kathyc2

11 hours ago, Corduroy Frog said:

I simply believe he is misinforming me, and would be misinformed himself.  From what I know, he could tap into his huge 457(b) for any amount of $$, and it would not incur a SS penalty because it is not earned income.

 

That is totally different that what you said in the first post.  You said earned income; as in a job.  There are a little different rules, but basically 457b is the same as a 401k.  Would you say someone could withdraw from a 401k and receive SS benefits?

I assume the public service job was one that is not subject to SS tax?  If so, it doesn't count as SS wages for the earning test. 

His SS benefits probably don't amount to much as they would be from other jobs (prior to public service, part time during, etc.)  I assume the SE in your title was an error, and he is not planning on quitting the city and starting a business with self employed income.  If he truly is looking at self employed income, they would be SS wages and benefits would be dinged after 19,560.

The penalty for underpayment is 3%.  The interest paid on overpayments is 3%.  Probably a little difference with timing, and the interest received will be taxable, but I certainly wouldn't be opening a can of worms by trying to return it for what will likely amount to less than $25. 

Are you sure neither parent qualifies for HOH? Just because the kids "claimed" themselves, it doesn't mean that they should have.  If either kid is full time student under age 24 and did not provide over 1/2 of their own support, HOH, education credits and even EIC may come into play. 

17 hours ago, Corduroy Frog said:

Good conversation.  The biggest potential pitfall apparently occurs when a Traditional IRA already exists.  If basis in the Traditional, taxpayer cannot pick and choose when to relinquish the basis.  Basis must be eliminated pro rata.

Correct.  Because there will always be basis in IRA, a calculation should always be done for how much of distribution is taxable for the rest of their lives.  

So, what happened this year was a 2,800 loss, correct?  She didn't take any money out of the partnership, so no taxable gain for the year, and it appears there would not be an allowable loss.

At risk or basis limitations are likely the same thing when it comes down to it.  Prior years may be in error, but from what you are saying, I don't see how that would keep your from completing 2020 return.

Was there not a 6198 with the 1040 the year prior to when you took over?  Since there were not losses of the 40K nature during the years you were doing the returns, it certainly sounds like there should have been as the losses occurred prior.  If whoever was preparing the 1040's prior wasn't filing 6198's it may be a mess to clean up, but I don't see where it would keep you from completing 2020 return. 

You didn't say anything about her taking money out of partnership, so I'm confused why you think the loss may be taxable income?  Sounds to me like non-deductible because of at risk limitations. 

Are you actually filing innocent spouse as opposed to injured spouse?  

For injured spouse the tax is calculated MFJ.  8379 is then completed so the that the injured spouse (the one without past debts that refund would be held to pay) still gets the refund they personally would have been entitled to.  

Husband/Dad passed in June 2019, leaving wife and 2 minor children.  Kids are each receiving SS survivor benefits. 

Wife received correct EIP payments:  3,400, 1,800 and 4,200.

However, each kid received 1,200, 600, and 1,400 direct deposited to the account where their SS goes. I'm guessing there was some kind of program saying if someone receives SS and does not file 1040, send them EIP, disregarding the fact they are minors.

I'm also guessing this is big enough that when they figure it out they may try to claw back EIP from SS benefits??? 

I'm telling Mom to just hold on to the money for now.  Agree??

1 hour ago, M7047 said:

Why, when the whole gain is under 250,000?

Wouldn't you figure the gain/loss first and go from there . I mean, if you have to factor the depreciation into the basis aren't you already recapturing it...

 

Because the 10K was used as an ordinary rate tax deduction in the year(s) it was a rental.  Because the house appreciated rather than depreciated, that 10K needs to be put back in as taxable income at ordinary rates (up to a max 25%). 

My balance due was supposed to come out on 4/15.  It's finally showing on bank account with today as withdrawal date.  

I would send the 2020 return in first and wait for refund before sending 2019.  During COVID I think expecting IRS to apply 2020 overpayment to 2019 will cause nothing but headaches.  Both returns could be in the limbo zone for months and months. 

I have two 2019 refunds still outstanding.  Luckily, they are both small amounts.  At the beginning of season IRS said around 6 million 2019 returns not yet processed. 

22 hours ago, NECPA in NEBRASKA said:

After 42 years of tax seasons, I feel the same way. This has been the worst for too many reasons. I am just trying to stick it out until 65 (16 months!) so that I can get Medicare in place of ACA. I don't even know that my business is worth selling. I wish that I didn't love most of my clients, but I honestly am sick of the liability and stress of doing it on my own and feeling guilty every time I do something not work related. 

Is it possible you can just scale back?  

I'm at a point in life where I don't actually "need" the money.  This year has been quite stressful and I admit it's been quite freeing to play the Seinfeld Soup Nazi and tell clients this is their last year. 

For the clients where there is mutual respect, I'll keep doing returns for several years.  The ones that want to be demanding jerks can do so elsewhere. 

Actually, the support test doesn't really apply, since payments from state do not count as child providing over 1/2 of their own support.  That's what I was thinking, but hadn't found verification of it before I posted.  |From Pub 501:

Example 2.

You provided $3,000 toward your 10-year-old foster child's support for the year. The state government provided $4,000, which is considered support provided by the state, not by the child. See Support provided by the state (welfare, food benefits, housing, etc.) , later. Your foster child didn't provide more than half of her own support for the year.

TP has foster child placed by state in their home from Dec 2019 to July 14, 2020.  

Am I correct that the money received from state does not count as child providing own support?

Since it was over 1/2 year they are entitled to CTC?

And also qualifies for add'l 1,100 for recovery rebate?

There has been some crazy stuff with this.  Married couple also in their 80's on EIP2 he got it and she didn't.  This was back when we could look it up or I wouldn't have believed them!

After I got short with her, she looked again and discovered that she did receive it!  Arrggghh!

85 year old client insists she did not receive first 1,200 payment.  She says she received the 600 and get my payment shows 1,400 is on way.  

For all the years in question 2018-20 her income has been below filing threshold and no withholding. 

So annoying that we can't look that up.  She doesn't have an e-mail to set up an online account.

I assume IRS computers are checking recovery claims?  If I have her file that she did not receive the 1,200, and IRS says she did, they just don't send it and no harm?  

12 hours ago, ampCT said:

They both get it. Check out the last "plus mark" on this page: https://www.irs.gov/newsroom/economic-impact-payment-information-center-topic-j-reconciling-on-your-2020-tax-return

 

Thank you!  Exactly the type of confirmation I was looking for. 

It doesn't seem correct that both parents should receive the total amount the same child. But as quickly as they threw this together, it could be an oversight.  Pacun, can you share the source of your information?

Greetings.

I'm confused on recovery credit for separated or divorced payment that alternate claiming children.  On 2019 return mother claimed children  and presumably received the EIP.  Father (my client) will claim kids on 2020 return.  It doesn't seem like he should get the credit, but the Recovery worksheet doesn't seem to address the issue, nor does anything that I'm finding....