Cat in OH

My thought is that the contractor income is Sch. C with whatever regular expenses he had deducted there. The medical for that time frame is deducted on Sch. SE to reduce the amount on which he pays social security tax. The same amount is also deducted on the lower front of the 1040 to reduce his AGI.

Has anyone else had this situation? It is unlikely that the TP will have to over-withdraw and cut into the less than 5 year conversions, but he really wants to be sure that he won't be penalized if he does. Thanks, Cathy

TP is age 68 and started his Roth IRA 7 years ago. Additionally, he converted from his traditional IRA to the Roth in 2008, 2009 and 2010. He wants to be sure that there is no penalty if he has to withdraw so much in 2011 that, by the ordering rules, he withdraws converted amounts before their 5-year period has been reached Reading Pub 590, I think he's okay, but want to be sure I'm following it correctly. Here's what I'm looking at: "Additional Tax on Early Distributions...If, within the 5-year period (for a converted amount)...you take a distribution from a Roth IRA, you may have to pay the additional tax on early distributions." It then goes on to explain the separate 5-yr period for each conversion or rollover. Two paragraphs later it says "Unless one of the exceptions listed later applies, you must pay the additional tax on the portion of the distribution attributable to the part of the conversion...that you had to include in income because of the conversion..." The first exception is "You have reached age 59 1/2." I read that to mean that once TP is over 59 1/2, the separate 5-year rule for conversions is irrelevant? Thanks so much for any help.

Squeak is a rescued cat too...she showed up at the plant we were working at in the middle of winter about 6 years ago. My husband, who is allergic to cats, was worried that she'd freeze so she somehow got herself in a box the back seat of the car and came home with him.

Thank you. That the first article that specifically says "...included in 2011 tax filing and 50 percent in the 2012 tax filing...". That was what I needed to verify. That's different from my client's understanding that he could claim half of the conversion in 2011 on his 2010 return and half in 2012 on his 2011 return. Cathy

I'm confused on one issue about the two-year tax payment allowed on IRA conversions to Roth accts made in 2010. I see references to claiming half in 2011 and half in 2012. Does that mean claiming half on the return prepared in 2011 for tax year 2010 and half on return prepared in 2012 for TY 2011. Or does that mean on the returns for TY 2011 and TY 2012? If it means the second, can any of the conversion be claimed for TY 2010 or is it an all or none thing? I apologize if this is something I should know, but I have such a small practice that it's only an issue for one client and I have not been able to find an answer anyplace online. Thanks, Cathy

Tuition for a master's degree should qualify for the lifetime learning credit.

I'm wondering if anyone knows of any online personal financial planning tools or spreadsheets that I might be able to use. I'm an accountant and tax preparer (very small practice). I don't do any financial planning professionally, but my husband and I have reached a point where we need to figure out the best retirement income scenario, especially tax-wise. I can do some of the calculations using ATX and spreadsheets, but I'd rather not re-invent the wheel if there's something already available. Briefly, we're trying to figure out several things, especially considering likely changes to tax rates over the next few years: 1) How much of our traditional IRA's should we convert to our Roths? 2) Are we better off in the end if we draw out of our regular (non-tax-deferred) investment accounts before drawing from the IRA's? Thanks for any suggestions! Cathy

Thank you all! I had a great birthday, busy and fun. Phone calls from kids, grandkids and my mom and emails from my sisters. Treated like royalty by my hubby. Cathy

Just want to be certain that 3rd party sick pay reported on a W-2 is earned income for Roth or Traditional IRA purposes. Client is on permanent disability and receives disability income from previous employer until old enough for pension. Thanks.

I'm not sure the Sched C is actually correct. I think the only reason they used it last year was that they didn't know what else to do with it. I'm not even sure that the 1099 is correct...I would think it should have been "Other Income", not "Non-employee compensation". They were not being compensated for anything they did for the workshop.

Am I misunderstanding the 1099-Misc instructions? "Trade or business reporting only. Report on Form 1099-MISC only when payments are made in the course of your trade or business. Personal payments are not reportable." The taxpayer has no business of any kind. Thanks.

I just want to be sure I'm right on this: 84 yr. old widow has a 60 yr. old special needs son still at home. Son attends a sheltered workshop Mon-Fri year round. They are also eligible for respite care through a state program. The money for the care is paid to the workshop by the state. The workshop then issues a check to the mother each time care is given (usually 2 or 3 days at a time). The mother never cashes the check, but endorses it over to a caregiver. The mother received a 1099-Misc for $5600 non-employee compensation, the amount paid for the respite care, most of it to one person. My understanding is that the mother is not required to issue a 1099 to the caregiver because she was not paying the caregiver as a cost of any kind of business. Am I correct? Also, in 2008, the 1099 was for $2700 so the taxpayer put it on a C-EZ with an offsetting total of $2700 in expenses. Because it is more than $5000, that would mean filing a regular schedule C, but again, putting the expense as a single amount. Is this the best way to handle this? This is a new client and I want to be sure not to cause her any problems. Thanks, Cathy

Belated thanks to all of you! It was a nice birthday. I started it early with a dinner with my daughter and 4 of her kids on Sunday. Then my husband took me for breakfast at Panera's on Tues. followed by lunch at a favorite Mexican restaurant. Won't go into details of the results of the margaritas. We finished the week with a visit to my parents who recently celebrated their 60th wedding anniversary. With all of that, today's the first chance I've had to check out the board in almost 2 weeks. Hope you've all recovered from tax season and able to enjoy the early summer weather. Cathy

I knew that...and meant that. Just didn't realize I wrote it wrong. I'm still wondering how people will know if they've already received the full amount of the credit that they are entitled to. Most of the people I deal with have no clue as to how their withholding is calculated!

