Archive for October, 2009

Change Isn’t Always Good Or Bad – Just Change

Saturday, October 31st, 2009

As I sneeze the allergies and cleaning fluids out of my head from cleaning my bathroom (yes, I do that once in a blue moon and the Halloween moon is almost full) I was thinking about an office move. Where I teach tax classes, the office is going through a make-over. For the last half of my class, my students and I are moving over to another office and at this point our fingers are crossed that the software will be loaded and everything will work out after the move.
It is kind of like how we all are feeling about the economy. Right now, we are going through a change and our nation has to do something to get out of contraction mode. Too many companies have downsized to the point that their out of work employees themselves aren’t making a living or cash to buy goods and services. It is hampering growth.

All of us can’t move to China and honestly, that isn’t the desirable solution. It goes back to just change. In the long run, we can’t tell if the changes we go through were good bad or indifferent. Sometimes even after we have gone through something that was very bad (like a car accident) we may have some revelation years later that might have helped us learned something.

I don’t think we are learning much as a nation though some things are changing. A lot of people are still spending money that they don’t have like there is no tomorrow. Maybe they aren’t going to have one either because they are too deep in debt.

In the final analysis, what will make or break you as a person is your ability to put aside a lot of the emotional decisions and do what you can to survive. We are in the mode of instant evolution. If we can’t adapt or change, the chances are that we will starve and we won’t have roofs over our heads.

Be safe, accept change and be flexible.

Have a great Halloween while you are at it – since things are spooky enough with the economy as is and if you live where there will be Daily Savings Time, please remember to set your clocks forward an hour before bed time.

Oct 31 2009

Kim Isaac Greenblatt

Change Isn’t Always Good Or Bad – Just Change

More on Misc Deductions

Thursday, October 29th, 2009

Q.What are some general types of itemized deductions that are subject
to the 2%-of-AGI floor?
A. Employment expenses (including qualified transportation and education
expenses), investment expenses (other than interest), job-seeking expenses,
hobby expenses to the extent of hobby income, and expenses for
tax preparation and advice.
Q.Which expenses are reported on line 20?
A. Unreimbursed employment-related expenses.
Q.Under what circumstances may unreimbursed employee expenses
be reported directly on Schedule A, line 20, rather than on
Form 2106 or 2106-EZ and then on line 20?
A. When the taxpayer is not claiming meal, entertainment, travel, or transportation
expenses or any reimbursed expenses.
Q.What are deductible transportation expenses?
A. Those that involve the use of a motor vehicle for business purposes.
Q.What is commuting?
A. Driving back and forth to the regular place of work. Commuting expenses
are not deductible.
Q.Describe the optional method of deducting transportation
expenses.
A. Using the standard mileage rate of 50.5¢ per mile before July 1, 2008, and
58.5¢ after June 30, 2008, rather than actual vehicle expenses.
Q.What conditions must be met to qualify to use the optional
method?
A. The taxpayer must own or lease the vehicle, must not use it for hire (for
example, as a taxicab), must not have had more than four vehicles in
simultaneous business use at any time during the year, and must use the
optional method the first year the car or truck is placed in service.
Q.What educational expenses may be deducted by an employee on
Schedule A?
A. Education intended to maintain or improve the taxpayer’s current job
skills.
Q.What other tax options are available for employees taking jobrelated
courses?
A. They may instead claim a lifetime learning credit or a tuition and fees
deduction, assuming all the requirements are met. For example, the education
must be provided by an eligible educational institution to claim
either of these benefits. More on this in another post.
The taxpayer should examine all available options and select the most
beneficial tax treatment.
Q.What is the primary requirement to deduct job-seeking expenses?
A. The taxpayer must be seeking employment in the same occupation in
which he is currently or was most recently employed.
Q.What are some employee expenses that can be claimed directly on
line 20 without using Form 2106 or 2106-EZ?
A. Some examples are union dues, subscriptions to work-related publications,
dues to professional organizations, cost of physical exams required
by the employer, cost of small tools and safety equipment, and the cost and
cleaning of specialized clothing required by the employer and not adaptable
to general wear.

Oct 29 2009

Kim Isaac Greenblatt

More on Misc Deductions

Everything Is A Mess Again

Thursday, October 29th, 2009

I was wrong about the stock market with gold and guns in the sense that it would somewhere “safe” for the short term because apparently there are a lot of market makers actively shorting the markets to drive things down and try to keep companies that are showing a profit from rising.  One of the situations was with Ruger (RGR).  They had a great quarter and the stock was hit hard.  It went from a low volume to a million or so shares and it see sawed down all over the map once earnings were released.

