US Income Tax Thread: Bank error in your favor! GO DIRECTLY TO JAIL.

The Something Awful Forums > Discussion > Ask/Tell > Business, Finance, and Careers > US Income Tax Thread: Bank error in your favor! GO DIRECTLY TO JAIL.

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TerminalSaint: Apr 21, 2007; Where must we go...

we who wander this Wasteland in search of our better selves?

I got married in May last year. My wife is a Canadian citizen living and working in Canada while we wait for my residency paperwork to go through.

Can we file jointly? I'd like the monetary benefits of doing so, and I'm sure it looks better for my immigration having official documents where we put ourselves forth as married.

As I understand it we'd need to get her an ITIN. My biggest question is income declaration. She hasn't had any US income, so do I just use my totals?

# ? Jan 9, 2012 00:46

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# ? May 14, 2024 17:53

furushotakeru: Jul 20, 2004; Your Honor, why am I pink?!

TerminalSaint posted:

I got married in May last year. My wife is a Canadian citizen living and working in Canada while we wait for my residency paperwork to go through.

Can we file jointly? I'd like the monetary benefits of doing so, and I'm sure it looks better for my immigration having official documents where we put ourselves forth as married.

As I understand it we'd need to get her an ITIN. My biggest question is income declaration. She hasn't had any US income, so do I just use my totals?

You can file jointly if you elect to have her treated as a US resident, but this would make her worldwide income taxable to the US. It might still wok out in your favor after considering foreign earned income exclusion, foreign tax credit, tax treaty provisions, etc.

# ? Jan 9, 2012 00:54

Alterian: Jan 28, 2003

Is there an easy calculator out there to figure out what my federal withholding should be on my W-4 for both me and my husband if we're earning close to the same amount? Everything I've googled says those charts aren't good if you're filing jointly and you both earn close to the same amount.

# ? Jan 9, 2012 18:46

seymore: Jan 9, 2012

Alterian posted:

Is there an easy calculator out there to figure out what my federal withholding should be on my W-4 for both me and my husband if we're earning close to the same amount? Everything I've googled says those charts aren't good if you're filing jointly and you both earn close to the same amount.

It depends upon how precise you want to be. The charts will probably be fine unless one of you have a lot more misc. business deductions than the other. The only way to be spot on is to run an estimated return. Although I don't use Turbo Tax I think they may have a tax estimator program. You may want to check their site.

# ? Jan 11, 2012 07:58

webcams for christ: Nov 2, 2005

Way in over my head right now. Filed 2010 taxes as Single, Independent.

I just received a letter stating I had unreported income from 2010. After reviewing the letter/forms, it does seem to be the case that I should have reported the sale of mutual fund shares totaling $7,580.00. (I did not know that counted as income- foolish, I know)

The amount of taxes the IRS claims I owe is $758, with interest.

I filed a 1040ez for 2010, and got a full tax refund because I am barely employed and my declared income (at the time I reported it) was well below the poverty line.

Why is the tax rate on the sale of these shares so steep? I am still registered as underemployed, and I think that even with the added ~$7600 income I would have been eligible for a tax refund.

What options/avenues do I have to try and get the amount I owe lowered?

Should I just call the Toll-Free IRS help line? Or would they just try to get me to pay as much as possible?

Edit: My outstanding student debt is also currently greater than the value of all my assets, if that makes a difference.

webcams for christ fucked around with this message at 15:39 on Jan 11, 2012

# ? Jan 11, 2012 15:33

Admiral101: Feb 20, 2006; RMU: Where using the internet is like living in 1995.

quote:

Way in over my head right now.

I just received a letter stating I had unreported income from 2010. After reviewing the letter/forms, it does seem to be the case that I should have reported the sale of mutual fund shares totaling &7,580.00. (I did not know that counted as income- foolish, I know)

The amount of taxes the IRS claims I owe is $758, with interest.

I filed a 1040ez for 2010, and got a full tax refund because I am barely employed and my declared income (at the time I reported it) was well below the poverty line.

Why is the tax rate on the sale of these shares so steep? I am still registered as underemployed, and I think that even with the added ~$7600 income I would have been eligible for a tax refund.

What options/avenues do I have to try and get the amount I owe lowered?

Should I just call the Toll-Free IRS help line? Or would they just try to get me to pay as much as possible?

The IRS notice will not include your basis in the shares (eg: how much you paid for them) - so if you paid $500 for the shares, and sold them for $600, the IRS will tax you for the entire $600 instead of just your $100 gain.

