I owe the IRS, what options do I have? [click here]
Click here eight tips a taxpayer has when they owe the IRS.
I lost my job this year and had to liquidate funds from my 401k. Will I be penalized? [click here]
Because of the poor economy this year (end of 2008 as I write this) more people have been affected by loss of employment, and families have been forced in some cases to cash in retirement funds to get by. The question most often asked is: what the tax consequences?

These funds are always subject to ordinary income rates (no surprise there) and would normally be subject to a 10% penalty if removed before the age of 59 1/2. Fortunately there are exceptions to this penalty. One of the exceptions is when the distribution is after the participant has separated from service and has reached the age of 55. No penalties are imposed in this cercumstance. One catch however is that the qualified retirement funds be from a 401k and does not apply to funds from an IRA account. So, if you are laid off or have a loss of employment and need to tap into qualified funds, it is better to pull funds from your 401k instead of your IRA account.
I received inherited property. How much tax will I have to pay? [click here]
A common but sometimes confusing situation arises about the subject of inheritance. When inherited property is sold the question arises as to whether the seller has a realized tax gain. The determination of gain depends on something known as "basis" or cost. Knowing this is essential in calculating if any tax is due.

Normally a gain is realized when property is sold for more than it was purchased. The basis or cost of such property is the purchase price and the gain is therefore determined by calculating the difference between the two. If you buy stock for $100 per share and later sell it for $150 per share you have a realized taxable gain of $50 per share. However when property is received by inheritance the basis of the inherited property is the fair market value of the property at the time of the decedent's date of death. So in the example of the sock transaction mentioned earlier, if the decedent purchased stock for $100 per share and its fair market value at the date of death was $150 the new basis of the property is $150 per share. If the stock is then sold for $150 per share there would be no taxable gain.
I lost my home in foreclosure. Now what? [click here]
As I mentioned on the What's New page, about the only good news on the mortgage foreclosure front would be in the changes found in the Mortgage Forgiveness Debt Relief Act which congress passes late last year (you can find it here). Normally when your lender forecloses on your property you receive a form 1099-C at the end of the year. At tax time you find out that the amount the lender forgave is taxable income. The new provision is for years 2007 - 2009 and only applies to your principle home. There are other provisions, but the bottom line is that for most people who have lost their home due to foreclosure, they won't have the additional insult of having the amount reported on the 1099-C as taxable income.
I have been in an abusive marriage and am getting divorced. My husband wouldn't let me file past tax returns. What should I do? [click here]
First, let me commend you for taking the difficult steps to be out of this abusive environment.

Second, find people you can talk and work with and confide in (councilors, religious leaders, personal friends you trust etc).

Third, you absolutely should file past returns and include an Innocent Spouse declaration. Based on the information in your question, you would probably want to file as Married filing Separate and show just your income. This tells the IRS that you want to come clean with them and at the same time provides relief against tax obligations your husband has (that would have been yours without the Innocent Spouse declaration).

Last - we need to get together and get this implemented!
Should I liquidate my IRA to pay bills?[click here]
I received a call the other day from a client asking me if it would be better from a tax perspective to pull $20,000 out of their IRA to pay for a home improvement project or should they borrow the money from a home equity line of credit. Here are the numbers I worked out, you be the judge.

They figured that they could pay off the $20,000 in about two years if they put it on an equity line. Borrowing the funds at 8%, the total amount of interest they would pay would be $1,709. Since they were using it for a home improvement project, the interest would be deductible.

Next I looked at the tax consequences of pulling the money out early from their IRA account before the age of 59 1/2. I calculated the numbers based on their last years tax return, adding the extra $20,000 as income, calculated the 10% penalty and the additional taxes. Instead of receiving a nice refund like they did, they would have ended up owing the IRS an additional $8,100... and that's just on the Federal side! They literally would have ended up doubling their tax liability.

But the bad news doesn't end there... leaving the $20,000 in the IRA to grow tax deferred for the next 20 years, assuming that the funds grow at 8%, their $20,000 would grow to $98,541.95. OUCH.

