Margaret CPA in OH

Well, JB, then I wonder if the preparer of the W-2 has erred. I do find it unlikely that the codes for Boxes 12 and 14 would be identical. I also thought that Box 14 was for information and special purposes only. The instructions for W-2's state that the two items that you mention are to be reported in Box 12 with the codes that you state. Just sayin'

Thanks, OldJack, for a good explanation but I think JB needs to first be sure that it is in Box 12 or Box 14. I think that is a Box 12 code, not a Box 14 code.

JB, you may have made the same mistake that I did when entering some client data from the W-2. I clicked on the drop down box for Box 12, not Box 14. When I asked him about the NSO, he was puzzled and said it was supposed to be pretax health benefits. I blushed.

But it is sooooo cute!

As it happens in this case, the client emailed earlier today that the loan was not from his 401(k). He said that the amount in it was only used to help determine his creditworthiness. That explains why the note states that the loan was unsecured. So we all got more education than we might have actually needed, at least for the moment. Thanks to all for contributing!

Thanks, Gail. I think what you wrote is more along the lines of my original thought process and I was just looking for some outside confirmation. In any event, I will still confirm from the client how the bank is involved and why the document is checked as unsecured.

I am in awe of the photographic skills of you folks! These are wonderful. JohnH, I was in India in 1976 - doesn't look like much has changed in some areas. Great shots!

Thanks again, Pacun. I am glad you brought up "bank", however. The form the client provided is from a local bank and the client wrote on it that it was a loan against his 401(k) savings. My question to him (not yet answered) was whether that bank has his 401(k) funds. Guess I need a bit more info from him. I do appreciate the pocket example. That's why I originally asked the question. It didn't seem right, in one sense, to deduct interest paid to one's self. However, we do know that is the case when s-corp shareholders lend money to their company. The interest is deductible to the company and income to the s/h - legitimately, left and right pockets notwithstanding. More research needed for me on this one. Thanks again.

In general, I thought along the lines that you state. However, the IRS site states: "Benefits must not be assigned or alienated. The plan must provide that its benefits cannot be assigned or alienated. A loan from the plan to a participant or beneficiary is not treated as an assignment or alienation if the loan is secured by the participant's account balance and is exempt from the tax on prohibited transactions under IRC 4975(d)(1) or would be exempt if the participant were a disqualified person. See Publication 560 for additional information on prohibited transactions. A loan is exempt from the tax on prohibited transactions under IRC section 4975(d)(i) if it: Is available to all such participants or beneficiaries on a reasonably equivalent basis, Is not made available to highly compensated employees (within the meaning of IRC section 414(q)) in an amount greater than the amount made available to other employees, Is made in accordance with specific provisions regarding such loans set forth in the plan, Bears a reasonable rate of interest, and Is adequately secured." So it says that there can be a loan to a participant secured by the participant's account balance. If the money is used in the rental property, though, why wouldn't the interest paid be deductible for the rental property purposes? If the money was borrowed from a bank and used for the rental, it would be deductible, right?

Client took out $18,000 home improvement loan secured by 401(k). He says it was to remodel kitchen in house which is now a rental. I'm checking the timing of the loan and when he moved. Meanwhile, what happens with the interest paid on the loan? Is it paid into the plan and not deductible (whether for rental or home improvement or whatever purposes)? This is a first for me and I sort of thought that borrowing from your retirement wasn't a great idea except that it would possibly earn money at the interest level in place. Thanks for guidance. I checked the IRS site on retirement plans, proceeds, etc. but couldn't find what I think I am looking for.

Just in case we get too caught up in looking at our numbers and the inside walls, take a break and enjoy these amazing photographs. http://my.nature.org/photography/2010-photo-contest.html?autologin=true

I love the scratching and bumping phone - will immediately add to my tool set!

Good idea, RitaB, for strengthening abs. More laughter!

