Pacun

Client lost her house and husband continues to pay his current house. While trying to get out of the whole mess, lady gave information to realtor about properties in her home country because she wanted to sell properties overseas and continue paying house here in U.S. I have two questions. Since her house was sold to her about $50K more than real value and the house devaluated, can bank go after her properties in her country? Can the bank go after her husband's home? Loans were completed separated when houses were purchased. Realtor was suggesting to wife to file for bancruptcy but her husband has a house, and she has property in her country which makes her solvent.

I think you can get installation codes and what software package you got on line. Go to www.atxinc.com to find out.

Yes. KC. My question is clear now. Thanks. Let's see... households have a need for nannies and for lawn mowers and they have made an exception for those "household jobs". There is no room for accounts or lawyers in those exceptions. So, no matter how you would argue, you will be a contractor if you visit your clients and do their taxes at their home.

John, Please wait for peer review... just in case we missed something.

It is correct. You have to pay attention to the questions of qualifying child on SCH EIC. Please make sure to read question 3 and maybe 5 on the qualifying child of SCH EIC. The key here is that they lived in the same household for more than half of the year and that they are under 19 or under 24 if full time student or any age if disabled. If they lived only 5 months with the parents (except for temporary absences), they would not qualify for EIC even if the parents provided 100% of support.

