Except....California Amnesty Deadline May 31st
http://www.taxmama.com/AskTaxMama/294/article2.html
Drat. There's always something!
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JOB OF THE WEEK visit the NEW http://taxmama.careerbank.com
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Take the new 2005 Salary Survey http://www.careerbank.com/resource/ssurvey/salary_survey.cfm
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Dear Family,
Monday is a day off. It's always such a treat to get
that break from work. Or school. Doesn't it seem that
there just aren't enough of them?
Please, as you enjoy your long weekend, your barbecue,
your time with family and friends - remember, it's all
made possible by those brave men and women who have
ever served in our country's armed forces.
This is also a good time to remind you that IRS
has a special resource page for folks in the
Armed Services. If you know someone who needs help -
please point them to it. And remember, TaxMama, or
one of the TaxMama Pros, is always happy to help.
http://www.irs.gov/newsroom/article/0,,id=97273,00.html
This week, I had an interesting conversation
with a client. She was trying to work out the
numbers on buying a home. Even with nearly
$150,000 in income, and with potential interest
rates as low as 5.5%, it was very hard to justify
spending $600,000 on a tiny, two-bedroom fixer-
upper.
Living in California, in any desirable area
(meaning, no gangs in the streets), has become
outrageously expensive. Just the property taxes
alone on a house like that would be around $625
per month! Think about adding in a mortgage,
insurance and a gardener...and suddenly $150,000
doesn't go very far anymore, does it?
I'm sure this scenario is similar in any
heavily populated, desirable urban area.
There ARE alternatives, even in California.
While we were chatting, I was searching the
Multiple Listing Service feed on a Realtor's (tm)
website. There were several multi-unit properties
available (duplexes, four-plexes, etc.). If you
can handle being a landlord (or having a roommate)
that just might be the way for you to buy a
property you can afford.
Run the numbers and you might discover that with
three units or a roommate, you'll even turn a
profit. Regardless, fix up the property, you can
raise the rents, cover all your costs. Then either
sell it at a healthy profit - or live there with
a nice cash flow.
See, even in today's market, there's still a way
to invest in real estate without straining your
pocketbook.
And speaking about a strain your finances, today's
Tax Quip is about someone who hasn't filed
a tax return in 8 years - Tune in here -
http://www.taxmama.com/taxquips/daily
Please sign up to get them each morning - here http://www.taxmama.com/taxquips/ We'll start sending out daily Tax Quips on Tuesday.
Time for me to go. What should you do this weekend?
If you see a stranger in need of help or directions
- offer it without being asked.
Best wishes,
Eva Rosenberg, EA
Your TaxMama is watching...out for you.
P.S. If you're in business, you MUST read
Small Business Taxes Made Easy http://www.taxmama.com/AskTaxMama/book/
P.S.S. TaxMama has baby clothes! http://www.cafepress.com/taxmama/138360
P.P.S. TaxMama is scheduling speaking/teaching
engagements for summer 2005. (Calendar is filling up) mailto:taxwriter@gmail.com?Subject=Speak4Bucks
**************************************************
To comment on any articles in this issue, please,
DON'T send me back the whole issue. Send a note to
mailto:taxmama@taxmama.com?subject=AskTaxMamaComment
**************************************************
ADDRESS CHANGES - Please, do NOT send them to me to do.
There is a link at the bottom of this issue. Please click
on it and you will be able to make updates and changes
yourself. And faster.
**************************************************
---==========**********O**********==========------
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--------------------------------------------------------
Media Tour and Classes
--------------------------------------------------------
TaxMama's IRS Exam Review Class - registration is closing
Sign up NOW.
www.irsexam.com - The class is filling up. So if you're planning to take IRS's exams in September - please sign up now. We'll be sending books and surprises out about a week, when we get the FasTax disks & IRS publications.
http://www.irsexam.com/included.php
[We just got the IRS publications and will be sending
out the books and materials on Wednesday - June 1st.]
