jainen

>>The clock starts when you got your first HOPE credit or your first year at a University, whichever happens last.<< In my opinion, the two requirements are applied separately. You can claim the Hope/AOC in four tax years, but I don't see the word consecutive anywhere. You can claim it for a couple of years, then drop below half time and take the Lifetime Learning Credit for a while, then come back for two more years of AOC. However, you can only claim AOC during the first four years of the curriculum, i.e., undergraduate. The school defines what qualifies as those first four years. In other words, a student in their 5th or 6th year of undergraduate studies can still take AOC if they have not used it four times yet. This is not uncommon in big state universities where a student can't get in to classes in the right order, so it takes more than four years to graduate.

>>a correction to their book<< That is true. In the olden days, all we had were a few thin instruction booklets and the mighty Pub 17, with a $50 book called Master something. The biggest firms had very expensive research services, though the code wasn't even that convoluted. Only lawyers worried about esoterica like Chief Counsel Advisories. Now we can google the whole tax code before getting out of bed in the morning. And so can our clients. And meanwhile the whole legal structure beyond the code has gone crazy. And so have our clients. So why are professionals still turning to the thin booklets for authority?

>>One of my NAEA peers corresponded with the person that re-wrote that section<< That's great news! So what's the citation?

>>The analogy is specifically for tax-cuts. << It's a poor analogy because income tax is not based on the cost of things purchased. It's a trivial, contrived story that pretends there are just as many people in the $59 tax bracket as in the $18 bracket with nobody in between. If you already believe that theory, you might say this is clever. But it is not clever enough to convince anyone who thinks otherwise, so it is really pretty useless.

>>the agreement is that we get to take this deduction<< See what happens when I take a month or two off? I would never have let such a statement go unchallenged. The authors of The Tax Book are pompous idiots--if you aren't using Quickfinder, you deserve the bad information you get. Yes, this year the instructions to Form 1040 say "can" in a paragraph that has said "cannot" forever. That is an obvious typo, not a change in the IRS position. Instructions have no authority, so can you point to any actual ruling that supports this deduction? Quickfinder cites its sources exactly; where does TTB send you for verification? The IRS position has been steady since the Chief Counsel decision in 1995. Medicare is not "established" under your sole proprietorship. Immediately after that flawed paragraph, the instructions refer us to Pub 535 where it says in italics "Medicare Part B premiums are not considered medical insurance premiums for purposes of the self-employed health insurance deduction." Let's see if the wording gets changed there too, when Pub 535 is updated next month.

>>if a refund of overstated interest<< I agree -- "IF." The problem is the taxpayer probably can't support the position of it being a refund. That was only what some greedy lawyer wanted to claim, but the merits of that claim were never proven. It's almost a cliche that nuisance lawsuits are common. Since the defendent's cost of successfully fighting might exceed the claim, business prudence often is just to pay the extortion and move on. That doesn't give our client the right to exclude the income, does it? So, as always, see what the paperwork says before you take a tax position. Remember, even the greedy lawyer agrees with the paper. Yeah, I know--we are not auditors and don't have to verify anything the client says. Well, that doesn't apply when the information is incomplete, and in my opinion it would be unprofessional to assume a client has a complete understanding of the terms of a class action settlement. If he says the defendent admitted guilt in the settlement, that's a potential inconsistency that can and should be resolved. Read the document.

>>I had one client who lost $1,100 of her refund because the provider refused to provide either an EIN or SSN<< In my opinion, you owe your client a free amended return. The instructions to Form 2441 say, "Due Diligence... attach a statement to your return explaining that the provider did not give you the information you requested."

>>a refund from a overstated interest on a loan for a truck<< It sounds like taxable income to me. In a settlement, there is generally NOT any agreement that the facts alleged are true, so you really can't show that this was a refund of interest. Put it on line 21 without any offset.

>>the best tax we could have<< There are two reasons I do not agree. First, in a practical sense, how would you define "income"? When you say "no nothing" do you mean a sole proprietor can't even deduct Cost of Goods Sold? If a company sends an employee on a business trip, is the value of the plane ticket taxable income? The second reason is philosophical. You may have noticed that the government's budget is not particularly based on revenue. There are any number of OTHER political goals involved in the tax system, such as stimulating certain kinds of economic activity. In my opinion, taxation has always been a useful tool for the public good. Sometimes those issues are more important than the actual revenue stream.

>>Welcome back<< Why, thank you! I've been going through a bit of mid-life crisis since turning 62 last September. I finally decided what I needed most was new toys, because (as I told my wife) my tax software required it. I went all the way over, ordering some monster with more RAM than my old computer had hard drive, plus the newest Intel chip just released that week. I unpacked it on Monday, the very day it was recalled! But what about my theory that Mom can't claim Head of Household without violating her agreement, which the judge probably won't tolerate?

>>When it comes to HOH... nights spent with each<< The old rule about nights is for custodial parent in terms of Form 8332, NOT Head of Household which uses the newer Qualifying Child and Tiebreaker rules. I suppose you could count nights (including May 31) to find that one parent is custodial, and hang on to filing status while releasing exemption and credit. I recommend asking the lawyer in this unfriendly proceeding whether a conciliatory or aggressive approach would be best in this small matter. In the original post, the child apparently lived with both parents for 151 days, and each for half of 214 days. She is a Qualifying Child for both, so by agreement either parent can claim her for dependency and the other four benefits. But they can't split those benefits--if BOTH claim her, the tiebreaker goes to the parent with the higher AGI (assuming time was equal, an awkward calculation). Since the mother has already agreed to not claim the child in 2010, the question about Head of Household seems moot to me.