This is from a respected source and from a respected CPA. It is not clear to me and that's why I posted the question. "Sometimes I can’t believe what other people believe. One of my tax clients honestly thought that if her teenage son was paid in cash, he didn’t owe any income tax. Another thought that teenagers, by virtue of being under age 18, didn’t owe income tax. Many parents think they can just add their teen’s income to their own income when doing a tax return. I have the unpleasant task of destroying their misguided beliefs, but I do tell them I will help determine if their teenager needs to file a tax return. Do teenagers need to file a tax return? The United States federal government income tax system is complex and so naturally there is no simple answer to this question. There are so many ways that teenagers can make money today. They can have a part-time job or even several jobs. They can be self-employed, like my daughter who is giving piano lessons. They can be what the IRS calls a “household employee” doing babysitting or mowing grass. Sometimes they are not employees but independent contractors, like my local newspaper carrier. Some teenagers have “unearned income” from savings accounts or investments in their name. Here are some guidelines (based on 2006 amounts) to help you determine if a teenager may owe taxes. If a teenager has EARNED income over $5,150 (in 2006), they owe federal income tax. Earned income is money from a job where the worker gets a W-2 (as an employee) or 1099MISC (as an independent contractor) or from being self-employed. The dollar threshold of $5,150 is adjusted annually. If a student has UNEARNED income over $850 (in 2006), they owe federal income tax. Unearned income is income from investments such as interest on a savings account, dividends from stock and mutual funds owned in a custodial account, and capital gains for the sale of stock or mutual funds. The dollar threshold of $850 is adjusted annually. If a student has SELF-EMPLOYMENT income over $400, he or she owes self-employment tax (called SE tax). Self-employment income is the profit from a business. SE tax is the same a social security (FICA) and Medicare for self-employed people. The dollar threshold of $400 has not been adjusted in decades. If a teenager (under age 18 at anytime during the year and a student) was a HOUSEHOLD EMPLOYEE, he or she does not owe SE tax. A household employee is a housekeeper, maid, baby-sitter, gardener, and others who work in or around a private residence as employees. This income is reported on Line 7 of the 1040 along with W-2 wages, but includes a note “HSH” with the dollar amount of the household employee income earned. These guidelines may be confusing because there is more than one type of tax covered on the Form 1040; both the income tax and SE tax are on the 1040. There is also more than one type of income that is taxed. There are forms and schedules for unearned income, self-employment income, investment income, etc. The thresholds vary depending on the type of income and type of tax. Some of the thresholds are adjusted every year, but some have not been adjusted in decades (like the $400 threshold on SE tax). The following are real life examples of teenagers earning money and their tax situation. Real Life Examples Earned Income - Lauren works at Sears and makes $3,100. Lauren does not owe federal income tax because her wages are under $5,150. She could file a return to get a refund of any federal and state income tax withheld. Lauren works two jobs and earns $6,000. She must file a 1040 with both her W-2s. Household Employee - Emily earns $800 babysitting and $200 giving piano lessons. social security and Medicare taxes do not apply to the $800 because she is a household employee. Her $200 from teaching piano lessons is self-employment income, but under the $400 threshold requiring SE tax. She should still file a Schedule C (Profit or Loss from Business). Kurt earns $2,000 mowing lawns for neighbors. Kurt will not owe social security and Medicare taxes because he is under 18 and a household employee. He will not owe federal income tax because $2,000 is under the threshold of $5,150 for federal income tax. Self-employed Income - Kurt mows grass for a cemetery and gets paid $1,000 on a 1099 MISC. He is considered an independent contractor and will owe SE tax. He will not owe federal income tax because his income is under the $5,150 earned income threshold. Kurt should file a 1040 to pay his SE tax. Phil does web design and earns a profit of $6,000. He owes SE tax, federal income tax, and, likely, state income tax. Unearned Income - Tom has a large savings account. He earned $600 in interest. Tom does not have to file a tax return, nor does he owe any income tax because his investment income is under the $850 threshold for unearned income. Tom’s dad manages his college fund. Tom is 17 years old. He sold stock for a capital gain of $5,000. Tom must file a 1040 and include Schedule D (Capital Gain or Loss) and Form 8615 Kiddie Tax. He will pay federal income tax at his parents’ rate. His dad waited until Tom was 19 years old to sell the stock. Tom still files a 1040 and Schedule D, but now pays federal income tax at his rate of 5 percent. There is no Kiddie Tax! Common Questions From Teenagers (and suggested answers) I do a service job (i.e. lawn care or babysitting), do I have to pay taxes on what I make? As long as you are under age 18 at anytime during the year and a student, your employer doesn’t have to pay social security taxes on you. You are also not considered self-employed. You will not owe federal income tax until you make over $5,150 (in 2006). I want to start my own small business selling crafts. What do I need to report? Congratulations on living the American dream of being your own boss! You are considered self-employed and will pay two types of taxes: income tax and SE tax. SE tax is the same as social security (FICA) and Medicare for self-employed people. You will report all your income and expenses on an IRS form called Schedule C, Profit or Loss from Business, when you file a 1040. Many teens who have small businesses find that they do not owe federal income tax, but do owe SE tax. (at 15.3 percent of their profits!). Keep good records of everything you earn and everything you spend on your business. It’s a really good idea to talk to an accountant when you start your business. He or she may also help you with issues like sales tax. What if I get paid in cash? According to the IRS, all types of earned income are subject to income tax. It doesn’t matter if you get paid by check from an employer (such as working at a fast food restaurant) or in cash by your neighbor (for mowing his or her lawn). How you are paid doesn’t matter to the IRS. The important point is that you report your income and pay tax on it if you are required to. My new boss wants me to be an Independent Contractor, not an employee. What’s the difference? Independent contractors are hired for a specific task or project (like plumbers), bring their own tools, may work for several clients, and do not need training. Examples of typical independent contractor jobs include sales, newspaper carriers, computer design, computer repair, entertainers, babysitting, and tutoring. An independent contractor is a self-employed person and pays both halves of social security and Medicare taxes called SE tax. On the other hand, employees have half of their social security and Medicare deducted while their employer pays the other half. Teenagers may owe significant SE taxes at the end of the year even if they do not owe federal income tax! The good news is that if you are an independent contractor, many expenses for travel, tools, equipment, etc. are deductible as business expenses (you must fill out a Schedule C Profit or Loss from Business)."

I was thinking about attending the one in Baltimore but I have used ATX since 2002 and I believe I will not benefit much. Any one that has attended could tell me how beneficial those seminars are?

Yes, it is from pubs. I only copied and pasted.

"It seems that Doctors and Lawyers, since they study more than most of us, have better loyalty to their profession" That's why I said "most of us", meaning most of us tax preparers. Does any one know the ratio between CPAs and none-CPAs that prepare taxes?

It seems that Doctors and Lawyers, since they study more than most of us, have better loyalty to their profession. I have never seen a doctor putting down another doctor. But some tax preparers don't miss an opportunity to do so. I have to admit, I always commented about the little mistakes other preparers made, but lately, I have only mention mistakes when there is a need to amend a return. While tax preparers do this, Tax Payers will come with wierd questions, listen to your answer, modified and go to another preparer with the modified story. Another thing that I have noticed, is that most of us don't use profession standards when we charge for our services as H&R and JH do. I have to admit that I do not charge enough but this is not my primary job and therefore it is more like a hobby... I charge not even half what H&R and JH charge and I have more knowledge and experience than most preparers there.