---------------
Sign up now! June 1st, 2005 at 1:00 p.m. Pacific Time
The topic will be: Tax Bankruptcies
We'll be interviewing David Stone, EA a former IRS
tax collector, www.FormerIRS.com
You're invited to a live online class - as my guest
Meanwhile, please click here and "Take the Free Test Drive" http://taxclass.ipowerworld.com/ipowerworld/customerform.aspx
And please download the complimentary Multimedia
Conferencing Software http://mdizone.net/ipowerworld/freeipwmember.html
[If you need help signing up, please contact Donna Woodbury.
You can reach her at donna.woodbury@gmail.com or 707.884.4696
Don't hesitate to contact her - she really IS eager to
help set you up.]
----
[yes, really - Coming soon: Columns on www.WomensRadio.com ]
[Yes, someone kindly pointed out that my TOOTS pages
haven't been updated since 2003. Sorry - been too busy
living to write about it.)
-------==========**********O**********==========-------
USE THESE QUICKIE RESOURCES!
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Quick Links to Online Filing http://www.taxmama.com/AskTaxMama/300/2005quicklinks.html
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Parents' Home
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From: Greensboro NC
Hi TaxMama!
My parents bought our house in 1965 for $50,000.
They put their home in my name in 1981, when its value
was around $90,000.
We're selling it this year for $150,000.
My question: Do I pay tax on the difference (profit)
between the original purchase price of $50,000 and
the 2005 sales price of $150,000?
Or the difference between the 1981 value of the home
(at the time I "acquired" it for $1 from the parents)
and the 2005 sales price of $150,000.
THANKS!
Bob
<TaxMama Replies>
Hi Bob,
Are there still houses going that cheaply in the US?!
Goodness, a 50 year old shack that hasn't been
maintained in half a century goes for over half
a million dollars in California. Someone just told
me that tear-down-quality houses in Ventura are
going for over $800,000 - just to end up with a lot.
You're living in a paradise!
Are you living in the house with your parents?
If you are, then you pay tax only on the PROFITS
above $250,000.
Since even the price is less than that,
you're not going to be paying taxes at all.
Isn't that wonderful?
However, if you're not...that's another story.
The big question becomes - who REALLY owns the house?
Did you parents just transfer title to you for
protective purposes, because they are old?
Or was it to divest their assets so they can
qualify for Medicaid?
In the first instance, you can have a competent
attorney provide paperwork that your parents
were the beneficial owners of the property -
in which case....
Paying an attorney is cheaper than paying the tax.
And you will owe nothing - because they are the
real owners and they are entitled to the personal
residence exclusion.
If they transferred title so they could get
government benefits, without turning their
assets over to the government...then, you own it.
In that case, the basis (tax cost) is the basis of
the house in the hands of your parents.
i.e. their $50,000 purchase price, cost of
improvements (driveway, pool, remodels and such -
permanent additions/improvements) to the house/property.
It will include any such costs you incurred.
Also, any legal fees to transfer title,
and the sales commissions and costs you incur.
Since you've owned it for more than 12 months,
you'll get favored, capital gains rates.
Those are all the options I can dream up.
Do have a tax professional review the situation
so you don't get into any trouble, OK?
Best wishes,
Eva Rosenberg, MBA, EA
http://www.TaxMama.com
If you're in business, READ THIS BOOK.
Small Business Taxes Made Easy - read all about it! http://www.taxmama.com/AskTaxMama/book/
-------------------------------------
2-Hour Rollover
-------------------------------------
From: Ann Arbor, Michigan
Greetings TaxMama.
I rolled over a standard IRA and received a
distribution check for the total in the account.
Within two hours on the same day I opened a
rollover IRA at a new Bank.
My question is:
When does the new recipient of my IRA notify the
IRS that the rollover was completed.
Thank you again for your humorous and valuable information.