It was a little too aggressive a drop for sell on the news.

Watch your money, people.

and Happy Birthday, Sharren!  You aren’t a mess!

Oct 29 2009

Kim Isaac Greenblatt

Everything Is A Mess Again

Everything Is Gold and Guns Again

Wednesday, October 28th, 2009

or is it?  When one looks at the stock market, one will see a correction with the dollar rising and that mining stocks are dropping and that ammunition companies, weapons manufacturers etc are slowing down.  Traditionally, gold and guns are the stocks and investments when people get scared.  When President Obama got elected, both started shooting up because of fears that guns would be outlawed and cash would be replaced with gold or the Yuan.

At this point in time, it doesn’t look like guns are going to be outlawed, at least in the near future, and there is far too much money to be made in weapons and ammunition.  Gold isn’t going to be going out of favor soon, however, with the reindexing of the basket of world currencies there may be some problems with it as an investment in the short term. 

An interesting effect of the current Depression is that the US dollar is down but in relation to the other world currencies it may be valued accordingly.  Part of the support of the dollar comes from the fact that China and other nations have a lot of it so they are slowly trying to get unhooked from it and whether they go to a new gold standard or not is for far greater minds than mind.

It would seem though that for the immediate future that people may want to look at manufacturing of weapons companies (if you are ethically comfortable with it and not adverse to making a profitable investment if the due diligence is there) and gold or precious metals.

The advice given here is worth what you paid for it so please act accordingly and be safe in your research.

That’s it for now, gang.  Be safe and sane.

Oct 28 2009

Kim Isaac Greenblatt

Everything Is Gold and Guns Again

Income Tax Q & A Oxt 26 2009

Monday, October 26th, 2009

Q.What are the three individual income tax forms?
A. The three forms are Forms 1040EZ, 1040A, and 1040.

Q.How should dollar amounts be entered on the tax return?
A. Only whole dollar amounts should be entered. When rounding amounts to the nearest dollar, 50–99¢ are rounded up; 1–49¢ are rounded down.

Q.How should percentages be rounded?
A. Percentages should be rounded in the same manner and to at least two places past the decimal point; for example, 27.86%.

Q.How would you round $999.51?
A. $1,000.

Q.How would you round 30.493%?
A. 30.49% (or .3049 as a decimal).

Q.What form is used by an employer to report wage and tax information to an employee?
A. Form W-2

Q.Where are total wages entered on Form 1040?
A. On line 7.

Q.On Form 1040A?
A. On line 7.

Q.On Form 1040EZ?
A. On line 1.

Q.Where is total federal income tax withheld entered on Form 1040?
A. On line 62.
Q.On Form 1040A?
A. On line 38.
Q.On Form 1040EZ?
A. On line 7.

Remember that the line numbers change (or might each year) so you don’t have to memorize them.  Just know what they are for the year that you are doing your return.

Q.What does code D in box 12 signify?
A. Pre-tax contributions to a §401(k) plan.
Take a look at my previous post for more details on the codes.

Q.What does it mean if the “Retirement Plan” box in box 13 of Form W-2 is checked?
A. It means that the employee was an active participant in an employer maintained retirement plan, such as a §401(k) plan, at some time during 2008.

Q. Where are state and local income taxes withheld entered?
A. On the state and local tax returns and sometimes on federal Schedule A.

Q.If the employee thinks his Form W-2 is not correct, what should he do?
A. If the name or social security number is incorrect, the taxpayer may change it himself and need not obtain a corrected W-2 before filing his tax return. The employer should be notified of the error and asked to update
his records. Furthermore, the employee’s social security number and earnings records should be verified with the Social Security Administration to ensure that the earnings were properly credited.

Q.Where can the regular standard deduction amounts be found?
A. In the left-hand margin at the top of page 2 of Forms 1040 and 1040A. They are: Single and married filing separately, $5,450; married filing jointly and qualifying widow(er), $10,900; and head of household, $8,000. The amounts differ for taxpayers age 65 or older or blind and those who may be claimed as dependents by other taxpayers.

Q.What is the exemption amount for 2008?
A. $3,500 for each taxpayer and dependent.

