*** Ask TaxMama Volume 7, Issue #334 November 11, 2005 ***
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http://taxmama.com/taxcalendar.html
12.31.2005 Last Day to Open KEOGH account for 2005 deposits
01.15.2006 4th Estimated Payment for 2005
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JOB OF THE WEEK visit the NEW http://taxmama.careerbank.com
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Dear Family,
Veterans Day is particualarly poignant for many families
right now, since their children are at the front.
Regardless of your politics, you must
respect the
young people, the grizzled lifers, and all those people
who serve and place themselves in danger every day.
And I thank each and every one who has ever served.
A moment of silence, please.
Moving from the sublime to the asinine, I am reminded
of something an English teacher was fond of saying in
high school. He said, never assume. You make an ass
of you and me:
ASS U ME
This came to mind as a result of an experience
yesterday. I don't want to bore you with it here,
but if you're curious...here's what happened.
http://taxmama.blogspot.com/
IRS was busy this week improving our lives.
The great news, especially for tax professionals
who devote many hours, sometimes, even days to
getting this done - is the elimination of the
second extension for personal tax returns.
You don't think this is so great? You will
when you read today's IRS News.
IRS also certified two more hybrid vehicles
for the credit. By offering tax incentives to
people to buy hybrids, Congress has created a
hot market for alternative-powered vehicles.
They're so hot, people are on waiting lists
trying to get them as factories tool up to
meet consumer demands. No one is asking any
questions - they're just ready to buy.
Be SURE you get long-term warranties on those
vehicles. And be sure that your warranty
covers the BATTERY. Most regular auto warranties
specifically don't cover things like tires,
brakes and batteries. So we're used to that
being excluded. But on hybrid vehicles, the
battery is the heart of the vehicle and costs
thousands of dollars to replace. And I understand
that it DOES need to be replaced every few years.
So, be sure that you understand what you're
getting when you buy a hybrid. While they may
save you money on gasoline; and while they may
help our society reduce our dependence on oil -
they are apt to cost you much more to maintain
that you're prepared to spend. I just want you
to avoid maintenance shock.
Best wishes,
Eva Rosenberg, EA
Your TaxMama is watching...out for you.
P.S. If you're in business, you MUST read
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http://www.taxmama.com/AskTaxMama/book/
P.S.S. NEW! POSTAGE STAMPS - THE ORIGINAL 1913 TAX RETURN
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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
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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.
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Media Tour and Classes
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Did you miss this the last webinar?
How to Run Your Business Instead of Letting it Run You.
With Jacqueline Freeman of http://josephfreeman.com
Listen here http://taxmama.com/workshops/
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If you're flying Southwest Airlines this month,
be sure to read their Spirit Magazine.
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IRS POSTED THE UNOFFICIAL ANSWERS
http://www.irs.gov/pub/irs-utl/2005_unofficial_answer.pdf
If you didn't pass, study at a relaxed pace - now:
TaxMama's EA Exam Review Class - Self-Study
Use this time to learn about tax areas you don't understand.
Get PRACTICE TIPS - worth 100x the price of the course.
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USE
THESE QUICKIE RESOURCES!
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Small Business Taxes Made Easy
http://asktaxmama.com/go/autographed
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This Week's Tax Quips
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GRRRREAT SOUND!
It's so WOW that one of the top podcasters on the planet
wanted to know how I got that amazing sound quality.
I got it by getting a private session with Bruce at
the PodcastBunker.com , whose site was named one of
the TOP 50 BEST WEBSITES of 2005 by Time Magazine.
I've persuaded him to offer training to other ardent
podcasters. It's well worth the price.
http://www.podcastbunker.com/Podcast/Podcast_Picks/Tips_%26_Tools/
If you haven't subscribed to TaxQuips yet, you're
missing some juicy tips and tax news.
Sign up for the Internet's NUMBER ONE tax podcast
http://www.taxmama.com/taxquips/
Listen to this week's pearls of wisdom at:
http://www.asktaxmama.com/podcast/
MONDAY - Tax Truth
http://www.asktaxmama.com/podcast/index.php?id=95
TUESDAY - Lamer Disclaimer
http://www.asktaxmama.com/podcast/index.php?id=96
(P.S. As Marvin Diamond pointed out - you should
also consult an attorney.)