Frank
<TaxMama Replies>
Hi Frank,
Hopefully, your previous IRA folks didn't deduct any withholding taxes? If
they did, please make sure to
replace those funds and deposit them into the new IRA - otherwise, as with
all things tax, you'll be taxed on the
taxes withheld.
But that doesn't answer your question.
All this reporting takes place in Jan & Feb of next year.
The banks will send their 1099s to IRS with a copy to
you. Your first bank will issue you a 1099-R with a
code G, which means a rollover. If they use practically
any other code, the transaction would appear to be
taxable to IRS. In which case, you'll ignore their wrong
code, use G when you prepare your tax return - and
attach a note to IRS explaining it was a rollover.
You could even attach a copy of the 5498 that I will
describe next.
Meanwhile, the new bank will issue a Form 5498 - IRA Contribution Information
- sent to IRS with a copy to you. (Yes, I just got one yesterday from Scottrade
for last year. Do you think they're running a little bit late?) That 5498 should
show an amount in either box 1 or 2. In your case,
since you got the check and deposited it - it will be in
box 1. If the first bank had issued the check directly to
the second bank, it would have appeared as a rollover.
Is this so totally more than you want to know?
Just hang on to all the records so you don't
accidentally get stuck with a tax you don't owe.
Best wishes,
Eva Rosenberg, MBA, EA
http://www.TaxMama.com
We love it when you help support this site. http://taxmama.com/red/paypal1.htm
For those who wish you could file 1913 tax return instead.
http://www.cafeshops.com/cp/store.aspx?s=1913
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Kids on Social Security
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From: Pound Ridge, NY
Dear TaxMama,
If a child is receiving social security benefits
due to his/her parent's disability, is that child
required to file his/her own tax return?
Specifically, one parent is very ill and has
refinanced their home to get money to live on.
Their mortgage interest is well in excess of their
income. The three kids (2 under 14) have investment
income and social security income.
It would be beneficial to make the election to report
the investment income on the parent's return, but
what to do with the social security?
Thanks for your help.
Christine
<TaxMama Replies>
Hi Christine,
Typically, Social Security income isn't reportable
until a taxpayer has $25,000 in income. If the kids
have less than that, you don't have to report it.
The kiddie tax thing about putting the dividends on
the parents' return doesn't include the child's other
income - like wages or passive income or SSI.
If they have other taxable income, you'll need to
file a return for the child and report the dividends
and interest using the parent's tax rate on Form 8615.
Remember, you only need to report the dividend and
interest income on the parents return using Form 8814
or on the child's return using Form 8615 when the
income is over $1600 per child.
You can always run the numbers on the child's return
including the SSI income and see what comes up.
That's what I always do when I'm not sure.
Best wishes,
Eva Rosenberg, MBA, EA
http://www.TaxMama.com
Sign up for your daily dose of tax prevention http://www.TaxMama.com/taxquips/daily
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MONEY FUNNIES
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~ SHOPPING
McDonald's has Chicken McNuggets in 6, 9,
or 12 count. I asked for a half-dozen nuggets.
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------
Contributed by Blakely Sanford, EA of San Diego.
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IRS and Tax NEWS
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IRS is dramatically cutting back on their printing
costs. As more people have turned online to get their information, download
forms and read publications, IRS has come to realize that printed publications
may not be nearly as necessary as they have been in the past.
Instead, IRS is developing many useful tools online
and on CD for use by individual and business taxpayers.
Their latest offering is a streaming video of the
Appeals Process. You can download it here.
http://www.irs.gov/individuals/content/0,,id=98196,00.html
It's worth your time if you are facing an audit you
don't agree with.
After you watch the video, read through the resources
IRS provides you to help with your Appeals process.
http://www.irs.gov/individuals/content/0,,id=98196,00.html
Let's face it - how may other places go out of their
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TaxMama On the WWW & Tooting Her Own Horn http://taxmama.com/toots/index.html
TaxMama is teaching - in person and Online: http://taxmama.com/toots/meettaxmama.html
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Critical Dates http://taxmama.com/taxcalendar.html