Cat in OH

Actually, Linda had the 20% figure. Pub 560 has the details, but basically it says that the contribution for 2007 cannot exceed the lesser of 25% of the earnings or $45,000. For the business owner, this is adjusted for self-employment tax. There's a worksheet in the pub to calculate the amount that can be contributed. It pretty much works out to be 20%, so she was right on with both numbers. My caution was to be sure that the total contributed to both the SEP and the IRA didn't equal more than her earned income if it was a small business. Pacun-you're right about it making more sense to contribute to the Roth than the SEP if you have to choose. We just went through that this year. Hubby's retired so my practice is our only earned income. Till we maxed our Roths, we really couldn't put anything much into the SEP. Especially with mine, I'd rather have it earning tax free income! Cathy

Thanks for the reminder. As it is, my practice is so small (and I'm purposely shrinking it), that the retirement plan at work isn't a factor. Actually, my problem this year will be making enough to cover a SEP and IRA's for both my spouse and me! Cathy

Zeke, Thank you for a response. You are correct about my inexperience in this area. I truly have never handled any estate matters. I did feel that the interest was taxable, no question there. My husband has been the only one in touch with the relatives. Actually, no one is unhappy at this point, since "everyone" knew this was how Auntie wanted it done. My husband wants to handle it so that his cousin would get hit with gift tax. I guess the real problem is that there was nothing in writing regarding the loan principal (distributing vs being paid to the estate) and the fact that there was no will and nothing else in the estate but the receivable from Allen. Unfortunately, my husband has already deposited the check into our account. I will talk to him about talking to a probate attorney...don't know what he'll say since he's sure I know everything about taxes, in spite of my telling him it's been 20 years since I covered inheritance, etc at college!. I should take my own advice to my clients to go to someone who knows more than me! Cathy

I’ve got two questions relating to a relative’s estate: 1) Is a Transfer On Death of an account a taxable event? (I know this is pretty basic, but I want to be sure…I’ve never handled anything like this before.) 2) This is a bit more involved. These are the facts as I have them: -My husband’s aunt died Feb. 07. She was never married, never had any kids and all her money was in CD’s with transfer on death to her sister. -There was no will, no executor, nothing was ever filed. (Caretaker may have filed a final 1040) -A number of years ago, she had made a large loan (several 100K) to a nephew, Allen, for land investments. He had paid her interest every year on the money, probably per a hand-written agreement. -As I said, there was no will and nothing else in writing as far as anyone knows. But she had told Allen and several others that if she died before the loan was repaid, it was to be divided between nephews and nieces, $25,000 each, when Allen is able to pay it off. -At the end of 2007, Allen sent a check for pro rata interest and a 1099-INT to each nephew and niece. -March 08, Allen refinanced the loan with a bank to get a lower rate. He has sent 2 checks to each nephew and niece, one for 3 mo. interest, the other for $25,000. Are these payments a taxable event? As inheritance or as gifts from Allen (since there’s no known legal document relative to Auntie’s estate?) Sorry this is so long, but I wanted to give enough info for answers. Cathy

Yes, she can contribute to both...I do every year! The only catch is that she has to have enough earned income to cover both. (ie if she only had $5000 earned income, she could not do both the SEP and the full IRA.) There's a worksheet to calculate the maximum contribution that she can make to the SEP. I would also have her consider contributing to a Roth IRA instead of the traditional, other things being equal. Cathy

I use it...it does save stamping time! I do still stamp "Copy" over the client signature lines on the forms just to make it harder to sign and mail their copy. I had one family (father and 2 grown daughters) completely separate their filing copies. They each then mailed just the pages that they had signed! I don't assume anything anymore! Cathy

There's a rabbit on the Sched A line 5 that takes you to a worksheet where you can enter sales tax on large $ items (at the very bottom of the page).

Congratulations, JB! Just knowing you through the ATX boards, I'm so happy for you! Just make sure she knows it's not just the margaritas talking when you ask her!! Cathy

I've been able to get both temporary ones and new books fairly quickly (2 weeks for temp) by calling 1-800-829-4933. I've got a blank one if you're really desperate, I could mail it to you. If you need it that soon, email me your address.

Regarding the reason to file MFS, even with my small practice, I've had a disproportionate number of couples who came out ahead overall by filing separate because of the difference in the state income tax. It seems to be especially true when the joint AGI is 100,000 or less. The trick is getting the separate AGI's as near to equal as possible, then they really 'make out' on the state return.

A client just called me. She had given me a 1099-Misc for $1500 received as a class action settlement The settlement was for excess interest and fees charged on a mortgage, if that matters. Here's the catch: the 1099 was included with the check. They were both received in late December 2007. She only deposited the check in her bank account last week and although the check stated that it was good for 90 days, it has been returned. Her question: since the check was not honored, does she still have to include it on her 2007 taxes? Of course, if the check is replaced or cashed later, it would be income on her 2008. Or do we have to include it in 2007 income then deduct it in 2008 if the check is never honored or replaced? Thanks, Cathy

Just wondering...a client brought in a 1099-Misc for about $1200 for the sale of gas rights. She'd been getting about $50/yr in royalties since she bought the home 6 years ago. I was going to just put this in as "Other Income" but got to thinking. If payment for right of way is a reduction of basis for the property, could this be treated the same way? It would really help her out, but I don't want any problems for her later. Thanks, Cathy

I've voted (to leave as is). I do have 2 questions: 1)Would adding another section increase bandwidth used and/or the cost of the board? 2)Wouldn't another section create more work for the people generous enough to moderate/run/manage the community? Cathy PS I don't have a big practice. I don't post often. During off-season I barely come here. But I LOVE this board. Don't know where I'd be during tax season if I didn't have it! Thanks for the work that has gone into it and thanks to everyone who posts here!