I also believe that the IRS will assume that your sales are short term - as in, you held them for less than a year before selling them.

You need to provide the IRS with documentation on the basis of the shares you sold, as well as the acquisition/sale dates. The notice should have included a phone number for you to call, or a place mail the information they need. Yes, call the toll free number.

If you are indeed below the poverty line, and you held these shares for over a year, you will not owe any tax on whatever gains you realized (long term gains have a 0% tax rate for people below the 25% bracket).

# ? Jan 11, 2012 15:42

webcams for christ: Nov 2, 2005

Admiral101 posted:

The IRS notice will not include your basis in the shares (eg: how much you paid for them) - so if you paid $500 for the shares, and sold them for $600, the IRS will tax you for the entire $600 instead of just your $100 gain.

I also believe that the IRS will assume that your sales are short term - as in, you held them for less than a year before selling them.

You need to provide the IRS with documentation on the basis of the shares you sold, as well as the acquisition/sale dates. The notice should have included a phone number for you to call, or a place mail the information they need. Yes, call the toll free number.

If you are indeed below the poverty line, and you held these shares for over a year, you will not owe any tax on whatever gains you realized (long term gains have a 0% tax rate for people below the 25% bracket).

Fantastic, thank you so much! The shares were purchased by my grandfather for my college education like $10 years ago, when I was a child. Does this make a difference?

# ? Jan 11, 2012 15:46

Admiral101: Feb 20, 2006; RMU: Where using the internet is like living in 1995.

quote:

Fantastic, thank you so much! The shares were purchased by my grandfather for my college education like $10 years ago, when I was a child. Does this make a difference?

Did you inherit them from your grandfather when your grandfather died? If so, the basis steps up to the fair market value at the date of your grandfather's death. So if your grandfather paid $300 for the shares, and when he died their fair market value was $400, your basis in the shares when inherited will be $400.

If he bought them and just immediately gave them to you, or bought them in your name, or whatever, your basis will just be whatever your grandfather paid for them.

Either way, you shouldn't any tax on them if you are in a low enough tax bracket (again, below 25%), so the basis doesn't really matter unless you realized a loss from the sale (you sold the shares for less than what the basis is).

Are you sure you're talking about actually owning and selling the mutual funds? Or did you did your grandfather set up some kind of college savings plan?

# ? Jan 11, 2012 15:56

webcams for christ: Nov 2, 2005

Admiral101 posted:

Did you inherit them from your grandfather when your grandfather died? If so, the basis steps up to the fair market value at the date of your grandfather's death. So if your grandfather paid $300 for the shares, and when he died their fair market value was $400, your basis in the shares when inherited will be $400.

If he bought them and just immediately gave them to you, or bought them in your name, or whatever, your basis will just be whatever your grandfather paid for them.

Either way, you shouldn't any tax on them if you are in a low enough tax bracket (again, below 25%), so the basis doesn't really matter unless you realized a loss from the sale (you sold the shares for less than what the basis is).

Are you sure you're talking about actually owning and selling the mutual funds? Or did you did your grandfather set up some kind of college savings plan?

Grandfather is still alive. This isn't an official savings plan- just a mutual fund he set up that I now have stewardship of.

I just got off the phone with an IRS rep. I can either file a Schedule D or physically write on the "Explanation Section" of the letter that was mailed to me, and include the price the shares were purchased for and that they are long-term. And I also will mail them a copy of my financial institution's records of the purchase of the shares.

# ? Jan 11, 2012 16:44

Alterian: Jan 28, 2003

seymore posted:

It depends upon how precise you want to be. The charts will probably be fine unless one of you have a lot more misc. business deductions than the other. The only way to be spot on is to run an estimated return. Although I don't use Turbo Tax I think they may have a tax estimator program. You may want to check their site.

I'm not looking to be exact, at least close. This is the first year my husband and I should have stable income that's not really screwy with extra contract income on top of our salary. Last year we have to pay a couple thousand because we underpaid, this year it looks like we'll get a couple thousand back. I'm still waiting for some to come in, but it would be nice not to under/overpay by that much. I use Taxact.com to do our taxes.

