taxgirl » individual

Ask the taxgirl: Do I Need a Form 1099?

Kelly — Thu, 19 Nov 2009 13:32:08 +0000

Taxpayer asks:

Several elderly friends have asked me to help them with administratrive work in there home. I would probably do this on an ongoing basis and I am sure each would end up paying me more that $600 a year. I would report all of this money (Schedule C I think) but am concerned for the people I would be doing the work for. Do they have to issue a 1099 for the work I would do for them? Could I just report the money quarterly without ever getting a form from them and have it be legal, I don’t want to get them into trouble?

Taxgirl says:

If I understand it, you’re going to be kind of like a Girl Friday? Opening mail, paying bills, that sort of thing, at times that are convenient for you – and for a number of different people?

Assuming that you can’t be classed as a household employee (which I think you’re not if my understanding of your situation is correct), then there is no obligation for your customers to report payments made to you.

Forms 1099-MISC are generally issued when payments are made in the course of trade or business. Personal payments are not reportable. If your customers are making payments to you for services in much the same way that they would pay their hairdresser or a kid that occasionally mows the law, there’s no reason to submit a 1099 to you.

Again, this assumes that you’re self-employed and that you control how the work is done. A self-employed worker also usually provides his or her own tools and offers services to the general public in an independent business – which sounds like what you’re doing.

If, however, you could be classified as a household or other employee (which would result in a form W-2 issued to you), or if you’re performing services for your customer’s trade or business (which would result in a form 1099-MISC issued to you), that’s a different story. You can read more about household employees here.

I hope that helps. And good luck with your business!

Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.

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So Tell Me, Taxpayer: Do You Feel Lucky?

Kelly — Wed, 18 Nov 2009 12:37:54 +0000

It was a question posed to US taxpayers by the IRS in the wake of the UBS scandal: do you feel lucky?

The US offered US taxpayers the opportunity to voluntarily disclose offshore bank accounts as part of an amnesty program earlier this year. The choice? Come forward now and escape criminal prosecution or take your chances later.

It turns out that a number of US taxpayers didn’t feel quite so lucky. IRS Commish Doug Shulman has announced that more than 14,700 taxpayers came forward under the voluntary disclosure program. The disclosures were in the billions and covered accounts in 70 countries.

The number is higher than originally projected due to the numbers of taxpayers who made disclosures in the run up to the deadline. The deadline for disclosures had initially been September 23 but was extended to October 15 after input from tax professionals who were still fielding questions about the program from taxpayers.

UBS and the feds separately reached a settlement where UBS, in addition to a significant fine, agreed to release the names of over 4,500 US account holders at the bank. So far, only a handful of names has actually been released: at least two of those account holders have been sentenced to prison for their activities.

The remaining names will be disclosed over the next 10 months. Under the agreement, UBS will release the names of those account holders where there is a reasonable suspicion of “tax fraud or the like.” Generally, that includes high dollar accounts and accounts where there is a lot of movement of assets or complicated schemes. There will be procedure for appeals available in Switzerland.

ABC News is reporting that lawyers are already whining that their clients were misled by UBS about the extent of the banking secrecy. I suspect that means that lawsuits will be filed. That is, of course, how we like to solve problems in the US. It is *always* someone else’s fault, right? If the lawyers are smart, any such suits would do well to land in Switzerland and not in the US. Beyond the whole “juries likely don’t have sympathy for rich people who hide their money” issue, lawsuits based on the misdeeds of plaintiffs are not usually successful. Of course, that hasn’t stopped people from trying before…

For now, it’s a waiting game for UBS clients. The question is: do you feel lucky… now?Similar Posts:

Health Care Reform and Taxes

Kelly — Tue, 10 Nov 2009 17:20:36 +0000

I just received a notice last week from my health insurance provider that rates at my office would be increasing an average of more than 25%. It’s not unexpected. Apparently, health insurance is one of the few industries which can regularly raise their prices by double digits each year without retribution.

But what is unexpected is that the increase is creeping us slowly towards what the Senate Finance Bill is calling a Cadillac plan. My bare bones little plan (no dental, no vision) now costs about $5,000 per year for individuals and $15,000 for families. And I happen to have one of the latter.

The Senate Finance Committee had proposed a 40% tax on the portion of insurance which exceeds $8,000 per year for individuals and $21,000 per year for families. If we get similar increases in our health care plans for the next two years, I’ll be extremely close to being at risk. God forbid we add dental (and I have three kids with crooked-y teethed parents so there’s no dispute that this will likely be a necessity at this point). Who knew that I had a Cadillac plan?

Notwithstanding public options and other controversial parts of the health care reform bill, the real issue that remains of concern to many is how the plan is going to be paid for… In addition to the 40% tax on those Cadillac plans proposed by the Senate, the bill as recently passed by the House would impose a 5.4% income tax on individuals making more than $500,000 and joint filers making more than $1 million. If existing tax cuts expire in 2011, which appears increasingly likely, the top income tax rate would grow to 45% – a 10% increase.

