Ask a CPA 2014

  1. You have chosen to ignore posts from BostonDotCom. Show BostonDotCom's posts

    Ask a CPA 2014

    It's tax time once again. 

    Do you have a question for a certified public accountant? The Massachusetts Society of Certified Public Accountants is here to help. 

    Please pose your questions in this forum, and members of the society will respond. 

     

     

     

     
  2. You have chosen to ignore posts from MSCPA2008. Show MSCPA2008's posts

    Re: Ask a CPA 2014

    Test

     
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    Re: Ask a CPA 2014

    This doesn't appear to be working...

     

     
  4. You have chosen to ignore posts from willman37777. Show willman37777's posts

    Re: Ask a CPA 2014

    I just filed my MA state tax return. I owe MA about $1000 because the State doesn't think I had health insurance in 2012. However, I did have health insurance in 2012. Where do i go to refute this payment?

     
  5. You have chosen to ignore posts from MASocietyofCPAs. Show MASocietyofCPAs's posts

    Re: Ask a CPA 2014

    In response to willman37777's comment:
    [QUOTE]

    I just filed my MA state tax return. I owe MA about $1000 because the State doesn't think I had health insurance in 2012. However, I did have health insurance in 2012. Where do i go to refute this payment?

    Dear willman37777:

    Your best bet is to secure a Form 1099HC from your health insurance provider and then file a Form CA-6 to amend your return, with a completed Schedule HC anc a copy of the Form 1099HC attached.

    Hope this helps with your returns!

    Mark H. Misselbeck, C.P.A., M.S.T., Tax Principal

    Katz, Nannis + Solomon, P.C.

     
  6. You have chosen to ignore posts from Walter57. Show Walter57's posts

    Re: Ask a CPA 2014


    I have received a notice of an audit from the Mass.  DOR.  They are auditing me for meALS expenses I claimed and also for Form 2106 line 4 deductions (job related expenses such as union dues and job related education, as well as safety gear such as shoes and gloves).  The audit letter says line 4 deductions are "generally" not deductible, except in the case of outside salesmen, which I am not.  Does that mean they will disallow the union dues, etc?

     
  7. You have chosen to ignore posts from MSCPA2008. Show MSCPA2008's posts

    Re: Ask a CPA 2014

    In response to Walter57's comment:
    [QUOTE]


    I have received a notice of an audit from the Mass.  DOR.  They are auditing me for meALS expenses I claimed and also for Form 2106 line 4 deductions (job related expenses such as union dues and job related education, as well as safety gear such as shoes and gloves).  The audit letter says line 4 deductions are "generally" not deductible, except in the case of outside salesmen, which I am not.  Does that mean they will disallow the union dues, etc?

    [/QUOTE]


    The rules for what is deductible are different for Federal and Mass.  All employees can deduct unreimbursed travel and transportation costs, but only an outside salesperson can claim the other expenses.  Below is a link to the Mass instructions, which will explain what is deductible and provide a worksheet to help you arrive at the correct number.

    http://www.mass.gov/dor/docs/dor/forms/inctax13/f1-nrpy/form-1-instructions.pdf

    Julia F. Tiernan, CPA

    Peabody, MA

     
  8. You have chosen to ignore posts from rhrouse. Show rhrouse's posts

    Re: Ask a CPA 2014

    for 3 years I have been putting $500 (after tax money) a month into a traditional IRA and then immidiately converting it to a Roth IRA (read: no earnings in the Traditional). in 2013 I withdrew from the Roth IRA money to put a downpayment on a house. I was told that as long as I only withdrew MY CONTRIBUTION, I would not sustain a penalty or tax on the withdrawal. I meet all the rules for Roth IRA (age, income level, etc). I was told when I fill out my tax form, there will be a worksheet where I can show with the tax forms that fidelity gave me, that the withdrawal was in fact, my after tax contribution and not any of the earnings. However, no matter how I fill out that worksheet, I still wind up getting a huge tax hit. I cannot figure out what I'm doing wrong. Where do I prove to the IRS that this withdrawal was my own after tax contribution to the Roth?