# ? Jan 11, 2012 19:10

Admiral101: Feb 20, 2006; RMU: Where using the internet is like living in 1995.

quote:

I'm not looking to be exact, at least close. This is the first year my husband and I should have stable income that's not really screwy with extra contract income on top of our salary. Last year we have to pay a couple thousand because we underpaid, this year it looks like we'll get a couple thousand back. I'm still waiting for some to come in, but it would be nice not to under/overpay by that much. I use Taxact.com to do our taxes.

What calculators have you tried so far? Have you tried the IRS tax calculator?

# ? Jan 11, 2012 20:42

Eggplant Wizard: Jul 8, 2005; i loev catte

Can someone who understands taxes pop into this thread? It is about writing short :shlick:

ebooks and selling them through iTunes, etc. Real money is being made, but of course taxes aren't withheld automatically. The OP is planning to see a CPA or something eventually, but hasn't yet, and a lot of people are piling on to do the same thing. It'd be helpful to have some information about the tax end of things. Thank you!

# ? Jan 12, 2012 19:57

Hufflepuff or bust!: Jan 28, 2005; I should have known better.

Quick question: how does the saver's credit work when we are married filing jointly and one of us is a full-time student but the other is full-time employed? I know being a student disqualifies you, but it is unclear if only one of us is a student.

Another unrelated question: I own stock that was given to me by my grandfather as a minor. It was given to my dad in trust in TX under the "uniform gifts to minors", and on the stock account it states: STEPHEN MY DAD CUST AARON MYSELF UGMA TX.

Do I pay taxes on the dividends or does he, can he "transfer" the stock to me, and are there tax implications for doing so? I am no longer a minor or dependent, and the amount in question is ~1,500$

Hufflepuff or bust! fucked around with this message at 20:27 on Jan 12, 2012

# ? Jan 12, 2012 20:08

Admiral101: Feb 20, 2006; RMU: Where using the internet is like living in 1995.

quote:

Quick question: how does the saver's credit work when we are married filing jointly and one of us is a full-time student but the other is full-time employed? I know being a student disqualifies you, but it is unclear if only one of us is a student.

The employed spouse's contributions to a retirement plan can contribute to the credit.

The student's contributions to a retirement plan cannot.

The key aspect is that the person who makes the contribution is not a student.

quote:

Another unrelated question: I own stock that was given to me by my grandfather as a minor. It was given to my dad in trust in TX under the "uniform gifts to minors", and on the stock account it states: STEPHEN MY DAD CUST AARON MYSELF UGMA TX.

Do I pay taxes on the dividends or does he, can he "transfer" the stock to me, and are there tax implications for doing so? I am no longer a minor or dependent, and the amount in question is ~1,500$

Whose identifying number (social security number or EIN) is on the stock account?

# ? Jan 12, 2012 21:41

Hufflepuff or bust!: Jan 28, 2005; I should have known better.

Admiral101 posted:

Whose identifying number (social security number or EIN) is on the stock account?

My pa's.

# ? Jan 12, 2012 22:00

Admiral101: Feb 20, 2006; RMU: Where using the internet is like living in 1995.

quote:

My pa's.

Then he'll be receiving the 1099, and the IRS will be expecting him to pay the tax.

# ? Jan 12, 2012 22:19

Hufflepuff or bust!: Jan 28, 2005; I should have known better.

Admiral101 posted:

Then he'll be receiving the 1099, and the IRS will be expecting him to pay the tax.

Thanks for the response! I think I included this on my taxes last year by mistake, then, but given the small amounts it apparently hasn't raised any red flags. Will keep this in mind for the future and see about transferring the stuff to me. If the shares are transferred to me, is this a taxable event for either myself or my dad? They are already "held" by me albeit in custodianship. How is my basis (for future sale by me) determined, is it the price when it is transferred, or when it was purchased?

# ? Jan 12, 2012 23:05

Admiral101: Feb 20, 2006; RMU: Where using the internet is like living in 1995.

quote:

If the shares are transferred to me, is this a taxable event for either myself or my dad?

Depends on the value of the shares, but assuming your dad is married and the fair market value of the shares are below $26,000, then there's no taxable event or filing requirements. If they are above $26,000 then there's potentially gift tax implications, but unless your dad is a baller whose been giving away huge amounts of money for years then your dad (and you) won't owe anything for gifting.

quote:

They are already "held" by me albeit in custodianship. How is my basis (for future sale by me) determined, is it the price when it is transferred, or when it was purchased?

This is actually a more complicated question than you might think. Your basis will ultimately depend on whether you sell the stock at a loss or gain or "in between" the two basis amounts.

