jainen

>>Any ideas on how I can close this out?<< Read the bankruptcy papers.

>>they also could be included in the amount that the daughter provides towards her mothers support?<< Come on, you know that's not right. She GOT the money, not paid it.

>>He doesn't want to pay $75,000 in tax!<< Well, duh! Since he likes to sling the big bills around without looking too closely, offer him a tax protection package--for a low fee of less than $100,000 you can guarantee that the IRS will not make him pay that $75,000 capital gains tax.

>>additional income from an outside agency<< Under qualifying relative rules, it doesn't make any difference whether the support is provided by the mother herself or another party. All the matters is whether the daughter provided more than half. The checks count against that, as does the mother's Social Security and any other non-taxable resources that are used. Remember you use the prorated rental value of the lodging, even though she owns the house.

>>can an employer HOLD a W-2 if the employee (former) owes them money?<< For a fine of no more than fifty bucks, an employer can do anything they darn well please.

>>How is "the tax programs are allowing the deduction"?<< I tried it in Lacerte, and erased the penalty slick as can be! Just goes to show we can't let our machines take over the world because they don't think things through right. It's up to us, not some nice guy in Caribou, to do a quality job. Or, as we used to say in the good olde days of DOS, garbage in, garbage out.

>>his gross indeed is $35,000<< I made a brave stab at slaying the beast, but she is a wiley devil. I only see two possible actions now. The first is to run away -- assume the W-2 is correct as filed and the inconsistent letter is just a general explanation of intent. If you feel heroic (or get cornered) fight back by slicing off the $7k with one hand and punching up a disclosure form with the other.

>>they did not qualify for the housing allowance<< This is a valid parsonage allowance, designated by statute. Normally we think in terms of "dual status," but that's not exactly what Reg §1.1402(a)-11 actually says. It doesn't say he MUST be treated as self-employed, just that if he IS then the housing allowance is not excluded from SE tax. However, you don't take $7000 off the $35,000. Box 1 of the W-2 is supposed to show the taxable net AFTER exclusion. See the example starting on page 11 of Pub 517. In other words, Wisconsin apparently pays an exempt housing allowance in addition to the taxable salary. The result is that the minister does not get any reduction from the W-2. In fact, he must show housing costs exceeding $7000 to avoid having excess allowance ADDED on Line 7. The taxpayer should be able to explain all this. State employees usually know every detail of their benefits; why else would he go to the prison every day? Don't you require last year's return for any new client? Surely he knows if he gets $35000 or 20% more than $35000. You can check for yourself whether FICA withholding was 6.2% of $35K or 6.2% of $42K, but frankly I wouldn't worry about that part being right or wrong. Basically just enter the W-2 the normal way. I'm sure he uses up the $7000.

>>That would be self-employment income to the teenager.<< No it wouldn't. The profit motive is so minimal that she obviously was not conducting a trade or business. The parents may want the credit. but so what? They don't determine how the teenager treats her own income. Assuming the girl is now disgusted with the family's greed and doesn't want to be their slave anymore, she should explain that she intends to keep her SSN to herself. She's probably afraid to do that, so I think it appropriate for the tax advisor to make the phone call. And while they're on the line, be sure to warn them that if you find out that they have claimed a credit for her work, you will file a complaint with the labor board because the girl didn't have a school work permit, a clear violation of child labor laws.

>>In the absence of specification in the regs, etc., I don't even need to "disclose" this, just take the deduction - BECAUSE I am not taking a position that IS in contradiction to the regs. Correct?<< Well, no, that is NOT correct, not a bit of it. Don't get all Jeffersonian about being able to do anything not expressly prohibited; the old Sage of Monticello never got audited by the IRS. The tax code is exceedingly clear that ALL income is taxable unless expressly EXEMPTED--you simply can not make up your own deductions. I won't argue about how a wiki database might define telephones (your link is to "Public Utilities," a somewhat different topic). Although I brought up "common usage" myself, telephones are pretty well covered under actual tax regs and rulings. You are flat wrong on that point. It's always harder to do retroactive tax planning. If the taxpayer had taken a second mortgage, he might have had a chance to trace it to college costs. There is no chance as part of a large first mortgage. In my opinion, a similar restriction applies to a home office. It can only take a percentage of the otherwise deductible mortgage amount (unless you elect the ENTIRE mortgage out). That's why Form 8829 separates it from insurance and repairs, and an employee can't deduct it at all. Carefully research Reg Sec. 1.163-10T and any related case law. It says the tracing rules only kick when you have greater than 100% loan-to-value. Some people may suggest a more aggressive interpretation, but I don't know that anyone has ever succeeded with it.

>>on 8829 ALL telephone expense, even the base billing each month, is included in the "Utility" entry<< There is no statutory authority for this treatment. No part of the base rate for a first phone is allowable as a home office or business expense. A telephone is not "utilities" in either tax law or common usage. In fact, the instructions to Form 8829 (page 2) specifically prohibit ANY telephone expense. Your educational costs give perspective to this issue. At least for this purpose there can be no doubt that even when a home mortgage exceeds "qualified" limits it can not be traced to another tax benefit. Section 221 clearly states that you can't deduct student loan interest unless the debt was incurred "solely to pay qualified higher education expenses." But you are correct that the actual expenses, other than interest, can be used to claim education credits.

