Taxes From A To Z (2013): Y Is For Year-End Bonus

Y is for Year-End Bonus. Did you get a bonus in 2012? If so, kudos. Annual bonuses are becoming a rarity these days. They are, however, still issued, either as recognition for making to the end of the year (!) or for outstanding service. No matter the reason, bonuses are considered taxable income to the recipient and should be included on your federal form W-2. This is true even if your bonus isn’t in the form of a check but is, instead, goods or services, such as a fancy trip or a car. In terms of timing, a bonus is …

Taxes From A To Z (2013): U Is For Unrealized Gains and Losses

U is for Unrealized Gains and Losses. We’re in the process of selling our house. It is not worth as much this year as it was a few years ago (this, according to Trulia and other valuation sites) although it’s worth more than when we bought it. For tax purposes, we will actually have a gain. I keep hearing, however, how we’ve “lost” money since we didn’t sell at the height of the market. The same discussions are had over and over with respect to the stock market. Stocks go up and down. And while we hope they go up …

Taxes From A To Z (2013): T Is For Tenancy And Joint Ownership

T is for Tenancy. If you ask taxpayers how their assets are titled, many will simply say “joint ownership.” Under the law, however, there is no such thing as simple “joint ownership” – assets may be held jointly in one of a few different ways. For federal income tax purposes, it’s important to realize that tenancy is usually determined by state law. In fact, the instructions in good ol’ IRS Publication 17, Your Federal Income Tax, advise as much when it comes to dividends, since dividends, in particular, have tax consequences: If two or more persons hold stock as joint …

Taxes From A To Z (2013): R Is For Recapture

R is for Recapture Rule (Alimony).The rules for regular alimony payments are pretty simple. If you receive alimony payments, you report those payments as income at line 11: If you make court-ordered alimony payments, you can deduct those on your federal income tax return. The deduction is an “above-the-line” deduction, meaning that you don’t have to itemize your deductions in order to take advantage of the tax break. You would claim those payments on line 31a:   Of course, life isn’t all that simple. Things change. When circumstances change, your alimony payments might change. That could happen because of the …

Taxes From A To Z (2013): P Is For Passive Activity Rules

P is for Passive Activity Rules. The Internal Revenue Service likes to match up income with deductions. And in most cases, when in comes to individuals, if deductions (or losses) exceed income, those deductions are either lost or limited. That’s the general idea behind the passive activity rules. When losses from passive activities exceed the income from passive activities, those losses are disallowed for the current year. Fortunately, you can carry them forward to the next tax year – if you have more income than losses that year, you can offset the income with the carry forwards. You cannot carry …

Taxes From A To Z (2013): O Is For Ordering Rules

O Is For Ordering Rules. Roth individual retirement accounts (Roth IRAs) have been around for a relatively short period of time. Specifically, Roth IRAs were part of the Taxpayer Relief Act of 1997, signed into law under President Clinton. They’re still fairly new, so the rules aren’t all that familiar to many taxpayers. Unlike traditional IRAs, you can’t take a tax deduction for contributions made to a Roth IRA; this is because Roth IRAs are funded with after-tax dollars. The big upside, however, is that distributions from Roth IRAs are generally tax free so long as you follow the rules. …

Taxes From A To Z (2013): N Is For Notice Of Deficiency

N is for Notice of Deficiency. Few things can be scarier for taxpayers than receiving mail from the Internal Revenue Service. No matter how intimidating it might be, always open the mail. Always. Sometimes, those letters can be good news. More often than not, however, the IRS is sending you a notice because they want more information from you or they have determined that there is a problem with your return. But even when the news isn’t great, you still want to open the mail timely because IRS notices are generally subject to strict deadlines. If you miss those deadlines, …

Taxes From A To Z (2013): J Is For Junk Fees

J is for Junk Fees. If you’ve ever bought or sold a home, you’ve probably seen a laundry list of fees on your sale or mortgage papers. These fees, usually found at the bottom, are in addition to notary fees and appraisal fees, and are sometimes called “junk fees.” While a specific fee may be necessary depending on your circumstances, most often they are included to boost profitability of the lender and are almost always redundant and disproportionately inflated. Junk fees can include: Administration fee Application fee Commitment fee Credit report Document preparation fee Document review fee Mail fee Postage …

Taxes From A To Z (2013): I Is For IRA Rollover

I is for IRA Rollover. An individual retirement account (IRA) is type of retirement plan that allows you to set aside money for later use. Depending on the kind of IRA you establish (traditional versus Roth), you can rely on tax-free withdrawals or tax-deferred growth in the future. (Quick caveat: since this topic can be complicated, this particular post focuses on rollovers to and from traditional IRAs. In some instances, these rules may be a little different for a Roth and other retirement plans so consult with your tax professional and financial advisor for more information.) Since IRAs offer certain …

Taxes from A to Z: E Is For Educator Expenses

E is for Educator Expenses. Every Friday, I volunteer in my son’s kindergarten class. I am constantly amazed at how much money his teacher spends – out of her own pocket – to buy treats, prizes, awards, snacks and crafts for her students. Last Friday, she bought Dr. Seuss paper hats, put together activity books and helped the kids make truffula tree bookmarks – all in honor of Dr. Seuss’ birthday (it was the inspiration for my Seussical tax poem). I can’t imagine how much it costs her. And yet, she does it year after year because she loves her …