You'll need to keep track of both the basis of of the price when transferred, and how much your dad actually paid.

Here's a detailed summary.

http://www.fairmark.com/capgain/basis/gift.htm

You should also confirm with your dad that he is indeed receiving the 1099-DIV and reporting this income on his tax returns.

# ? Jan 12, 2012 23:46

furushotakeru: Jul 20, 2004; Your Honor, why am I pink?!

Admiral101 posted:

Depends on the value of the shares, but assuming your dad is married and the fair market value of the shares are below $26,000, then there's no taxable event or filing requirements. If they are above $26,000 then there's potentially gift tax implications, but unless your dad is a baller whose been giving away huge amounts of money for years then your dad (and you) won't owe anything for gifting.

This is actually a more complicated question than you might think. Your basis will ultimately depend on whether you sell the stock at a loss or gain or "in between" the two basis amounts.

You'll need to keep track of both the basis of of the price when transferred, and how much your dad actually paid.

Here's a detailed summary.

http://www.fairmark.com/capgain/basis/gift.htm

You should also confirm with your dad that he is indeed receiving the 1099-DIV and reporting this income on his tax returns.

You can't give joint gifts. Even if the dad is married, unless the mom is a joint account holder then he would be limited to gifting $13,000. His mother can make a separate $13,000 gift to him as well, but if she has no ownership of the custodial account I don't see how she can gift him any part of it.

# ? Jan 12, 2012 23:55

Admiral101: Feb 20, 2006; RMU: Where using the internet is like living in 1995.

quote:

You can't give joint gifts. Even if the dad is married, unless the mom is a joint account holder then he would be limited to gifting $13,000. His mother can make a separate $13,000 gift to him as well, but if she has no ownership of the custodial account I don't see how she can gift him any part of it.

I don't see how it matters that the father is gifting property instead of cash. In theory (if the total stock value was exactly 26,000), the father could gift $13,000 worth of stock to the kaishek, transfer the remaining 13k to his wife, and his wife could gift the remaining $13,000. There would be no net difference. Husband/wife transactions are never subject to gift tax, which means anything owned by the husband is effectively owned by the wife (unless the wife is a foreigner).

Is there something you've read that states differently?

edit: This is what I'm basing my view from:

quote:

A married couple may not file a joint gift tax return. However, if after reading the instructions below, you and your spouse agree to split your gifts, you should file both of your individual gift tax returns together (that is, in the same envelope) to help the IRS process the returns and to avoid correspondence from the IRS.

If you and your spouse agree, all gifts (including gifts of property held with your spouse as joint tenants or tenants by the entirety) either of you make to third parties during the calendar year will be considered as made one-half by each of you if:

You and your spouse were married to one another at the time of the gift;

If divorced or widowed after the gift, you did not remarry during the rest of the calendar year;

Neither of you was a nonresident alien at the time of the gift; and

You did not give your spouse a general power of appointment over the property interest transferred.

If you transferred property partly to your spouse and partly to third parties, you can only split the gifts if the interest transferred to the third parties is ascertainable at the time of the gift.

The consent is effective for the entire calendar year; therefore, all gifts made by both you and your spouse to third parties during the calendar year (while you were married) must be split.

If the consent is effective, the liability for the entire gift tax of each spouse is joint and several.

http://www.irs.gov/instructions/i709/ch02.html#d0e794

quote:

Gift Splitting

If you or your spouse makes a gift to a third party, the gift can be considered as made one-half by you and one-half by your spouse. This is known as gift splitting. Both of you must agree to split the gift. If you do, you each can take the annual exclusion for your part of the gift.

Currently, gift splitting allows married couples to give up to $26,000 to a person without making a taxable gift.

If you split a gift you made, you must file a gift tax return to show that you and your spouse agree to use gift splitting. You must file a Form 709 even if half of the split gift is less than the annual exclusion.

http://www.irs.gov/publications/p950/ar02.html#en_US_publink100099457

Admiral101 fucked around with this message at 00:23 on Jan 13, 2012

# ? Jan 13, 2012 00:15

furushotakeru: Jul 20, 2004; Your Honor, why am I pink?!

I just had a brain fart and forgot about splitting gifts, sorry.

# ? Jan 13, 2012 00:46

catman: Jul 23, 2006

I thought you had a filing requirement if you gift split.