But here’s a thought. In an increasingly dim economy, isn’t it a little scary to rely on higher taxes from top wage earners to foot the bill?Similar Posts:

Bankruptcy and Tax Deductions

Kelly — Tue, 10 Nov 2009 00:28:45 +0000

I get a number of bankruptcy-related questions submitted via ask the taxgirl. That’s why I was intrigued when I was asked to write a piece on Wallet Pop about how Chapter 13 payments affect your taxes. You can check out what I had to say here: Wage earner’s bankruptcy doesn’t kill all tax deductions.

If you have additional bankruptcy-related tax questions, you can ask the taxgirl.Similar Posts:

Housing Credit Extended – What Else Is New?

Kelly — Thu, 05 Nov 2009 22:11:12 +0000

If you’re opposed to extending the first time homebuyer’s credit (I am), you’re probably in the minority. And you’re definitely not in the Senate. The Senate voted unanimously to approve the bill and the House is expected to follow suit (at least the approval bit).

Under the new law, the first time homebuyer’s credit would be extended to April 30, 2010 to sign a contract to buy a home and another sixty days to close. *Whew, just in time for the November elections.*

The bill also extends the credit to homeowners who have lived in their current home for five of the last eight years – those folks get a reduced credit of $6,500 for homes purchased after November 30, 2009 (but before the April deadline).

Additionally, income caps were raised to $125,000 a year for individuals and $225,000 a year for married couples.

Raising the income caps? The only sensible part of the plan.

The new law will cost taxpayers about a billion dollars a month. Yes, a billion.

According to a recent report released by Goldman Sachs economist Alec Phillips, all but about 200,000 of the 1.4 million first-time buyers who claimed the first time homebuyer’s credit in 2009 would have purchased a home even without the incentive. The cost to taxpayers? $8.5 billion. If you do the math, that means that the real “cost” to taxpayers for increasing home sales is about $42,500 per home. Let that sink in for a minute.

Goldman Sachs also estimates that all of that money only resulted in boosting prices by 5% – and that includes the idea that sellers increased their prices in anticipation of the credit, something that I was concerned about (you may recall that I wasn’t a fan of the bill in the first place).

I don’t think anyone will argue that the bill did nothing. It clearly did something – at least 200,000 felt compelled to buy under the plan. But I am concerned about the cost. I don’t think we can fix everything by throwing more money at it (except maybe baseball but that just makes me sound like a bitter Phillies’ fan). I guess I’m oddly more laissez-faire than Congress (who’d have thunk it?) but *gasp* what about the notion of letting the housing market right itself? We’ve had two years of housing credits (yes, there was a stimulus credit in 2008) and now we’re pushing off to 2010. When does it end?Similar Posts:

First Time Homebuyer’s Credit Likely Expanded

Kelly — Thu, 29 Oct 2009 11:14:39 +0000

You know what they say in Congress, if it’s not broke (enough), keep trying until it is…

So, with that in mind, Senate Majority Leader Harry Reid (D-NV) has announced an extension of the first time homebuyer’s credit.

Despite evidence that the credit has been used inappropriately – and perhaps criminally – lawmakers have agreed to extend the credit through the end of April. In addition to the expanded credit for first time homebuyers, a reduced credit of $6500 would be available to home buyers who have been in their current residence for a consecutive five-year period in the past eight years.

Income limits under the new bill would be increased to $125,000 for singles and $250,000 for couples, from the current $75,000 and $150,000. The credit phases out for people making more than those amounts.

Does that cover everybody? Does everyone get a tax credit now? Cause we wouldn’t want to be handing out that free money and leave someone out.

And the National Association of Realtors? They’re sleeping well? Good.

But just to make sure it passes, the bill is reportedly being tacked on to a measure that would extend unemployment benefits. Of course. Because nobody would vote against the jobless.

Sheesh.Similar Posts:

IRS Targets Wealthy for Enforcement

Kelly — Tue, 27 Oct 2009 16:28:38 +0000

So, who among us didn’t see this coming? IRS Commish Doug Shulman has announced the establishment of a new enforcement unit targeting the very wealthy. The group, called the Global High Wealth Industry, will specifically investigate partnerships, offshore trusts and other techniques used by the wealthy to hide income.

How wealthy is wealthy? Unlike a number of reality TV shows of late, this isn’t about faux millionaires. Try tens of millions of dollars wealthy.

The new enforcement group comes on the heels of a recent amnesty program offered to taxpayers who had been hiding money offshore. Tax pros, including me, viewed the amnesty program as the writing on the wall that the IRS would be ramping up enforcement. A mere two weeks after the extended amnesty deadline, the IRS confirmed that suspicion.

Whether the new enforcement group is a success remains to be seen. Some critics argue that an additional level of administration won’t help – and may, in fact, just confuse matters. But Shulman sees it differently: “You cannot assess compliance among the nation’s wealthiest individuals by looking only at their 1040s…. Our goal is to better understand the entire economic picture of the enterprise controlled by the wealthy individual and to assess the tax compliance of that overall enterprise.”Similar Posts:

Ask the taxgirl: Should I get married?

