BITOG Tax Thread

[BeanCounter]

Originally Posted By: PandaBear
Question: If I help out one of my friend by sending him a check, I've heard that you can deduct it as long as you file it under their income (gift) as long as it is less than $10k, is this correct?



Yeah, no deduction at all here. The government just sees it as they are doing you a favor for not taxing the gift if it isn't over 12k (limit may be/have increase as of late, I'd have to double check).

 

[PandaBear]

Thanks guys. Another tax question:

Wife's employer got acquired and all her ESPP, Options, Stock Grants got bought out. The employer said that the payout/acquisition/sales are in W2, does that means she do not have to file for these as capital gain at all?

 

[BeanCounter]

Did she see any monetary transfer due to this?
Was she notified of any gain?

If this is on her W2 there may be something necessary here.
Can you give me any further info on this?

 

[PandaBear]

Yes she see monetary transfer and some gain out of this, and there were tax already withheld on those gain.




The company is Genentech, and the one who bought Genentech is Roche.

Transaction:

Stock Option Payment - reported on W2, not reported on 1099B

ESPP redemption payment as a result of Roche cash-out - reported on W2 (a portion is reported), reported on 1099B

Gain in Lieu of ESPP payment - reported on W2, not reported on 1099B

ESPP refund - reported on W2, not reported on 1099B.




So it seems like those stocks already received by the employee will be reported to 1099B between the merger price and the cost after the discount strike price of ESPP already reported on W2.

Does that means if she fill in all the information from both W2 and the 1099B, she shouldn't have to figure out the exact cost or price of these information? or does that means she need to figure out the exact price she pay and the gain already factored in the W2, and use that as a cost?

 

[saberz]

BeanCounter,

Is it possible to deduct a first time apartment and furniture purchases? Interest rate on car/cards?

 

[BeanCounter]

Originally Posted By: PandaBear
Yes she see monetary transfer and some gain out of this, and there were tax already withheld on those gain.

The company is Genentech, and the one who bought Genentech is Roche.

Transaction:

Stock Option Payment - reported on W2, not reported on 1099B

ESPP redemption payment as a result of Roche cash-out - reported on W2 (a portion is reported), reported on 1099B

Gain in Lieu of ESPP payment - reported on W2, not reported on 1099B

ESPP refund - reported on W2, not reported on 1099B.

So it seems like those stocks already received by the employee will be reported to 1099B between the merger price and the cost after the discount strike price of ESPP already reported on W2.

Does that means if she fill in all the information from both W2 and the 1099B, she shouldn't have to figure out the exact cost or price of these information? or does that means she need to figure out the exact price she pay and the gain already factored in the W2, and use that as a cost?

I believe the W2 and 1099B should have the information to use, but I would always want to double check. This is one of those things were I would benefit by seeing all the info in person. Does the initial price your wife saw and the "sale price" not equal the gain they have returned to you?

 

[BeanCounter]

Originally Posted By: Anies
BeanCounter,

Is it possible to deduct a first time apartment and furniture purchases? Interest rate on car/cards?


First time rentals and furnishings unfortunately can't be deducted in any way. Also, some interest you pay can be deducted, but not for a vehicle or credit cards. If you purchased a new vehicle this past year, you can deduct the sales tax paid, though.

Most deductions you can use outside of the standard deduction will be found here:
http://www.irs.gov/pub/irs-pdf/f1040sa.pdf

But remember, you have to clear the standard amount of $5700 (if single) for it to make sense to use.

 

[BeanCounter]

Bump for April 15th...

 

[Scienceman]

...Which is coming up soon.

 

[Kestas]

Question: I own stock (Delphi) that is now worthless, as the company went bankrupt. Since I didn't sell it, I didn't get a Form 1099-B. But because it's worthless, I feel entitled to write off the loss. Can I indeed write it off?

 

[stockrex]

beancounter,
first thanks,

I am a soletrader, I have questions about section 179 and items for my home office
1. can I buy art work or decorative items for my office and write them off section 179?
2. for #1, what sort of receipts do I need to keep if I am buying items from overseas. e.g. antique rug for my office from turkey.
3. also I am thinking of hiring a fulltime office manager and what items of benefit can I write off? and what items are deemed part of salary for employee? for example, I am thinking of buy high deductable HMO/bluecross and no prescription drug benefit. So how do I help my employee cover the deductable? and just pay for the prescriptions (which might be cheaper)

I appreciate your feedback.

