Income tax thread 3.0

[Alan_Hepburn]

Okay, here's my questions.

While using TurboTax recently it asked if I had paid a contractor to do any work that needed me to submit a 1099. I haven't had any work done recently, but I'm wondering if I hire a contractor am I required to issue a 1099 for the job? I seem to recall that any work over $600 is supposed to be reported - is that correct? And, is that any individual job over $600, or cumulative over the course of the year?

Finally, if I am issuing a 1099 do I need an employer ID number?

 

[Owensdad]

Okay, here's my questions.

While using TurboTax recently it asked if I had paid a contractor to do any work that needed me to submit a 1099. I haven't had any work done recently, but I'm wondering if I hire a contractor am I required to issue a 1099 for the job? I seem to recall that any work over $600 is supposed to be reported - is that correct? And, is that any individual job over $600, or cumulative over the course of the year?

Finally, if I am issuing a 1099 do I need an employer ID number?

Did you incurr these expenses in the course of your trade or business? In other words are these expenses deductible to you?

If so, you have it right. Each individual contractor to whom you paid at least $600 including materials should receive a 1099. A TIN is required; either an EIN or your SSN will suffice.

Personal payments and payments made to corporations are generally not reportable.

 

[Alan_Hepburn]

Did you incurr these expenses in the course of your trade or business? In other words are these expenses deductible to you?

If so, you have it right. Each individual contractor to whom you paid at least $600 including materials should receive a 1099. A TIN is required; either an EIN or your SSN will suffice.

Personal payments and payments made to corporations are generally not reportable.

Not a business expense - just work done on my house. So I'm good. I guess if I had a rental house then any work done on it would need to be reported, or is it only if the rental property was a business?

 

[Owensdad]

Not a business expense - just work done on my house. So I'm good. I guess if I had a rental house then any work done on it would need to be reported, or is it only if the rental property was a business?

Non employee expenses associated with a for profit rental activity would be reportable via form 1099.

 

[jt2]

Sam,

Is passive loss carryover cumulative? IOW can it be banked until I'm in a situation where I might be able to use it to offset regular income (i.e. after retirement)?

 

[Owensdad]

All, been getting killed at my day job will revert soon.

 

[Bonzo]

Questions: I sold an out of state house last year. Should have I received a 1098? Do I have to claim it on this years taxes? I didn't purchase another house but I did buy a Travel Trailer. Can the Travel Trailer be use to offset the gains on the sale of the house?

 

[Owensdad]

Sam,

Is passive loss carryover cumulative? IOW can it be banked until I'm in a situation where I might be able to use it to offset regular income (i.e. after retirement)?

In general, yes. Passive losses in excess of gains disallowed under section 469 are carried forward and may offset future passive, but typically not earned income. A limited exception applies where the passive loss activity is disposed of.

Planning possibilities exist. A common strategy to benefit passive loss carry forwards is to structure future gain activities as passive. A limited interest in a profitable partnership/LLC is a garden variety example.

The at risk, section 465, and passive loss, section 469, rules work hand in hand and their application is extremely technical.

This is an area where an experienced tax advisor is probably mandatory.

 

[Owensdad]

Questions: I sold an out of state house last year. Should have I received a 1098? Do I have to claim it on this years taxes? I didn't purchase another house but I did buy a Travel Trailer. Can the Travel Trailer be use to offset the gains on the sale of the house?

Key question: was this a personal residence or an investment property?

Why it matters: a significant amount of gain (250k/500k depending on filing status) on a qualified personal residence is excluded from taxable income.

Gain on an investment property can be deferred under the section 1031 like kind exchange rules but advance planning is required and there are other traps.

 

[rodr]

11+ years ago, before house prices ballooned and then crashed, we bought our current home. Wife and I have both been self-employed working from home most of the time since then and in most tax years have claimed the deduction for business use of the home, including depreciation.

Today the home is worth about what we paid for it and hopefully will go up in value. We might want to move in a few years. What do we need to look out for and/or consider going forward?

 

[Bonzo]

Key question: was this a personal residence or an investment property?

Why it matters: a significant amount of gain (250k/500k depending on filing status) on a qualified personal residence is excluded from taxable income.

Gain on an investment property can be deferred under the section 1031 like kind exchange rules but advance planning is required and there are other traps.

It was a personal residence.

 

[Owensdad]

11+ years ago, before house prices ballooned and then crashed, we bought our current home. Wife and I have both been self-employed working from home most of the time since then and in most tax years have claimed the deduction for business use of the home, including depreciation.

Today the home is worth about what we paid for it and hopefully will go up in value. We might want to move in a few years. What do we need to look out for and/or consider going forward?

Because you took the home office deduction on property you own you will probably have to recognize a portion of any gain as gain from the sale of business property.

Depending on the amount of gain and your filing status, the non business portion should qualify for the sec. 121 exclusion.

If you sell the property at a loss, the business portion of the loss should create a tax benefit whereas the personal loss will not.

Edit: after a quick poll of my colleagues some are of the impression that gain on the sale of business use of a personal residence may be deferred under the like kind exchange rules discussed above. Advanced planning is needed and this treatment is not settled law but it could be worth a shot. Discuss this possibility with your tax advisor.

 

[Owensdad]

It was a personal residence.

If it was a qualified personal residence, and therefore all or a portion of the gain is excluded under sec 121, you do not need to report the excluded gain in gross income on your tax return.

 

[Bonzo]

If it was a qualified personal residence, and therefore all or a portion of the gain is excluded under sec 121, you do not need to report the excluded gain in gross income on your tax return.

Cool Thanks! :thumbup

 

[Owensdad]

A question came up regarding accessing 401k proceeds.

Generally, borrowing against your holdings (if the plan allows it) is preferable to an early distribution. This is because the penalty, in addition to tax at your highest marginal rate, is 10% of the distribution.

However, I'm not aware of any plan that allows borrowing by a non participant (for example, after you leave service of the plan sponsor).

 

[Killroy1999]

A friend of mine has a S Corp that sells mountain race bikes direct and a race team.

We went riding together today and his van is vinyl wrapped and he has a shop at Moffet.

I asked him if he is writing off all of these business expenses and he said NO.

I got him thinking that all these things he was spending money on, bike gear and traveling are business expenses that he can write off. I told him he needed a good tax accountant to coach him.

 

[Owensdad]

I told him he needed a good tax accountant to coach him.

And you did him well by saying so.

The expense to apply the graphics and business mileage on the van should be deductible.

The bike gear may also be a tax write off.

Tell him to get a barf handle and post up.

 

[russ69]

A question came up regarding accessing 401k proceeds. Generally, borrowing against your holdings (if the plan allows it) is preferable to an early distribution...

Sorry, I have no intention of stepping on your toes but borrowing from your 401K is not a good strategy for the long term for a number of reasons. Just about any other way to raise cash is preferable, perhaps even selling your children as an example...

 

[Owensdad]

Sorry, I have no intention of stepping on your toes but borrowing from your 401K is not a good strategy for the long term for a number of reasons. Just about any other way to raise cash is preferable, perhaps even selling your children as an example...

Agree. The point was that borrowing is better than an early distribution.

 

[Cycle61]

Just like shooting yourself in the foot is better than shooting yourself in the nuts.