Friday, February 17, 2012

Balance Sheets Woes

Q.  My accountant says she needs both a Balance Sheet & a Profit & Loss Statement for my business. I keep my books on an Excel Spread Sheet. What is a Balance Sheet?

A.  Think of a Balance Sheet as a snap shot of your business on any given day. Basically it is a compilation of your business assets, liabilities, and net worth of your company. Most accounting software companies provide this information. Since you use a spread sheet, if you have a business entity that requires a balance sheet on your tax return, she may have to compile one from your bank statements, past tax returns, and other information she may request. If this is an ongoing problem, it may be wise to switch to a simple accounting program that can pull this information together for you.

Thursday, February 16, 2012

Q.  We lost our home in foreclosure last year, and are now happily full timers. I thought our worries were over, however, I just received a 1099-C in the mail for the amount of loan forgiveness, that is well over $175,000. Am I really expected to pay tax on this amount? We don't have that kind of money!

A.  There are 3 possibilities here: 1) If you also had to file for bankruptcy, you will owe no tax on this amount. 2) If you can prove insolvency, (see Form 982) you may be able to reduce the tax attributes as if it were discharged in a bankruptcy, and the one I like best, 3) If you truly had to abandon the property which was your residence and it was taken over by the bank, you may qualify under Code Section 121, the Qualified Principal Residence exclusion, assuming the property meets all the criteria for a qualified principal residence.

These issues are complex, need to be fully explored, and definitely are not for the self preparer. Find a competent preparer who is knowledgeable in these areas!

Wednesday, February 15, 2012

IRA Contributions limited to Earned Income

Q.  My daughter wants to start contributing to a Roth IRA.  Since she's in her early 20s and still in school, I will make the contribution on her behalf. She worked part time at her school last year, and earned around $1,850. I understand since she's under age 50, the maximum she can contribute is $5,000, but the brokerage house where I want to make the contribution isn't clear. Can you help?

A.  I'll try. Yes, normally the maximum contribution for a person under age 50 is $5,000. However, you can only contribute amounts originating from earned income. You will need a copy of her W-2 form, and whatever is in box 1, up to $5,000 will be her maximum contribution. From what you stated, it sounds like you will be limited to around $1,850. The law prevents us from making a contribution from investment funds.

Tuesday, February 14, 2012

1099 Requirement

Q.  I realize that I should have sent a 1099 for my rental to the company that did some maintenance as I paid them over $700 last year. Is it too late to file a 1099?

A. Yes and no. Yes, technically it is late to be sending your maintenance company the 1099 as it was due by January 31. No, it is not too late to file the 1099 with the IRS. You have until February 29th (Leap Year) to do this. One quick suggestion: Since you plan to send the 1099 to the IRS, I would send it to the recipient late. Any legitimate company will report all income regardless of whether a 1099 is issued or not.

Monday, February 13, 2012

Where is the check box on Form 1099-B?

Q.  I recently received my Fidelity 1099-B, but can't find the box that's checked to enter on Form 8949. What do I need to do now?

A.  I called Fidelity and spoke with one of their specialists. As luck would have it, the tax department people had already left for the day. As I understand it, Fidelity does not use a box, but lists by small code next to the Cost or Other Basis Provided, as to whether the cost basis has been reported to the IRS or not. For 2011, they are only reporting the cost basis of stock, if they have it. (Often stocks are transferred to a brokerage house and the basis is not provided.)

Currently, the only advice I can give is to check box "A" if the cost basis is provided, and on another Form 8949, you would list the stocks or mutual funds, etc. sold with the cost basis not provided. In this case you would check Box "B". If a 1099-B is not provided, you would then need yet another Form 8949 and would then check Box "C". If you are still in doubt, please call Fidelity at 800-544-4442 and speak to one of the customer service representatives.