# ? Jan 13, 2012 01:00

Csixtyfour: Jan 14, 2004

I got a letter for unreported income, I agree with this, I missed a W2 last year. Wife works for a franchise with different owners. If I just ignore this, I assuming they will just take what we owe from our return? Should I pay it and then file? I am guessing the best option is quit being cheappp and get my taxes done by a professional.

# ? Jan 13, 2012 02:03

milquetoast child: Jun 27, 2003; literally

Admiral101 posted:

Your situation is well within the capabilities of turbo tax.

And the equipment should be capitalized as opposed to expensed. With 100% bonus depreciation, there really isn't a difference either way (which is why I said expensing is acceptable), but capitalizing and depreciating is correct (which is why I said expensing is frowned upon).

Start up costs are an entirely different animal. That's essentially money you spent on the business before actually engaging in the business (eg: if you spent 10k on consultants to figure out how to properly organize and run your business, that would be capitalized and amortized over time).

edit: I just realized the cameras you purchased in 2011 are used, and not eligible for bonus depreciation. You can still use 179, which is (for your purposes) identical and will permit you to depreciate the camera/lenses in one year. see: http://www.irs.gov/publications/p946/ch02.html I blame Furu for not correcting me.

You might remember me from last month.

Anyways, I just sat down with my W2, still haven't gotten the 1099-misc yet, but I will pester them for that.

I'm doing the deductions with Turbo Tax, and the Section 179.

I really thought about it, and realized that since starting up my business, I really have only taken out my camera for a vacation in October, and didn't do anything else with them. So I'm going with 90/10 for Business personal use.

I put all of my business related purchases (laptop (used for editing on site, sits in the bag at home, seriously), camera lenses, equipment) in there, and I'm running a nice fat $3300 loss on the year. Which TurboTax flags as a potential audit issue.

Is that a big problem, or do you think it's worth it to, well, this is the opposite of cheating, fudge the numbers so that I don't deduct as much, thus pay more?

Also, I'm doing a 90% partial Section 179 deduction (which the total is 90%, since I did the 90/10 thing) anyways. So I guess I'm already doing 81% of a "full deduction."

Am I worrying about this too much? Should I just do the "full" 90% deduction?

# ? Jan 13, 2012 04:52

Admiral101: Feb 20, 2006; RMU: Where using the internet is like living in 1995.

quote:

I thought you had a filing requirement if you gift split.

You may be correct, but I never did this if the gift was under the 26/24/22k threshold.

quote:

You might remember me from last month.

Anyways, I just sat down with my W2, still haven't gotten the 1099-misc yet, but I will pester them for that.

I'm doing the deductions with Turbo Tax, and the Section 179.

I really thought about it, and realized that since starting up my business, I really have only taken out my camera for a vacation in October, and didn't do anything else with them. So I'm going with 90/10 for Business personal use.

I put all of my business related purchases (laptop (used for editing on site, sits in the bag at home, seriously), camera lenses, equipment) in there, and I'm running a nice fat $3300 loss on the year. Which TurboTax flags as a potential audit issue.

Is that a big problem, or do you think it's worth it to, well, this is the opposite of cheating, fudge the numbers so that I don't deduct as much, thus pay more?

Also, I'm doing a 90% partial Section 179 deduction (which the total is 90%, since I did the 90/10 thing) anyways. So I guess I'm already doing 81% of a "full deduction."

Am I worrying about this too much? Should I just do the "full" 90% deduction?

In my opinion: you probably don't want to generate that large of a loss. While I don't consider it to be an issue unless you continue to generate losses consistently every year (presuming the deductions are as legitimate as you claim), I consider it to be bad tax planning.

The -3300 loss will be netted against your wages/salaries for the tax year, and will only reduce your income tax.

If you decide not to 179 in the current year, and just depreciate the assets over 5 years, this depreciation will be netted against your self employment income from the business, and will reduce your income tax AND your self employment taxes. This assumes you generate profit over the next several years, which shouldn't be difficult for you to do since your major equipment purchases have all been made. This also assumes you don't intend on replacing your equipment within the next few years.

And to answer your last question: I would consider 90% to be high for a camera and laptop, but there's nothing wrong with those numbers if you can substantiate it (eg: by having a separate laptop/camera/whatever for personal stuff).

Last thing: if, in the future, you decide to buy a new camera for your business, and decide to start using your old, previously depreciated camera for personal use, you have to recapture all previously recognized depreciation (so if you 179'd the camera for $700 in 2011, decided to start using it only for personal stuff in 2013, then you would have to recognize $700 of income in 2013).

