The Tax Questions Blog

Posts Tagged ‘tax’

Question: I have to pay taxes on a short sale. Does it help if I start contributing to my 401k to reduce taxable income?

I short-sale my property in 2008. I'll receive a 1099 from lender with "gains" for $60,000. I don't know what to do to minimize my tax exposure. I was thinking about start contributing as much as possible to my 401k plan during this year to reduce my taxable income. Is this a good idea? What else can I do?

Answer: What you need to do is develop a relationship with a tax consultant or financial planner who is savvy in tax matters. Buy some face time and avoid these bad tax surprises. Get control of your financial life

A 401(k) is always a good idea. But it won't help you for last year.

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Will the proposed FBT change reduce your take home pay? - 14 July 2009

Question: Should I take a home loan or just pay the entire amount from my savings?

This is a India-specific question and requires a knowledge of the Indian Income-Tax rules (which I lack):
If I am buying an apartment for about 30 Lakhs, is it better for me (financially) to take a home loan for 25 lakhs or just pay the entire amount from my savings (assuming, I've that much)? My tax slab is 33.6%. I know Rs.1.5 lakhs in Interest is deductible from taxable income. But, will it offset the extra amount of money that I will end up paying during the entire loan term?
Basically, I'm looking for some help in how I should go about calculating whether I should opt for a loan or not. This is a question for people who know Indian Income-tax laws.

Answer: I have a very simple advice first:
Don't take a loan if you have liquid money to pay all that is required to buy anything. This comes with a fine print: if you can invest your money in an instrument that you are sure will return more interest then what you are going to pay for loan, go ahead and take loan.
One more thing: House loans are normally taken for 20 years tenure, and the IT sops may stop in any financial budget. So till the time IT benefits are there you may enjoy tax sops(supposing you take loan), but after that you wouldn't like pinches of paying EMI + no benefits.
Another thing: Home loan rates are never fixed....even thogh they call them as fixed and floating....and now as every one knows, interest rates are going north. So be careful.
My suggestion: assuming u have all the money. Take a loan for 5 years. Why: You can invest your money for 5 years, and get better or equal returns as u are giving away in home loan repayment. Plus IT act may not change completely in 5 years, and loan rates will also be preety much predictable.
Best luck..

Interest on Service Tax

Question: How to file taxes without being married?

Me and my fiance had our daughter on July 16, 2010, we are not yet married and won't be by the time we file taxes in January or February. Anyways I worked in 2010 up until I had Sophia, he will have worked all year. My question is can we file together and claim her, or do I need to file separately because we aren't married and who would be the best one to claim her--him since he worked all year?! I'm really confused when it comes to this stuff and obviously would like the option that gets us the most money lol. Please help anyone that knows about this kind of stuff? Thanks in advance!

Answer: As you know by now, you can not file MFJ till you marry before Dec 31st, 2010. Now, if he earned more than you, he need the help by letting him claiming Sophia so he does not pay tax, or reduce his tax or getting some refund based on the earned income credit.
I suggest you and before doing any filing, to do a test by filing sophia with you as head of household and then make another filing as single. See what is the different.
Also, do test filing by putting Sophia with him and file as Head of household then prepare another filing for him as single. Compare what is the different and think about what to do.
You can not file together with him, BUT, you may file as a single and check box 6 of form 1040 If someone can claim you as dependent. All of this depending on the amount of your income. Check it out.
In this case only, the father of your child could claim both Sophia and you (you should check Box 6 when you file your Tax as single), this could push his refund higher. Try to do test of all these scenarios and decide what is good for both. Good luck
As far who is entitled to claim Sophia, either of you could as far both agreed to do so.

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How to File Taxes If You Haven't Filed in Years

Question: How long must I keep credit card statements, utility bills, & other financial papers?

I am cleaning out documents I have had for years & am wondering, for tax purposes, how long I have to keep some of them. I have prescription forms (the ones the pharmacy attaches to the script itself,) insurance E.O.B.s, and other papers just taking space from years ago & want to DOWNSIZE & SIMPLIFY! I am scared to get rid of financial papers, though. What is a safe time period for keeping these?

Answer: Any normal bills, you can throw away once you are satisfied that they are right. Credit card statements and bank receipts should probably be kept for 3 months (you never know when you may need to go to the bank and get a loan or something). Any financial papers (i.e. receipts, forms, etc...) dealing with taxes should be kept for 3 years. Any collection attempts, steps you have taken to rememdy them, and correspondences that you have made or received should be kept for the entire statue of limitations...15 years.

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Question: Business investment loss and tax claim question?

-I invested 60K into a new start up business in a form of a loan (have contract and documentations).
-30K has since been paid back
-a total of 50K still owed when you combined interest and loan amount still owed.
-the Company has went out of business

My questions are:
1) can I claim this in my tax? I believe it is for 3K per year and can carry over.
2) If I file jointly, does this 3K become 6K
3) Can I file for the 30K lost in investment or for the total 50K amount still owe to me? This 50K includes interest.
4) What documentation is need in case of an audit on this claim? Is my loan document with the Company CEO sufficient or do I need for documentation that the company went under?

thank you for your help

Answer: Short answers....

1) Yes.
2) No. It is $3000 per year on a joint return and $1500 per year on a separate return.
3) 30K. The $20k in lost interest is not deductible as it was never taxed in the first place. (Note: If you an accrual based tax payer and had be reported the unpaid interest as income, then it is deductible)
4) You must prove that you have exhausted all collection efforts. If the company filed Chap. 7, a copy of the bankruptcy listing your loan would be enough.

See a tax pro.

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Can I Claim the Music I Buy As a Tax Deduction?