WEDNESDAY - Something Sheepish
http://www.asktaxmama.com/podcast/index.php?id=97
THURSDAY - Grandson Proof
http://www.asktaxmama.com/podcast/index.php?id=98
FRIDAY - Unreported $50,000
http://www.asktaxmama.com/podcast/index.php?id=99
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Adoption Costs Clarified
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Last week, Chuck from Morganton, NC asked
http://taxmama.com/AskTaxMama/333/article3.html
Dear TaxMama,
My wife and I adopted a child internationally.
The readoption here will not be finalized until after
the first of the year. I am most positive that we cannot
deduct the cost of the adoption on this year's return,
but can we list him as a dependent this year?
Thank you for any advice as we are doing this
independent of an agency.
Chuck
<A TaxPro Replies>
Whoa, TaxMama! This is on the question form Chuck
regarding the adoption credit/dependency exemption
on a foreign adoption:
The adoption is considered final when the foreign
country issues the final adoption decree or it's
equivalent if the child comes over on an IR3 Visa
which is the Visa a child gets if the adoption is
done in the foreign country. The re-adoption is
not considered the final date as such, but those
expenses can be taken in the following year if the
limit was not met the first year. You will find
this information using the link you referred to
in you answer in Publication 968:
When adoption is final. When the adoption becomes
final depends on the type of immediate relative (IR)
visa under which the child enters the United States.
IR-3 visa. The adoption of a child who enters the
United States on an IR-3 visa is treated as final
in the year the competent authority enters a
decree of adoption. The competent authority is the
court or other governmental agency of the foreign
country that has jurisdiction and authority to make
decisions in matters of child welfare, including adoption.
I'm confident that he can use the credit this year,
and possibly the exemption. That one is a little
harder, but if you read carefully, the rules for an
adopted child have been clarified. The law even
used the verbiage: "A legally adopted child or a
child placed in the taxpayer's home for adoption
by an authorized agency even if the adoption is
not final"
My guess is that the child meets the
(1) Relationship test because an adopted child or
"placed" child is considered to be a child by blood.
(2) Support test most likely
(3) income test most likely
(4) Joint return
(5) Residency test (he meets that if he has the IR3 Visa.
So there you go, you have good news for Chuck!
How do I happen to know this? It's not that I'm so
smart, it's just that my wife and I are a two time
foreign adopters (three children), and I'm an Enrolled
Agent with a bunch of clients doing adoptions.
There are now thousands of foreign adoptions every
year and we're thankful the IRS has made the rules
easier to understand.
BTW, Chuck can apply for a Social Security Number
as soon as he's back in the USA (which it sounds
like he is) with the child. The child is an
automatic citizen when he comes to the USA on the
IR3 Visa and will get a certificate automatically.
The Social Security Administration will issue a
number with the paperwork he already has. The I
RS Pubs talk about ATIN's but they are hard to get
and not worth much, try for the real thing and it
can be updated later if the name is changed in
the re-adoption.
All the best from a long-time subscriber,
Carlos Nichols, EA.
<TaxMama note>
Apparently, the give-away to Carlos was the word
"readoption". There's a whole terminology in the
adoption world. That word means the child is already
here, with Chuck - so it changes the whole picture.
See the fun things we get to learn.
Though, have you ever noticed, people who get
involved in adoptions, especially international
ones, often have little or no income in the year
of the adoption or the year before the adoption is
finalized.
Coincindence? Hardly. It's just that they spend all
their time working on the adoption, instead of their
jobs or businesses. It becomes all-consuming.
But, it's worth it!
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Alzheimers Stock Basis
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From: Burbank, CA
Dear TaxMama,
I just cashed in some Raytheon common stock.
How can I find out what my uncle paid for this stock?
My uncle is in an Assisted Care facility, with
Alzheimer's, so it is up to me to file his yearly
Federal tax returns.
Donald
<TaxMama Replies>
Hi Donald,
Well, getting the price will be easy.
Getting the date of purchase may be harder -
unless you have actual stock certificates in hand.
You can look up the price on MarketWatch's BigCharts
historical look-up.
http://bigcharts.marketwatch.com/historical/
To test it, I tried ATT and naturally, the first
date I made up turned out to be a Sunday - so the
program told me it wasn't traded on Sunday,
February 5, 1978.
It even gives you a 2-month daily chart, which
showed the ranging over a 50 cent spread.
Yahoo Finance also has a historical look-up tool.
http://finance.yahoo.com/
They'll give you a choice of prices - daily, weekly,
monthly - and even dividends paid.
If you don't know the actual purchase date, but you
know approximately what year, you can make a good
faith guess.