Q.If the employee thinks his Form W-2 is not correct, what should he do?
A. If the name or social security number is incorrect, the taxpayer may change it himself. If any of the other information is incorrect, he must obtain a corrected W-2 from his employer.

More questions?  Ask me and I will try and answer them.  Check out my books as well while you are at it!

Oct 26 2009

Kim Isaac Greenblatt

Income Tax Q & A Oxt 26 2009

Steps To Compute Taxable Income

Sunday, October 25th, 2009

Q.What steps must be taken to compute taxable income?

A. 1. Determine total income.

2. Determine total adjustments to income.

3. Subtract total adjustments from total income to arrive at adjusted gross

income (AGI).

4. Subtract standard deduction or itemized deductions from AGI.

5. Subtract total exemptions to arrive at taxable income.

It is a big deal that you do the calculations in the appropriate order otherwise you will get an inaccurate picture and might be reporting the wrong figures at tax time. If you take a look at the Federal income tax forms you will see that the flow proceeds pretty much the way I have described them above.  The income must be determined before getting the calculation for the deductions and exemptions.

More tax questions and answers in my next post after midnight tonight.

Hope you are having a great weekend.

Kim Isaac Greenblatt

Steps To Compute Taxable Income

 

 

 

How To Read W2 Box 12 Codes

Sunday, October 25th, 2009

A lot of times when you get a W-2 at the end of the year you don’t know or understand what the codes mean in Box 12.   There may or may not be descriptions on the back of the Form.  Here is a quick and dirty guide to help you with what the codes and what it means:

 

 

A     Uncollected social security tax or railroad retirement tax on tips.

B     Uncollected medicare tax on tips.

C     The cost of group-term life insurance coverage in excess of $50,000. This amount has been        included in boxes 1, 3, and 5 as taxable income.

D     §401(k) contributions.

E    §403(b) (tax-sheltered annuity) contributions.

F    §408(k)(6) (SEP) contributions.

G    §457(b) contributions (a type of plan used by certain government employees).

H    §501(c)(18)(D) contributions.

J    The amount of any sick pay not includible in income because the employee contributed to the sick pay plan.

K   The employee received excess golden parachute payments.

L   The employee received a mileage allowance or per diem (daily) expense allowance in excess of the standard government rate. The portion of the reimbursement equal to the government rate is shown in box 12, and the excess is included in box 1 as taxable income.

M  The taxpayer is a former employee (most likely a retiree) who received more than $50,000 group-term life insurance coverage paid for by the former employer. The amount shown with this code represents uncollected social security tax or RRTA tax on the excess coverage cost.

N  This code indicates the same situation as code M, except the amount shown represents uncollected medicare tax.

P  This code represents excludible amounts paid directly to an employee to help finance a work-related move.

Q   Nontaxable combat pay.

R   This code represents employer contributions to the employee’s Archer MSA (medical savings account).

S   Employee salary reduction contributions under a §408(p) (SIMPLE) plan (not included in box 1).

T   This code represents employer-provided adoption benefits. These amounts are generally nontaxable.

V   Income resulting from the exercise of certain stock options. Amount is included in boxes 1, 3, and 5.

W   This code represents employer contributions to the employee’s health savings account (HSA). This amount generally is not taxable. Any taxable amount will be included in box 1.

Y   Deferrals under a §409A nonqualified deferred compensation plan.

Z   Income under §409A on a nonqualified deferred compensation plan.

AA   Designated Roth contributions to a §401(k) plan.

BB   Designated Roth contributions to a §403(b) salary reduction agreement.

You should be able to go back to your boss or employment dept or human resources and have them explain specifically what the code means for you.  It will be helpful to know at tax time later on.

Oct 25 2009

Kim Isaac Greenblatt

How To Read W2 Box 12 Codes

 

 

 

Jobless Recovery Suggestions

Saturday, October 24th, 2009

It is very hard to try to make a living when business isn’t hiring or spending.  For most people in the consumer sector, it is tough to figure out what people will be spending money on.  To help you deal with the so-called jobless recovery here are a few suggestions:

1.  People will find money for their addictions.  If you sell sin things like cigarettes, alcohol, or even candy, people will find money for it.  In some cases they may not buy in as much quantity and they may drop down to other than name brand generics but they will find money for it.  The same holds true for some hobbies like collecting some small toys, shooting (have you seen the price for bullets or primer lately?), bicycle riding, certain type of comic/coin or stamp collecting and the like.  The impact is for the people that are working, they may cut back but they still will find something to spend.  Any gig that makes money from this should continue to do well.

