User pat haggerty - TaxQueries.com

Answer by Pat Haggerty for Wrong social security number

2010-08-14T18:41:54Z

The IRS has a history of correcting the incorrect SS numbers on the tax returns and not telling anyone. The TP should check with the IRS to make sure it is OK - but the Social Security info does have to be corrected. It is also possible that the employee used the correct number on the tax returns.

On the W-2, the IRS would not notify you that there was a mismatch - that would be the SSA. How did you find out you had the incorrect number?

Answer by Pat Haggerty for Can a wife be considered as a dependent if she is a Mexican resident and she lived the entire year in Mexico?

2010-08-10T13:58:53Z

Keep in mind that a US resident (even one that elects to be treated as a US resident for purposes of married filing jointly) may qualify for the foreign earned income exclusion.

Answer by Pat Haggerty for Record retention - length of years

2010-07-09T04:06:23Z

etaxwiz, "Three yearsfrom date the return was filed or two years from when the tax is paid whichever is later." That is the general statutory period for filing a claim for a refund - it is not the record retention period. There are exceptions to this general period - for example, the statutory period for claiming a refund for a worthless security or uncollectable debt is 7 years.

Answer by Pat Haggerty for 1099-A abandoned funds

2010-07-08T02:33:27Z

1099-A - Acquisition or Abandonment of Secured Property (not funds) Instructions to borrower: "Certain lenders who acquire an interest in property that was security for a loan or who have reason to know that such property has been abandoned, must provide you with this statement. You may have reportable income or loss because of such acquisition or abandonment. Gain or loss from an acquisition generally is measured by the difference between your adjusted basis in hte property and the amount of your debt canceled in the exchange of the property.."

The signor (issuer) of the note is the borrower - issuing the note is making a promise to pay the money back - so the money belongs to the lender, not the borrower - the problem is the borrower did not pay the money back or abandoned the property without paying the money back, so the lender foreclosed or otherwise took possession of the abandoned property. As indicated above, the borrower may have a gain or loss depending upon the circumstances.

Answer by Pat Haggerty for Does working for 2 companies double my NYS UI taxable wage base ?

2010-06-27T23:34:17Z

Actually, if you have two employers, both are paying into the system - BUT while that does not increase your benefit, your chances of being laid off by both at the same time are less than if you only had one employer (grin). Actually, the amount paid into the system has very little to do with you but with the unemployment experience and reserve account balances of your employers and with the amount the state has had to borrow from the federal system to pay benefits.

Answer by Pat Haggerty for Deducting Milage when NOT claiming Home Office Expenses

2010-05-29T18:12:43Z

Hi Tom - in response to your response to cpaboise, it is page 32 of Pub 334 which says the same thing as Pub 463 and no additional light on the problem of whether a home office can be a principal place of business without meeting the regular and exclusive use test.

I agree with cpaboise that SMR (Standard Mileage Rate) is a separate issue - but that has nothing to do with this question - it has to do with whether the taxpayer may take a deduction for transportation between the home and the first and last stops of the day (whether by SMR or actual expenses).

It sounds as if the taxpayer is risk averse - preferring not to take the office in the home which is often regarded (rightly or wrongly) as painting an "audit me" target on the taxpayer's back.

There are at least three discussion (on this board and on Linkedin) going on on this target and so far I have not seen any citation that indicates that the home office as a principal place of business can be separated from the regular and exclusive use test for purposes of deducting certain transportation costs. There have been citations of things that do not directly address that issue - for example the Soliman case was cited but in that case it was determined the home office did not meet the principal place of business test, and as a result, failed the "home office" test.

Apparently this home office would qualify as a home office under both the regular and exclusive use tests and the principal place of business tests. The OP asked if failure to claim the home office precludes claiming transportation expenses only allowed if the home qualifies as a principal place of business.

I suppose that the IRS could claim that the taxpayer, by not claiming the home office, failed to establish that it was a principal place of business. And there do seem to be some revenue agents willing to push things that should be clearly allowable into appeals.

I guess, if what we are talking about is a risk averse client, I would run the numbers (for both the home office and the affected transportation expense) and see how much difference is involved. If the client does not mind a few hundred dollars difference in tax to pay for peace of mind, I would be OK with that. As to the home office qualifying and not being taken - it is easy enough to violate the exclusive use test and disqualify it, so I would not be very concerned about the depreciation having to be recaptured under the "allowed or allowable" rules. That sort of thing kicks in when taxpayers take the other home office expenses, but not the depreciation.

