Posts Tagged ‘Mailbag’

2017 Mailbag #1: The 1099 Doesn’t Show Up, So I Don’t Have to Report It, Right?

Thursday, January 26th, 2017

It’s time for this year’s mailbag, and we’ll start with a common question: What happens if you’re expecting a 1099 and it doesn’t show up? There’s a twist as you will soon see:

I did contract work for a company and they should issue me a 1099. However, the company closed its doors; the company closed its doors last March (the owner retired) and the owner passed away a month later. If (when) I don’t receive the 1099, do I still have to report the income?

Yes, you need to report the income. All income is taxable unless Congress exempts it. Yes, the company you did work for is supposed to issue you a Form 1099-MISC. But whether or not you receive a 1099 doesn’t change whether income is taxable or not. You were paid for services, and that’s income. Simply total what you received and include it in your gross receipts for your business.

Sure, the executor of the owner’s estate is supposed to take care of all responsibilities. That includes the final tax returns and any information returns that must be filed. Interestingly, one of my clients just received a 1099 for 2014. The situation appears similar to my correspondent’s. It turns out the owner passed away and the estate was handled through probate. It took two years for the final tax return and the associated information returns to be prepared. It’s a non-issue for my client; he included the income on his 2014 tax return.

Remember, simply report all of your income regardless of whether or not you receive a 1099 (or other paperwork). It’s easier to sleep at night when your tax return is accurate.

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Posted in IRS | Comments Closed

Mailbag

Sunday, February 24th, 2013

We get mail:

I moved to California in 2012, and earned just $5,000 while in California versus a lot of money outside of the state. Yet those robbers want me to pay based on my overall income. This can’t be right.

Each state has a different formula for part-year income tax. California calculates your tax based on all the income having been earned in California, and then multiplies this by the ratio of California income to total income. So if 5% of your income was earned in California, and the “total” tax would be (say) $100,000, your California tax would be $5,000. It’s not as simple as that–exemptions and deductions also figure into this–but that’s the general idea.

In any case, that’s how California determines the tax, so assuming your tax professional is doing it right you have to live with the results.

I am retired (70) & play poker as a hobby. I recently traveled to Oregon to play in Money added tournaments @ Wild Horse Casino. I won the first tourn played & received a W2G for just under $6000. This is a “first” for me (W2G). When paying my taxes, will I be able to write losses which are “not” proven w/ receipts (both online & casinos)? I am from neighbor Washington state (no state income tax).

Congratulations. If you keep a gambling log (a written gambling log should be kept for your live play; you can use an electronic log for online), you will be able to take your gambling losses up to the amount of your winnings as an itemized deduction on Schedule A. Note also that you may need to file an Oregon tax return for your winnings that are Oregon-source.

A written gambling log should contain the date, casino name, game played, table number (not needed for tournaments), start time, end time, and result. It should be contemporaneously written.

I play online poker from outside of the United States but will not qualify for the Foreign Earned Income Exclusion for 2012. I had over $60,000 in my Moneybookers account but never had $10,000 in any other account. Do I need to file an FBAR?

Moneybookers is considered a foreign financial account. Not only must you file an FBAR, it’s probable you will need to file Form 8938, too. This is a complex area of tax law; make sure you discuss this with your own tax professional. Note that the FBAR is filed separately from your tax return and is due by June 30th. There are no extensions allowed for filing an FBAR.

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Posted in California, Gambling | Comments Closed

Last Mailbag Prior to Tax Day, With an Emphasis on Being Abroad

Sunday, March 25th, 2012

We get more mail:

I was thinking of taking a trip to Belize in mid-April to fish. My accountant told me that if I’m out of the country on April 17th, I get a two-month extension on my taxes and I find that hard to believe.

It’s true: If you are outside of the United States on April 17th, you get an automatic two-month extension until June 15th; you need to note this on your tax return (filed by June 15th). You will owe interest but there are no penalties. Note that if you have a state tax return, not all states follow this automatic extension.

I worked in Australia last year, and my employer naturally withheld Australian income tax on my income. I can’t believe I have to pay US income tax, too.

It’s true: The United States is one of the few countries that taxes its citizens on their world-wide income. However, there is a tax credit available for your foreign income that has already been taxed. It’s taken on Form 1116. In essence, you will pay the higher of the two countries’ tax rates. Note that the required calculations do get somewhat complex, so you may want to discuss this with your own tax professional.

My father-in-law just passed away, and my husband this month [March 2012] received his bank account in a London bank. Is there anything I need to do for our 2011 taxes?

First, my condolences on your loss.

Assuming you and your husband had no foreign financial accounts in 2011, there won’t be anything related to this that you need to do for your 2011 returns. However, you will have a foreign financial account that may need to be reported for your 2012 tax returns. This involves filing a Foreign Bank Account Report (FBAR, Form TD F 90-22.1) which is filed separately from your tax return, disclosing the foreign account on Schedule B, and possibly filing Form 8938. The requirements depend on balances in the accounts, and the penalties are ridiculous if you make even a minor mistake. I strongly advise you seek a tax professional for this situation. You do have some time for this as it appears this will be a 2012 tax return issue (reported in 2013).

That’s it for our mailbag for this tax season.

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Posted in International, IRS | Comments Closed

Mailbag Update

Tuesday, March 13th, 2012

We get mail:

I got married last June and my wife says we need to file as single because we weren’t married for the whole year. Can you set her straight?

Your marital status on December 31st is your marital status for the year (with a few exceptions). If you are married on the last day of the year, you are married for the entire year. You and your wife need to file a Married Filing Jointly return or a Married Filing Separate return.

The exceptions include spouses who do not live together for the entire year and where a spouse dies during the year.

I won a €20,000 jackpot at a casino while traveling in Europe last year. My accountant told me I have to claim that income. That can’t be right, right?

It’s correct. The US taxes you on your worldwide income, even money won in a casino in Europe. You need to convert the Euros to Dollars and include the gambling income as part of line 21, Other Income. The good news is that you get to deduct your gambling losses (up to the amount of your winnings) as an itemized deduction on Schedule A.

I spent a month working in New York last year for my business. My W-2 has New York withholding along with withholding for my home state, California. It appears that both states taxed the same income and that can’t be right! Or can it?

Well, you were working in New York, so you have New York source income, and New York definitely has the right to tax you for that time (and any other New York source income you might have). You’re a resident of California, so you owe California tax on all of your income.

That said, you do get to take a tax credit for the double-taxed income. In this manner you effectively end up paying the higher of the two states’ income tax rates.

I’m looking for a tax professional in the Philadelphia area familiar with the Adult Entertainment Industry.

That can be read in so many different ways….

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Posted in California, Gambling, IRS, New York | Comments Closed