    Thanks, r

     
  9. You have chosen to ignore posts from MSCPA2008. Show MSCPA2008's posts

    Re: Ask a CPA 2014

    In response to rhrouse's comment:
    [QUOTE]

    for 3 years I have been putting $500 (after tax money) a month into a traditional IRA and then immidiately converting it to a Roth IRA (read: no earnings in the Traditional). in 2013 I withdrew from the Roth IRA money to put a downpayment on a house. I was told that as long as I only withdrew MY CONTRIBUTION, I would not sustain a penalty or tax on the withdrawal. I meet all the rules for Roth IRA (age, income level, etc). I was told when I fill out my tax form, there will be a worksheet where I can show with the tax forms that fidelity gave me, that the withdrawal was in fact, my after tax contribution and not any of the earnings. However, no matter how I fill out that worksheet, I still wind up getting a huge tax hit. I cannot figure out what I'm doing wrong. Where do I prove to the IRS that this withdrawal was my own after tax contribution to the Roth?


    Thanks, r

    [/QUOTE]


    Hi:


    You need to complete form 8606 and put the amount of the qualified homeowner expenses on line 20.

    Hope that helps.

    Julia F Tiernan, CPA

    Peabody, MA

     
  10. You have chosen to ignore posts from badesh. Show badesh's posts

    Re: Bank interest question for joint accounts

    Dear CPA,

    I have a joint bank account overseas with another member of my family and we file separate tax returns.  They are also MA residents.  What is the treatment of the interest earned in the account if my name is second owner for:

    1. Federal Tax return

    2. MA State tax return

    i.e. should interest be equally divided for tax return purposes or is it always listed as income to 1st owner ?

    Thanks in advance.

    badesh

     

     

     

     

     
  11. You have chosen to ignore posts from MASocietyofCPAs. Show MASocietyofCPAs's posts

    Re: Ask a CPA 2014

    In response to badesh's comment:
    [QUOTE]

    Dear CPA,

    I have a joint bank account overseas with another member of my family and we file separate tax returns.  They are also MA residents.  What is the treatment of the interest earned in the account if my name is second owner for:

    1. Federal Tax return

    2. MA State tax return

    i.e. should interest be equally divided for tax return purposes or is it always listed as income to 1st owner ?

    Thanks in advance.

    badesh

     Dear badesh:

    It depends on who deposited the money to the account.  If all of the money came from your relative, then they should report all of the income.  If both contributed to the account, the interest should be split in proportion to the contribution by each owner.  If you didn't put in any money and you withdraw funds, your relative will have made a gift to you of the amount withdrawn.

    You will need to file a Form Fin 114 (this replaces the old Form 90.22-1).  This discloses the fact that you have signatory authority over a foreign account.  It is to be filed electroncially, over the web.  The penalty for non-filing is $ 10,000 or 50% of the highest account balance during the year.  THe Form Fin 114 must be in the hands of the government no later than June 1, each year.

    Hope this helps in filing your returns.

    Mark H. Misselbeck, C.P.A., M.S.T., Tax Principal

    Katz, Nannis + Solomon, P.C.



     
  12. You have chosen to ignore posts from MASocietyofCPAs. Show MASocietyofCPAs's posts

    Re: Ask a CPA 2014

    In response to rhrouse's comment:

    for 3 years I have been putting $500 (after tax money) a month into a traditional IRA and then immidiately converting it to a Roth IRA (read: no earnings in the Traditional). in 2013 I withdrew from the Roth IRA money to put a downpayment on a house. I was told that as long as I only withdrew MY CONTRIBUTION, I would not sustain a penalty or tax on the withdrawal. I meet all the rules for Roth IRA (age, income level, etc). I was told when I fill out my tax form, there will be a worksheet where I can show with the tax forms that fidelity gave me, that the withdrawal was in fact, my after tax contribution and not any of the earnings. However, no matter how I fill out that worksheet, I still wind up getting a huge tax hit. I cannot figure out what I'm doing wrong. Where do I prove to the IRS that this withdrawal was my own after tax contribution to the Roth?


