Wednesday, April 13, 2011

Employee Stock Options

Pelican said...

I held options (granted several years back through an incentive plan, all vested) with a private company of which I was an employee. We were bought by another company in 2010; I was let go and my options were converted into stock certificates for the acquiring company. I sold some of this stock in 2010 and kept the rest. I have 1099B forms for the stocks I sold.

I'm confused on how to declare this for 2010 federal taxes. Do the certificates count as income worth the stock price on the day the certificates were issued, and then I declare a short term capital gain on the part that I sold? Does the fact that the options were granted several years ago make this a long term gain somehow? Thanks!

Tuesday, March 29, 2011

American Opportunity Credit

shawn said...

Question on American Opportunities tax credit. I learned from a friend a means of taking the credit even though my sons scholarship was roughly equal to the qualified expenses on his 1098T. It seems if the scholarships are unrestricted that you can "designate" that they be used for unqualified - and thus taxable school expenses. While this increases the dependant childs taxable income, it reduces the scholarship monies that must be subtracted off the qualified amount and may allow the parent to take the AO college expense credit up to $2500 for 2009 and 2010. It almost seems to good to be true but there is an example on IRS publication 970 which shows exactly such a case on page 11.

While I am fairly certain I can claim the credit in this manner for 2010, my question is can I go back and get the credit for 2009 by filing an amended return for both my son and myself. While my son had earned income of $4400 in 2009 and would have to pay additional tax and penaltied on the additioanl $4000 of income, this should be more than offest by the credit I would receive at a 25% income bracket. Would love to get some feedback on this - thanks!

Wednesday, March 16, 2011

Film making business

kimbrovideo said...

Dear Accountant,
I am a self-employed filmmaker who rents video gear to production companies. I am set up as a sole-proprietorship. I fill out time cards for the labor on set and I invoice the production company for my gear. Recently, I had a company ask for a local address so they could apply for a statewide tax-incentive program. Well, I live out of the state so I do not have a local address. My parents live in the state. Could I provide their address to this company? The production company would want me to change the address on my invoice too but since the income from the invoice is taxable, is this legal? Could I put the gear rentals on a "kit rental" form attached to my time card? I want to solve this and not lode a valued client.

Monday, February 21, 2011

Question about a new business

MetalSmitten said...

Hi, I started a mainly online business selling handmade jewelry and did better than I expected. This is currently my only source of income and I have had no outside employer for this full tax year. I am registered within my state (IN), and already gave them their sales tax for my few in-state sales. But now what do I need to do for Federal taxes? Thanks!

Saturday, February 19, 2011

Disclosing deceased parent income

Your Personal Accountants: Ask The Accountant: "Carolee1945 said...
I am doing my parents taxes. My dad died in 2009. We have a survivor trust and a bypass trust. My dad had many small investments. Right now, I have 1099's that have the trust name with my mom's social, I have 1099's that have both my parents names with my dads social, I have 1099s with only my dad's name and his social. I understand about the bypass trust which has its own tin,and doing the K-1. What I do not know is this: do I do a 1040 return for my mom, a 1040 for my dad, and then a 1041 for the bypass trust?"

Monday, February 14, 2011

Civil Law Question

Fred said...

This a question on civil law in Massachusetts. I have a court judgment against a home improvement contractor for approximately $16,000. I can recover $10,000 from the Massachusetts Guaranty Fund, can I deduct the difference ($6,000) on my tax return? He has failed to pay any monies.

Wednesday, October 27, 2010

Question about switching accounting software

Calrageous said...

I run my own small business and I've grown considerably this last year. I've just switched over to quick books pro and am wondering can I transfer all my bookkeeping information mid month or do I have to wait until the 1st of the month?
I'm merely switching softwares and all the information will transfer except for a few forms I can recreate. What should I do?

Friday, September 17, 2010

Question relating my payroll taxes

Jennifer said...

Questions Regarding Payroll Taxes:

My employer refuses to be out-of- pocket his portion of payroll taxes (social, med, and modified business tax); thus, he deducts his portion of payroll taxes from my gross. Is this legal? And if so, can I 1099 him for receiving the income?


Sunday, August 22, 2010

Does the IRS care ???

JessiKo said...