It's also important to note that if they borrow the funds, they have $20,000 for their home improvement project. If they pulled the funds out of their IRA account, they would only have had 11,900 for their project because of the tax liability.
We just sold our home. How much is taxed? [click here]
I find that people get confused on the sale of a home. I often here, "How long do I have until I have to reinvest the funds?" The law changed several years ago. Back then, you had a time limit of two years or you would be taxed on the proceeds of the sale. But that's no longer the case. The rules for home sales are now: 1) you must have owned your primary home for two of the last five years, and 2) you must have lived in the home for two of the last five years. If you meet these qualifications, you may exclude $250,000 of the gain  if you are single or $500,000 if married filing a joint return. There are exceptions to this rule which I discuss here.
What is a Refund Anticipation Loan (RAL)? [click here]
A RAL is a short-term loan that is granted based on a taxpayer's anticipated federal income tax refund. The loan disbursement is made to the taxpayer via a Santa Barbara Bank & Trust (SBB&T) cashier's check printed at the tax preparer's office. Before the tax preparer can issue a RAL check to the taxpayer, the taxpayer must present valid picture identification and W-2s to the tax preparer and the tax preparer must also receive an acknowledgment from the IRS that confirms the social security number and last name of the taxpayer.
How long will my refund take? [click here]
Many factors will affect when you receive your refund. How you file the return will make a difference too. If you file your return via paper as opposed to electronically it will take longer for the IRS to process the return. The mailing time is just part of the equation too. When you file a paper return, it must be key-punched into their system and this can delay the process by several weeks. Having your refund deposited directly can speed the refund time too. Bottom line: file electronically (faster, safer and less errors) and have the money directly deposited into your account. See also my "Forms" page for for the current e-file refund schedule.
Where's my refund? [click here]
OK, we've filed your return and you are wanting your refund now! Were do you go to find out what the status of your refund is? You go here: here. You can access this secure Web site to find out if the IRS received your return and whether your refund was processed and sent to you. You can get your refund status by providing the following information as shown on their return:
  • Social Security Number (or IRS Individual Tax Identification Number)
  • Filing Status, (Single, Married Filing Joint Return, Married Filing Separate Return, Head of Household, or Qualifying Widow(er))
  • Refund amount
Note: If you have trouble while using this application, check the Requirements to make sure you have the correct browser software for this application to function properly.
Why do I need a tax preparer? [click here]
For the same reasons you need a mechanic for newer cars these days or that you want to fly with someone trained for the cockpit: they have the training, the know how and the experience to provide you the best advantage of available tax laws. Not only do I know what you can write off and what you can't, I also have a feel of how much is enough and when to stop.
How much do you charge? [click here]
It depends completely on what you need done. You will find that I don't run a factory where you would feel like you were on an assembly line, instead you receive personalized service. (See also my home page for my motto).
Is there a way to make that cheaper? [click here]
Yes. If I do a return for someone you refer, I will rebate you 20% of what I charged you (note that for tax year 2008 I was passing out pictures of President Grant... as in $50 bills). I think this is only fair. You get a break, and it helps me to build my business. It's advertising dollars to me.
Can I write off my kids allowance? [click here]
I love this question! Yes, there are ways to do this. See my explanation on the "Did you know" page on my web-site.
What is the value of a home based business? [click here]
Many people are surprised to learn that there are two tax systems in the United States: one for those who work for someone else (an employee) and one for those who work for themselves (an employer). Fortunately for the majority of us who are employees, the IRS allows us the same benefits if we have a home based business. I am a big proponent of having a home based business. It can put 1000's of dollars in your pocket.
Should I file electronically? [click here]
I recommend that you file electronically. Not only is it faster (IRS gets the file within 24 hours and will send an acknowledgment that they received the file) but it is 20% less prone to error. When you send in a paper return, a keypunch operator has to type in your return into their system and sad to say, but there are errors sometimes entered at that time.
Can I file an extension even if I owe money? [click here]
Of course. Remember however, that the extension must be submitted by the due date (April 15) and if you owe taxes, the IRS expects to get their money by the due date.
In a change for your 2005 taxes, if you accept their offer of an automatic extension, it will be for SIX months, not '4 plus maybe 2.' So next year you won't have to invent an excuse in order to get the additional 2 months.
If I owe the IRS money, do I have payment options? [click here]
Yes, see my "Links" page to the EFTPS link. This is a secure payment page the IRS has put up. Also, here's what the IRS says: "Taxpayers are responsible for paying the tax due by April 17, 2006 or they will be subject to penalties and interest. If your client is unable to pay the total tax owed by April 17, 2006, you can electronically file Form 9465, Installment Agreement Request. An approved installment agreement allows your client to make a predetermined series of partial payments after the return due date."