Since I've gotten away from doing taxes but am still doing payroll bookkeeping for a few clients, I've been wondering: If this is a refundable credit, how will the employee know whether there was enough extra withheld to equal the amount allowed? Will the extra withholding have to be shown separately on the W-2?

Congratulations! Trust me, grandparenting is one of the most wonderful jobs you'll ever have! But you're already finding that out, I'm sure!! Our son and his wife called last night. They had called 2 weeks ago to tell us they were expecting their second child. Last night's call was to tell us that next March we won't be getting grandchild #12...we'll be getting grandchild #12 AND grandchild #13!!! Seems twins run in his wife's family and they hit the jackpot (after trying for more than a year to get pregnant). Grandma Cathy

Yes, she's a calico. About 4 yrs old now although this picture was taken when she was less than a year. Of course, her age is an estimate because she 'followed' my husband home from work one January when the temps were supposed to go to the minus-teens and there was no place warm for her to stay. What's funny is we also have 2 cocker spaniels...one is black and white and the other 'red' and white (the red is actually almost the same color as Squeaker's orange) so when the 3 of them pile on the couch you can't tell who's where! Squeaker's pretty independent too, except when SHE decides it's time to be petted or held! Have a great summer. Hope to 'run into' you here occasionally! Cathy

Yes, your return has been accepted. Unfortunately, ATX (CCH or whoever is 'lord of the servers') is terribly short on server power and has not been sending back ACK's since sometime yesterday. At least yours is accepted! Mine is rejected (per MyATX) but I can't fix it and resend until they straighten out their mess.

Thanks for the weather report...very encouraging! Haven't been to Brunswick, but have a grandson living in Blackshear and our son and his family are in St Marys (he's Navy, stationed at Kings Bay).

I've dealt with this both personally and for a client. If the 1099-H indicates a payment every month, then you don't do anything with it. The amount the HCTC paid is actually the credit...much like Advanced Earned Income Credit. From your post (or the numbers she gave you) the HCTC payment doesn't seem to be quite 65% so you might be able to get the additional $38.71/mo on the 8885, but not 65% of the $217. A few notes: 1) If you file the 8885, be sure you include complete documentation of how much she paid (bills and cancelled checks). 2) Whether or not you file the 8885, none of the premium can be used on Schedule A. 3) She may be on "Cobra for life" but is only eligible for the HCTC until she turns 65 and becomes eligible for Medicare (whether or not she takes it). Hope this helps. Cathy

Me too...but mine will be "YAHOO!" I've got 2 partnerships and a related individual return on extension (still waiting for info from the partners) and have told them that I quit at 2pm today. Gotta have time to do laundry and start packing to spend time visiting with grandkids in Georgia (6 altogether in 3 different cities). Oh, yeah, hubby and I are spending 3 days in a condo at the beach on Jekyll Island, GA too. I told the partner that I'll work on them when I get home...if he's gotten me the info! Cathy

I don't have one handy to look at, but doesn't the 1099-R have a distribution code that would indicate that it's a non-taxable Roth?

Client got a CP12 notice that the IRS "changed the amount of taxable social securtiy benefits because there was an error in the computation...". Result was additional refund. From the little bit of info in the notice, it seems that in calculating the taxable SS benefits, the IRS did not add back qualified US savings bond interest from form 8815 (interest wasn't t'ble because bonds were used for college tuition for son). This decreased the t'ble SS by $1530 and increased the refund $227. Client has already received the full refund...they were efiled and the original deposit was for the larger amount. My question is, what happens if the IRS realizes that THEY are wrong? Will (Can) they ask for the additional refund back? Thanks! Cathy

Lydia (and Diane), Sounds like you and I are in very similar situations. My hubby's getting good at organizing/sorting W-2's and 1099's. And he's very good at looking up historical stock info (splits especially) on the internet. My business is small enough that he deserts me the last full week of tax season to go play golf in SC. He's there now so I can just focus on taxes but he'll be home Friday. Our post-season plans are: 16th & 17th do laundry and pack, 18th hit the road for Atlanta GA to spend a long week-end with a daughter & 4 grandkids. From there, we're headed to a condo on the beach at Jekyll Island in GA for 3 days. Finally, to Kings Bay GA to visit our son and his family. He's a Lt Commander on the USS West Virginia who's been out to sea for 3 months. Their little boy will be 4 this summer...can't wait to see how much he's grown since Thanksgiving! Hope everyone else has as much fun on their first weeks of the 'off-season'!! Cathy