I am thinking about purchasing a house and wanted to use money from a foreign account. What are the pros and cons of doing this? Do I have to disclose my foreign accounts when I do my taxes? Does the IRS care where I get the money to purchase my home?

Monday, August 16, 2010

Question relating to First Time Home Buyers Credit and Divorce

A. said...
I have a pretty complicated scenario, and I'm hoping you can help!

I bought a house in Sept. 2009 and filed an amended 2008 income tax form to get the $8,000 first time home buyer tax credit.

My husband and I have since split, and we sold the house this month, August 2010. I know I'll have to pay back the tax credit, since we sold the house within 36 months of purchase. I purchased the home for $85,000 and sold it for $100,000, after closing expenses, etc. the net profit was $11,158.

My questions are....

1. Will I have to pay back the entire $8,000? I make significantly less money than my ex, (my adjusted gross last year was around $15,000). But I filed for the credit, so I know it will be my responsibility to pay back. But what if I can't afford to?

2. Is there any adjustment for pay back based on how much I made on the sale and/or my income changes? (We filed a joint 2009 return, but I'll file 2010 single return.)

3. If there is no adjustment, is there any way to pay back the credit NOW, rather than wait until next tax season?

I could really use some advice. Thank you!

Sunday, August 1, 2010

Question regarding student loan

Michael said...


I have a question. I have a student loan that I took out in Jan, 2004. The total loan amt. was 16,205.00. If the monthly payment is 150.00 then what would be the payoff amt. right now? The reason I'm asking is that I took the loan out with an online student loan service and I want to make sure that their accounting is right. They don't have a brick and mortar location so I can't sit down with someone.

It seems that they may not have applied all my payments and the full payoff amt. seems too high to me.

I've used online loan calculators and I'm still confused. Could you help?

Thanks very much!

Friday, July 30, 2010

Question about withdrawl from SEP IRA

M said...

I have a SEP IRA through my employer. We just transitioned to a 401K this month. Instead of rolling my SEP IRA into my 401K, I've been contemplating cashing it out (~$35K)and paying off family debt obligations (credit card, car loans). My understanding is that the withdrawal *may* only be subject to simple tax (10%) when time time comes to file my 2010 return. I haven't calculated capital gains/losses, but according to my statements over the past 3 years total income earned on this SEP IRA is less than $600. Am I overlooking something?

Question about expensing cost

Diana said...

I am not sure if this is where to ask this question. In a janitorial business I have soap dispensers that I sell. I do not charge for the dispensers and the installation

when a customers purcases my soap.I take the dispensers out of inventory.My question is how to I record the cost of the dispensers on the books. Are they sales expenses or are they considered assets to be depreciated. I currently have 4000

dollars worth of despensers installed in various businesses.

Saturday, July 24, 2010

Question regarding student loans vs personal loans

DogsBody said...

Hi there,

I am planning to undertake Post Graduate study overseas and as such I don't qualify for a student loan. The course is run in eight modules over two years, and you can pay in two instalments every year, one in October and one in January. My question is, if I am going to take out a personal loan to cover the tuition fees, is it better to get this in one lump sum (about $NZ20 grand) or get four smaller personal loans over the two years? I just figure if I take the lump sum I'll be paying interest from day one, even though I don't actually need all the money right away. My other question is, is it sometimes better to use a low interest credit card for such things? From what I have seen, the interest rates are lower on some credit cards than for personal loans.

Much obliged,

Poor Student

Monday, July 5, 2010

Your Personal Accountants: Question regarding forensic accounting.

Your Personal Accountants: Question regarding forensic accounting.

Question regarding forensic accounting.

Chelseaa! said...

I have a couple of questions regarding forensic accounting that I was wondering if you could answer.
How would you describe forensic accounting?
How is it different from accounting?
What is the current job market like?
How is it changing?
What are skills required of a forensic accountant?
What environment do they work in?
What are some responsibilities they hold?
What would you qualify as special characteristics of a forensic accountant?
What is the projected salary?
What degrees are required?
Which additional ones are beneficial?
What certifications are beneficial to have?

Need advice for month closing practices.

rollotom said...

Can you recommend a way to get realistic practice on the month end closing process? My lack of experience in this area is hindering my job search. Do you know of any websites, books, etc that would have such exercises?