Answer by Pat Haggerty for 1099-Misc. required for reimbursements?

2010-05-29T17:18:52Z

Let me see if I understand - The member buys promotional items (eg key fobs, t shirts, etc) related to the car club. The car club reimburses the member for purchasing the items and resells the items to other members.

Sounds as if it is actually expense reimbursement - so long as the org maintains an accountable plan, I see no problem with not issuing a 1099 to the member. There is no current requirement to issue 1099s for goods - as you mentioned, that starts in 2012. No regulations have been issued as yet regarding the new law, so there is no guidance on how to handle information reporting for indirect purchases of goods where the employee (in this case member) makes the purchase on behalf of the business (tax exempt org) as an individual who is not in a trade or business. Currently, payments of reimbursement to employees under an accountable plan are not subject to information reporting, but that may change with the new rules.

One thing to watch is the rules related to third party payers - for example, if the payment by the member to the vendor is through a third party (credit card), the transaction will be reportable (in many cases) by the credit card company under a law passed in 2008. That may be the fix - if the transaction is reportable by the transfer agent, then there may not be any need to be concerned with the transactions you describe.

Answer by Pat Haggerty for HOA fees deductable as rental expense?

2010-05-29T17:02:09Z

Generally is the key as Tom indicated - they must be ordinary, necessary, and reasonable costs of operating the rental property. If any of the items paid for fail that test, then they may not be deductible.

Answer by Pat Haggerty for Deducting Milage when NOT claiming Home Office Expenses

2010-05-23T14:52:07Z

It is really, really easy to disqualify a space for home office - simply use it for something other than business. This prevents taking the expenses for the business use of the home - except for those that are directly attributable to the business - such as depreciation on business furniture or equipment used in the home office. It can create issues for listed property (like computers), but the personal use of the business computer located in the home office would disqualify the home office. See the following example in IRS Pub 587 - Business Use of Your Home at http://www.irs.gov/publications/p587/index.html

"Sarah does not qualify to claim a deduction for the business use of her home, but she uses her home computer 40% of the time for a business she operates out of her home. She also uses the computer 50% of the time to manage her investments. Sarah's home computer is listed property because it is not used in a qualified office in her home. She does not use the computer more than 50% for business, so she cannot elect a section 179 deduction. She can use her combined business/investment use (90%) to figure her depreciation deduction using ADS."

As indicated earlier, the question was about whether the mileage without the home office deduction is deductible -

Pub 463 says the following:

"Office in the home. If you have an office in your home that qualifies as a principal place of business, you can deduct your daily transportation costs between your home and another work location in the same trade or business. (See Publication 587, Business Use of Your Home, for information on determining if your home office qualifies as a principal place of business.)"

The flowchart in Pub 587 indicates that regular and exclusive use is a prerequisite for " principal place of business" in order to use “principal place of business” to qualify to claim the home office expenses - however, that suggests that "principal place of business" may be a separate issue from qualification for the home office deduction (which also requires regular and exclusive use) - that is, the attorney (in a different example) who meets with clients (one of the other conditions that can be combined “regular and exclusive use” qualify for home office deduction) in a room in her home used exclusively for that purpose, but also has an office at another location that is her principal place of business, qualifies for the home office deduction despite the home office not being a principal place of business.

I have not had the time to research further to see whether the home office has to qualify for the home office deduction (regular and exclusive use) in addition to being a "regular place of business" for the mileage to be deductible. It has never been entirely clear to me, but I have not had a situation where it was a significant issue for one of my clients. What it also says is that even if the home office is qualified, if it is not a principal place of business, mileage from the home office to the first stop of the day and from the last stop at night, will be commuting. That is the question – and, so far, nobody has responded with a citation that answers that question.

Answer by Pat Haggerty for Client disagrees on 1099-MISC issued to them

2010-04-30T20:39:27Z

But when a client insists then what do you do? File with the information provided to me?

Hello Sandy - you don't have to do the return if you are really concerned about whether it is correct. You may be subject to preparer penalties under some circumstances.

The suggestions above were all good - I would add emphasis to reporting what was on the 1099 and making an adjustment if the issuer will not correct the 1099 and the client can show that the amount is incorrect - the key is disclosure - lay it all out.