    Thanks, r



    Dear r:

    On page 2, Part III of the Form 8606, line 20 is where you entere the amounts that you have contributed to the ROTH IRA.  If you follow the steps mathematically that the form requires from that point on, you should have the result that you desire.  In future, an entry on that line would be the total contributed to the ROTH IRA, LESS the amount previously recovered in this year.

    Hope this helps in preparing your return!

    Mark H. Misselbeck, C.P.A., M.S.T., Tax Principal

    Katz, Nannis + Solomon, P.C.

     
  13. You have chosen to ignore posts from slr2. Show slr2's posts

    Non Dividend Distributions on Box 3 of Form 1099-DIV

    Hi,

    I received something new this year on one mof my 1099-DIV where there was a value for Box 3 - Nondividend Distributions. From reading Publication 550, it looks like I will only be taxed on this if by cost basis of my stock is already zero which it is not. So my question is - do I have to enter it still since my cost basis is not zero? If I do, where to I enter this?

     

    Thank You for your help.

     
  14. You have chosen to ignore posts from MASocietyofCPAs. Show MASocietyofCPAs's posts

    Re: Ask a CPA 2014

    In response to slr2's comment:

    Hi,

    I received something new this year on one mof my 1099-DIV where there was a value for Box 3 - Nondividend Distributions. From reading Publication 550, it looks like I will only be taxed on this if by cost basis of my stock is already zero which it is not. So my question is - do I have to enter it still since my cost basis is not zero? If I do, where to I enter this?

    Thank You for your help.

    Dear slr2:

    This is what is knwn as a "ROC" - return of capital dividend.  The company paying it has distributed all of its available earnings, so it is paying the dividend out of paid in capital.  If you have basis in your stock, you have nothing to report, for now.  You must reduce the basis of the stock by this recovered capital, thereby increasing your gain (or reducing your loss) on any future sale of the stock.

    Hope this helps in preparing your returns!

    Mark H. Misselbeck, C.P.A., M.S.T., Tax Principal

    Katz, Nannis + Solomon, P.C.

     

     
  15. You have chosen to ignore posts from slr2. Show slr2's posts

    Re: Ask a CPA 2014

    In response to MASocietyofCPAs' comment:
    Hello Mr. Misselbeck,

    Thanks for your guidance. I am using Turbo Tax to prepare my tax return, and on the section for entering data for form 1099-DIV, there is the field for Box 3: Nondividend Distributions. Even though it is not currently a taxable event for me, I wonder if I should enter the amount into the field? I know from reading the instructions that if my basis was down to zero, then I would need to report this return of capital as a capital gain on form 8949. Since Form 1099-DIV was reported to the IRS I feel funny leaving out some of the reported information when I am entering my numbers into Turbo Tax. Thanks very much.

    In response to slr2's comment:

    Hi,

    I received something new this year on one mof my 1099-DIV where there was a value for Box 3 - Nondividend Distributions. From reading Publication 550, it looks like I will only be taxed on this if by cost basis of my stock is already zero which it is not. So my question is - do I have to enter it still since my cost basis is not zero? If I do, where to I enter this?

    Thank You for your help.

    Dear slr2:

    This is what is knwn as a "ROC" - return of capital dividend.  The company paying it has distributed all of its available earnings, so it is paying the dividend out of paid in capital.  If you have basis in your stock, you have nothing to report, for now.  You must reduce the basis of the stock by this recovered capital, thereby increasing your gain (or reducing your loss) on any future sale of the stock.

    Hope this helps in preparing your returns!

    Mark H. Misselbeck, C.P.A., M.S.T., Tax Principal

    Katz, Nannis + Solomon, P.C.

     

    [/QUOTE]


     
  16. You have chosen to ignore posts from Toto2005. Show Toto2005's posts

    Re: Net Investment Income Tax - Properly Allocable Deductions - State Income Taxes

    Hello, I'm hoping to seek some guidance regarding my calculation for the net investment income tax. I understand that in calculating net investment income some deductions - "properly allocable deductions" are allowed. State income taxes are one source of deduction according to the Instructions for Form 8960 - this would be from Line 5 of Schedule A of 1040 - however you are to do a reasonable method of allocation per the instructions. As quoted: Examples of reasonable methods of allocation include, but are not limited to, an allocation of the deduction based on the ratio of the amount of a taxpayer's gross investment income (Form 8960, line 8) to the amount of the taxpayer's AGI (Form 1040, line 38).