Monday, June 28, 2010

Buying a house

jrhodenphotography said...

We are looking to buy a home - my grandparents are loaning us th money and both their name and ours will be on the deed. We are going to do some repair work that is needed for the home to qualify for financing then we will take out a loan to repay my grandparents. What needs to be done so that we aviod having to pay taxes on the amount loaned ($50,000)?

Friday, June 25, 2010

Paying off the credit cards

Rebeca said...

Hello. I would like to know if there is a way to pay my credit cards with money I receive on stocks I sell without having to deposit the money into my checking account first. I don't know the legalities of this is, but I know there are different legal ways of managing money. I have plans to put some of it into CDs or a Roth account for my son also and I imagine this can be done through my bank with some of the money before depositing it. Thank you for your help.

Tuesday, June 1, 2010

Distribution from Roth IRA for first time home purchase.

Jeffrey said...

Dear Mr. Asraf,

I have a super-specific tax question that I haven't been able to answer:

A first-time homebuyer can put an untaxed distribution of up to $10,000 from a Roth-IRA toward the purchase of a primary residence, within 120 days of distribution. The question I have is: Must the purchased home be in the United States of America? I have yet to see any restriction on the national location of the purchased property, but, before I go moving my savings around, I want to make sure that this isn't an unspoken restriction. Do you happen to know? Strange and precise question, I know....



Monday, May 3, 2010

Rental Property Question:

bob said...
Rental Property Question:
I have a C Corp and would like to rent out my 2nd home to my C Corp. From what I have read this seems possible. Can you tell me what I would need to do this, and is this a smart thing to do?
So far I have gathered a sample lease agreement, and all my mortgage info. Income vs. Expenses, do I fill out a 1040 (Schedule E) at the end of the year for rental income, as far as expenses can I write off (interest, depreciation, utilities, maintenance, interest on 2nd mortgage)?


Sunday, April 11, 2010

Early withdrawl from 401(K)

Jen said...

This is a great service! I hope this is the right way to post a question. I have a question about 401(k) early withdrawals. i know that there is an exemption to the fees for extraordinary medical expenses. Well, I incurred said medical expenses (and claimed them on my taxes) in 2009. I didn't learn that there was an exemption to the penalties for medical expenses until recently. Can i take the money out without paying the penalties now, in 2010? Should I do an amended return?
Oh, and I am no longer working for that employer so that part is not a problem.
Thank you in advance!

Wednesday, March 31, 2010

Question about setting chart of accounts

Paul said...

Good Morning Mr. Asraf. I helping my son with his books. He earns wages in one job and starting studio from 0. I use quicken 2009. He puts all his earnings from Job 1 into studion. how will set him up in quick books. it is not revenue, he is not selling anything just paying bills. How do I label him in chart of accounts.
pls help thank you. Paul

Is living with your parent Inputed income?

stevea1 said...

I live rent-free in a house owned by my parents, am I subject to inputed income taxes?

Monday, March 29, 2010

In a self employment business, is it more beneficial to set up dividends or owners withdrawals

ajmccrimmon said...

In a self employment business, is it more beneficial to set up dividends or owners withdrawals and how do we report these.

Monday, March 22, 2010

Non Profit research sponsorship deductability

Dear Lauren, thank you very much for visitng our blog.

Your organization as a non profit is responsible to maintain complete details of the donors. The information include Name and Address and additional you should keep records of the EIN number for corporate sponsors as it is needed to be disclosed on the organizations 990 return. At the end of the year you entity will be responsible to mail the charitable donations they made during the year. There are plenty of software available in the market these days that will help you accomplish your goals. We hope that we have answered your question, however, if you do have additional questions, please feel free to post them on our blog.

Good luck,
Web Tax Office Team

Tuesday, February 23, 2010

Buying a boat

DroopyDog said...
I live in Missouri, I have sold a boat and I am buying a replacement boat. I have a couple of questions. First, am I able to reduce my sales tax by deducting the sale price of the first boat from the purchase price of the second? Second, is there any way to take advantage of the first time home buyer's tax break when buying a boat? Thanks.

Friday, February 19, 2010

Received letter from IRS

ct said...