Kelly — Thu, 22 Oct 2009 10:24:39 +0000

Taxpayer asks:

Last year, I moved in with my boyfriend at his condo. He lost his job so I paid most of the bills. I paid the mortgage direclty for most of the year. I also paid some of his credit card bills, the car payment and some of his child support paymnets so he didn’t get behind again. Can I take any of these things off on my taxes? Would it make a difference if we got married?

Taxgirl says:

You cannot deduct the cost of credit cards and car payments for personal use. Personal loans are never deductible.

Child support is likewise not deductible; in fact, child support is considered “tax neutral” (neither deductible to the payor nor taxable to the payee), unlike spousal support.

Mortgage interest is only deductible when you’re legally responsible for the note. Here, you’re clearly not since you indicated that it’s your boyfriend’s condo.

Now for the bigger question:

If you got married, it would only change the mortgage bit in terms of your deductions. Your husband would be able to take the mortgage interest deduction and charge it against your income. You’d also be able to claim an additional personal exemption against your income, assuming he’s still not working. Of course, this would not apply to last year – just this tax year if you got married by December 31, 2009.

I’m actually asked a lot whether it makes more sense to be married – or not – based on taxes. The answer is that it always depends on your situation from a tax perspective, though it tends, under the current system, to be more beneficial to file as married than single. Again, really facts and circumstances dependent.

That said, I run a business with my husband. And as I approach my own anniversary (it’s next week), I can honestly say that a business is not the same as a marriage. In business, you tend to make decisions that are largely based on dollars. In marriage, not so much.

This is not to say that financial decisions aren’t an important consideration in a marriage. It certainly is (you want to think about, for example, whether your potential spouse and you are compatible in terms of how you view money). But marriage is tough enough between two people: don’t drag Uncle Sam into it, too.

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Ask the taxgirl: Finding Natural Birth Parents

Kelly — Wed, 21 Oct 2009 10:24:13 +0000

Taxpayer asks:

I don’t even know how to start.

Last year, I found out that I was adopted. My parents have no interest in helping me find my birth mother but it something that I have to do.

I have found a lawyer that says he will help me find her but it is very expensive. My question is can I deduct any of the costs in finding my real mom?

Taxgirl says:

Wow. That sure is a lot on your plate.

Unfortunately, no, the expenses associated with your search are not deductible. You can only deducted attorney’s fees as an individual in limited circumstances which include certain tax advice; defending a lawsuit that was filed against you on a work-related issue; or for your business. As a side note, you can only take that deduction as a miscellaneous 2% deduction on your Schedule A.

You may think that it’s deductible because fees (including attorney’s fees) related to an adoption may be taken as a credit on your tax return. However, those expenses relate to fees incurred while adopting or trying to adopt a child, not for an adopted child trying to locate a birth parent.

In other words, there’s no available offset (credit or deduction) in your case.

I’m totally not being flip here but I think it might be a good idea if, along the way, you engaged in a little therapy to deal with this big change in your life. On the plus side, that is deductible (assuming that you itemize).

I wish you well.

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Ask the taxgirl: Failed Adoption Expenses

Ask the taxgirl: Paying Rent to the Parents

Kelly — Tue, 20 Oct 2009 11:00:44 +0000

Taxpayer asks:

Thanks for taking my question.

I moved back home last year after I lost my job. I’ve been paying my parents some rent but I can’t afford to pay the original amount that we agreed on. Can they take the difference between what I promised to pay and what I actually paid as a deduction?

I feel bad about the whole thing and I’m hoping that I can give them some good news.

Taxgirl says:

Ugh. You’re soooo not going to like my answer here.

If you’re not paying fair market value for the rent, your parents are not entitled to a loss for the difference.

And it gets worse. They should be reporting the rent that they do receive from you as income on their tax return. On the plus side, they may be able to deduct some of the expenses associated with the rental from the income. This last bit can be tricky because of the relationship between you and your parents and their actual personal use of the home: there’s a huge likelihood that, under the circumstances, no deductions would be allowed at all. Your parents will want to check with a tax pro with respect to their specific situation (the rules on this can be tricky).

And finally, that difference between what you actually paid and what you promise to pay? That’s a gift to you from your parents. And that brings in another whole host of issues.

Bottom line is that this arrangement may feel like a good idea but come April, it’s likely to cause more harm than good. Not only are you not paying what you promised, you’re adding to your parents’ tax headache.

I don’t know what you’re paying but I’m guessing if you’re paying something, you might be able to make rent with a roommate somewhere else. It seems like your parents aren’t amenable to you staying for free. Maybe your parents would consider loaning or giving you some cash to get back on your feet?

I know the market stinks. But my advice is to find a new place as quickly as possible. The tax consequences of your current situation are far from ideal and that can’t make for a comfortable stay.

Good luck and I hope you find a job soon!

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