    One question I have is, what if in following the above methodology, ones comes up with an amount for deduction that is higher than the amount of state taxes paid attributable to investment come? If you live in a state with a flat tax and the tax taken against gross investment income is less than the amount the above method is saying you can deduct? Then my next question is, if I do take the deduction and I get a state refund, how do I deal with the recovery for the following tax year?

    Help! This has me going in circles and trying to research every angle! Thanks so much in advance.


     

     
  17. You have chosen to ignore posts from MSCPA2008. Show MSCPA2008's posts

    Re: Ask a CPA 2014

    In response to Toto2005's comment:
    [QUOTE]

    Hello, I'm hoping to seek some guidance regarding my calculation for the net investment income tax. I understand that in calculating net investment income some deductions - "properly allocable deductions" are allowed. State income taxes are one source of deduction according to the Instructions for Form 8960 - this would be from Line 5 of Schedule A of 1040 - however you are to do a reasonable method of allocation per the instructions. As quoted: Examples of reasonable methods of allocation include, but are not limited to, an allocation of the deduction based on the ratio of the amount of a taxpayer's gross investment income (Form 8960, line 8) to the amount of the taxpayer's AGI (Form 1040, line 38).

    One question I have is, what if in following the above methodology, ones comes up with an amount for deduction that is higher than the amount of state taxes paid attributable to investment come? If you live in a state with a flat tax and the tax taken against gross investment income is less than the amount the above method is saying you can deduct? Then my next question is, if I do take the deduction and I get a state refund, how do I deal with the recovery for the following tax year?

    Help! This has me going in circles and trying to research every angle! Thanks so much in advance.


     

    [/QUOTE]


    I can relate to going in circles when it comes to taxes!!  If you know the tax attributable to the investment income, use that number.  The directions are for when you don't know. 

     

    Julia F Tiernan, CPA

    Peabody, MA

     
  18. You have chosen to ignore posts from MASocietyofCPAs. Show MASocietyofCPAs's posts

    Re: Ask a CPA 2014

    In response to Toto2005's comment:

    Hello, I'm hoping to seek some guidance regarding my calculation for the net investment income tax. I understand that in calculating net investment income some deductions - "properly allocable deductions" are allowed. State income taxes are one source of deduction according to the Instructions for Form 8960 - this would be from Line 5 of Schedule A of 1040 - however you are to do a reasonable method of allocation per the instructions. As quoted: Examples of reasonable methods of allocation include, but are not limited to, an allocation of the deduction based on the ratio of the amount of a taxpayer's gross investment income (Form 8960, line 8) to the amount of the taxpayer's AGI (Form 1040, line 38).

    One question I have is, what if in following the above methodology, ones comes up with an amount for deduction that is higher than the amount of state taxes paid attributable to investment come? If you live in a state with a flat tax and the tax taken against gross investment income is less than the amount the above method is saying you can deduct? Then my next question is, if I do take the deduction and I get a state refund, how do I deal with the recovery for the following tax year?

    Help! This has me going in circles and trying to research every angle! Thanks so much in advance.

    Dear Toto2005:

    The computaton is made by allocatng the tax from the state return for the year for which you are making the computation.  The ratio of the amount of net investment income being taxed over the total income beng taxed multplied by the state tax would yield the deduction to claim against the investment income.  Remember that MA is a flat tax - by category.  The odd man out category for MA s short term capital gains.  Those are taxed at a flat rate of 12%, rather than the 5.2% rate that applies to all other income.  Thus, if you have short term capital gains that are NOT excludable from Net Investment Income, then the entire amount of MA tax on Short Term Capital gaina, whle the balance of the MA tax would need to be allocated between the investment income reported in the 5.2 rate out of the total income taxed by MA in that category.

    The refund would be dealt with in the 2014 return and, since the allocation is based on the liability and not the payments made during2013, the refund should not affect your federal liability for the Net Investment Income Tax (NIT), now or on your 2014 return.