2.  People will or have been eating out more.  This has been an observation by me and the only thing I can think of is that people feel that the extra money they spend out is a treat and it gets them out of the house so they don’t get as depressed. If you have a low cost restaurant you will make money.  You may want to hold a charity night or two to get on the local news as some places do and feed the homeless.  You will be doing a blessing and getting free publicity for your eatery.

3.  People have been going to the movies more – just going to more early bird showings so that they don’t have to spend $10 for tickets.  That goes hand in hand with the next item:

4.  People forego the movies entirely and only go rarely for special treats and rent movies from the kiosks at Wal Mart or go straight to Netflix type downloads.  Any kind of candy stores (or cookies) that could tie in with this could make some money. 

5.  People working or unemployed need transportation.  If you can service cars, bicycles or mopeds you should be able to make some money even with people turning to the Internet to watch videos for do-it-yourself.

Hope some of these help.

Oct 24 2009

Kim Isaac Greenblatt

Jobless Recovery Suggestions

The Importance of SIC Codes In Taxes

Friday, October 23rd, 2009

Some of my tax students were asking me if it was important to get the SIC codes correct on Schedule C forms and I said, absolutely.  The IRS (and the respective State taxing agencies, here in California, it is the Franchise Tax Board), use the Standard Industrial Codes or Classifications (I hope I got the definition or names right or SIC codes)  to gather statistics about businesses or industries and that way can look at the reasonableness of expenses and income for a particular business.

For example, if a barber were taking a lot of expenses for shaving cream and blade sharpening (let us say he loves to give straight razor shaves), the cream and sharpening stones could be considered expenses.  He could depreciate his barber chair and shop as well.  The trigger for that would be to get an SIC code as close to haircuts and shaves as possible – maybe something in health, grooming, things like that.

Fortunately, the SIC table is available at the IRS web site and it is good to remember to keep the same SIC code year after year (another reason to have your prior return handy when your tax professional wants to check things out).

You may also have been using the wrong code and the tax pro can help you get the correct one.

Have a great Friday, gang!

Oct  23 2009

Kim Isaac Greenblatt

The Importance of SIC Codes In Taxes

How To Report Other Adjustments To Income

Wednesday, October 21st, 2009

How do you report other adjustments to income on your Fed 1040?  Here is a handy dandy little list.  Remember that I have a book out on taxes as well “Bad Tax Idea, Good Tax Idea” and you can get it from Amazon, Barnes and Noble and anywhere that great books can be ordered.  I also have other non-fiction and fiction books that are part of my Rett Syndrome research support.  Part of all book sales goes to research a cure for Rett Syndrome. 

OTHER ADJUSTMENTS TO INCOME

There are other adjustments to income for which there are no corresponding lines on the Form 1040. These are “write-in” adjustments.

This means that if you encounter one of these types of adjustments you must indicate the adjustment by writing its short-hand identifier on the dotted-line to the left of box 36.

Many of these write-in adjustments are not usually a big deal and you probably will never need them.

However, I will list them in case you happen to encounter them when reviewing a tax return. These adjustments are:

• The deductible contribution to an Archer MSA (Form 8853), identified by the letters “MSA”

• The repayment of jury duty pay to your employer because your employer paid your salary while you served jury duty, identified by the phrase “JURY PAY”

• The deductible expenses related to income reported on line 21 from the rental of personal property engaged in for profit, identified by the letters “PPR”

• The deductible amortization and expenses for reforestation, identified by the letters “RFST”

• The repayment of supplemental unemployment benefits under the Trade Act of 1974, identified by the phrase “Sub-Pay TRA”

• The deductible contributions to a §501(c)(18)(D) pension plan, identified by “501(c)(18)(D)”

• The deductible contributions by certain chaplains to §403(b) plans, identified by “403(b)”

• The deductible attorney fees and court costs for actions settled or decided after October 22, 2004, involving certain unlawful discrimination claims, but only to the extent of gross income from such actions, identified by the letters “UDC”

• The deductible attorney fees and court costs paid by you in connection with an award from the IRS for information you provided after December 19, 2006, that contributed to the detection of tax law violations, up to the amount of the award includible in your gross income, identified by the letters “WBF”

Oct 21 2009 Later

Kim Isaac Greenblatt

How To Report Other Adjustments To Income