# ? Jan 13, 2012 15:42

Hufflepuff or bust!: Jan 28, 2005; I should have known better.

Admiral101 posted:

Depends on the value of the shares, but assuming your dad is married and the fair market value of the shares are below $26,000, then there's no taxable event or filing requirements. If they are above $26,000 then there's potentially gift tax implications, but unless your dad is a baller whose been giving away huge amounts of money for years then your dad (and you) won't owe anything for gifting.

Thanks for this - the value is definitely under that amount (only a couple thousand bucks). Now I just need to figure out the basis from when it was purchased a million years ago - to compound things, it is under a dividend reinvestment plan, so shares have been purchased in increments of about 10 dollars several times a year for like a decade, all at different dollar amounts. Oh well.

Also: I just found out that my wife hasn't been withholding anything from her earnings as a grad student, so our big refund just went down the tubes. Oh well.

EDIT: Do I have to figure out basis going back? Or is my basis if I sell it for a gain the difference between sale and transfer?
EDIT2: Nevermind, basis for gain is donor's basis. Crap.

Hufflepuff or bust! fucked around with this message at 16:19 on Jan 13, 2012

# ? Jan 13, 2012 16:11

Admiral101: Feb 20, 2006; RMU: Where using the internet is like living in 1995.

kaishek posted:

Thanks for this - the value is definitely under that amount (only a couple thousand bucks). Now I just need to figure out the basis from when it was purchased a million years ago - to compound things, it is under a dividend reinvestment plan, so shares have been purchased in increments of about 10 dollars several times a year for like a decade, all at different dollar amounts. Oh well.

Also: I just found out that my wife hasn't been withholding anything from her earnings as a grad student, so our big refund just went down the tubes. Oh well.

EDIT: Do I have to figure out basis going back? Or is my basis if I sell it for a gain the difference between sale and transfer?
EDIT2: Nevermind, basis for gain is donor's basis. Crap.

If the basis isn't being listed on the investment statement, you may try calling the broker (if this stock is in a brokerage account). Basis in DRIPs can include account service fees and other poo poo that no one ever thinks of.

# ? Jan 13, 2012 16:43

Hufflepuff or bust!: Jan 28, 2005; I should have known better.

Admiral101 posted:

If the basis isn't being listed on the investment statement, you may try calling the broker (if this stock is in a brokerage account). Basis in DRIPs can include account service fees and other poo poo that no one ever thinks of.

It's a DRIP run by the company, no fees but also not much reason to help me sort this out =P.

# ? Jan 13, 2012 18:56

entris: Oct 22, 2008; by Y Kant Ozma Post

Ok tax nerds here is a question that I am working on:

Person A is blackmailed by Person B, who threatens to publicly disclose damaging personal information about Person A's sexual activities unless Person A pays X dollars.

Person A pays Person B X dollars.

Did Person A just make a taxable gift for gift tax purposes?

My thinking is no, because payments pursuant to extortion/blackmail are clearly theft losses for income tax purposes, and I don't see how a transaction giving rise to a loss deduction could also be a taxable gift.

What do you guys think?

# ? Jan 13, 2012 20:51

Coffee Wolf: Oct 12, 2007; Mmmmm Banana

I just (few minutes ago) received in the mail a large value(60k+)cashiers check to my name, with no other identifiers, meaning no "from" nor any memo's. I know this is from the executor, my aunt, of my grandmother who passed away August '11. Can I just drop it in the bank so to speak, or will I need to do some tax stuff with it come next tax season?

# ? Jan 13, 2012 21:17

milquetoast child: Jun 27, 2003; literally

Admiral101 posted:

You may be correct, but I never did this if the gift was under the 26/24/22k threshold.

In my opinion: you probably don't want to generate that large of a loss. While I don't consider it to be an issue unless you continue to generate losses consistently every year (presuming the deductions are as legitimate as you claim), I consider it to be bad tax planning.

The -3300 loss will be netted against your wages/salaries for the tax year, and will only reduce your income tax.

If you decide not to 179 in the current year, and just depreciate the assets over 5 years, this depreciation will be netted against your self employment income from the business, and will reduce your income tax AND your self employment taxes. This assumes you generate profit over the next several years, which shouldn't be difficult for you to do since your major equipment purchases have all been made. This also assumes you don't intend on replacing your equipment within the next few years.

