Christian

The term non-qualified distribution is a better descriptive of this I guess. ATX does not make reporting this all that easy.

Another client made a withdrawal from a remaining 529 Plan she has saying it was used to fund her daughter's tuition expenses. Her daughter decided to claim herself last year and the distribution is (of course) shown payable to Mama. Unless greatly mistaken this is another forbidden transaction and Mom will pay regular and penalty tax on the earnings ?

In the words of an elementary school classmate who was sitting at a piano recital in front of an audience with his mother beaming with pride. "It appears I have forgotten" meaning the piece he was supposed to play. He was summarily snatched up by his mother and quickly removed from the hall.

You are saying the total distribution of basis and earnings are subject to tax ? In Virginia contributions to 529 plans are exempt from state tax which will now be paid on the distribution but the basis was created from money originally taxed by the IRS. Isn't this taxing the same money twice?

A client came in with one of these but tells me using the reported amounts on the form have been waived for this year. I thought it best to post on this as I have yet to see anything on a waiver for forms received by taxpayers already.

Two of my clients have cashed out the remnants of a 529 plan which was established to pay for their child's college expenses. The child is no longer their dependent and they had the remaining balance distributed to themselves under their social security number. The form shows a basis number and an earnings number. I have oddly enough never had this to come up and most 529 plans are exhausted paying college tuition expenses. I would think the earnings amount should be added to their gross income but am not certain on this point therein lies the reason for my post.

That is also something I too have read. There is nothing on the form to indicate that any part of the benefits are nontaxable. I will assume that the premiums were fully paid by the bank she worked for. Well it was worth a try to help her.

A client was sick for an extended period and has received a W-2 indicating payment through an insurance carrier noting third party sick leave in the applicable box. I checked to see if this pay would be federally or state deductible or exempt but came up negative. Curiously the amount shown as wages in Box 1 are not the amounts shown in the Social Security and Medicare tax boxes 3 and 5. Somewhere along the line I read that sick pay is exempt from these for a time and thereafter subject to them. Would this account for the difference ? I was looking to see if any of the reported wages would be exempt from tax but can find none.

The vouchers on my program are showing on printing with no amounts shown. I can however print individual vouchers which show the amount to be paid. ?

After reading the comments I have decided to go ahead and file the return. She will in fact have that loss to carry forward and brokers being brokers this probably will not be the only trade effected in this account. As noted a trade may be profitable requiring a payment of tax.

Every now and again a client's income falls below the filing threshold. I normally advise them to not file for the year for a nominal fee. They can return each year to assure themselves that they do not need to file for later years as some do since nobody ever seems to recall I advised if their situation changed to come back in to check it. One such client came in this year and her income no longer exceeds the filing threshold. She now has a small brokerage account having been left an inheritance which she took to EdwardJones. The broker sold a position in the account losing some $1,500 which of course reduced her income. On reflection I can recall no rule which would require the filing of a return just because of a trade in a client's brokerage account unless it produced a result which helped carry the client income over the filing threshold. But I just might have overlooked one of those sneaky IRS rules requiring such a filing so I am putting this in for comment.

That was my reading as well. Since he took around $10,000 from his account I am assuming I would put the figure for example $3,000 on line 5. Place 5 as the exception on the exception used line on the front of the 5329 and the ATX software will compute the 10% penalty on the $7,000 unspent on medical expenses. Wallah !

A client who had large uncovered medical bills and was out of work for several months last year has now thankfully returned to health and work. He needed to tap an IRA account in order to pay for these. There is of course the medical exception on this form. My question comes down to this. Are the medical expenses he can use to qualify for the exception ONLY those which exceed 7.5 % of his adjusted gross income. I am assuming these expenses will be less than the $10,000 he took from his IRA account. Do you show those expenses on line 5 of the exception list ? Is the 10% penalty then computed on the remaining portion of the $10,000 which will not be covered ?

I entered the data and it populated the form but not the Form 1116 Alternative Tax version. When the foreign tax amounts are below $300 for singles and $600 for marrieds ATX posts them to the foreign credit line on the 1040. But his amounts come to $650 so no luck. The last thing I want to do is send them the form not correctly prepared.

