The Tax Questions Blog

Archive for February, 2010

Question: Joint Custody Tax Question?

My ex and I have joint custody. I am the primary custodial parent. I have my son 313 nights of the year. I pay 63% of everything. The court order also states that " I shall be allowed to claim the minor child as dependent for purposes of filing any and all federal or state income tax returns for the taxabble year 2007 and all subsequent odd numbered years..." My question is that for 2008 taxable year my ex will claim our son as a dependant. Can I still claim head of house hold since i have him for more than 50% of the time and have a court order that states that i pay for more than 50% of the expenses? Can i still claim my portion of the child care expenses even if i can't claim my son as a dependent?

Answer: You cannot file head of household with out a dependant. The parent who claims him each year as dependant gets all the associated tax breaks- child tax credit-EIC etc. So in 2008 no you cant- in 2009 yeah.

Chemtrade Logistics Income Fund Announces 2009 Fourth Quarter and Annual Results

Chemtrade Logistics Income Fund today announced results for the three months and year ended December 31, 2009. Chemtrade generated Distributable cash after maintenance capital expenditures for the year and fourth quarter that comfortably exceeded the Fund's current rate of distributions to Unitholders.

D-Day : The Normandy Landings HD

Question: IRS - forviveness of debt tax question.?

When a home seller receives a 1099 for forgiveness of debt in a short sale, is the income reported as miscellaneous income, or is the amount forgiven added to the tax basis, likely resulting in no taxable event? Or some other answer?

Answer: A recent New York Time article "After Foreclosure, a Big Tax Bill From the I.R.S." highlights a not well publicized fact of income tax law - discharge or forgiveness of debt is income to the taxpayer.

A simple fact pattern - You have a house with a mortgage of $100,000. You can't make your mortgage payments, and the house is foreclosed for $80,000 and total forgiveness of the mortgage. You now have no house and no debt obligation. However, you originally borrowed an additional $20,000 that the bank did not receive from the sale, and that you no longer have to pay back. Under Internal Revenue Code Sec. 61(a) (12), you have earned $20,000 dollars of income that you now owe tax on. The problem? You never got $20,000 in hand - instead, it is "phantom income" to you, upon which you need to pay tax in real cash ($4000 of tax at a 20% tax bracket).

Why are you deemed to have earned $20,000? Because your total net worth has increased as a result of not have to pay back the $20,000 (assets - liabilities = total net worth; if liabilities go down, total net worth goes up).

This fact pattern also applies where credit card or other debts are forgiven - ie: the creditor accepts as full payment less than the total amount borrowed.

IRC §61 - Gross Income Defined
61(a) GENERAL DEFINITION. --Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, including (but not limited to) the following items:

61(a)(12) Income from discharge of indebtedness;

Where a debt is forgiven, is discharge of indebtedness income always the case? No. Where you have (1) filed bankruptcy under Chapter 11 (IRC Sec. 108 (a)(1)(A)), or (2) are insolvent at the time of the discharge (IRC Sec. 108(a) (1) (B)), then IRC Sec. 61(a)(12) does not apply.

The first exemption is easy - you either filed Chapter 11 or you haven't. The second is not so easy - you may feel you have no assets but not be insolvent under the Code.

To avoid a nasty surprise, make sure when paying off a debt for less than full value that you get in writing what they will be supplying to the IRS about the transaction.

Tax talk: Many didn't realize debt forgiveness affects taxes

Question: In 2009, I had debt cancellation, how does it get reported on my tax return?

Question: I want to relocate to country of my birth. Can I still continue to maintain my 401K account here?

I am a US citizen. If I want to take a withdrawl of my 401k, when is the best time to do it? Is it the year when I leave US when my taxable income is quite less?

Also, what does it mean for the social security check when I reach retirement age?

Answer: yes but be aware that withholding may be higher when you finally do take a distribution and the age limitations (10% penalty!) still exist.

Social Security is not impacted by location at retirement age...though benefit would be less if you weren't working entire time until age 65 as they look at average compensation.

Market Shakes Head Over Muni-Killer Bill

WASHINGTON — Municipal market participants are still weighing the implications of a bill that would eliminate tax-exempt bonds and shift the muni market wholesale to a tax-credit subsidy, with many warning it would hurt state and local governments still recovering from the recession.

Is Social Security Considered an Income When Filing Your Taxes?"

Question: i have fixed deposits of 20 lakhs.the rate of interests is 8% per annum,do i have to pay tax.?

how much will be my yearly tax on the fixed deposits of 20 laks,with a interest rate of 8% per annum.i have not filed my income tax return till now thinking whether this is taxable or not.i dont have any other income.

Answer: Ask your banks for a Interest Certificate.

Ask your banks for a TDS Certificate.

If interest is compounded quarterly, then your annual income might be > Rs 1.60 lakhs.

Taxable income of Rs 1.60 lakhs is tax free.

If there is any TDS on interest then verify your tax liability. Details in your Q are not sufficient.

You might have to pay tax or ask for refund.

HMT

National Bank Releases its Results for the First Quarter of 2010

MONTREAL, QUEBEC--(Marketwire - Feb. 25, 2010) - National Bank Financial Group (TSX:NA) T

TV9_22April09_Harsh_Roongta_InvestmentTips_Part I

Question: How are retailers supposed to charge sales tax from state to state?What about on food items and non-food items?

I am about to launch an online gift basket site. It will have bagged food items and non-food items. Am I supposed to charge sales tax on the whole basket or just the non-food items within the basket? I think I may need a tax attorney. But i'd like to hear what you have to say...

Answer: Congress says that online merchants need only charge sales taxes in those states where they have a physical presence -- ie: where you are.

no sales tax need be collected on shipments to other states.

Tracking Your Taxdollars: Fish Food Spending

Fish food and a research project to study alcohol's affect on mice. Those are 2 stiumuls projects your tax dollars funded right here in Florida. 

Illinois State Tax Is Out Of Control!