jainen

>>I don't think he should owe self-employment taxes<< That's very interesting, I'm sure, but what does your CLIENT think? He's the one who chose this gig, and just maybe he figures 10 G's isn't something to make a fuss about.

>>"you can't do anything about it!"<< It's actually very easy to file a complaint with the state labor board, especially for documented non-payment of wages. Give the skunk a choice: Pay the $500 in cash immediately, or fight the state for eight months and the IRS for four more, and end up paying full payroll taxes on all past and future household employees. Unfortunately, there's no guarantee your client will ever get any money out it, but revenge is sweet and maybe even a little fun.

>>Thank you, jainen.<< You are very welcome. You can always count on me for an example of arrogance.

>>What does "BUMP" mean?<< It's part of the secret code of computer messages, intended to screen out participants based on how cool they are rather than knowledge of the subject. "Bring Up My Post" implies that the question has already been completely answered and there is nothing new to be learned. Kind of arrogant, but everyone's entitled to their own opinion.

>>override $1 on line 8a<< This procedure is for someone who has no taxable AGI but is eligible based on 2007 Social Security or Veteran's benefits. The original post was about someone who did NOT have qualifying income in 2007, but will in 2008. The stimulus check is an advance on a 2008 credit. We can expect the instructions to next year's Form 1040A will explain how to pick up a missed or incorrect payment.

>>go back and figure what depreciation shoulda woulda coulda been<< The depreciation component of standard mileage allowance is 19 cents for 2007, 17 cents for 05/06, and 16 cents for 03/04.

>>you don't think the lawyer will point the finger at me in a heartbeat?<< I should have started my response by asking what your role is. Personally, I never do bookkeeping, payroll, or accounting, and my engagement letter says exactly that. For me, the only issue is to advise them of possible tax consequences, but to fill out the tax return according to what actually happened. I would have few clients if I refused to help anyone who didn't document payments in the officially approved way. If this were a bookkeeping or accounting engagement, however, I would of course resist improper procedures.

>>I feel that it should because the taxpayer has all the receipts<< Although you may have strong feelings about how this client chooses to spend her own money, I think you should stick to the tax code.

>>they can be paid wages<< Of course they can. I mean, what, will the IRS and the other agencies refuse to cash the payroll tax checks? It's bad form, and that might compromise the liability shield they wanted, but LLC is a flakey setup anyway and can probably benefit from the formal structure of a regular payroll. I suppose if they act too much like a corporation the IRS could recharacterize them AS a corporation, but just document your advice and warnings, and then continue the engagement.

>>depreciate over a shorter period....say 10 years<< Since apparently the very walls are almost non-existent, perhaps you could call this platform a land improvement (15 year property). Ah, nuts. By the time you get audited it's all going to be rubble anyway. Call it a floor covering like carpets and take one fifth every year. In fact, have a fifth this afternoon--then you won't even care!

>>I had exactly this same thing happen<< Me too, though I admit it turned out not to be a computer problem at all!

>>I just know the house and it will not be standing in five years.<< Ronald Reagan abandoned the concept of useful life when he "simplified" things. Since then we are required to use Class Life, a somewhat arbitrary system sold as "accelerated" depreciation. As to my position on repair vs improvement, I have for many years treated new roofs, painting, and the like as repairs. If the house is going to fall down within five years, as Janitor Bob believes, a new floor will keep the debris from getting muddy but it won't extend the life of the building that it's a part of. It simply restores the house to the condition it was in before. On the other hand, and particularly with a new floor, the construction probably constitutes an upgrade or improvement. If the original deck was just A/C plywood with a cheap shag cover, then the parquet offers new functionality (dancing!) that calls for depreciation.

>>his residence is in an rv that moves around alot<< In my opinion, you should document a complete interview exploring residency factors under both Idaho and Washington state law. Maybe there's more to this story, but so far all you're saying is his wife and family definitely live in Idaho and he does not have a permanent abode in any other state. I'm sure Idaho is aware of the obvious tax dodge in claiming to be a resident over the state line, but community property laws mean the best you can get away with is excluding half the joint income on an Idaho non-resident return. My guess is he is an Idaho resident and all income is taxable there. Cruising western highways does not establish community ties.

>>Depreciation is more than the adjusted basis<< I don't think that's possible. Anyway, how do you get that much in just four years? Well, right or wrong, she has reduced her basis to zero in a way that can't be corrected without IRS permission. She should still amend the previous years to reverse the excess deductions, but meanwhile your only real responsibility is to accurately do the current returns.