 

[BeanCounter]

Originally Posted By: Kestas
Question: I own stock (Delphi) that is now worthless, as the company went bankrupt. Since I didn't sell it, I didn't get a Form 1099-B. But because it's worthless, I feel entitled to write off the loss. Can I indeed write it off?


Sounds like you would qualify to claim a capital loss due to the worthless securities. [IRS Code Sec. 165(g)]
Was this a capital asset to you?
When did you purchase the shares and when did they become worthless?

I'll post the example from the 2010 U.S. Master Tax Guide to see if it helps at all:

"Example:
On December 10, 2008, Judy Green purchased shares of Xetco Corporation for $5,000. On May 1, 2009, she received formal notification that the shares of Xetco were worthless. In claiming a capital loss for the worthless shares on her 2009 tax return, Judy must treat the sahres as becoming worthless on December 31, 2009. As a result, her $5,000 capital loss is recognized as long-term even though she did not own the shares for more than 12 months before they became worthless."

As for capital losses, they can be used to the extent of capital gains and/or $3,000 of ordinary income.

 

[javacontour]

Can't you also carry the losses into following tax years.

I'm not a tax expert, so this is really a question.

If you are not offsetting capital gains, one is limited to $3000 per tax year of declared losses.

However, if one had the $5000 loss described above, couldn't they claim a $3000 loss one year and then the other $2000 of the loss in the following year?

I thought one could eventually claim the loss, but if it was more than $3000 and you didn't have gains to offset, you would have to spread the loss out over multiple years.

Is that true?

 

[Kestas]

It was $8000 of Delphi stock bought 5 years ago, so I'm confident that a long-term loss applies here.

I'm not sure when they were declared worthless, perhaps a year of two ago.

I've already submitted my 2009 tax return, and forgot about the Delphi stock. Perhaps I can claim the loss on next year's return?

 

[BeanCounter]

Originally Posted By: stockrex
beancounter,
first thanks,

I am a soletrader, I have questions about section 179 and items for my home office
1. can I buy art work or decorative items for my office and write them off section 179?
2. for #1, what sort of receipts do I need to keep if I am buying items from overseas. e.g. antique rug for my office from turkey.


First off, the items in question are not being held for investment per se, correct? This would be a separate issue from 1245 property in the sense we are scrutinizing.

This will be lengthy, but forgive me, as I want to post the Code for you to be able to refer to:

§1.1245-3 - Definition of section 1245 property
"(b) Personal property defined. The term personal property means:

(1) Tangible personal property (as defined in paragraph (c) of §1.48–1, relating to the definition of section 38 property for purposes of the investment credit)..."



§1.48–1 - Definition of section 38 property
"(c) ...For purposes of this section, the term “tangible personal property” means any tangible property except land and improvements thereto, such as buildings or other inherently permanent structures (including items which are structural components of such buildings or structures). Thus, buildings, swimming pools, paved parking areas, wharves and docks, bridges, and fences are not tangible personal property. Tangible personal property includes all property (other than structural components) which is contained in or attached to a building. Thus, such property as production machinery, printing presses, transportation and office equipment, refrigerators, grocery counters, testing equipment, display racks and shelves, and neon and other signs, which is contained in or attached to a building constitutes tangible personal property for purposes of the credit allowed by section 38..."

It appears that items such as rugs and artwork for your office would qualify as Sec. 1245 property.
But be sure that these items are going to be >50% business use. Technically, if it were to fail the 50% or > test, a portion of the amount you expensed would need to be recorded as ordinary income.

Also, you will face depreciation recapture if you incur a gain on disposition of these items, generally treated as ordinary income.

Form 4652 (attached to your 1040) is where you would make the 1245 election. Form 4797 is where recapture would be reported, if this were to occur.

 

[BeanCounter]

Originally Posted By: javacontour
Can't you also carry the losses into following tax years.

I'm not a tax expert, so this is really a question.

If you are not offsetting capital gains, one is limited to $3000 per tax year of declared losses.

However, if one had the $5000 loss described above, couldn't they claim a $3000 loss one year and then the other $2000 of the loss in the following year?

