Q. We were at a local fundraising event and won a raffle. The prize was a trip to Vail, CO. including airfare and lodging for seven nights. The value is estimated at $12,000 to $18,000. Is the prize taxable?
A. You win... and of course the IRS wins. This is taxable and you most likely be receiving a 1099 for this. If the trip is valued at $12,000 at a 40% tax rate, you will be paying about $4,800 in income taxes on your 2011 tax return for this.
Enjoy the trip.
Monday, October 17, 2011
Friday, October 14, 2011
ORDERING A PIZZA?
This is absolutely hilarious, but the scary part about it is that it's probably not too far away from being reality.Click Here
Turn up the volume. . Listen closely. ..Watch the pointer!
Thursday, October 13, 2011
PROTESTS ON WALL STREET
Maybe this is too political but.... this past summer I read Atlas Shrugged by Ayn Rand. The book explores a dystopian US where leading innovators refuse to to be exploited by society. The protagonist sees society collapse around her as the government asserts control over all industry while the most productive citizens progressively disappear.
As I watch the protests on Wall Street and the ones spreading across the country, I thought of this book and the following statements. If anybody that reads this understands what the protesters are trying to get across would you please email me so that maybe I can understand.
Here are the concepts that I pulled out of my quotes bag.
1. You cannot legislate the poor into prosperity by legislating the wealthy out of prosperity.
2. What one person receives without working for, another person must work for without receiving.
3. The government cannot give to anybody anything that the government does not first take from somebody else.
4. You cannot multiply wealth by dividing it.
5. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that is the beginning of the end of any nation.
As I watch the protests on Wall Street and the ones spreading across the country, I thought of this book and the following statements. If anybody that reads this understands what the protesters are trying to get across would you please email me so that maybe I can understand.
Here are the concepts that I pulled out of my quotes bag.
1. You cannot legislate the poor into prosperity by legislating the wealthy out of prosperity.
2. What one person receives without working for, another person must work for without receiving.
3. The government cannot give to anybody anything that the government does not first take from somebody else.
4. You cannot multiply wealth by dividing it.
5. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that is the beginning of the end of any nation.
ACCOUNTANTS IN THE MOVIES
In Hollywood, accounting can seem like a pretty glamorous profession, or not.Will Ferrell plays lonely IRS agent Harold Crick in the 2006 comedy-drama "Stranger Than Fiction." Harold has been assigned to audit Maggie Gyllenhaal, and falls in love with her. However, he keeps hearing a strange British-sounding voice in his head, and he discovers it's author Emma Thompson, whom he tracks down through her tax records. Turns out she has been writing about his life and trying to decide how he will die in her next book.
Wednesday, October 12, 2011
FISCAL YEAR QUESTION
Q. I have a question if you can help me. I have a new LLC created on earlier this year. I applied IRS online for EIN. Calendar year is a default on this so I have to elect Fiscal year now with form 1128. My question is can I elect 6/30 year end although even though my business started in May of 2011? ~ Thanks
A. First of all, you really shouldn’t be setting up new business entities without the assistance of a qualified adviser. It is too easy to make mistakes that may be impossible to remedy .
There are a couple of rookie mistakes that an experienced tax pro would have alerted you to.
First, if you are choosing to have your LLC taxed as a C corp., you can choose the end of any month to be its fiscal year-end, regardless of when it was chartered.
For example, if you want June 30 to be the fiscal year-end, that’s your right to choose. You would need to file the initial 1120 covering all of the activity for the period from your startup in May through 6/30/11. This 1120 or an extension (Form 7004), would have been due 9/15/11. You need to file that 1120 even if no actual activity took place or IRS will assume that you made millions of dollars.
When you have a brand new C corp., it has no set fiscal year-end, so the initial 1120 becomes the official notification to the IRS of that fact. This is even if you used December 31 on the SS-4.
Secondly, you do not need to file Form 1128 to designate the tax year for a new corp. that has not filed any 1120s.
A. First of all, you really shouldn’t be setting up new business entities without the assistance of a qualified adviser. It is too easy to make mistakes that may be impossible to remedy .
There are a couple of rookie mistakes that an experienced tax pro would have alerted you to.
First, if you are choosing to have your LLC taxed as a C corp., you can choose the end of any month to be its fiscal year-end, regardless of when it was chartered.
For example, if you want June 30 to be the fiscal year-end, that’s your right to choose. You would need to file the initial 1120 covering all of the activity for the period from your startup in May through 6/30/11. This 1120 or an extension (Form 7004), would have been due 9/15/11. You need to file that 1120 even if no actual activity took place or IRS will assume that you made millions of dollars.
When you have a brand new C corp., it has no set fiscal year-end, so the initial 1120 becomes the official notification to the IRS of that fact. This is even if you used December 31 on the SS-4.
Secondly, you do not need to file Form 1128 to designate the tax year for a new corp. that has not filed any 1120s.
Tuesday, October 11, 2011
TEN TAX TIPS FOR INDIVIDUALS SELLING THEIR HOME
The Internal Revenue Service has some important information to share with individuals who have sold or are about to sell their home. If you have a gain from the sale of your main home, you may qualify to exclude all or part of that gain from your income. Here are ten tips from the IRS to keep in mind when selling your home.