Wednesday, February 17, 2010

We need your Feedback

Dear Readers, if you find out blog interesting and if we have helped you in anyways, then please take a min and write your experiences. Your feedback will be greatly appreciated and it will also help us to know if we are being efficient and being helpful to our community.

Thank you,
Web Tax Office Team

Question about credit card and credit scores

Emily said...

Hi! I have a question regarded credit cards and credit score. My credit score is in the mid 700's right now and I really would like to keep it that way. I have about 5 open credit cards right now and all have a balance of zero. I would like to close about 3 of these for security purposes. Will this lower my credit score?

Thank you!

Tuesday, February 16, 2010

Question relating to estate and your options

justalibragirl said...

I have questions about irrevocable trusts and special needs trusts. This is regarding a settlement from a lawsuit against my son's school district. It's a long story but there was a lump sum for relocation/damages awarded to me. My attorney says that she "thinks" I have to have it in an irrevocable trust. She has suggested that I put her in charge of it, but I don't know enough about any of this to make a decision. All I can find is that I can't have a family member as the trustee. Some pertinent background info: I am a single mother on permanent disability, I receive SSDI and Medicare. I also receive SSI and a low income subsidy on my Medicare through Medi-Cal. My son was just approved for federal SSI for his disability. I contacted Social Security. They said my benefits are not "needs based" and as such are not affected by the settlement. The only thing that may be affected is the low-income subsidy and SSI. However my son's benefits can be affected by the settlement because it counts as income for me. I have concerns about some of the decisions my attorney has made in our case and do not feel entirely comfortable having her in charge of the settlement. I need to know what my options are. Thank you.

Thursday, February 11, 2010

Question relating to refund from recalled vehicle.

Dear cashnow, the money received from Toyota is not income to you. Therefore not taxable. You simply are receiving a refund of purchase return.

Web Tax Office Team

Monday, February 1, 2010

Submitting a Comment or Your Question

Dear Readers, please submit your question on this blog by clicking on the "Comments" link, which is located at the bottom of each post. Please do not submit your questions on contact form. This blog is a 100% FREE service. So please take advantage of this free offering and share this blog with your family and friends. Again, we urge you not to submit your questions on contact form, instead submit your questions and comments by clicking the "Comments" link which can be found after every post on this blog.

Thank you for your visit to our blog. We hope to continue to serve you with our valuable advice and recommendations.

Thank You,
Web Tax Office Team

Question relating to business

I found your blog and wasn't sure how to go about asking a question on there.

Here's my question:

I am a single mom w/ 2 kids and for the first time ever, my business w/ it's own tax id# has earned enough that I have to file a return for it. The total earnings for this business are $2000. Is there a way to do a joint return including myself and this tax id#, or do I need to file 2 separate returns? If both are possible, which would you recommend, and why?

Thanks for your help,


Monday, January 25, 2010

I found you through your blog, but could not figure out how to post my question there.

I am changing out furniture that has long since been depreciated. If I donate it to a certified/licensed charity (Goodwill/Red Cross, etc.) will I be able to deduct any value, and if so what or how would such value be determined?

Also, if I find the need to hire a liquidator to transport the furniture to said charity, would those charges be a write off also?

Hope you can get to this, and thanks for your time.

Douglas Parent

Saturday, December 5, 2009

Dear reader, thank you for visiting our blog. We structured our corporation last year as Web Tax Office. We thankfully had a very good year last year. Our practice more than tripled. You can visit our company website at Due to fewer posts posted on the blog it may appear that there was no activity on the blog and we have discountinued our service, however, the truth is that our valued readers started sending us their messages directly to our inbox and therefore we got behind in updating the blog.

We will try our best as we did in the past to provide the FREE service we promised to the community. You can create a new post with your question and we will be glad to respond to your querries as soon as possible. Please remember, this service is absolutely FREE. If any individual contacts you asking for money, please DO NOT PAY THEM, they are pretending to be from us. We will NEVER ask for money on this blog as this blog is a 100% FREE service to the community.

Feel free to post your questions and enjoy! Dont forget to share this blog with your family and friends.

Thank you for visiting our blog.

Wednesday, December 10, 2008

Cristina said...
I recently came across your blog and have been reading along. I thought I would leave my first comment. I don't know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.