>>It is rather detailed<< In my opinion, those are the wrong details. They do not support the location, time, and business purpose of the days traveling. You might think the result is the same whether you add the days or subtract the non-days, but it is NOT the same to the IRS. Trucking is a professional activity and requires professional records.

>>they rather not give out the $25 if it requires a gift tax return<< Assuming there is a business purpose to the gifts (which seems to me almost but not quite self-evident), they can deduct up to $25 per recipient per year.

>>It's election day.<< I was a poll worker. When it came time to reconcile the closing counts, I had a long argument about a partial pack of unused ballots. They were numbered 320 to 350, so everyone else said there were 30 (ending number minus starting number, 50 minus 20). I insisted there were 31. Finally I said, "just count each one." They said that it didn't make any sense, but they were too tired so they wrote down 31. That is how I saved democracy!

>>the truck is not in his name< Legally, title is said to memorialize ownership, not create it. In other words, the records are just not accurate in this case, a concept we tax preparers are exceedingly familiar with. The ACTUAL transactions he is claiming will lead directly to full title in his name. He is buying the truck. The legal precedent is not exactly the same so I can't promise he would win an audit or court case, but there is a reasonable possibility. The verbal agreement, supported by written records such as payments, is clear. He has possession, responsibility for maintenance, risk of loss, and most other rights and obligations of ownership.

>>"Enter the business website address." What the heck does that mean?<< Obviously you are stuck on last century's methods such as actually meeting your clients and using paper. Why, I'll bet you even TALK into your telephone, you old dinosaur!

>>the author himself (a tax lawyer) gets confused as to what the law says<< The author either doesn't know or doesn't care about the difference between "fowl" and "foul." He is careless writer, and his scree is just another unsupported rant. He supports no valid points at all, but just strings a lot of cliches and emotional buzzwords together. The law does call for paperwork, but only in a format that has been reliably integrated into good accounting software for years. At the same time it will reduce tax prep burdens, and add plenty of new account analysis capability for budgeting and even marketing. And it only uses data the business already has entered and controls on its books. In my opinion, this is a good law that accomplishes an important goal of the tax system with minimal burden to the taxpayers. In my further opinion, thinking a blizzard of forms will paralyze the IRS is terribly naive.

>>he can make the election the when he is ready to file a tax return<< You can research the few ways to make a retroactive S election, but in general you are not allowed to use hindsight to figure out whether it will save taxes. The best way to show he had always intended to be an S-Corp is to have reported the net income on his timely filed 1040s AS IF it had come from an S-Corp, even though the corporation did not issue K-1s yet. Even with that, it helps to have a strong and genuine reasonable cause for the late election, such as external forces over which he had no control. I would be especially skeptical if the plan is to pass through business losses, or if the taxpayer has anything less than excellent records. In evaluating the different tax rates that may apply, don't forget to consider late filing, late payment, and estimated tax penalties. And of course, your own professional fees. As real estate is a fairly straightforward sort of business (no inventory, only a few income and expense categories) with lots of professional support for good business practices, I recommend a pretty high standard for those past-year records. In particular, I recommend you deal fairly with the payroll issue. A corporate officer is an employee by definition, and obviously the earnings came from his own personal service. Your original question about amending the 1099s conflicts with my excellent records advice. I doubt the R.E. broker would tolerate it because it would surely invite the IRS to take a closer look at HIS books.

>>It is incorrect<< Sorry, you are way off base. Quickfinder IS correct. A qualifying child for the Child Tax Credit is exactly the same as for dependency (with the additional limits). But the child in your Arizona scenario is NOT a "qualifying child" for dependency or the credit, or Head of Household either. He is an unrelated person who qualifies as a dependent under the old member-of-household rule (renamed "Qualifying Relative" years ago). Section 152(d) allows the exemption, but nothing else. I recommend you study up on the matter. This is very basic stuff.

>>The only difference... << Sorry, I disagree. The forms and pubs are not law and can be challenged in COURT. But they state the normal position of the IRS in plain language. The typical office examiner knows little else and will not wander far from the standard line. Citing any kind of ruling that hasn't been incorporated in the forms and pubs will almost certainly send her running to a supervisor. And if it is one of those inside-out citations, that something does NOT apply in a given circumstance, the supervisor will almost certainly give you a cold negative that dares you to appeal.

>>IRC 24 states that qualifying child for the child tax credit is same as dependency exemption + citizenship<< It certainly does NOT state that. It says, "The term 'qualifying child' means a qualifying child of the taxpayer (as defined in Section 152(c )) who has not attained age 17." Section 152(c ) is labeled Qualifying Child. Your client is claiming the exemption under Section 152(d), Qualifying Relative. If your reference book says otherwise, it is more than five years old.

>> form instructions hold no water when an audit is in action. << Still, they are at least a little bit more useful than a story about somebody else's audit.

>>Expenses for acquiring the patent have been expensed over the years until it was granted, as allowed.<< In what way was this allowed? If he wants to treat this as a capital asset he would have had to call those investment expenses. Otherwise it sounds to me like a business asset with no basis. I would guess AMT will treat the sale in exactly the same way, though the higher income level might cause adjustments elsewhere. The tithe is irrelevant to the question except for general planning purposes.

>>clothing/furniture and pots are not similar<< In my opinion, the donation was of a single lot of household goods, which is not deductible without a written appraisal.

>>the only thing scarier than "state banking commission" to a bank<< Recently a new bank terror has come up. It's the county District Attorney, who has a lawyer whose only job is finding out what happened to bank accounts. Somebody at the bank got a commission for pulling that money, and that may be a form of elder abuse. Don't be a nice guy about this. The bank will make a half-way decent settlement offer.