1. In general, you are eligible to exclude the gain from income if you have owned and used your home as your main home for two years out of the five years prior to the date of its sale.
2. If you have a gain from the sale of your main home, you may be able to exclude up to $250,000 of the gain from your income ($500,000 on a joint return in most cases).
3. You are not eligible for the exclusion if you excluded the gain from the sale of another home during the two-year period prior to the sale of your home.
4. If you can exclude all of the gain, you do not need to report the sale on your tax return.
5. If you have a gain that cannot be excluded, it is taxable. You must report it on Form 1040, Schedule D, Capital Gains and Losses.
6. You cannot deduct a loss from the sale of your main home.
7. Worksheets are included in Publication 523, Selling Your Home, to help you figure the adjusted basis of the home you sold, the gain (or loss) on the sale, and the gain that you can exclude.
8. If you have more than one home, you can exclude a gain only from the sale of your main home. You must pay tax on the gain from selling any other home. If you have two homes and live in both of them, your main home is ordinarily the one you live in most of the time.
9. If you received the first-time homebuyer credit and within 36 months of the date of purchase, the property is no longer used as your principal residence, you are required to repay the credit. Repayment of the full credit is due with the income tax return for the year the home ceased to be your principal residence, using Form 5405, First-Time Homebuyer Credit and Repayment of the Credit. The full amount of the credit is reflected as additional tax on that year’s tax return.
10. When you move, be sure to update your address with the IRS and the U.S. Postal Service to ensure you receive refunds or correspondence from the IRS. Use Form 8822, Change of Address, to notify the IRS of your address change.
1. In general, you are eligible to exclude the gain from income if you have owned and used your home as your main home for two years out of the five years prior to the date of its sale.
2. If you have a gain from the sale of your main home, you may be able to exclude up to $250,000 of the gain from your income ($500,000 on a joint return in most cases).
3. You are not eligible for the exclusion if you excluded the gain from the sale of another home during the two-year period prior to the sale of your home.
4. If you can exclude all of the gain, you do not need to report the sale on your tax return.
5. If you have a gain that cannot be excluded, it is taxable. You must report it on Form 1040, Schedule D, Capital Gains and Losses.
6. You cannot deduct a loss from the sale of your main home.
7. Worksheets are included in Publication 523, Selling Your Home, to help you figure the adjusted basis of the home you sold, the gain (or loss) on the sale, and the gain that you can exclude.
8. If you have more than one home, you can exclude a gain only from the sale of your main home. You must pay tax on the gain from selling any other home. If you have two homes and live in both of them, your main home is ordinarily the one you live in most of the time.
9. If you received the first-time homebuyer credit and within 36 months of the date of purchase, the property is no longer used as your principal residence, you are required to repay the credit. Repayment of the full credit is due with the income tax return for the year the home ceased to be your principal residence, using Form 5405, First-Time Homebuyer Credit and Repayment of the Credit. The full amount of the credit is reflected as additional tax on that year’s tax return.
10. When you move, be sure to update your address with the IRS and the U.S. Postal Service to ensure you receive refunds or correspondence from the IRS. Use Form 8822, Change of Address, to notify the IRS of your address change.
Friday, October 7, 2011
FACT-CHECKING WARREN BUFFETT
Here is an article from the Tax Foundation. They are trying to figure where the Oracle of Omaha get’s his numbers. ~ Larry
Warren Buffett's much-discussed op-ed arguing that high-income earners aren't paying enough taxes makes the following claim:
"Last year my federal tax bill — the income tax I paid, as well as payroll taxes paid by me and on my behalf — was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent."
To me, the effective rates he claims for other workers in his office seem too high to be realistic, and I can't figure out how he calculated them, even if you include all payroll (employee and employer) taxes. Even if you assume the scenario that leads to the highest possible tax burden (single filer, no deductions), a taxpayer would have to make at least $285,388 (in 2010) before his or her effective rate reaches 33 percent. 41 percent is impossible, as far as I can tell: the limit of total taxes over total income, as income approaches infinity, is 37.358%. That's the highest possible effective rate anyone could have paid in 2010, if you include income and all payroll taxes.
To demonstrate this, I've made a little calculator which shows the maximum possible effective rate for any income amount. Try it out on the Tax Foundation website.
Warren Buffett's much-discussed op-ed arguing that high-income earners aren't paying enough taxes makes the following claim:
"Last year my federal tax bill — the income tax I paid, as well as payroll taxes paid by me and on my behalf — was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent."
To me, the effective rates he claims for other workers in his office seem too high to be realistic, and I can't figure out how he calculated them, even if you include all payroll (employee and employer) taxes. Even if you assume the scenario that leads to the highest possible tax burden (single filer, no deductions), a taxpayer would have to make at least $285,388 (in 2010) before his or her effective rate reaches 33 percent. 41 percent is impossible, as far as I can tell: the limit of total taxes over total income, as income approaches infinity, is 37.358%. That's the highest possible effective rate anyone could have paid in 2010, if you include income and all payroll taxes.
To demonstrate this, I've made a little calculator which shows the maximum possible effective rate for any income amount. Try it out on the Tax Foundation website.
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