The IRS Deductions Blog

Posts Tagged ‘buyer’

Question: my hubbie and i have filed married joint 3yrs but not legally married, can we file individually now?

For 2007 I worked as an independent contractor and paid no fed, med, ss taxes, and only made about 10k as a part timer. My hubbie did pay taxes. when we went to file the guy really scared us telling me i was in trouble and that we would end up owing alot even with the eic and claiming our 3 yr old. so my husband (not legally married) filed head of household alone, im yet to file my taxes, ive realized that i only have to pay about 400-700 but im concerned about what filing status to use since we do live together, he claimed my son and i would just be claiming home office deductions and so forth. should i do single and file with my mothers address even though my 1099 misc and one w2 would not have the same address. Or could file single with the same address as my hubbie since that is were i live , will that trigger an audit will we get in trouble for filling individually after filing married since we are not legally married, texas does recognize common legal marriage, thnks
a million

Answer: Whoa, what a mess. For federal tax purposes, a marriage means only a legal union between a man and a woman as husband and wife. Further,a person does not meet this test if at any time during the year the relationship between you and that person violates local law.
Has your State ruled you as common law married? If so, DON’T file amended as single for the prior 3 income tax years. You will owe a lot on the Federal, and, if your state has income tax, you may owe a lot on the state, also. If you were married in a foreign country, and OK via the INS, file as married. If your State says you are common law married, make sure your husband amends that head of household 2007 return. Click on Married Filing Jointly and Married Filing Separately in your software. Don’t know how much your husband made, but there is a shot from what you have said that Married Filing Separately would enable you to have a lower income tax liability, or, only slightly higher.

Texas has no income tax. What address did you put on your 2004-2006 returns with the IRS? If you put Texas, get married. Look in to further. Your attorney may have given you erroneous advice. I’m sure every State has common law marriage. It’ s to protect the children.

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Mortgage Deduction Cut Draws Criticism

PHILADELPHIA | Long considered a key ingredient of American home ownership, the income-tax deduction for mortgage interest now is on the menu of the commission looking for ways to trim the federal deficit.

Bill Clinton Backs Obama’s Tax Cut Deal

Question: Independent contractor in Michigan – will having EIN change how much my income will be taxed?

I currently work for a couple of companies and get 1099s at the end of the year. I have an offer from another company but they require me to have an EIN. My concern is that I will end up paying more in taxes by working under an EIN than I am now working under my SSN. (My husband is primary wage earner and we have 2 children – we file long form and claim our home for a deduction as well). It looks like my tax office may have permanently shut down so they aren’t available to ask. Thanks in advance!

Answer: Having an EIN should not affect your taxes. If you obtain the EIN but do not create a corporation, or if you create an S corporation, then you will continue to report all the income on Schedule SE and on either Schedule C or Schedule C-EZ. However, if you create a C corporation, then it will be required to file its own return and to pay tax.

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Ahead of the Bell: Budget deficit

The federal budget deficit likely will top $1 trillion through the first nine months of this budget year, a slightly improvement from last year’s record pace.

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Question: Can I deduct property tax that I paid but that I was given a credit for at closing?

I recently purchased a condo in Chicago, where property taxes are paid one year in arrears. I was given a credit at closing for the 2006 taxes. These taxes came due in 2007 after the closing and I paid the tax bills in 2007. Can I deduct these property taxes on my 2007 income tax and just include the credit as part of figuring the purchase price of the property? Or do I have to wait until I’m paying property taxes for which I have not been credited before taking the deduction?

Answer: The taxes were prorated between you and the seller since the sale took place in the middle of the property tax year.

IRS publication 530 states
Division of real estate taxes. For federal income tax purposes, the seller is treated as paying the property taxes up to, but not including, the date of sale. You (the buyer) are treated as paying the taxes beginning with the date of sale. This applies regardless of the lien dates under local law. Generally, this information is included on the settlement statement you get at closing.

Consequently, no deduction because you didn’t pay them, the seller did. When you pay the property tax, you only pay the part after the purchase–you subtract the credit.

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If you thought you had the tax laws figured out, guess again.

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Question: New home owners and Tax Deductions?

Hi:

My wife and I are ready to purchase our first home, but the tax implications aren’t clear to me yet. I know both mortgage interest and real estate taxes are tax deductible, but that I have to itemize on my 1040. The only real way to lower monthly payments is to change the number of exemptions with my employer to reduce the amount of tax taking out. I also read that every exemption equals to app $3,400 of tax reduction.

Now, let’s say I estimate to pay annually $20,000 in interest, $13,000 in property taxes and my federal taxes are 28%/state 8%, how much of a tax refund can I expect and what should I change my exemptions to in order to get the optimal monthly refund back?

I realize that eventually I have to talk to an accountant, but I’m trying to figure out how much realistically this house will cost me a month. My goal is to lower my monthly payments as much as possible.

Thanks!
Yes, this is NJ: so high taxes and (still) high house prices!

Answer: Here’s a good rule of thumb to use… For every dollar you spend in a traditional 30 year fixed rate mortgage and property tax, you get back about 30 cents on income tax (i.e., about 30% – or, about 1/3).

Also, the thing about each exemption being worth $3400 of tax reduction… that’s not really accurate. Basically, it varies depending on income. Taking 3 exemptions for someone earning 100K/year is not the same as someone taking 3 exemptions making $20K/year.

There you go!

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Urban Affairs: County considering shuttle as commute option; deadline today for early deduction on tax bill.

Urban Affairs: County considering shuttle as commute option; deadline today for early deduction on tax bill.

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