Term Life Insurance

Saturday, July 26, 2008

Dear Ashish, thank you very much for posting on my blog.
Every business has some uniqueness, and yet at the same time they have some similarities to other businesses. The questions you have asked cannot be applied to every business as a general rule. The market, the structure, the service or product, and the volume each business generates is different. Sometimes strategies have to be changed in order to accomodate the change in business such as increase in sales or downturn in economy. I suggest you meet with an accountant and discuss this in detail.

Best wishes,
Ashraf S. Mehdi

Ashish said...
Hi AshrafI was searching for blog abt IT consulting and i found your blog.I am intersted in starting an IT staffing?Consulting firm . i want to know abt TAX.I m in Dallas.Initially i am the only employee in my company , as seccond jobsay i have one contractor working at client place on 1099 with my company
My Questions Are?
Is it necessary for me take salary as employee ?
Can i hire any one part time on 1099 to run my company ?
What if my company dont do any business in year ?

In short, how much fund require start and run an IT staffing company.

Wednesday, June 11, 2008

Dear Suresh, thank you for posting on my blog.

You have incorported your business and also got your first client on contract basis, CONGRATULATIONS. Now what?

Don't panic, you are in control of your business and finances, and you will retain the control as long as you abide by the rules and regulations imposed by various agencies that include IRS (your favorite uncle SAM) and state and local govermental agencies.

Follow these simple steps:

Since you are in a service industry you do not have to worry about collecting sales tax, maintaining sales tax records, file and pay sales tax. However, as you are being treated by your wife's company as an employee, she as an employer is required to pay you wages, withhold payroll taxes from your paycheck i.e. social security, medicare, federal and state income tax withholdings, make federal and state withholding tax deposits and file payroll tax reports i.e. 941 and SUTA reports on a quarterly basis.

ANY expense that can reasonably be proved to be incurred for business purpose i.e to carry on the business activity is a business expense. Some expenses are Accounting, Bank Service Charges, Travel, Business Meals, Internet e.t.c. Maintain records to prove the business purpose for the expense.

If you are familiar with accounting then you can do it yourself or have a professional accountant prepare your accounting records or financial statements on a monthly basis (this is my recommendation). Financial statements will help your understand and manage your business and they will also help you understand cost centers, which is very crucial.

Last but not least. Prepare and file your yearly business income tax return. This is seperate return than your personal 1040 return. If you are on a calender year (I assume) then your business tax return will be due on March 15th of each year as long as you are in business.

I hope this information is helpful to you.

Ashraf S. Mehdi

The steps listed above is only a partial list. They may change depending upon serveral factors such as business structure, industry e.t.c. This list is a general list that applies to most businesses and is not customized to reflect your business in particular. Please consult your personal accountant or tax advisor to customize it for your business use.

You Wrote:

Dear Ashraf,I hit upon your blog on the web, where you are providing some free advise. I could not find a way to post a question your blog. Hence I am sending you this email. My wife recently Incorporated a small business in the State of NC in the area of IT Consulting Services. She has received the Federal EIN. I am an employee of this company working in a contract position for which the money was paid into the business checking account by the client company. I am trying to figure out what all I need to do next in terms of payroll taxes to be paid to Federal, State, etc. Also, what are the expenses (such as mileage, phone, internet connnection, etc.) I can deduct under the small business.

Also, I would like to know what are the other forms and steps I need to follow in the context of this small business setup. Any help you can provide will be much appreciated.


Friday, May 16, 2008

Hugh, if you are a resident of NY and are also a student you do qualify for a education credit. However, your credit may be limited depending upon your AGI. For more information follow this link

I hope this helps and thankyou for posting on my blog.

Ashraf S. Mehdi

Monday, April 28, 2008

Rick, thanks for posting your question on my blog.

Before deciding which state forms and or state returns you would need to file, find out which state residency (NY, GA or CT) do you have as of year end i.e. 12/31/2008 (I believe you are talking about 2008 and not 2007). If you lived in NY for most of 2008 then you would be a NY resident.

Since, you will be working as an employee in CT, you will need to file a CT return regardless of whether or not you will be a CT resident. As far, filing NY or GA return, your forms will be based on answering the above question. If you are a NY resident then you would need to file a NY State return as a resident and non resident return for CT. Make sure to allocate your earnings to CT (for wages earned in CT), also don't forget to claim NY education credits.