Also, you might try to check with Raytheon's (RTN)
investor relations office to see if they or their
agent can find the date the stock was purchased. I
don't know if they have that kind of information,
but it can't hurt to ask.
http://investor.raytheon.com/
Their stock transfer agent is American Stock Transfer
& Trust Co. You can reach them at 800.360.4519
I hope this helps.
Best wishes,
Eva Rosenberg, MBA, EA
http://www.TaxMama.com
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Cashing Out IRAs
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From: Portland,OR
Dear TaxMama,
I'm now 60 1/2 and I need to cash out two IRA's.
I need to know if I must declare the money as
reqular income or is it a capital gain?
Wayne
<TaxMama Replies>
Hi Wayne,
Anything you take out is regular income,
just like pension income.
Make sure to look back in your records to see
if any of your contributions to your IRA were
with after-tax dollars.
In other words, your income might have
been too
high, and you might have had a pension at work,
so you might have been ineligible for a
deductible IRA in some years.
That might reduce some of your tax.
Happy retirement!
Best wishes,
Eva Rosenberg, MBA, EA
http://www.TaxMama.com
Subscribe to the daily podcast - TaxMama's TaxQuips
http://www.asktaxmama.com/podcast/
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Selling at a Loss
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From: New York
Dear TaxMama,
For tax purposes, what can I do after I sold my
car at a loss?
Also,what can I do after I sold my house at a loss?
Can I use these two losses as deductions on my tax
return?
According to the definition of capital assets in 1221
of the Code, depreciable property or real preperty
used in a trade or business of the taxpayer is not a
capital asset. Therefore, I wonder if any gain or loss
resulting from the sale of my house should be classified
as capital gain or loss.
Shuo-Fu
<TaxMama Replies>
Dear Shuo-Fu
If your home and your car are personal assets,
unfortunately, you don't get to take any deductions
for selling them at a loss.
In other words, if you lived in the house you sold,
rather than renting it out, collecting rent and reporting
the income, it's home. No deductions for losses.
Even if you ran your business from your home,
there's
a special provision in the tax code that came in a
couple of tax acts ago. People who ran home-based
businesses no longer had to report the gain on the
sale of that portion of their home. All they had to
do was to report their depreciation and pay capital
gains tax on that.
So, you won't get to report the loss from the sale
of business property for an office in home.
You could try, but that would be pushing it.
Even if you do report the loss, it will only be on
that percentage of the home that you used for business.
So, if you reported a 15% office in home deduction
ON YOUR TAX RETURN, you might be able
to report
the loss on only 15% of your home.
It's complicated and apt to attract an audit.
And remember, you've taken deprecation, so that
will reduce your loss.
As to the car, if you used it for business, you
might be able to report the loss.
But, then the question arises, DID you have a loss?
When you take into account the depreciation on the
car, you might actually have a profit on the sale.
Even if you used the mileage method to report
your auto expenses, that method includes at least
11 cents, or more, of depreciation, per mile.
You're trying hard to learn about the tax laws.
Clearly, you're interested. Have you ever thought
of taking a tax course? You'd be good at this!
Check with a university near you.
Nothing is simple, nothing!
Best wishes,
Eva Rosenberg, MBA, EA
http://www.TaxMama.com
Subscribe to the daily podcast - TaxMama's TaxQuips
http://www.asktaxmama.com/podcast/
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Because We Care
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HURRICANE KATRINA, RITA et al
To help or to get help:
First.gov - http://go.asktaxmama.com/KatrinaRecovery
FEMA - http://www.fema.gov/news/newsrelease.fema?id=18473
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MONEY FUNNIES & INSPIRATION
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Big Business Plan
A boat docked in a tiny Mexican village. An American
tourist complimented the Mexican fisherman on the
quality of his fish and asked how long it took him
to catch them.
"Not very long," answered the Mexican.
"But then, why didn't you stay out longer and catch
more?" asked the American.
The Mexican explained that his small catch was
sufficient to meet his needs and those of his family.
The American asked, "But what do you do with the rest
of your time?"
"I sleep late, fish a little, play with my children,
and take a siesta with my wife. In the evenings, I
go into the village to see my friends, play the
guitar, and sing a few songs... I have a full life."
The American interrupted, "I have an MBA from Harvard,
and I can help you! You should start by fishing longer
every day. You can then sell the extra fish you catch.
With the extra revenue, you can buy a bigger boat."
"And after that?" asked the Mexican.