A new client came in this year. He had two mutual funds which withheld some $650.00 in foreign taxes. I have no familiarity with Form 1116 having prepared one in many years. I called him and explained he would need to carry his info to someone else explaining my concern that I could not properly prepare the Form 1116. To my surprise he said just to forget it and not use it. As this form attempts to get some or all of these foreign taxes applied against any federal tax he may owe I am concerned it may be mandatory to use it. On the other hand since it could reduce his federal tax obligation I doubt the IRS would complain if a client voluntarily does not want to use it. I would appreciate any thoughts on this as I personally do not see any problem leaving it off his return. I searched through ATX to see if any detailed line by line instructions existed in our tax program but could find none. After examination of the input fields I surmised it would take a several hour course to fully understand how it is applied and I have no such time available.

A client's wife inherited a house which she and husband lived in for a number of years. They then bought another house and basically let family use the inherited one for a number of years. Last year she sold it and since the couple has not lived there in eight to ten years it cannot be sold as their residence. I will show it as an inherited house using the basis as of the date of her father's death and add any improvements made by them since he passed on. This seems correct to me but as usual any input is appreciated.

MANY thanks Abby as it looks like it will give them the credit. The form is a real labyrinth !

I have taken on a client who has a Foreign Tax Credit from 2021 which he had to carryover to this year. I looked to see if I might place it on Schedule B of the 1116 as a carryover but do not see an applicable line. I can count on one hand the number of Form 1116s I have prepared. The amount involved is some $347. His info indicates none of his funds had any Foreign Tax taken out in 2022. I am just wondering if I may put it on Schedule 3 of Form 1040 on line z identifying it as a carryover from 2021 ?

Just sent in my first efiles and this popped up after they were federally accepted. On transmitting the state efiles a blurb popped basically explaining the efile setup. Is this what the Accepted With Messages is referencing ?

It's not as worrisome as it may seem. He has a seasonal lawn service business. He totals his Form 1099s he receives from the business customers he serves. He adds a figure in on any other income. His expenses are basically receipts for gas, oil, materials used, and depreciation on his equipment. His problem if one should arise will be claiming his son which I have repeatedly advised him of. The Service does not specifically rule out a notarized affidavit but whether it would satisfy them is open to question. He's one of our southern good ole boys whom I will miss but age curtails everything.

Keeping up with client's social lives is not something I get into. A relative of his came in and sorta updated me I guess one might say. I have had extensive conversations with his wife as well over time. I have pretty much decided since I am gradually leaving the business this 2019 return will be my final work for him. Essentially I am keeping the ones I want and doing what most of us do at this point in my practice and make tax time much easier. Your input is as always is appreciated.

I accidentally sent this off before finishing it and editing. As noted she provides a notarized statement attesting to the son living with him. I this go around again reviewed this with him and he advised " I ain't worried my wife will swear to him living with me". I note on his return on line 5 of Form 8867 Notarized affidavit from wife and the Service has yet to raise any questions. And now he is off living with his latest femme fatal on a local lake. Some guys have all the fun.

I hate to be the skinflint in this discussion. Yes his Social Security tax was paid. By folks like you and me my friends and when he draws those soooooo sweet benefits his out of pocket contributions will for the most part been 0. There is not the shadow of doubt in my mind judging by his lifestyle he has unreported cash income from his business. He and wife are separarted for years but have a now 13 year old son who likely lives with Mama who has her mother living with her and so can claim HOH without the son. Every year she provides a signed nnotorized document attesting that son lives at dad's home even though I have repeatedly requested a better form of proof of residence.

His Earned Income came in at some $12,000 or so dollars. His status is HOH which eliminated any income tax. His EIC and Refundable Child Credit was greater than his SE tax.

I have his 2019 return prepared and he is coming to collect and file. He never owes and in point of fact has paid no Social Security tax for as long as I have been doing his returns. The Earned Income and Child Credit has caused him to owe nada so any benefit he will get will largely be one he has largely never funded. As Jackie Gleason famously said "How sweet it is" !