And to answer your last question: I would consider 90% to be high for a camera and laptop, but there's nothing wrong with those numbers if you can substantiate it (eg: by having a separate laptop/camera/whatever for personal stuff).

Last thing: if, in the future, you decide to buy a new camera for your business, and decide to start using your old, previously depreciated camera for personal use, you have to recapture all previously recognized depreciation (so if you 179'd the camera for $700 in 2011, decided to start using it only for personal stuff in 2013, then you would have to recognize $700 of income in 2013).

I think my issue is I don't really understand the whole 179 and business deductions over several years thing.

Under my original plan, my refund was $1793 ($3300 loss), if I do the non-179 plan, it's $585 ($472 profit), if I do my 30% 179 thing, it's $1003 ($800 loss). (I *nailed* my w2/4 this year, and I'm getting a $90 refund on my main job, which I was laid off from this past monday)

I am sort of planning on replacing my camera this year, that will be a fairly major expense. The new 5d3 is planned on being in the $3000-3500 range, so I'll likely pick that up and sell my 5d2 to defray the cost. I would probably get $1750ish if I sold my 5d2.

With that in mind, should I go for the non-179, since that will lessen the impact of selling this camera and buying a new one?

edit: I just want to say thanks for your help with this. Without this thread I probably would have been all "woooo, deduct 100% of everything!! $5000 refund wooooo" and then gotten audited.

milquetoast child fucked around with this message at 22:05 on Jan 13, 2012

# ? Jan 13, 2012 21:52

furushotakeru: Jul 20, 2004; Your Honor, why am I pink?!

entris posted:

Ok tax nerds here is a question that I am working on:

Person A is blackmailed by Person B, who threatens to publicly disclose damaging personal information about Person A's sexual activities unless Person A pays X dollars.

Person A pays Person B X dollars.

Did Person A just make a taxable gift for gift tax purposes?

My thinking is no, because payments pursuant to extortion/blackmail are clearly theft losses for income tax purposes, and I don't see how a transaction giving rise to a loss deduction could also be a taxable gift.

What do you guys think?

I don't see any reason why that would be considered a gift.

# ? Jan 13, 2012 22:07

furushotakeru: Jul 20, 2004; Your Honor, why am I pink?!

Coffee Wolf posted:

I just (few minutes ago) received in the mail a large value(60k+)cashiers check to my name, with no other identifiers, meaning no "from" nor any memo's. I know this is from the executor, my aunt, of my grandmother who passed away August '11. Can I just drop it in the bank so to speak, or will I need to do some tax stuff with it come next tax season?

You can deposit and spend the money. There may be a K-1 mailed to you for your share of the INCOME the trust/estate had, but the distribution is not in itself taxable. Check with your aunt about the K-1, there may be one for 2011 as well.

# ? Jan 13, 2012 22:08

scribe jones: Sep 17, 2008; One of the key problems in the analysis of this puzzling book is to be able to differentiate a real language from meaningless writing.

entris posted:

Ok tax nerds here is a question that I am working on:

Person A is blackmailed by Person B, who threatens to publicly disclose damaging personal information about Person A's sexual activities unless Person A pays X dollars.

Person A pays Person B X dollars.

Did Person A just make a taxable gift for gift tax purposes?

My thinking is no, because payments pursuant to extortion/blackmail are clearly theft losses for income tax purposes, and I don't see how a transaction giving rise to a loss deduction could also be a taxable gift.

What do you guys think?

agree with Furu, it's a 165 loss for Person A and ordinary income (or Schedule C income????) for Person B.

# ? Jan 13, 2012 22:18

entris: Oct 22, 2008; by Y Kant Ozma Post

Man, you guys are so boring. My supervising partner has taken the initial position that it's a taxable gift because it is a transfer made without adequate consideration.

Does it change your opinion if Person A and Person B used to be in a (non-marital) relationship and now aren't?

# ? Jan 13, 2012 22:24

Admiral101: Feb 20, 2006; RMU: Where using the internet is like living in 1995.

dunkman posted:

I think my issue is I don't really understand the whole 179 and business deductions over several years thing.

Under my original plan, my refund was $1793 ($3300 loss), if I do the non-179 plan, it's $585 ($472 profit), if I do my 30% 179 thing, it's $1003 ($800 loss). (I *nailed* my w2/4 this year, and I'm getting a $90 refund on my main job, which I was laid off from this past monday)

I am sort of planning on replacing my camera this year, that will be a fairly major expense. The new 5d3 is planned on being in the $3000-3500 range, so I'll likely pick that up and sell my 5d2 to defray the cost. I would probably get $1750ish if I sold my 5d2.