>>if you rent part of your house, rental losses are not allowed on line 17<< It depends on how it's set up. If you rent a room with kitchen privileges, losses are probably limited. But if the basement is a separate apartment, it's a Schedule E activity in the ordinary way. In neither case is it self-employment income/loss that can offset the partnership earnings, unless you have a red light over the door and rent it by the hour.

>>Is there anyway to deduct those expenses on federal return?<< No direct deduction, but there ARE some tax benefits available. First of all, it counts towards support where that is an issue for dependency, which opens the door for child credit, medical expenses, etc. Income used for tuition is tax free if it comes from an educational plan. I never heard of a private school that didn't structure much of its cost as charitable donations. If you think about it, there are some tax planning opportunities. That word "absolutely" doesn't work very well on a tax forum.

>>As jainen said, you would figure insolvency twice, if he had two debts canceled<< I was not referring to the second loan, but to the fact that debt relief can only be excluded to the extent he remains insolvent after the foreclosure.

>>Can I count debt & value of rental house when doing the insolvency equation?<< Yes, but only for the first one. You have to run a second insolvency equation after the foreclosure, when he doesn't have either the debt or the value.

>>a mission trip to work in an orphanage overseas<< Contributions are never deductible when they are to or on behalf of a foreign organization. It is a weak argument to say the orphanage is sponsored by or affiliated with a U.S. church.

>>she owns nothing in her name<< She offered tens of thousands of dollars without so much as a credit check? Usually when you ask why, they say the buyer couldn't get financing by herself. Well, duh! Anyway, whatever ongoing costs she has now are not for operating a trade or business, so throw them in to the capital loss.

>>filing 28 years worth of hefty amendments. lbb aka inquirying mind<< Okay, I'll finish the rest of the Pub 17 quote. "... that is not closed by the statute of limitations for filing a tax return."

>>They want all ten years done for...FREE<< Well, of course you WANT to help the family. Blood's thicker than inkjet toner, etc. Besides, you have a professional interest in expanding your skills with other states, don't you?. Not only should you not charge for the basic tax preparation, you should give them half off your normal rep fees (which start at $2500 plus $50 for each year of the P.O.A.). Because either the IRS is already after them or you need to immediately invoke the non-filer program to avoid criminal charges for a willful failure to comply with tax laws when filing brings it to their attention (in either case add $250 for an expedited response) . Oh, and even though the personal tax prep is free, you of course can not offer that for any business or investment issues like Schedule B, C, D, or E., nor for the additional pricing required for prior year returns, which is approximately 100% of the regular fee. I know you are uncomfortable nickel and diming a relative like that, so just sum it up with a request for a $3500 retainer (or however much you need for your new computer system) stapled to the P.O.A.s. Then call the practitioner's help line for a 120-day hold, to earn that expedite fee.

>>WV takes marriage seriously<< Obviously these West Virginians didn't take their vows seriously, and neither did the West Virginia court. I apologize for trying to exactly define the term. Would it be better to see what the IRS says about it? Pub 17, page 20. "If you obtain a court decree of annulment, which holds that no valid marriage ever existed, you are considered unmarried even if you filed joint returns for earlier years. You must file Form 1040X, Amended U.S. Individual Income Tax Return, claiming single or head of household status for each year affected by the annulment... "

>>the marriage was annulled in 2/08<< http://dictionary.reference.com/browse/annul

>>Does any one has a strategy<< Yeah, I just gave you one. Recalculate the interest, disclose the inconsistent treatment of the 1099, and gird yourself for battle. But before you do so, figure out what "solve this issue" means for your client. What does he lose if he just takes the easy deduction this year? His deduction is so high that he doesn't owe any tax--is that the line you expect will get sympathy from the bureaucrats? If you think there is any regulatory agency that gives a hoot how subprime lenders track payments, you need to buy a newspaper. And if you think there is any regulatory agency that gives a hoot about some IRS form, I don't know what you need. Even the IRS doesn't care when someone reports more than they are required to. And this lender has irrefutable proof that they got paid the interest he owed them. If you don't like my strategy and want to make up your own, start with these cold facts. Your client is a deadbeat and his loan's been picked up by a hard-money lender. Paperwork is the least of his problems.