>>I would use ALL interest paid before applying the 8829 %, and would then reduce the Schedule A portion by the "unqualified" $.<< It might be possible to find a way to structure such payments; not what you are describing, though. You should discuss this with a tax professional who can put it in perspective for your specific circumstances, research possible authority, and advise you of the chances for success and possible penalties. You can elect to treat a home mortgage as not qualified, but it is doubtful (or at least highly controversial) that you can do so for a partial debt. A similar controversy surrounds taking a direct business expense for a home office. You can do that with a whole mortgage, but probably not with just part of a mortgage. I didn't understand about the college expenses. They would presumably come under the $100,000 equity limit, and be eligible for any available education credit or deduction as well.

>>employed as a carpenter... over 50,000 business miles<< Hmmm. I thought the home building biz was in the dumps, but if this guy was so good, that's, let's see, 136 miles every day of the year including his birthday. Not much time left on the job site. The last time someone hammered like that, the steam drill only drove nine.

>>I can not find a return that I have already efiled.<< Obviously if you already transmitted it, it's gone. Probably some basement in Ogden by now. But don't worry--you need Form 1040X now, and that wasn't in the return anyway.

>>Per the VA website instructions.... Her VA income is less than the threshold required for filing, but the return seems to be taking all of her income into consideration<< The website, http://www.tax.virginia.gov/site.cfm?alias=WhoMustFile , says "the filing threshold for a nonresident is determined by Virginia adjusted gross income computed as a resident... which includes income from all sources. The filing threshold for a nonresident cannot be based solely on income from Virginia sources." Like most states, Virginia calculates the tax on total income and assesses whatever percentage the in state income represents. If her world wide income is more than $17000, she is in the 5.75% tax bracket. Based on $3682, she should expect a VA tax of approximately $212, which is $66 more than her withholding.

>>It doesn't seem correct that they should have their workers comp taxed as social security<< Does it seem more correct that they should get a tax deduction for repaying tax-free workers comp benefits?

>>how can I get this print to be larger?<< Move closer to your monitor.

>>that employer that "stole" the withholdings of his employees<< Rhetoric aside, this would be one of the most difficult things to address in an O.I.C. There is an assumption that the business COULD afford to pay it because under the law it is holding the funds in trust. The IRS knows that even in bankruptcy they have a priority claim that may not be dischargeable. This client needs experienced representation. "Any luck getting OIC accepted?" just doesn't cut it.

>>you actually saw the evidence of the crime<< The "evidence," both verbal and printed, is simply hearsay provided by someone who is "very upset" and not a disinterested party in any case. It MIGHT be enough to interest the IRS in an audit, but certainly not investigation as a crime. Meanwhile, the preparer is building a nice reputation for ratting out clients. That's right--don't think the wife is upset enough to appreciate you getting her ever-lovin' a big fine!

>>This year, I am requiring that a schedule with the history of mortgages and use of funds be completed before I will complete the return<< I have been doing this for several years. There is simply no other way. I develop the schedule myself based on fairly general questions about the cost of improvements. So far most of the time I am able to say, "You are right near the maximum (or just a small amount over) so if you refinance again it may not be 100% deductible." Now of course they CAN'T refinance again in this market, and in fact I'm going to have to figure out what to do if FMV drops below the level of equity debt.

>>client opened and closed his business in 07<< Make sure he really WAS in business. If his only expenses were summer trips to Florida and California, or a bunch of nice cameras or something that he is keeping, and he had little or no related revenue... you know what I mean.

>>So not like you Jainen<< What can I say? I'm moving into the chair of Charity in a certain community protective order, and I have to memorize the ritual. After repeating my spiel about a million times, I'm starting to b'lieve it myself! Anyway, I think things might be changing a little. I ran a search on "sympathy" in my tax research database. Admittedly I got precious few hits, mostly like "cases that would produce sympathy in other courts... may be decided differently by the Tax Court." But even that line comes in a paragraph that starts with, "The Tax Court thought for years that it lacked equitable jurisdiction (deciding an issue based on fairness), but has recently discovered its equitable authority." It goes on to point out "the fine equitable sensitivities regularly found in a U.S. District Court ." Therefore think big, say I. If this client takes her $150 deduction to District Court, she may well find the sympathy I promised.

>>You are kidding, right?<< Not really. I've posted a few jokes here, like my "Jest So" last September 21. The response is always underwhelming, but I sometimes get a rise out of the truth. As elfling points out, the rules can be "less than clear." When you have to be subjective, I think the client's best interest is an important and professionally appropriate factor. What's wrong with this deduction anyway? It obviously has no element of personal enjoyment, it's strictly to benefit the employer. It might be improper for the employer to do it, but that's not our problem. Bosses dock pay and require all sorts of reimbursements and contributions all the time; it's an ordinary and necessary cost of keeping the job, just like using your own car or fixing an office chair.

>>Can that $133 be included on 2106 or go directly to line 21 of sch A?<< Well, it certainly is "for the convenience of the employer." I would allow it. It's justified under the most important ethical standard guiding our work, sympathy.

>>It is definitely NOT ATX, but IRS.....<< No, it's ATX. I have previously posted that the enhanced productivity of high end software is worth the extra price. Lacerte has had all five AMT-affected forms fully functional since January 9th. Of course they can't be filed yet, but everything is checked and printed and signed and we move on to the next one.