I understand that is where the details go on the 8606. My question was about properly entering the data shown on Form 1099R. If I do not put in the whole amount as taxable (although the 1099 has nothing there and box is checked for taxable amount not determined), nothing goes to the right place. Soooooo, I followed my instinct to get everthing to the right place. It was even better when I actually input the basis at 12.31 on Part I line 2. Everything calculated correctly and the carryover sheet is great showing how much will be taxed in 2011 and 2012, lest the client forget. A lesson I take from this is that the software is really pretty good for putting the numbers in the right place but it is helpful to know where things should end up. If I input the 1099R exactly as presented and didn't tweak or look at the forms, errors would have been made. Thanks for insights.

I use Adobe Pro and use a password every time and have done so for a few years. I believe other pdf writers can do that, too, but don't know if the one that currently comes with ATX has that capability. The older version of pdf factory, at least the purchased version, has it. There are likely others out there and hopefully someone will provide some great suggestions.

Client and spouse have converted all their traditional IRA's to Roth IRA's. For each of them, $5000 were in nondeductible IRA's. If I input, per the 1099R, taxable amount not determined, it shows on Line 7 of 8606. If I input that all is taxable and complete Part II of 8606, it seems to calculate correctly. However, Part I, second bullet point seems applicable "You took distributions from a traditional...and you made nondeductible contribution to a traditional IRA in 2010...For this purpose, a distribution does not include a...conversion.." Part II states it's all about conversions. So do I input according to the 1099R or what my instinct tells me supported by correct calculations?

Sigh...so true, so true, describes me to a T-account.

http://www.flixxy.com/my-blackberry-is-not-working.htm

Thanks, LindaB. I will just clarify who is actually responsible for repayment. Between us, I believe the student's mother is actually repaying and cannot fathom how her husband got on this. (I know a little too much about the family finances...)

My structure for about 4-5 years is like Kea's. On my desktop is a folder CPA. Within CPA are 4 folders, Business Clients, Individual Clients, Former Clients Everything Else. Within each Major folder is a folder for each client (business, individual, etc.) with the client name. Within each client folder is a folder Client Name TYXX. Within each Client Name TYXX are scanned copies of the client documents (Client Name TYXXdocs), pdf emails with date, and pdf copy of the client returns with and without password. The returns with password are those sent via email to the client for review and are their copies. My Everything Else folder has IRS pubs, forms letters, scanned engagement letters and signed 8879's per year, and, well, everything else that I want to save. It all works pretty well for me. I burn to disk the folder CPA annually so have all years, all clients, all documents in multiple years. I also utilize redundant backups daily. I thought about having each year in a separate folder but found that not as useful as having a folder for each client. Diff'rent strokes...

But Pub 970, page 29, says "Student loan interest is interest you paid during the year on a qualified student loan. ... Qualified Student Loan - This is a loan you took out solely to pay qualified education expenses (defined later) that were: * For you, your spouse, or A PERSON WHO WAS YOUR DEPENDENT WHEN YOU TOOK OUT THE LOAN (my emphasis). From that I take it that I input the amount for the filer (student's mother's husband) if he is legally responsible for the loan. That I will have to check. They filed jointly so student was his dependent although not related.

Terry, AOC was available for 2009 and 2010 to extend the Hope Credit for 2 more years. Look in your software or irs website, American Opportunity Credit FAQ. It is in QF and I utilized it on 2 students who qualified in 2009.

Client has interest for a Plus loan for wife's daughter. Daughter is not a dependent of client and wife. Where does the loan interest belong? It looks as if I have to confirm who is legally obligated to pay (Pub. 970)regardless of whose name is on the 1098E, correct?

Thanks, grmy2h, I just read right past that, I guess, thinking that a stove would not be "building property." I need to be more careful and assume less. Thanks again!

Pacun, why do think that the stipulation that it can be taken for only 4 TAX years would not apply for 2010 in the taxbrewster client situation? I agree that 2009 would qualify as the client's 4th tax year and should be amended but why would the 5th tax year, 2010, meet the qualification? Thanks for clarifying for me. It would help my client but I couldn't, based on my reading, justify it.