The Tax Questions Blog

Archive for the ‘Is This Taxable’ Category

Estate planning for retirement benefits, Part 1 of 3

Question: Is a legal settlement for an unreturned security deposit taxable?

We sued our landlord last year for retaliatory eviction after we reported him to LA Bldg/Saftey which turned into a nightmare lawsuit in LASC. We then went thru the required mediation process and agree to settle for $3300.00, the amount of sec dep paid on 2002, plus $100.00. We just rec'd a1099 from the landlord with only the $3300 listed as "other income". No one told us to expect this and research so far seems to say it has to "replace" something (i.e. wages) to make it non-taxable. We paid him this money as security when we initially moved in to the property in '02. Lawsuit included "intentional emotional distress" as one of the claims as my husband is a disabled veteran. If anyone has any clues your help is greatly appreciated. Thank you.

Answer: Did the settlement spell out that this was a return of your security deposit plus $100 for emotional distress? If so, only the $100 was taxable. Report it on the "other income" line of the 1040, and attach a statement to your return explaining why you did not claim the remaining amount. If you have a copy of the judgement and it does spell out the settlement, make a copy and attach it to your return.
It seems that your landlord is still jerking you around, because no 1099 was required. I would assume that he is trying to write off the 3300 as a business expense.
You could always call the IRS and ask them to send a letter to your landlord requesting a corrected 1099 (there is such a letter). Jerk him around a bit.
Also, perhaps he never sent the IRS copy to IRS, he only sent a recepient copy to you, just to freak you.

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HMRC Guide: Self-Employed Childminders

Question: Does my income affect my FAFSA?

My parent's taxable income is only $5,000.00
My income is $28,000.00
I'm 19 years old and wanting to go back to school. I'm still considered a dependent student.

Here's my questions...

I filled out a FAFSA application when I wasn't making money and my EFC (estimated family contribution) was 0. Technically my EFC hasn't changed. Is the FAFSA completely based on my EFC or will income decide the amount I can get for grants, loans, etc??? Or does my income somehow effect my Estimated Family Contribution?

Thanks for the help!

Answer: Your income decides your EFC.

The reason why it hasn't changed is because you are still considered a low income family since your parents aren't making money, and your income is still below poverty level when you add your family members.

However, once you turn 24, if you don't have any children or dependents, with 28k, your efc probably going to be up in the 8 or 9 thousands and you won't qualify for pell.

It's Never Too Early To Start Saving

The earlier you begin investing, the more stable your future will be in the short and long term.

Question: How much should I contribute to my 401K?

I'm 24 years old.
My company matches 6%.
I currently am investing 7%.
I only make $24000 per year.
I think my taxable income is $15500.
Currently, I put in around $35 and my check is only reduced by $5.00 per week. If I went to 15%, my contribution would be $63.00 and my check would be reduced by $15.00 per week.

Would it make sense to invest 15%-20% before I get into a higher tax bracket and then lower the percentage in the future?

Answer: Only put in the amount your company will match. If you have any credit card debt, pay it off!!! Build up an emergency savings account. Put any extra money you have after that into a Roth IRA.

It's better to diversify your money. Put some in 401K, some in a Roth, some in savings, etc. If your company doesn't have a great 401K plan (and even if they do), it's still better to have a little money here in this thing, a little there in that thing, ... DIVERSIFY!!!

Roth IRA's are great.

And by the way, the best time to put money into the stock market is when prices are low. BUY LOW ... SELL HIGH ... that's how people make money.

Municipal Candidates Show Us Their Money

Financial disclosure. It’s a phrase that makes a lot of people nervous. You’d be surprised at the number of people who don’t realize that their donations to campaigns are a matter of public record. You’d also be surprised at the shocked looks on some candidates’ faces when we asked them to disclose their tax returns—which is exactly what Cari Wade Gervin recently did.

AFP Tutorial - 401K: The Inefficient Tax Trap - Ron Karren