I take it back gadgets are constant and correct. I was able to see Jainen reading my postings (no replies though). I think that if you do a google search while not logged on to the community, google.com will appear. As you know, this community is wide exposed and google search engine checks it from time to time depending on the queries.

If (IF) Client age 17 and full time student made $5K working in a restaurant and was withheld SS taxes, can he recover his portion of SS taxes withheld? It is my understanding that someone under 18 does not have to pay SS taxes if he makes less than $5,150. So employers don't know if that student will only make $5K and therefore they must withhold, but at the end of the year, we know exactly what he made (in this case, his only income was $5K from wages). It is clear to me that household workers don't pay ss taxes if under 18. Let's keep this forum active and participate by asking or answering.

Yesterday, I was able to see the last 15 clicks and monitor who had seen my posting and not reply (I know Jainen would agree with me on this one). I also saw what everybody was doing. Later I couldn't see it any more. Today when you sent the link, I can see them but it seems that the gadgets are messed up and they do not stay constant. Permissions to see last 15 clicks should be limitted to only administrators/moderators. That's just my opinion. (I would agree that it is nice to see who has the knowledge and doesn't want to share it).

Thanks for your reply (ONLY ONE reply I would add). I think that as long as the rental property is only one structure shared by you and your tenant, you use Schedule D. I asked the question the day before yesterday and yesterday's mail had my answer. NEW RULES FOR SALE OF RESIDENCE WITH RENTAL USE General Rule Generally if the property is used as a principal residence in two out of five years preceding the sale, and the other §121 conditions are met, the exclusion applies to all the gain except the part of the gain attributable to depreciation taken after May 6, 1997. Mixed-Use Property If property is mixed-use property (part residential and part rental), and it was not used entirely as a principal residence during the five years preceding the sale, the reporting depends on where the rental use takes place. If the rental use takes place within the dwelling unit – defined as a house, apartment, condominium, mobile home, boat, or similar property, but does not include detached structures [§1.121-1(e)(2)], all of the gain is eligible for the §121 exclusion except the gain attributable to depreciation taken after May 6, 1997. Example: Arthur used his home as rental property during tax years 1995-1998. During this period, the allowable depreciation was $20,000. The depreciation allowed after May 6, 1997, was $7,500. In 2006, Arthur sold his home for $300,000. His adjusted basis in the property was $150,000. Since Arthur used the entire property as a principal residence for two out of five years prior to the sale, the §121 exclusion applies to the gain. Arthur’s total gain is $150,000 ($300,000 sales price minus $150,000 adjusted basis). Of this amount, $20,000 of the gain is due to depreciation. However, under the §121 rules, only the depreciation taken after May 6, 1997, cannot be excluded. Therefore, Arthur may exclude $142,500 of gain and must report $7,500, the depreciation allowed after May 6, 1997, as unrecaptured §1250 gain. Since Arthur used his entire home as a residence during the five-year period preceding the sale, the transaction is reported on Schedule D. No portion must be reported on Form 4797. Since the gain shown on Line 16 (Schedule D) is due to depreciation, this gain is considered unrecaptured §1250 gain. It will be included on Line 19 of Schedule D. Conversion of Principal Residence to Rental The fact that the principal residence is rented at the time of sale does not necessarily prevent the gain from being excluded under §121. The gain exclusion depends on whether the taxpayer meets the ownership and use requirements and the one-sale-every-two years test at the time of sale. The depreciation allowed or allowable after May 6, 1997, is not eligible for the §121 exclusion. Example: On May 14, 1999, Jacey purchased a home for $190,000 that she used as her principal residence until December 31, 2004. Jacey acquired a new residence and converted her former residence to a rental property. On October 1, 2006, she sold the rental home for $250,000, recognizing a gain of $75,000. At the time of sale the depreciation claimed on the rental was $15,000. She still lived in the home she acquired in December 2004. Even though the property was converted to rental use, it still qualifies as Jacey’s principal residence at the time of sale because: She owned the property for at least two out of the last five years before the sale; She occupied the property as her principal residence for at least two out of the last five years ending on the date of sale (October 1, 2002 through December 31, 2004, a period of two years and three months); and She has not used the §121 exclusion for any residence during the two-year period ending on the date of sale. Therefore, she can exclude $60,000 ($75,000 - $15,000) of the gain on the sale since it is less than the $250,000 maximum exclusion for a single individual. The $15,000 of the gain attributable to depreciation allowed on the rental after May 6, 1997, is taxable since it is not eligible for the §121 exclusion. This amount would be taxed as unrecaptured §1250 gain. The $75,000 gain is reported on Part III of Form 4797. On Line 2, Part I of Form 4797, the phrase “Section 121 exclusion” must be written and the gain exclusion amount ($60,000) entered as a loss in column (g).