You're so right! They do forget everything but those! My sister, an obsessive recycler, was visiting this week and kept picking them out of my wastebasket. She'd be thrilled if we could actually find a use for them! Cat

Under my preferences, I've selected "Always hold and release" but when I created an efile, the status was "Created". I then selected and marked both federal and state (Ohio) files as "Held". When I checked back later, both were marked as "Rejected by EFC". I have only done 2 efiles. I followed the same process for both (I was waiting for the signed 8879 forms before transmitting). I had not transmitted any files so I couldn't have transmitted the returns I wanted held by mistake. My work around was to re-create the efiles. I've transmitted one and was immediately given "Validated by EFC" as the status. The other is still held.

That test will tell you if the line coming to your home/office is working. I keep an old corded phone for power outages and to test for problems. You should be able to open part of the box with a regular screw driver. There will be a jack you can plug the phone into. If there's a dial tone then the problem is inside your home. Guess then you start taking the phone around to different jacks inside and testing them. Good luck! Cathy

OK, ignore my post. After writing it, I was checking around and looked at last year's returns. I realized that I had put my EFIN in the place for the EIN when setting up this year's preparer information. DUH!!!

I realize I'm way behind on everything, but in preparing my first return today, I got the same message. When I click on the error message, it takes me to the EIN on the signature page of the return so it's nothing to do with the W-2. The program will not create the e-file because of the error. Have you found an answer? Thanks, Cathy

Since I've never come here for the flashy stuff, just the funny stuff and the great help and information, I think this is one change I can handle even during tax season! Thanks again for a great community! Cathy

One of my tax clients just brought in a 1099 that required an explanation. In 2007 he opened a new account for a bank branch that was inside a grocery store. Their enticement was that he got $100 in groceries for opening the account. Now they've sent a 1099 showing the $100 as interest. It's no big deal, but I'd just never seen it before.

I used ATX on 2 computers last year with few problems, but they were networked to each other (just our home Linksys router). I can help with at least some of your questions. I haven't tried anything yet this year, so things may have changed. We just got done moving and I've pared my tax client list down to 20 so I'm waaaay behind most of you for this year! 1) You do need to keep both computers' ATX programs updated. At the very least, be sure you've updated ATX on the computer you're opening on before you open a transferred file. 2) I used import/export without any trouble. If your 2 computers aren't directly connected, you could use one of the little 'thumb' drives to transfer. 3) I normally didn't transfer back so won't try to answer this one. 4) I had 2005 ATX on both computers so I don't know if it's a requirement or not. And things could've changed w/ 2006-2007 rollovers. As I said, I used import/export, if that makes any difference. 5) Don't have Vista so I can't help here either. Cathy

How much of it is taxable as she takes it out? All or just earnings after his death or after the estate is settled? Any idea? Thanks.

Facts as I know them: Wife, surviving spouse, is age 58. Husband died last month at age 77. Prior to his death, he had just about emptied all their/his accounts. His IRA has about $20,000 in it and she'll need that to live off of now so she can't roll it into an IRA for herself. I've never handled an inherited traditional IRA and I'm confused as to the tax implications. The Total Tax Guide says that "IRAs can be inherited from their owner and generally are included in the owner's gross estate for estate tax purposes." Does that mean that 1) the IRA is subject to estate tax and not taxed as income to the wife? and 2) her basis in the IRA is the amount included in the estate (meaning she would only pay tax on any earnings after his death as she withdraws)? The Tax Guide goes on to talk about taking minimum distributions. If she does take them, I'm assuming she isn't subject to any penalty for withdrawals before she's 59 1/2 as long as she doesn't elect to treat the IRA as her own. And before you all start worrying about my doing her returns, etc on this, I'm not going to. She's a friend and in way over her head. I just want to be a sounding board and help her ask her accountant the right questions. Thanks and Happy Fourth!! Cathy

That's what I was hoping I could do. Thanks!

I have a client, a veterinarian, who owns property with both an office building and a separate kennel building on it. Thru last year he operated the kennel so income, expenses and depreciation all went thru his sched C. He closed the kennel operation at the end of the year. This month he began renting the kennel building to an unrelated party who has reopened it. Because this is now a rental, I will move the income to sched E to lower his SE tax. My question is, how do I handle the depreciation on the kennel building? Can he just continue with the same depreciation schedule (basis, previous depr, time period, just on sch E) or does he have to start over using current undepreciated value as his basis and a new 39 yr time? Thanks, Cat