I have (some years ago) written letters for clients requesting correction of information returns and showing the basis for the correction - this gave me documentation that the effort to obtain a correction had been made - usually where the issuer was incorrect and would not make a correction (usually a W-2), the issuer would send a letter and state the reason they issued the information return the way they did - and usually it was not a good reason (eg treating employees as independent contractors for a month or two while paying the net pay and claiming there "was no tax withholding" because they were "independent contractors". (I love getting letters like that - my client reports the correct amounts and does not get asked any questions - grin).

Anyway, if you do not feel comfortable doing the return the way the client wants it done, don't do the return (I know it is hard to turn away business, but some business is more trouble than it is worth) - If you do the return, disclose any discrepancies and how you resolved or reconciled them in the return (See - even if the client is correct, it is starting to be more trouble).

The year to year thing does happen in 1099's - I once got one which included payment on a check dated 12/31/200X which was not mailed until 1/16/200Y and I did not receive until 1/18/200Y - For the life of me, I could not figure out where the extra came from - until I asked the issuer to provide me with a list of the payments included in the 1099. Of course they would not revise the 1099, but at least I could explain my tax return amounts.

Answer by Pat Haggerty for Should I put this on my personal taxes or business taxes?

2010-04-28T03:16:11Z

Helen and Sandy (Hi Helen from your 8th in line husband) If the OP has to ask if it is more beneficial to report the income as sole proprietor or as LLC, then it will apparently not be split 50/50 - and it does not have to be if the LLC agreement allows that the "solo work on a major project" revenue belongs to the member who did the work - that is called a guaranteed payment and does not get split 50/50. If the work was done through the LLC and there is no agreement that the revenue belongs to the person doing the work, then not running the revenue through the LLC would be cheating the partner who did not do the work (and the members may want to revisit the agreement).

Now to answer the question (grin - and tongue in cheek) If the revenue does not flow through the LLC and is all reported on the personal tax return (Sch C sole proprietor), then the OP will pay more tax (income and SE taxes). If the revenue flows through the LLC and is split 50/50, then each member will end up paying tax on half the amount - which will be less than the tax on the full amount - so the OP will pay less tax, but will also have received less income. Which way is "better" depends upon the OP's objective - more money or less tax -- or, possibly, the survival of the "partnership" after the allocation of income - however that is achieved.

Also, as Helen pointed out, revenue, expense, profit, or loss sharing percentages do not have to be the same as the "ownership" percentage or even as each other. And the OP did say of the project "It has made a large part of my income this year". I think we don't know how the members have agreed to handle "solo" work. We also do not know whether this LLC is treated as a partnership or corporation - the word partnership first appeared in the first response to the question and was not mentioned by the OP. The OP did mention "business income taxes" (but may have meant the business tax return).

Answer by Pat Haggerty for Employee travels to another state. How does payroll department handle this?

2010-04-28T02:45:19Z

Unemployment is not an issue - nor is "lived in" state (worked in state is important) - In your case it sounds as if the employee performs more than 50% of the services in the "home" state and unemployment tax should be paid to the state in which the employee performs most of the services - that is also likely to be the primary state for withholding. Whether the employer has to register for withholding depends on whether the employer establishes nexus (business presence) in the state. That depends upon what the employer does within the state (including what the employee is doing for the employer).

Whether the employee's earnings during the four weeks are taxable in the "traveled to" state depends upon state law as to what constitutes earnings within the state for income tax purposes - for example, Michigan taxes non-residents on "Salary, wages, and other employee compensation for work performed in Michigan, unless you live in a state covered by a reciprocal agreement" (page 7, first column, Form MI 1040 - 2009 Instructions). There is a concept of de minimus - this is where the amount the employee earned within a particular state is so small, any tax would be less than the amount it costs the state to process the return.

All that means is that the employee may have to file a tax return for MI. However, for four weeks once a quarter, I don't think you will have to withhold any tax for MI - but that may depend upon how much the employee earns.

When you ask if the employee should be "taxed on the state they traveled to", I assume you are referring to whether the employer should withhold tax rather than whether the income earned by employee will actually be taxed by that state.

Answer by Pat Haggerty for Difference between Schedule C and 1040 Other income

2010-02-13T21:45:35Z

Response to: "Patrick, I certainly agree with your textbook answer. However, if all a person has is a 1099-MISC, and he/she has absolutely no expenses to claim against that income, Schedule C is not required. That is one of the purposes for what line 21 is for, There is absolutely no reason to create another form if all you have to do is report the income from the 1099-MISC."