I would need additional information to answer your question regarding whether or not your parents should claim you as a dependent. But based on the information you have provided it would be beneficial to you as well as your parents to file seperate returns and you claim the education expenses on your personal return.

I hope this information helps.


A S Mehdi

Ricky has left a new comment on your post "Dear Visitor, Did you acquire the stocks you sold ...": Hi,I recently came across your blog and had a question for you.I'm 21 and in college and ignorant/oblivious of all things tax-related. I will be doing a summer internship in June that will pay me about 10-14k (dependent on bonus/overtime). The job is in Connecticut but I will be living in my school's dormitories in NYC and commuting. My "permanent address" (my parents home and the address I've used "officially" up until now) is in Georgia.I wanted to know what state forms I need to fill out and how my choices will affect any credits/rebates that my parents or I am eligible for. How should I file (whether independent of my parents or let them claim me as a dependent or whatever else can be done?).My parents currently make about 75-90k annually and pay for my tuition of about 46k and will pay for tuition for my brother as well starting this fall of about 15k (if that makes any difference). Any thoughts on what the optimal strategy is for me? Any and all help is very much appreciated. Please contact me at rick86 at if I can provide any other useful information for you.Thanks,Rick

Thursday, April 10, 2008

Dear Visitor,
Did you acquire the stocks you sold from your company in an ISO i.e. incentive stock options? If your answer is yes then most likely it is reported on your W-2. Please check your W-2 if the box 12 or 14 has a code V. You would also need to disclose this sale on Sch D, but make sure to increase the Basis of Stocks to eliminate any Gain or Loss.

I hope this information helps.

Ashraf S. Mehdi

Monday, March 3, 2008

Yes, the profits and losses should be allocated between all three partners. In your case, the profits or losses would be allocated between three partners for the first 6 months period with a share of 33.33% each. The percentage will change from 33.33% to 50% each for the remaining 2 partners for the remaining period of the year. You should receive a Sch K-1, if you had some losses then it will help you lower your taxable income which could also help you lower your overall tax bill.

I hope this helps. Let me know if I can be of further assistance.

Your Wrote:
Hello. I was a general partner in a very unsuccessful craft based company with two friends. I gave my share in the company to the other women on July 1 of this year -- half way through the tax year. I went from owning 33.33% of the business to 0%, and they both went from 33.33% to 50%. I received copies of their Schedule K-1 (1065) in the mail, but nothing for myself. Wouldn't their accountant still have had to fill out a Schedule K-1 (1065) for me as well because I was a general partner for 6 months this year? Thank you for your time.

Monday, February 18, 2008

Dear Ananomous,
The answer to your question depends on whether you had the following:
Were you a NC resident?
Whether you had Nexus in NC
Where is your emloyer located in NC or Florida?

If your answer is that you had nexus in NC and you were a resident during 2007 and that your employer is a NC based company or have a physical location in NC, then the chances are that you will pay NC state income taxes. However, you can write off certain expenses unreimbursed by your employer such as mileage and or travel, meals expenses (actual expenses incurred) or you can claim per diem expenses for the number of days you had to telecommute.

I hope this information is helpful to you.

Good luck.
Ashraf S. Mehdi

Monday, January 7, 2008

First, go over this checklist.
Did you file 2553 in the year 2005 or earlier? If you filed it, did you receive an approval from the IRS?
If you answered yes to both questions above, then you should have filed S Corp return instead of C Corp return.
Now, you can take these steps to correct all the errors
1) File amended Corp C return to zero our the effects of Income and Expenses.
2) File amended S Corp return explaining the reason for the amended return.
3) File your amended personal income tax return to disclose the S Corp income (loss).

I cannot tell who actually made the mistake of filing the Corp C return instead of S Corp return. Unfortunately, regardless of whose fault it is, you are at loss. If you had taxable income from your business then you are required to pay taxes and also pay the interest and penalties on the unpaid amount of taxes. The longer you wait to correct, the more you will end up paying.

I would advice that you seek some one elses help if that CPA is not willing to co-operate. You can also reach me at 919-559-2227 or and I will be glad to help you take care of all the issues.

Good luck and thank you for posting on my blog.