Code P could mean a lot of things, you need to find out the taxable portion of it by asking the client or the issuer of the 1099-R.

Not at all. I just need clarification. It seems that previous rules forced you to recapture depreciation but current rules don't, but I am not 100% sure.

You have to enter taxable portion on 1099-R

If, (IF). Married client has a primary residence with a basis of 1million and rents 75% and lives in 25% of the property as his primary home. he makes in rental income $50K, but his taxable rental income is -1000 because of (75% depreciation, utilities, mortgage interest, real estate taxes and other rental deductible expenses) At the end of the 2 years they sell the house for $1.5 M. It is my understanding that they will not have to pay taxes on the gain, neither will they have to report the sales of their primary home or recapture depreciation. Is that right?

So and So, I have checked your posting and it seems your reasoning is good. I hope you checked with this client why he had so little income. I have rejected clients on this situation because I have felt that they are renting part of their house and they do not want to report rental income. I hope you questioned this client properly. I am not expert in CA taxes, but I cannot imagine that any state will allow you a NOL. You should call ATX and ask them to fix CA forms. 4 years ago, I called ATX to fix DC forms. My problem was that when I split[ed](on DC forms) the income for both spouses and the first spouses got deductions or more than $1 of his income, the program didn't calculated any taxes and refunded everything witheld to clients. So, when first spouse had 5K income and the other had $200K, all state withheld was refunded to clients.

No. The original question is legit... I think what's not legit is his income reporting practices.

This is my landlord who does not report what I pay him for rent.

I don't provide any verification service. Immigration laws says it is illegal to hire undocumented aliens. On the other hand, the government wants you to hire and then verify. So, you hire 100 employees, and put them on payroll, then you verify their social security number. After you get the results, 40 of them are using fake SS#s, you cannot fire them because "4) The employer cannot take any adverse action based solely on the results obtained from SSA. Doing so can subject the employer (and maybe the third party if I'm reading it right) to anti-discrimination or labor law sanctions." At this point, the employer has admitted (somehow) that he hired illegal aliens. It seems that this system will not work. Unless a law is enacted and signed with clear meaning, the current system is a waste. Let's see if I can give an example: Immigration came to a restaurant and arrested 11 illegal aliens and want to penalize the employer big time. The owners claim their innocence, but they never used the verification system. This is the first warning that they get from the U.S. Government that something is wrong with their hiring practices. Immigration came to another restaurant... exactly the same situation (11 illegal aliens arrested). The owners claim their innocence and they have used the verification system. This is NOT the first warning that they get from the U.S. Government that something is wrong with their hiring practices. To which restaurant owner do you think a judge will give a break?

You are right a 3 year old computer that doesn't give problems is better than a brand new computer. I am using a pentium III computer, but computer people don't practice what they preach. 1.- I always advise people to use UPS, I don't use them. 2.- I always advise people to buy new computers, I don't purchase new ones. 3.- I always tell people not to connect to other peoples wireless networks, and I do. (of course with my play laptop, NOT my tax prep PC). 4.- I always tell people not to open PCs and I always open them. 5.- I never get frustruated when PCs don't work, but I suggest people to get really frustated and call me when their computers don't work.

So he doesn't have to use other people to get money. Having money going through his brother is not an elegant solution. So if he can bring some money, no need for the brother to get involved.

Kea, Tell the student to bring in his pocket $9K. Come to the US and open a bank account and ask his parent to send more money to that account. No IRS reporting required. Also, the student can receive money directly wire to him by using Western Union. If father gifts $10K to big brother's account, no IRS reporting required. If big brother gives student $10K yearly, no IRS reporting required, but it is advisable to keep good records in case the IRS audits big brother. The only time that this becomes a problem is when old brother gets audited and there are not adequate records of where the money came from and under what category the money falls in. I strongly advise my clients to stay away from this type of transactions because most of the time there is no need to involve other people.