Actually, there is a reason to report NEC from self-employment on Sch C rather than on line 21 -- it is called Schedule SE. Line 21 is NOT for reporting Form 1099-MISC NEC "when the business has no expenses" - at the risk of being accused of repeating myself -----

The Sch C is not "optional" with respect to whether you have expenses to offset the income, but is required if the income is from a sole proprietorship trade or business and is subject to SE tax.

The Form 1040 instructions for line 21 read (on page 29) "Do not report on this line any income from self-employment or fees received as a notary public. Instead you must use Sch C, C-EZ, or F even if you do not have any expenses. Also do not report on line 21 any non-employee compensation shown on Form 1099-MISC. Instead see the chart on page 11 to find out where to report that income."

Line 21 is used to "report any taxable income not reported elsewhere on your return or other schedules." (also from page 29 of Form 1040 instructions). Since income from self-employment is to be reported on Sch C or C-EZ, it is not "any taxable income not reported elsewhere...".

I suspect the reason that many preparers THINK that line 21 can be used for that is that some professional tax software programs allow that to be done - and to allow income subject to SE tax to flow through to Sch SE from line 21 - however, the reason the software allows that (and I have confirmed this with a software developer - I think it was for CS UltraTax) is that many of their tax preparer customers demand the feature because they don't want to be bothered with doing a Sch C if the only thing on it is revenue. That does not make it correct -- popular, maybe, but not correct (grin).

If the activity reported is not self-employment, then I agree the amount may be properly reportable on line 21, such as an activity not engaged in for profit but reported as NEC on Form 1099-MISC. For example, I know some historic re-enactors who have received stipends or honorariums for participation in school district "Civil War Days" - but participation was more along the lines of a hobby or volunteer activity than a for-profit venture.

For my part, I feel part of my job is to manage the risk of unnecessary correspondence audits for my clients - So I run the amount shown as NEC through a Sch C on its way to line 21 and explain why it is not subject to SE tax - not a large amount of extra work in preparing the return, but possibly saving a lot of hassle later. After all, I have to put the number somewhere on the return, and if it is not subject to SE tax, I have to explain that somewhere as well. With e-filing, the "cost" of an additional form is minimal.

Checking - CS UltraTax has a check box for line 21 items to indicate if SE tax applies to the item. So far as I can tell, Drake does not. H&R Block TaxCut allows line 21 entries for NEC, but has radio buttons for explanation. By Patrick A. Haggerty Adjunct Faculty at Vance-Granville Community College

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Answer by Pat Haggerty for Difference between Schedule C and 1040 Other income

2010-02-13T21:40:36Z

I am not sure what you mean by "use Form 1040" - Sch C is used for a trade or business operated as a sole proprietorship (including a single owner LLC which has not elected to be treated as a corporation).

This income is sometimes reported on Form 1099-MISC as NEC (Non-employee compensation). When reported on Form 1099-MISC as NEC, the IRS is going to look for a Sch C because it will also be looking for a Schedule SE for self-employment tax.

If there is a 1099-MISC reporting NEC and there is no Sch C, there should be some sort of explanation. If the payment reported as NEC is not self-employment income, I generally report it on Sch C and then subtract it on Sch C with an explanation (on the "other line") and report it in the correct place (or not at all depending upon what it is). For example, on time a client sold a house, but the real estate agent made some serious and costly (to the seller) errors during the sale. To mitigate the damages, the agent refunded part of the commission to the seller. The seller received a 1099-MISC reporting NEC (split sales commission) from the real estate company - the seller was not in the business of selling real estate and the "commission" was actually a reduction in the costs of selling the home (an adjustment to the settlement costs to the seller). If reported at all, it would be on the form for sale of residence. (I reported it on Sch C as gross proceeds, deducted under "other expenses" with an explanation).

Other items which may give rise to a 1099-MISC are not trade or business income subject to SE tax - for example a prize or award, rental income, or gross proceeds to attorneys (may or may not be). Hobby income is not a trade or business - it would go on Form 1040 line 21 (there could be a Form 1099-MISC involved). Compensation for serving as a corporate director is reported on Form 1099-MISC as NEC and could go on either Sch C (where the director is engaged in the trade or business of being a corporate director) or on line 21 with an explanation that the director is not in the trade or business of being a corporate director. Jury duty pay goes on line 21.

If the activity is a partnership, rental activity, royalties, or pass-through entity, usually Schedule C is involved. If the activity is a farm, Schedule F. Income from Wages and other employee compensation is reported on line 7 of Form 1040. Interest and dividends (1099-INT or DIV) on Schedule B, capital gains and losses (1099-B or S) on Sch D, business gains and losses on Form 4797, pension or IRA income (1099-R) on lines 15 and 16.

