Tax Info Blog

IRS Dives Into YouTube, Releasing Stimulus Video

What Happens If My IRA Gets a K-1 Form?

Q: I own shares of a publicly-traded partnership as part of my Roth IRA.  I received a Schedule K-1 (Form 1065). Do I need to report partnership items on my tax return?  I thought a Roth account is exempt from reporting any gains or losses.
Mark

A: First, check to make sure that the recipient of the K-1 is not you personally, but rather your IRA.  The IRA should have its own tax ID number, and should be listed as something like "Custodial Roth IRA for Mark XYZ."

Assuming that's the case, then you can simply file the K-1 in your records.  No income needs to be reported, and no deductions are allowed to be taken.  When and if you sell the partnership shares, gain or loss is not recognized.

Child Tax Credit Claimer: Head of Household, or Non-Custodial Parent?

Q: In a divorced situation in which the children reside 100% with the custodial parent who files as head of household, yet it's the non-custodial parent who claims both children as dependents on his tax return due to stipulations of a divorce decree, which parent is eligible for the child credit?
Janine

A: Readers should first turn to my post on the child tax credit and IRS Publication 972, Child Tax Credit.

Normally, the question of claiming the child tax credit is pretty cut and dry.  But in this case, the custodial parent claims head of household, while the non-custodial parent claims the dependent exemption due to a divorce decree.  So who claims the child tax credit, assuming the taxpayer is eligible?  In this case, I was re-directed to the instructions for lines 6c (dependent exemption) and 52 (CTC) of Form 1040.

What we learn is that the non-custodial parent gets to claim the CTC if all the following apply:

1. The parents are divorced, legally separated, or lived apart for the last 6 months of the year
2. The child received the majority of his support from his parents
3. The child is in the custody of one or both of the parents for a majority of the year
4. The custodial parent fills out a Form 8332 waiving the dependency exemption, and the non-custodial parent attaches it to his return

If one or more of those conditions is not met, the custodial parent gets to claim the child tax credit.

Moving Expenses: Do I Have to Switch Jobs?

Q: Does the moving expense adjustment apply if I move within the same company from one office to another office without the move being mandated by my employer?
C.W.

A: First, you should read my article on the moving expense adjustment to income.

Second, let's examine IRS Publication 521, Moving Expenses. This deduction should be allowed (assuming all the conditions are met).  Provided you meet the distance test and the time test, and your move is related to the start of work (either by time or place), a deduction is allowed.

Often, a company will reimburse for moving expenses and report the reimbursement on Form W-2, Box 12, Code P.  Only allowed expenses exceeding this reimbursement are deductible.

IRS Releases Rebate Schedule(Assuming Timely Tax Filing)

Direct Deposit Payments
Last 2 Digits of Social Security Number:	Payment
00 – 20	2-May
21 – 75	9-May
76 – 99	16-May
Paper Check
Last 2 Digits of Social Security Number:	Payment
00 – 09	16-May
10 – 18	23-May
19 – 25	30-May
26 – 38	6-Jun
39 – 51	13-Jun
52 – 63	20-Jun
64 – 75	27-Jun
76 – 87	4-Jul
88 – 99	11-Jul

IRS Releases Preliminary Data on 2006 Tax Returns

There won't be final data until 2009, but the IRS released some preliminary data on U.S. tax returns.  Some highlights include:

• 138.4 million income tax returns were filed, up 2.9% from 2005
• AGI increased by 8.4% to $8 trillion
• Taxable income increased 9% to $5.6 trillion (I guess that means tax deductions grew faster than income, which makes sense considering this was still the housing boom era with high mortgage payments)
• AMT tax revenue increased 21.3% to $19.3 billion
• Total income tax revenue increased 10.6% to $1 trillion (so the AMT revenue grew over twice as fast as general tax revenue)

IRS Publishes List of "Dirty Dozen" Tax Schemes

The IRS published their annual list of the "dirty dozen" tax scams you shouldn't fall for.  It's always worth a read.

Depreciation and Cap Gains Rules on 1031 Property

Q: Two questions on 1031 exchanges: if a client is separately-depreciating assets within a structure, how are those treated during an exchange?  Secondly, if the successor property is sold less than one year after it is purchased, is that a short-term capital gain (even though its depreciable basis is the original property, which was held longer than a year)?
James, Alexandria VA

A: Two great questions.  If the above is total Greek to you, read my post on 1031 exchanges.  More information on them can be found in IRS Publication 544, Sales and Other Exchanges of Property.

Can I Deduct Start-Up Expenses?

Q: How do I account for expenses I incur to go into business, but were spent in the months and years prior to the business being launched?
Jerry

A: What you have there are start-up expenditures (costs which would normally be deducted as an ordinary and necessary business expense, but were incurred prior to the start date of the business).  They have to be accounted for under the same rules as other business expenses (auto mileage, 50% entertainment, etc.)  You then aggregate them together.  You can learn more about them in IRS Publication 535, Business Expenses.

You then have a choice as to what to do with this glut of expenses:

1. Capitalize them.  This means that you add to your basis in the business by the amount of the expenditure
2. Amortize them.  You can elect to evenly deduct ("amortize") the expenses over 180 months.  If you have less than $50,000 of such expenses, you can elect to take a special deduction for up to $5000 worth of them, and amortize the rest over 180 months.  This $5000 rule phases out as your startup expenses rise from $50,000 to $55,000.

Tax Rebate and Injured Spouse

Q: What happens if my wife and I claim an "injured spouse" designation?  Will that affect the $1200 tax rebate?
Jerry

A: There are two background pieces to read.  First is my post on innocent/injured spouses.  The second is my post on the tax rebate.

An "injured spouse" is a joint-filing taxpayer who has their share of a tax refund garnished to pay back taxes or debt like student loans.  Filing an "injured spouse" claim allows the up-to-snuff spouse to isolate their share of the refund from the garnishment.

According to the Joint Committee on Taxation's technical description of the rebate:

Payment of the credit (or the check) is treated, for all purposes of the Code, as a payment of tax. Any resulting overpayment under this provision is subject to the refund offset provisions, such as those applicable to past-due child support...

That means that the rebate check (or the credit, if applied on the 2008 return) is subject to the garnishing rules.  That also means an injured spouse claim can be filed so that the injured spouse gets her share.  However, this must be done on the 2008 return (in Spring 2009), by claiming her half of the credit.