Leaderboard

The gift tax exclusion for 2018 is $15k. The donor can contribute $75k and elect to have it considered donated over a 5-year period, thus avoiding gift tax. The custodian is the firm that runs the 529 plan; your clients are likely the owners and the family member is the beneficiary. The school will not issue a 1099, only the custodian will. It is up to the taxpayers to reconcile the distribution on their tax return. This is an area of audit. As long as you have the financial statement from the school showing what was paid for what, no problem. Note that 529 plan distributions can be used for room and board, which the education credits cannot. I've had clients who have gotten into trouble because they paid the entire bill from the college from the 529. If they are eligible for the AOC, $4k is used for the credit and can't be counted as a qualified education expense from the 529 (no double dipping). Example: Tuition is $20k and room and board is $8k, so $28k is taken from the 529. For the AOC, $4k is used. Thus the qualified ed expenses for the 529 are $24k--but they took out $28k, so the earnings portion of the $4k is taxable.

When I copied and pasted that email address into my email program, it complained that there were non-ASCII characters in it, so I just typed it in and it was fine. Here's my email: This redesign is a huge waste of money and is purely for political talking points. They've taken a familiar two page form and turned it into an eight page monstrosity. Making the main form two half pages instead of one full page is a joke. The amount of excess paper this will cause to be consumed is alarming. All of that white space on the new forms is insane. Make the new 1040 one full page and put multiples of the new "schedules" on the same page so that the average taxpayer will still only have two pages and not eight! And if the taxpayer doesn't need any schedules, their tax form will be one page instead of the traditional two. Thanks for listening!

Copied from Tax Pro Today: "The American Institute of CPAs is asking the Internal Revenue Service and the Treasury Department to simplify the draft version of the Form W-4, the Employee’s Withholding Allowance Certificate, along with the accompanying instructions. The AICPA’s comment letter comes as the National Association of Enrolled Agents has also criticized the draft Form W4 in a separate comment letter last week, saying it raises privacy concerns, creates a substantial risk of underwithholding, and requires taxpayers to forecast a number of tax-related items that are traditionally difficult to predict (see NAEA sees lots of problems with new Form W-4). The AICPA raised some of the same issues in its own comment letter. “The AICPA recommends a simplified Form W-4 that reduces withholding in an appropriate and fair manner without placing undue burden and onus on taxpayers and their employers,” Annette Nellen, CPA, CGMA, Esq., chair of the AICPA Tax Executive Committee, wrote in the letter. In regard to simplicity, Nellen suggested that Form W-4 should not include nonwage income, itemized and other deductions, tax credits, and total pay of all lower paying jobs (“personal information”). She described the draft form as “unduly complicated” and said it essentially requires taxpayers to calculate their tax liability. “Taxpayers need a Form W-4 that is easy to understand and simple to complete, thereby reducing compliance burdens and minimizing the risk of tax underpayment and penalties,” Nellen wrote. Nellen recommended the IRS and the Treasury Department develop a simplified Form W-4 that doesn’t request personal information. She pointed out that many employees would probably be hesitant to provide their employers with spousal and family income information on the Form W-4 as it could lead to unfair and discriminatory employment practices. However, if taxpayers don’t provide their other household income, deductions and credits, they could inadvertently face the risk of inaccurate and incomplete annual withholding calculations, which could then lead to underpayment of taxes and penalties, she wrote. To prevent the shifting of unnecessary responsibilities and liability onto employers, the AICPA recommended the IRS and Treasury should give employers a straightforward method to determine their employees’ withholding. “The Form W-4 has transformed from a long-standing form that was systematically distributed by employers to new employees as part of their initial onboarding process, to the current draft that employers need to calculate their employees’ withholdings on an annual basis,” Nellen wrote. “This form transition is a significant change and the risks and responsibility of accurate withholding calculations have shifted to employers."

Could not agree more. Here's simple for ya: Every employee is withheld at Single 0. No W4 needed unless you want more or less withholding. W4 has one amount box with two checkboxes: Add this to my regular withholding and subtract this from my regular withholding. On a second line, you can choose to bypass the regular withholding altogether and just enter a flat % you want withheld. This will be good for those whose wages vary significantly from week to week, or those working a second job, or those with with a spouse who earns much more than they do. The % could be less than 8%, or maybe 10%.

As a foot note to my above post, the client is ultimately responsible for the estimate, that needs to be communicated and documented. Several years ago I had a new client who had sold some timber on his ranch. Previous CPA had deducted a generous basis from timber sold on a prior tax return, so I asked for calculation of his basis. Turns out prior CPA must have looked up to the ceiling and pulled out a number. The ranch had been gifted through multiple generations for over a century so basis was basically zero.

Sorry but I have to disagree with those three statements. The amount available to cut is not a factor. I have used standard growth rates and historical timber prices to determine basis in many situations, often with expertise of a professional forester. In the western united states, timber land is used for summer livestock grazing.

Thank you, @Edsel, for your fabulous exposition on timber issues!

If there was no valuation done for the timber, you are likely out of luck. And like cbslee said, you will have a sale of $14,000 with no cost basis. The good news is it would all be long term capital gain.

First you need to know how many board feet were sold. Second you need a logical valuation as of 2012 once you known the board feet. Without a quantity and a value, you're whistling in the dark with a zero basis.