COVERITLIVE.COM

12:58

Steve Elliott - Hello, and welcome to today's live tax blog chat on Ask A CPA, sponsored by the Massachusetts Society of CPA's here on www.boston.com! My name is Steve Elliott and I am a CPA in both Massachusetts and New York. I am a Senior Tax Associate at Janover Rubinroit, LLC - a Garden City, NY CPA firm (we also have an office in NYC). I will get to as many questions as I can today, so please be patient. Don't forget, there are other live blogs every other Tuesday at 1:00 right through April 15th, and you can always use the regular "Ask A CPA" postings if you have questions outside of the blog times. Thank you for sharing your info and for participation!

12:58

[Comment From Bill from Boston]
I will be paying the state and federal this year. Is there a problem sending a check on the 17th as this is the day I get paid.

1:00	Steve Elliott - Hi Bill - You would not want to file your return late (past the 15th). Either get the returns in with no payment and wait for a bill (with interest), or date your checks the 15th. They would not cash that quickly!

1:00

[Comment From REL]
We itemize our deductions, and for the first time our business expenses were above the 2% floor, even after we subtracted $500 for the educator expense deduction (we are both teachers). It ended up only being ~$450 of our total itemized deductions, but the IRS returned our 1040 form three weeks after we filed it, asking for an "explanation" of Line 21 of our Schedule A (the line for business expenses). They did not ask for receipts but included blank copies of the 2106 form, which (according to IRS instructions), we do not need to file since we would only have expenses on line 4. We sent back a letter itemizing the total business expenses, along with our original 1040, and we hope that it's taken care and anxiously await our (sizeable) refund. What do you think?

1:01

Steve Elliott - Dear REL - I would agree with you that your reasonable response should clear up the problem! Generally, form 2106 or 2016 EZ is used for these types of expenses, but for that small amount, I'm surprised the IRS wrote to you. Follow up with them in 3 -4 weeks if you haven't heard anything back by then.

1:02	[Comment From steve dube] can you deduct roth ira losses for 2008

1:02

Steve Elliott - Hi Steve -

You can deduct losses in a Roth IRA, but the rules and treatment are different than you might expect. First, in order to claim a loss in any IRA investment, you must withdraw the entire balance from all of your IRAs of the same type. So, if you have a loss in one Roth IRA, you must liquidate all of your Roth IRAs in order to deduct the loss on your tax return.

Second, your basis in your Roth IRA includes your contributions plus conversions (from a traditional IRA) less any withdrawals you have previously taken from your Roth. Form 8606, Non-Deductible IRAs, is used to determine the basis in your account and to report withdrawals. Note that reinvested dividends and capital gains are not part of your basis in a Roth IRA.

Finally, losses in a Roth IRA are deducted on Schedule A - Itemized Deductions, rather than on Schedule D - Capital Gains and Losses, which is where most people would expect to report the loss. Roth IRA losses are a miscellaneous deduction, subject to a 2% floor. This means that the deduction is only available if you itemize your deductions, and only the amount greater than 2% of your adjusted gross income (AGI) is deductible. In addition, miscellaneous deductions are not allowed for purposes of the alternative minimum tax (AMT), so you could lose the benefit of the deduction if you are subject to AMT taxes.

Whether it makes sense to liquidate your Roth IRA to claim the loss will depend on several factors, such as whether you itemize or not, how large the loss is compared to 2% of your AGI, whether you're subject to AMT tax, and other factors. You should also consider how much will you lose in potential earnings if you liquidate your Roth IRA.

1:02

[Comment From Dave]
We have a question about the Foreign Earn Income Exclusion - my wife she works in China and has met the bona fade test for the full exclusion. However, she also has paid local income tax, my question is can we deducted the the local income tax paid and if so, how do we file for such? Thanks.

1:04

Steve Elliott - Dave - the maximum foreign earned income exclusion for 2008 is $87,600 and it is $91,400 for 2009. If your wife earned higher than the $87,600, then you can claim some foreign tax credits. Don't forget about claiming exclusions for living expenses as well. I would strongly recommend you use a CPA to assist with your tax preparation with these facts.

1:04	[Comment From MG] If one has a 2 family rental property and lives in one of the apartments and rents the other. Which federal form does the real estate tax and interest paid on mortgage go on.

1:05

Steve Elliott - MG -

You use Federal Schedule E (Page 1) to report the rental income and related expenses, including an appoirtionment of real estate taxes and mortgage interest, depreciation, pest control and other rental expenses.

Your own portion of the mortgage interest and real estate taxes are reported on Schedule A (Itemized deductions).

1:05	[Comment From Brad] hi, I owe, I owe, is there any flexibility with the 4/15 date to pay? I know there is a payment plan, but if I recall it's quite steep in Interest %

1:07

Steve Elliott - Dear Brad -

There is SOME flexibility in paying late depending on your facts and circumstances.

MOST important is to not file your returns late. File them with whatever amounts you can afford on April 15th.

You will receive a bill in about a month with interest.

Depending on the amounts involved, you can request a payment (installment) plan - there is an installment plan fee and also you would pay interest and some late payment interest.

Just make sure to file on time.

1:08	[Comment From Billy Bossy] You seem awfully tall can you dunk a basketball without jumping?

1:08	Steve Elliott - Why thank you Billy! I need a step stool to dunk even at 6 ft 5!

1:09

[Comment From Troubled]
My husband and I owe the state for 2007 and the IRS for 2006. We've been going through extreme financial trouble over the past 2 years. We are about to be 30 days behind on our mortgage for the 3rd time in about 6 months. We have 3 children under the age of 12 living with us. The state levied our bank accounts back in January and the IRS just levied my paycheck (my husband is out of work). This is despite numerous conversations with both to try and set up payment plans, defer payment due to hardship, etc - all through an accountant. After showing the state that we are behind on our mortgage and that I am bringing home only half of what it takes to cover our bills, the state said we do not qualify for hardship. My question is, should we take a hit and hire an attorney or, just continue to communicate with both agencies and wait it out?

1:11

Steve Elliott - Troubled - seek out the services of a qualified CPA who has experience with these issues - use the FIND A CPA feature of www.boston.com or contact the Mass Society of CPA's to assist you - www.mscpaonline.org.

You should consider an offer in compromise for both IRS and the state.

Also, make sure to get your 2008 taxes in on time, even without a payment if you owe!

Best of luck with everything!

1:12	[Comment From Fred] Hi Steve, I own a rental property and know that I can claim expenses but what about my primary home,? If I have done renovations can i claim that on my taxes as well? Thanks

1:13	Steve Elliott - Hi Fred - thanks for your question. The renovations on your primary (personal) residence cannot be deducted, however, make sure to keep a running track of all such expenses, as they add to your tax basis in your home.

1:15	[Comment From Michael] Hi - I had long term incentive stock options from a former employer that expired underwater, am I able to claim any type of loss or deduction on my personal icome taxes? Thanks

Page 1 Next >