Sunday, January 6, 2008

Nicole, you have two different scenerios.
One you have to claim the earnings and the expenses related to you message therapist business on Sch C as a Sole Proprietor, assuming that you have not incorporated the business. You can claim all expenses related to generating the income.

Second, you can claim the upto $4,000 if married filing joint or $2,000 if single for the tuition fees paid for your qualified education. Since, it is just the beginning of the year, you should expect to receive a 1098 form from your university. You can always request the university to provide you a copy of the 1098, in case you do not receive one in the mail. You would also need to wait until Feb 13th to file your return as the form to claim the education credits will not be approved by the IRS before Feb 13th, 2008.

Good luck and thank you for posting on my blog.

Wednesday, November 21, 2007

Good morning Joe,
You did quite a bit of research. Your research is absolutely correct and also most of your assumptions. I will try to make it real short so you understand the flow and the implications on your tax return.
The contributions you make to Educational Accounts work in a similar manner as a IRA account. Since the accounts are used for educational purposes, you can take the deduction in the year(s) of contribution and also the earnings accumulate tax free. However, as you said if you use if for any other purpose other than education then they trigger a taxable event. You get the deduction only once, either in the year of contribution (if you have an account, as in your case) or in the year of actual expenditure. If you are allowed to deduct the contributions and also the expenses then it will be double-dipping as you mentioned. However, if you incurr any additional out of expenses as you indicated (that you will upto $1,000) they are deductable. I live in NC and the rules are similar as in MD and will have similar implications as your federal return.

I believe, even though you would not get any benefits in the coming years, you made a right decision to fund educational accounts for your kids. Some of the reason(s) why I say that is that
1) Your AGI was not the same as it is now when you started funding, that reduced your taxable income and also your income taxes.
2) Your AGI currently is at a level where the actual expense deduction you will incur may phase out or limit the deduction, plus even if you qualify for a full deduction, the maximum deduction that you may get is $6,000
3) Peace of mind that you would not have to worry about your kids education.

However, it would have been in your favor if your AGI was lower than you indicated earlier.

I wish you and your kids Good Luck. BTW, your original post is on my blog under another post, and thanks for your kind work. I will post this entire email on my blog.

A S Mehdi
Email Received from Joe
Mr. Mehdi:

Posting on your website is terrific. I'm glad that you are offering the free advise. It is difficult, however, it place my questions in the little square box on your site. Feel free to place this email on the website if you'd like to be able to share my questions with the general public. I noted that I cannot find my original posted questions you've answered below on the website. Where do they reside? Can they be seen on your website?

I don't think I told my story well enough in my original posting, so I will try to elaborate here.

As I think I mentioned, my son is going to college as a new freshman this fall in 2007. I am funding his tuition with a prepaid MD college plan (IRS calls them a Qualified Tuition Program). As I've since read (after posting questions to your site), I am unable to claim any education deductions on my federal taxes with the funds I used to pay into the MD prepaid college trust (see section 8 of Publication 970). The reason is that it is considered an investment where the dividends and gains are tax free, so I cannot write off the fees(bummer) even though they are used to pay the tuition (a qualified expense). I would like for you to confirm this, however.

I funded the prepaid college trust with monthly payments, and also I paid off the last $3000 or so of the plan with proceeds from my son's Education IRA. These days, an education IRA is referred to as a Coverdell Education Savings Account.
Coverdell ESAs are not really IRAs, other than that the dividends and gains are tax free until they are cashed in, and they are normally cashed in when the beneficiary (my son) goes to college. The money taken out, if used for education expenses, are tax free. It has nothing to do with retirement.

The complication I'm dealing with is that I transferred the Coverdell funds to the MD prepaid (529) college trust, which is allowed.

When I sent you the earlier email, I was hoping that I could get an education deduction utilizing either the Hope or lifetime learning credit. But from what I've read, since I paid for his tuition with the 529 prepaid plan, I get no deduction. As an added note, his room and board and books are paid by one of his other relatives, so I get no deduction for those fees either.

There are some special fees that I have had to pay to the school which the pre-paid trust will not cover. I am hoping I can include those as write offs, but I will have to check whether I make too much money to do that. Also, those write offs may only total less than $1000, so the impact might be minor.

The only remaining question I really have (if you confirm what I assume to be true as correct regarding no write off of prepaid monies), is what about my state income tax write off? I don't believe you are located in MD, but maybe you have a way of checking on this. It might be similar in your state.