I thought one could eventually claim the loss, but if it was more than $3000 and you didn't have gains to offset, you would have to spread the loss out over multiple years.

Is that true?


Absolutely. Your loss doesn't disappear after the year you begin using it. You can certainly carry forward losses that were excluded from prior year(s).

 

[BeanCounter]

Originally Posted By: Kestas
It was $8000 of Delphi stock bought 5 years ago, so I'm confident that a long-term loss applies here.

I'm not sure when they were declared worthless, perhaps a year of two ago.

I've already submitted my 2009 tax return, and forgot about the Delphi stock. Perhaps I can claim the loss on next year's return?


You may be better suited to go back to the year the stock was declared worthless and amend the tax return. This is likely the most consistent and accurate means of doing so.

In this instance, if the stock were worthless as of 2005, you may be looking at using $3k CL in 2005, $3k in 2006, and $2k in 2007. Amending those would really not be a big deal, unless you have an amazingly complex tax return for those years. The excess refund, etc., that it created would simply be refunded to you from there for the changed years.

 

[BeanCounter]

Originally Posted By: stockrex

3. also I am thinking of hiring a fulltime office manager and what items of benefit can I write off? and what items are deemed part of salary for employee? for example, I am thinking of buy high deductable HMO/bluecross and no prescription drug benefit. So how do I help my employee cover the deductable? and just pay for the prescriptions (which might be cheaper)

I appreciate your feedback.


There are a number of health benefits that an employer can fully or partially right off. If related to a health plan or employee reimbursement, most should not be included in the employees income.

Code Sec. 853 discusses employer contributions to accident or health plans and outlines that the contributions made are not taxable to the employees and are deductible expenses for the employer, when contributed. As far as paying the prescription costs out of pocket, you should be able to arrange a reimbursement agreement where you return the amount of funds spent on prescriptions after the fact, which should also be excluded from income for the employee and deductible by you, the employer (See Code Sec. 861 and/or Health Reimbursement Arrangements (HRAs)).

If I didn't answer your questions well, feel free to let me know and I will try to help out/research where needed when I have time. Hopefully you get a decent idea though!

 

[PandaBear]

BeanCounter,

Thanks for the advices. Wife's employer provide information on how to deal with the stock transaction due to their merger. Basically the calculation on W2 included amount and non-W2 included amount of the ESPP. Her stock options were all included in W2 so nothing extra to report.

One question about long vs short term capital gain on Schedule D. Seems like they are just added together and put into a line in 1040 and use the same tax rate. I always though they would be separate and use different tax rate. Was I wrong? Is this AGI specific?

Not sure if you know of Taxact, but the rate they calculated for me seems to be different than what I found in the worksheet. Could this be that they already factor that LT capital gain in to reduce the tax calculated? I noticed that if I adjust the date of the stock acquired, the tax they calculated changed, hence the assumption.

 

[BeanCounter]

Originally Posted By: PandaBear
BeanCounter,

Thanks for the advices. Wife's employer provide information on how to deal with the stock transaction due to their merger. Basically the calculation on W2 included amount and non-W2 included amount of the ESPP. Her stock options were all included in W2 so nothing extra to report.

One question about long vs short term capital gain on Schedule D. Seems like they are just added together and put into a line in 1040 and use the same tax rate. I always though they would be separate and use different tax rate. Was I wrong? Is this AGI specific?

Not sure if you know of Taxact, but the rate they calculated for me seems to be different than what I found in the worksheet. Could this be that they already factor that LT capital gain in to reduce the tax calculated? I noticed that if I adjust the date of the stock acquired, the tax they calculated changed, hence the assumption.


PandaBear,

I'm glad her employer took care of some of the calculation for you after all. This definitely helps.

As far as the capital gains, long-term CG's should be taxed at 15% (unless you are in the 10% or 15% tax bracket, which should make the tax 0%) and short-term CG's should be taxed at your ordinary tax rate. I'm not familiar with that tax software, personally, but go look at page 39 of the 1040 instructions, as this is the worksheet to determine tax.
Let me know if that clarifies anything.

It would make sense that by changing the dates the tax rates are changing, because you are likely moving CG's between short-term and long-term. Correct me if I am wrong though.
PM me if you need more help and can give me some screen shots or other info to help resolve the issue, as I don't want you to post much personal info.

Sorry if that didn't help much, but get back to me if not.