    There are other expenses that may offset investment income amounts, but from your comments, it appears that you aren't claiimng any of them in your return.  So once you've made your allocation of state income taxes aganst your net inestment income, you should be able to follow the balance of the form's instructonos and complete the calculation of your NIIT.

    Hope this helps in preparing your returns!

    Mark H. Misselbeck,C.P.A., M.S.T., Tax Princpal

    Katz, Nannis + Solomon, P.C.

     
  19. You have chosen to ignore posts from slr2. Show slr2's posts

    Tax Treatment of a Settlement Received as part of a Securities Litigation

    Hello,

    I received $47.95 in 2013 as part of a settlement in a class action lawsuit against Banco Popular. The plaintiffs in this suit alleged that the bank failed to disclose material adverse facts about its true financial condition. As a result there was an impact on the stock price. I sold all of my shares in Banco Popular back in 2012. We took a loss on this investment. What is the tax treatment of this settlement? How should we go about reporting this?

    Thanks very much for your guidance.

     
  20. You have chosen to ignore posts from MASocietyofCPAs. Show MASocietyofCPAs's posts

    Re: Ask a CPA 2014

    In response to slr2's comment:

    Hello,

    I received $47.95 in 2013 as part of a settlement in a class action lawsuit against Banco Popular. The plaintiffs in this suit alleged that the bank failed to disclose material adverse facts about its true financial condition. As a result there was an impact on the stock price. I sold all of my shares in Banco Popular back in 2012. We took a loss on this investment. What is the tax treatment of this settlement? How should we go about reporting this?

    Thanks very much for your guidance.

    Dear slr2:

    The claim arose with respect to a capital gains transaction, so the profit should also be reported a a capital gain.  As it has been pending since 2012 with repsect to stock that you bought before then, you should report it as a Long Term gain, with no cost.

    Hope this helps in preparing your returns!

    Mark H. Misselbeck, C.P.A., M.S.T., Tax Principal

    Katz, Nannis + Solomon, P.C.




     
  21. You have chosen to ignore posts from taxpayer99. Show taxpayer99's posts

    Re: Ask a CPA 2014

    Are Qualified dividends taxed differently from ordinary under MA State tax for year 2013? In other words, can Qualified dividends be included on Line 6 of Schedule B of the Form-1 for MA tax returns, and thus offset the ordinary dividends shown on Line 2 of Schedule B?

     
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    Re: Ask a CPA 2014

    In response to taxpayer99's comment:

    Are Qualified dividends taxed differently from ordinary under MA State tax for year 2013? In other words, can Qualified dividends be included on Line 6 of Schedule B of the Form-1 for MA tax returns, and thus offset the ordinary dividends shown on Line 2 of Schedule B?

     

    Dear taxpayer99:

    Sorry, but no, dividends that are qualified for the reduced tax rates for federal purposes are not accorded any difference tax treatment by Massachusetts.  The line you refer to are for other items permitting a reduction to the total recieved.  This would include interest or mutual fund dividends that are paid by the US Government or one of its specified agencies that are treated as "creatures" of the US Government by Massachusetts, as well as interest or mutual fund dividends paid by the state of Massachusetts or a city/town located within Massachusetts.  For these purposes, the Commonwealth of Puerto Rico, together with the Virgin Islands, Guam and other US protectorates are also given the same treatment.

    Hope this helps in preparing your returns!

    Mark H. Misselbeck, C.P.A., M.S.T., Tax Principal

    Katz, Nannis + Solomon, P.C.

     
  23. You have chosen to ignore posts from badesh. Show badesh's posts

    Re: Ask a CPA 2014

    Please help with ambigious instructions on Form 8938 Line 2.

    Foreign Account Reporting on Form 8938 Line 2 says " Report the total of all maximum values for each of the deposit accounts"

    These instructions will result in double counting if an account is closed and another one opened within the calendar year e.g. Acct 1 has $50k on Feb 1, 2013.  Account 2 is opened on Mar 1, 2013, $50k transferred to Account 2 from Acct1 and Acct 1 is closed.