MD allows a write off of up to $2500 per tax year per account on fees paid to the pre-paid trust. I started the plan late enough that I have been paying much more than $2500 for each of my children each year, but the max I have been writing off is $2500 as allowed. The additional money is supposed to be able to be written off in later years until the total amount (about $20,000 or so) is fully written off.

My question has to do with whether I can write off all $20,000 for my son over time if part of the monies paid came from a Coverdell ESA? My suspicions are that this would be considered double-dipping by the state since the dividends from the Coverdell ESA were tax free. I'm guessing that I would only be able to deduct yearly those monies which were paid separately from the Coverdell funds (totaling, as I said before, about $3000 of the $20,000).

My question on the state income tax may be too specialized for you to address. But the other question (on whether I can write off any of the money paid to the college from a pre-paid college trust as part of a Hope or Lifetime Learning credit) should become a fairly common question for Accountants now that Baby-Boomers like myself are seing their kids go off to college. But it seems that Publication 970, section 8 is clear that no write off is allowed. I'm beginning to think that the prepaid plan wasn't such a great idea afterall.

See what you can come up with to help me.


Tuesday, November 20, 2007

Good morning Joe, thank you very much for posting on my blog.

Regarding your first question you can claim Hope credit for first two years of college and later on you can claim lifetime learning credit. Your credit will be limited to $4000 in tuition expenses. Your tuition and fees deduction will be disallowed if your AGI exceeds $160,000.

The answer to your second question would be that if you are not retired (I assume that you are not 59 1/2 yrs old) and withdraw funds from your retirement or an IRA account then you will have to disclose that portion of income and will pay income taxes on it, however, you will not be penalized for early withdrawl as your distribution will be considered "Early Distribution, exception applies ".

I hope this helps. Please feel free to post if you may have more questions.

Your Personal Accountant.

Thursday, August 30, 2007

Jeff, I am sorry to hear that you went out of business. I am trying to answer here based on the information you have provided however, I would advice that you get in depth analysis of you situation. Your accountant is right. You would have to pay taxes on the amount of cancellation of debt. Let me give you an example.If your business borrowed $500,000 and you co-signed or was the guarantor. You used the $500,000 to purchase some assets say machinery with a life of 5 years. Your book value was $500,000 at the time of purchase. You depreciated the property using straight line method of depreciation. Two years down the line you had to file bankruptcy. At this point you had the balance of loan down to $400,000 (paid off $100,000 of loans out of $500,000). Lets say you sold the machinery which has a book value of $300,000 ($500,000 purchase price less $200,000 depreciation for 2 years) for $350,000. Here you will have a gain of $50,000 which you will have to recognize as Capital gain. Your business (S Corp) files bankruptcy, since you are guarantor you are personally liable to pay the loan off in case the corporation is unable to pay. There is no cancellation of debt here. But, if you are also completely relieved of the liability or upto the amount of debt that you wont have to pay back then you would have to disclose the relief of debt as Income from Cancellation of debt and you would pay taxes on the money depending upon your tax bracket. For example: out of the $400,000 debt $200,000 was relieved then you have to recognize the $200,000 of cancellation of debt as income and pay taxes on it. Whether or not you have any money to pay taxes or you are in a position to pay taxes is a different chapter. If after bankruptcy you are left with nothing then there are other alternatives you can use to minimize the amounts that you can settle your tax bill with IRS.
I hope I answered your question. If you have anyspecific question then please eloborate your question in detail (you dont have to submit personal information, you can make up an example to resemble yours) and I will be glad to respond.Good Luck.

Friday, July 27, 2007

Eric, I am in a professional environment. I always deal with individuals making lots more than $95,000 a year. You can start a business, you can be a car sales person (to be specific), go into real estate, e.t.c Getting education is very important, as it changes a individuals perspective. Most people see a degree as a way to make more money, they are not wrong but for me education enhances your abilities and skills to think of different possible outcomes for a given problem. I hope I was able to help, but please do keep in mind that I am a professional and my expertise is coming up with tax saving strategies both short and long term, but I am not an expert and I'm not in a position to give you best advice on how you can exactly make $95,000 a year.

Good luck.