The Sch C is not "optional" with respect to whether you have expenses to offset the income, but is required if the income is from a sole proprietorship trade or business and is subject to SE tax. The Form 1040 instructions for line 21 read (on page 29) "Do not report on this line any income from self-employment or fees received as a notary public. Instead you must use Sch C, C-EZ, or F even if you do not have any expenses. Also do not report on line 21 any non-employee compensation shown on Form 1099-MISC. Instead see the chart on page 11 to find out where to report that income." By Patrick A. Haggerty Adjunct Faculty at Vance-Granville Community College

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Answer by Pat Haggerty for How should qualified dividends be reported if there is no 1099-DIV?

2010-02-13T21:29:39Z

"The mutual fund company already said that there will be no 1099 because less than $10 in dividnends was paid. – stephenweinstein 16 hours ago"

Well - then I guess the mutual fund really does not care that the investor has a tax issue and probably is not interested in the investor as a shareholder in the mutual fund.

But the IRS says a lot of things and some of what is says is true - for example, in the instructions for line 9a Form 1040, the IRS says "Each payer should send you a Form 1099-DIV".

The section on the same page regarding qualified dividends says "See Pub. 550 for the definition of qualified dividends if you received dividends not reported on Form 1099-DIV."

I did not see any statement in either the Form 1040 instructions or publication 550 that only qualified dividends reported on a Form 1099 may be entered on line 9b - The stuff I read implied that the taxpayer could report qualified dividends even if there was no Form 1099-DIV from the issuer because the dividends paid were less than $10.

Furthermore, if you look at the year end distribution information for the fund - often on-line, more often in the year end literature, it, at least for some funds, gives the split for non-qualifying/qualifying dividends on a per share or percentage basis. If you know the total dividends per share and the total dividends the taxpayer received, you should be able to use the per share breakdown to back into the "number of shares" for the taxpayer, and from there, the amount of qualified dividends. If the taxpayer does not want to pay you to do the research, the taxpayer can do the research or decide that the tax savings is not worth the effort. Note that it is not just "qualified" dividends that may be an issue, but capital gains distributions and non-taxable distributions.

Answer by Pat Haggerty for IRA early withdrawal penalty

2010-02-08T03:42:08Z

I’m not sure the exemption would be limited to $2,000 – or as much as $2,000. Do you mean the $2,000 was the only portion of any payments the clients made that were traceable directly to the IRA distribution? Or do you mean the clients only paid $2,000 in qualifying expenses? Are you reducing the IRA exclusion amount by the tax credit? Did the purchase meet the requirements for the exception to the 10% penalty tax? See page 53 of IRS Pub 590 for the requirements
http://www.irs.gov/pub/irs-pdf/p590.pdf

Answer by Pat Haggerty for Home Health Care providers

2010-02-08T02:53:35Z

Are you referring to payments to foster care providers and/or difficulty of care payments? See page 33 of IRS Pub 525 link text

Answer by Pat Haggerty for non-resident gaming winners tax

2009-11-28T17:11:17Z

From the other board: In dealing with non-resident alien tax issues, the general answers frequently do not apply - the tax treaty has to be checked. I have not checked the tax treaty with Canada for gambling income and losses, but if the treaty has different provisions than the general rule, the treaty applies. So that should be the starting point for any research.

Comment by Pat Haggerty

2010-06-05T18:00:44Z

> Oh Pat, so picky......... Oh Helen - you know me - I just worked on a return where the fees are essentially taxes under state law but some of the fees are actually assessments which relate to basis. But I was thinking more in terms of things like free golf for the owner (landlord).

Comment by Pat Haggerty

2010-02-15T01:24:59Z

Hello Tom, I know someone who had an advertising products company. He would buy a few shares of any public company he sold products to - I suppose just to get the shareholder information - he was doing this long before the internet. He has a whole bunch of companies paying him less than $10 per year (grin) so the difference may be somewhat more than $1 in his case (grin).

Comment by Pat Haggerty

2010-02-13T21:36:06Z

I guess then the question on our end becomes what leads you to believe that some of the payments to her may be exempt from reporting as income? If we know what you think it is other than income, then maybe we can provide you with something substantial. On the other hand, if you are looking for something that does not exist, then we won't be able to find it either (grin).