    If we follow the instructions to the letter,  total of max values is $100k.  In reality, the max value on any given day is always $50k.

    What number should be used ?

    Thanks in advance for your help.

    Badesh.

     

     
  24. You have chosen to ignore posts from MASocietyofCPAs. Show MASocietyofCPAs's posts

    Re: Ask a CPA 2014

    In response to badesh's comment:
    [QUOTE]

    Please help with ambigious instructions on Form 8938 Line 2.

    Foreign Account Reporting on Form 8938 Line 2 says " Report the total of all maximum values for each of the deposit accounts"

    These instructions will result in double counting if an account is closed and another one opened within the calendar year e.g. Acct 1 has $50k on Feb 1, 2013.  Account 2 is opened on Mar 1, 2013, $50k transferred to Account 2 from Acct1 and Acct 1 is closed.

    If we follow the instructions to the letter,  total of max values is $100k.  In reality, the max value on any given day is always $50k.

    What number should be used ?

    Thanks in advance for your help.

    Badesh.

     [/QUOTE]

    Dear Badesh:

    The instructions state that the vale fot he accounts must either: exceed $ 100,000, in the aggregate, on the last day of the year; or have exceeded a total of $ 150,000, in the aggregate, at any time during the year.  Based on those instructions, your total maximum value on the last day was $ 50,000 and did not exceed $ 150,000, in the aggregate, during the year.  Strictly speaking, you do not need to file a Form 8938.  Given the paranoia of the government about citizens "hiding assets" abroad, you may consider filing the form, even though you are not obligated to do so, as an exercise of your own paranoia of government suspicions of its citizens and file the form, anyway, to disclose the fact that you had two different accounts during the year.  In respect of this form and the form FIN 114, it is better to have the form filed and not need it, rather than need to have filed the form and not have done so.

    Hope this helps in filing your returns!

    Mark H. Misselbeck, C.P.A., M.S.T., Tax Principal

    Katz, Nannis + Solomon, P.C.

     
  25. You have chosen to ignore posts from badesh. Show badesh's posts

    Re: Ask a CPA 2014

    Dear CPA,

    The $50k example was hypothetical. The actual amounts exceed the threshold. Declaring the accounts is not an issue.  However, the question is about the double counting that would result in Line 2 when funds are transferred between accounts.  Is the intent of Line 2 - total of max across all accounts on any given day or total of max across all accounts ? In the example below,  the former would be 50k vs. the latter would be 100k.

    Thank you.

    Badesh

     

    In response to MASocietyofCPAs' comment:

    In response to badesh's comment:
    [QUOTE]

    Please help with ambigious instructions on Form 8938 Line 2.

    Foreign Account Reporting on Form 8938 Line 2 says " Report the total of all maximum values for each of the deposit accounts"

    These instructions will result in double counting if an account is closed and another one opened within the calendar year e.g. Acct 1 has $50k on Feb 1, 2013.  Account 2 is opened on Mar 1, 2013, $50k transferred to Account 2 from Acct1 and Acct 1 is closed.

    If we follow the instructions to the letter,  total of max values is $100k.  In reality, the max value on any given day is always $50k.

    What number should be used ?

    Thanks in advance for your help.

    Badesh.

     



    Dear Badesh:

    The instructions state that the vale fot he accounts must either: exceed $ 100,000, in the aggregate, on the last day of the year; or have exceeded a total of $ 150,000, in the aggregate, at any time during the year.  Based on those instructions, your total maximum value on the last day was $ 50,000 and did not exceed $ 150,000, in the aggregate, during the year.  Strictly speaking, you do not need to file a Form 8938.  Given the paranoia of the government about citizens "hiding assets" abroad, you may consider filing the form, even though you are not obligated to do so, as an exercise of your own paranoia of government suspicions of its citizens and file the form, anyway, to disclose the fact that you had two different accounts during the year.  In respect of this form and the form FIN 114, it is better to have the form filed and not need it, rather than need to have filed the form and not have done so.

    Hope this helps in filing your returns!

    Mark H. Misselbeck, C.P.A., M.S.T., Tax Principal

    Katz, Nannis + Solomon, P.C.

    [/QUOTE]


     

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