"With the extra money the larger boat will bring,
you can buy a second one and a third one and so on
until you have an entire fleet of trawlers. Instead
of selling your fish to a middle man, you can then
negotiate directly with the processing plants and
maybe even open your own plant. You can then leave
this little village and move to Mexico City,
Los Angeles, or even New York City!
From there you can direct your huge new enterprise."
"How long would that take?" asked the Mexican.
"Twenty, perhaps twenty-five years," replied the American.
"And after that?"
"Afterwards? Well my Friend, That's when it gets
really interesting," answered the American, laughing.
"When your business gets really big, you
can start
selling stocks and make millions!"
"Millions? Really? And after that?" said the Mexican.
"After that you'll be able to retire, live in a tiny
village near the coast, sleep late, play with your
children, catch a few fish, take a siesta with your
wife and spend your evenings doing what you like and
enjoying your friends."
" With all due respect sir, but that's exaclty what
I am doing now. So what's the point wasting twenty,
twenty-five years?" asked the Mexican.
--
Do you really need to read the next line?
OK, go ahead...
And the moral is: Know where you're going in life...
you may already be there.
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Contributed by Blakely Sanford, EA in San Diego
[Remember, we're always looking for SHORT, clean humor!]
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IRS and Tax NEWS
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Courtesy of IRS
==> Six-Month Automatic Extensions in 2006
Finally!!!!! IRS has announced that the Automatic
Extension form, Form 4868, will be good for 6 months
instead of 3. Next April, when you send in Form 4868,
you'll have until October 16, 2006 to complete your
tax return.
Only...it's not necessary to actually use all that time!
http://www.irs.gov/newsroom/article/0,,id=150456,00.html
==> IRS Certifies Ford and Mercury Hybrid Vehicles for
the Clean-Fuel Deduction
The Internal Revenue Service has certified the model
year 2006 Ford Escape Hybrid and the 2006 Mercury Mariner
Hybrid vehicles as being eligible for the clean-burning
fuel deduction. This certification means that taxpayers
who purchase one of these hybrid vehicles new during
calendar year 2005 may claim a tax deduction of up
to $2,000 on Form 1040.
http://www.irs.gov/newsroom/article/0,,id=150594,00.html
==> 2006 Inflation Adjustments Widen Tax Brackets,
Change Tax Benefits
Personal exemptions increase to $3,300
Standard Deductions increase:
$10,300 - Married, Filing Jointly
$ 5,150 - Single and Married, Filing Separately
$ 7,550 - Head of Household
Gift Tax exemption increases to $12,000 per person.
And tax brackets increase, too. Read on
http://www.irs.gov/newsroom/article/0,,id=150172,00.html
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JOB SEEKER OF THE WEEK http://taxmama.careerbank.com/
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Marty is a CPA in Buchanan MI who is a Tax Specialist.
He is willing to work in Indiana or Michigan.
Marty has experience prepare federal and state
income/franchise tax returns for large corporations.
Research various state income, franchise, and license
tax issues. Respond to state tax notices.
Prepare state income/franchise estimates.
Prepare state withdrawal, merger, and dissolution
documents to be filed with various states.
Work with clients, state, and local governments
to obtain tax abatements, credits, and incentives
for new and expanding businesses.
A great guy for your tax department. You
can find him
and others like him at TaxMama's Careerbank
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CAREER CENTER http://taxmama.careerbank.com/
---------------------------------------------------
This is the ideal time to hire and train staff.
TaxMama's Career Center provides you with the
best tools for finding employees in our industry.
http://taxmama.careerbank.com/
Explore the center today and take advantage of its
exclusive tools including job postings and resume
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E-Books and Workshops - all Yours - No Charge
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What to do in a Quake
http://www.kcal9.com/quake/
Submitted by Dolores Krajniak
-------------------------------------
What: Women in Business teleclass series, course nine
The Art of Being the Boss: Manage, Motivate & Inspire!
When: Tuesday, November 15, Noon Central
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Why: The Principal Financial Group� is a partner to
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We'll post your announcements -
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http://taxmama.com/workshops/
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Not-So-Fr*e Books
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eBook - TaxMama's Secrets:
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For more:
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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
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Critical Dates http://taxmama.com/taxcalendar.html
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Ask TaxMama is published by the good folks at http://taxmama.com
ISSN 15320790 � copyright, Eva Rosenberg, 1999 - 2005
TaxAnxiety Inc. P.O. Box 280549, Northridge, CA 91328
Written (e-mail) permission is required to copy or redistribute this
publication or to use it on your site. mailto:taxmama@taxmama.com
However, you are encouraged to forward an intact copy to
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