Saturday, April 2, 2011

What is a K-1 for an IRA?

Q.  I just received a K-1 form in the mail but I already filed my taxes and got a refund. What I don't understand about this K-1 is that it says it's made out to my IRA, and is listed as an exempt organization. I didn't think I had to file taxes for my IRA. What do I do now?  FS, Montana

A.  You are correct. There is no reason to do anything about it. You can either file it with your investments within your IRA or file it in the round basket. I do the latter! All these reports accomplish is to confuse people and cause more stress - something none of us need!

Friday, April 1, 2011

How to calculate Sales Taxes when a move is involved

Q.  We want to take advantage of the sales tax deduction, as our state has no income taxes. The problem is we moved 3 times last year to different counties and the sales tax rate differs by county. Is there an easy way to do this, or do I just make an estimate? FG, Texas

A.  You're in luck! Believe it or not, just this week I had a new client come in where there were no state income taxes paid, and I wanted to use the sales tax deduction. This client moved late last year, from one county to another. Taking a chance, I used the IRS Sales Tax Deduction Calculator. It couldn't have been easier. Simply start on this link by hitting the "continue" button located on the lower right, and follow instructions. You can put in moves, along with dates, and the zip codes involved, and finally, the right answer pops out. I printed out the answer and put it into my clients file for future access if necessary.

Thursday, March 31, 2011

Drowning in paperwork!

Q.  Honey, I seem to be drowning in paperwork - specifically the supplemental reports the brokerage houses pile on us. Do I really need this stuff or can it be tossed? HS, Oregon

A.  Right now, I feel the same way. The basket marked "for the shredder" looks mighty tempting, but regrettably, all this stuff is necessary. Case in point: Do you pay foreign taxes on your investments? If the answer is "yes,"  when you figure the credit on Form 1116, you will need to plow through all that data to arrive at the investment income, by type, for only the securities which paid foreign taxes. I still don't understand why the brokerage houses can't do a better job of separately stating the income earned only by foreign investments, but that's what my clients pay me for, and it's my job to figure it all out. Keep the rollers on your adding machine inked and keep the paper roll full.  Happy taxing!

Wednesday, March 30, 2011

Just how safe is it?

Q.  I'm a little concerned as my preparer suggests that I have my estimated tax payments automatically withdraw each quarter. Just how safe is this? I don't want to give the IRS too much information. They've taken enough of my hard earned money over the years! JP, California

A.  Many of our viewers will commiserate with you! From a practical standpoint, however, it is quite safe (I do this myself) and you don't need to worry about giving the IRS or any state taxing authority too much information. They can get any and all information by court order anyway.  If like my husband and myself, you travel around this great country in your RV, it's nice not to worry about making estimated tax payments on time; and if you normally make payments on line, and can't get a signal or are in a weak area, you run the chance of being late. Rural mail boxes aren't a great idea either. Try it - I think you'll like it!

Tuesday, March 29, 2011

Filing Married Jointly or Separately?

Q.  I would like to take advantage of filing my wife and I separately between two states, as we each have homes in the two separate states, and we each would like to keep them as residences for as long as possible. What do you think? DP Colorado


A.  Filing Married Separately will likely put you both into the state's highest tax rates, and you will arrive at each state's highest brackets sooner rather than later. Then you have a challenge, depending upon which states you are considering, (and it can be a real headache) if one of them is a community property state and the other is not. I would suggest making an appointment with an income tax professional right after the filing season rush to do some serious tax planning for 2011. Depending on circumstances, you may or may not have a choice for 2010. If in doubt, put your tax returns on extension for 2010 until you can get this issue ironed out. Good luck!

Monday, March 28, 2011

Net Operating Losses

Q.  In a discussion of taxes the other night, net operating losses came up. What are they?  SH, Alabama

A.  I'm over-simplifying, but on your individual tax return, if your business expenses exceed your business income, you may have a net operating loss. Generally, you will almost always have negative Adjusted Gross Income when this is the case. There are special forms to fill out to properly compute an Net Operating Loss (NOL), and elections need to be made if you want to carry these losses forward rather than backward. This is definitely not a do-it-yourself tax return!