With that in mind, should I go for the non-179, since that will lessen the impact of selling this camera and buying a new one?

edit: I just want to say thanks for your help with this. Without this thread I probably would have been all "woooo, deduct 100% of everything!! $5000 refund wooooo" and then gotten audited.

The idea of depreciating the camera over several years as opposed to just 179'ing the entire cost in the first year is that you will realize a smaller tax benefit (due to the loss from your schedule C only reducing your income taxes, instead of reducing both your income taxes and self employment taxes if you spread the depreciation out over several years). The difference will probably only be a few hundred dollars (almost total guess), but it has the added benefit of smoothing your taxable income over several years.

The "capture a smaller deduction today instead of a larger deduction tomorrow" mindset is why a lot of small business owners are having heart attacks over the possible expiration of bonus depreciation.

If you sell your old camera for $1750, you will only have to recapture $1750 of the depreciation as opposed to the full amount (there is a difference between selling the asset and converting it into personal use). You would also be able to 179 or bonus depreciate whatever new camera you decide to purchase, presuming it's used for this business. Keep in mind that if you're buying new equipment that costs more than what you're grossing, that you're going to have a hard time making an argument that you're treating your camera gigs as a legitimate business.

Personally, if I was confident in my numbers, and fully intended to upgrade the camera in 2012, I would just 179 it. You might not be able to sell it for as much as you expect.

entris posted:

Man, you guys are so boring. My supervising partner has taken the initial position that it's a taxable gift because it is a transfer made without adequate consideration.

Does it change your opinion if Person A and Person B used to be in a (non-marital) relationship and now aren't?

I can't even begin to imagine where you find your clients.

I'm not sure if I would call it a casualty loss though, because casualty losses (iirc) have to be from outside the taxpayer's control. This was definitely in the taxpayer's control. Besides, casualty losses are close to worthless.

I don't see this being deductible in any fashion.

Admiral101 fucked around with this message at 22:35 on Jan 13, 2012

# ? Jan 13, 2012 22:33

scribe jones: Sep 17, 2008; One of the key problems in the analysis of this puzzling book is to be able to differentiate a real language from meaningless writing.

entris posted:

Man, you guys are so boring. My supervising partner has taken the initial position that it's a taxable gift because it is a transfer made without adequate consideration.

Does it change your opinion if Person A and Person B used to be in a (non-marital) relationship and now aren't?

pretty sure it still counts as theft duder. try rev rul 72-112.

# ? Jan 13, 2012 22:34

Coffee Wolf: Oct 12, 2007; Mmmmm Banana

furushotakeru posted:

You can deposit and spend the money. There may be a K-1 mailed to you for your share of the INCOME the trust/estate had, but the distribution is not in itself taxable. Check with your aunt about the K-1, there may be one for 2011 as well.

Thanks. I really have no idea of if there was any income (I would guess yes probably though because she was a librarian out there in Michigan, retired in the 80's). Just K-1 then?

# ? Jan 13, 2012 22:48

AbbiTheDog: May 21, 2007

scribe jones posted:

agree with Furu, it's a 165 loss for Person A and ordinary income (or Schedule C income????) for Person B.

You can't claim a deduction for illegal activities.

Example - you're a heroin dealer. You need to pick up and pay taxes on your sales income, but you are not allowed to deduct as a cost of goods sold the cost of your H.

Edit: Why try and claim it all anyways? The deductions would probably require disclosure of the recipient's SSN, which would cause the IRS to jump on them, which might cause them to release the damaging info anyways. If you're dumb enough to pay the person, why compound it by siccing the IRS on them as well?

AbbiTheDog fucked around with this message at 23:13 on Jan 13, 2012

# ? Jan 13, 2012 23:11

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# ? May 14, 2024 17:53

entris: Oct 22, 2008; by Y Kant Ozma Post

scribe jones posted:

pretty sure it still counts as theft duder. try rev rul 72-112.

Ha! I already had that on my desk!

I know it's probably a theft loss and whatnot but that answer is so easy and I was hoping for something more juicy re: the gift tax. Oh well! Now to write a memo.

# ? Jan 13, 2012 23:21

The Something Awful Forums > Discussion > Ask/Tell > Business, Finance, and Careers > US Income Tax Thread: Bank error in your favor! GO DIRECTLY TO JAIL.

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