

Mike Reed, our Enrolled Agent in California’s San Jose area has provided an excellent response and resource – from the Elder Law Answers website:

I refer you to this article which explains some of the possible deductions – be aware that if your husband is there primarily for medical care, room & board may also be deductible. I’m really surprised the assisted living facility does not have a form letter ready for you. We do lots of these, and never have a problem getting medical substantiation. Maybe asking someone in admittance or marketing might get you a better answer.

TaxMama adds this tip – To ensure you and your husband don’t lose the deduction, please get a written order/letter/prescription from his physician specifying that he needs to move to a care facility – and why.

Try to get a new letter every year.

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

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Why no SS Withholding

Today TaxMama® hears from Inteph in the TaxQuips Forum, who made a new discovery.  “A young lady made about $15,000 in 2012. The employer (a city in California) withheld income tax and Medicare tax but not SS tax. Boxes are 3 and 4 are blank.  What do I tell her and how do I prepare her return? How does she pay SS tax that was not withheld?”

  Dear Inteph,

Explain it to her this way.

Typically, people who work for schools and governments don’t pay into Social Security. Their employers generally offer other retirement systems.

You must manually enter zeroes into the SS and Medicare wages fields when you enter the W-2 information into the tax software.

You can’t fix this and have her pay into the system for those quarters.

But she’s young. She’ll have other jobs where she will be able to build up 40 quarters worth of credits in Social Security.

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

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Gift or Income

Today TaxMama® hears from Asdfgh in the TaxQuips Forum, who tells us.  “My daughter plays piano for school choir. Doesn’t ask for money. She gets “thank you” from school PTO in form of flower bouquet and check for a few hundred dollars. Is that taxable income?”

      Dear Asdfgh,

Sounds like you have a talented daughter. How delightful.

Anytime someone earns a total of $400 or more in a year, they must pay self-employment taxes on those earnings. So if your daughter earns less than that during the year – no worries.

More than $400…?

She needs to file a Schedule C to report the income on her own tax return. If she spends any of that money on her piano-related expenses, she can deduct those costs. If you spend the money…perhaps she can deduct the costs – if you gift her the funds and let her pay the expenses. (for future reference.)

This is good practice for adult life, I suppose.

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

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New Post has been published on TaxMama

New Post has been published on http://taxmama.com/tax-quips/iras-and-unemployment/

IRAs and Unemployment

Today TaxMama® hears from Stevenson in the TaxQuips Forum, with this question.  “If you are unemployed, can the penalty to withdraw money from your IRA be waived when filing taxes? However, the taxes will still need to be paid since I am not 59 1/2. Is this correct?  What form or forms would I file if I worked 6 months last year and was not working the other 6 months of last year?

       Dear Stevenson,

Unfortunately, you don’t have a blank check to draw money out of your IRA without penalty just because you’re unemployed.

I have proposed this change to the IRS and to the Taxpayer Advocate (who makes suggestions to Congress), since SO many people have now become unemployed in the last few years, often due to the really bad legislation and oversight of Congress. Like, you, many folks have had no choice but to tap into their retirement accounts to survive.

Alas, this legislation has not happened. So, the only tax penalty avoidance you have are the following (See instructions to Form 5329 page 3):

#7 – IRA distributions made to unemployed individuals for health insurance premiums. #5 – Qualified retirement plan distributions up to (1) the amount you paid for unreimbursed medical expenses during the year minus (2) 10% (7.5% if over 65) of your adjusted gross income for the year.

Naturally, if you cannot afford to pay the taxes, you can get an installment agreement to pay them over time, or you might qualify for an offer in compromise.

Incidentally, you must always pay taxes on the regular IRA withdrawals – even after age 59 1/2. It’s only the penalties you get to avoid.

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

[Note: If you were subscribed to the e-mailed version of TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join TaxMama.com link - it's free!]

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