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Tax ID Numbers: When Do I Need One?

February 27, 2009 by Tax Blog  
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Generally, businesses and trusts and estates in Los Angeles County, Orange County, Santa Barbara County and Ventura County, California need a new employer identification number (“EIN”) when their ownership or structure has changed. Changing the name of your business does not require you to obtain a new EIN.

What follows are some general rules about when getting a new federal EIN may or may not be appropriate:

Trusts
You will be required to obtain a new EIN if any of the following statements are true.
• One person is the grantor/maker of many trusts.
• A trust changes to an estate.
• A living or intervivos trust changes to a testamentary trust.
• A living trust terminates by distributing its property to a residual trust.

You will not be required to obtain a new EIN if any of the following statements are true.
• The trustee changes.
• The grantor or beneficiary changes his/her name or address

Estates
You will be required to obtain a new EIN if any of the following statements are true.
• A trust is created with funds from the estate (not simply a continuation of the estate).
• You represent an estate that operates a business after the owner’s death.

You will not be required to obtain a new EIN if any of the following statement is true.
• The administrator, personal representative, or executor changes his/her name or address.

Limited Liability Company (LLC)
An LLC is a new entity created by state statute. The IRS did not create a new tax classification for the LLC when it was created by the states; instead IRS uses the tax entity classifications it has always had for business taxpayers: corporation, partnership, or sole proprietor. An LLC is always classified by the IRS as one of these types of taxable entities.

Corporations
You will be required to obtain a new EIN if any of the following statements are true.
• A corporation receives a new charter from the secretary of state.
• You are a subsidiary of a corporation using the parent’s EIN or you become a subsidiary of a corporation.
• You change to a partnership or a sole proprietorship.
• A new corporation is created after a statutory merger.

You will not be required to obtain a new EIN if any of the following statements are true.
• You are a division of a corporation.
• The surviving corporation uses the existing EIN after a corporate merger.
• A corporation declares bankruptcy.
• The corporate name or location changes.
• A corporation chooses to be taxed as an S corporation.
• Reorganization of a corporation changes only the identity or place.

Sole Proprietors
You will be required to obtain a new EIN if any of the following statements are true.
• You are subject to a bankruptcy proceeding.
• You incorporate.
• You take in partners and operate as a partnership.
• You purchase or inherit an existing business that you operate as a sole proprietorship.

You will not be required to obtain a new EIN if any of the following statements are true.
• You change the name of your business.
• You change your location and/or add other locations.
• You operate multiple businesses.

Partnerships
You will be required to obtain a new EIN if any of the following statements are true.
• You incorporate.
• Your partnership is taken over by one of the partners and is operated as a sole proprietorship.
• You end an old partnership and begin a new one.

You will not be required to obtain a new EIN if any of the following statements are true.
• The partnership declares bankruptcy.
• The partnership name changes.
• You change the location of the partnership or add other locations.
• A new partnership is formed as a result of the termination of a partnership under IRC section 708(b)(1)(B).
• 50 percent or more of the ownership of the partnership (measured by interests in capital and profits) changes hands within a twelve-month period (terminated partnerships under Reg. 301.6109-1).

Speak to a California tax attorney about this and other business, estate/trust and probate questions. Call Mitchell A. Port at 310.559.5259.

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Investing in the US

February 27, 2009 by Tax Blog  
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Today TaxMama hears from Fredrik in Mexico, with this question. “I’m a German citizen living in Mexico with no intention to move to or to live in the US. But I would like to invest in the US. Do I need a ITIN number?”

Dear Fredrik,

That’s a lovely place to live, isn’t it?

Yes, you will need an ITIN.

I don’t think any bank or brokerage will open an account for you without one.

Use Form W-7 to get the ITIN http://www.irs.gov/pub/irs-pdf/fw7.pdf

You will need to provide a variety of documents to verify your identity. If you don’t want to have to send originals to IRS, you can use an Acceptance Agent in Mexico. There is one in Mexico city.
http://www.irs.gov/individuals/article/0,,id=121517,00.html

With a Certified Acceptance Agent (CAA), you can just show them the documents and have the CAA verify them and/or make copies of them. No need to let the documents leave your possession.

And remember, you can find answers to all kinds of questions about ITINs and other tax issues, free. Where? Where else? At TaxMama.com

[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the subscribe link and join us.]

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Emotional Distress

February 27, 2009 by Tax Blog  
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Today TaxMama hears from Keri in Massachusetts, who tells us. “I just received an offer for a $50,000 settlement for emotional distress due to a sexual harassment lawsuit I have against a company. They want to 1099 me at the end of the year for the settlement. So I need to know before I agree to this if I am going to have to pay taxes on this settlement or not? I’ve heard, with emotional distress cases you do “not” have to claim it; but I need to know for sure.”

Dear Keri,

Consider meeting with your own tax professional to get a
definitive opinion. This is a big decision.

I don’t know who told you emotional distress settlements were tax free. Perhaps the company’s attorney?

In general, unless you’ve had a physical injury, or needed to get treatments for physical symptoms resulting from the emotional distress, the settlement is taxable.
http://www.irs.gov/publications/p17/ch12.html#en_US_publink100033120
http://www.irs.gov/publications/p525/ar02.html#en_US_publink100098487

IRS says: You can exclude “damages you receive for medical care due to that emotional distress. Emotional distress includes physical symptoms that result from emotional distress, such as headaches, insomnia, and stomach disorders.”

So, take a close look at the real tax effects of that award with a tax professional who can run some projections for you to see what the net cash to you will be.

For tax purposes, I believe this is the formula (I may be wrong – that’s why it’s important for you to work with some who has experience with distress settlements – ask your attorney who s/he works with on similar cases):

Step One

1) You have to report the full amount of the taxable portion of the award in your income.
2) Attorney fees get deducted on Schedule A, less 2% of your adjusted gross income (add your usual income to the amount of the award and multiply it by 2%)
3) Now compute the IRS and state taxes that result

Step Two:

1) $50,000 – Start with the amount of the award.
2) (17,500) – Deduct attorney fees
3) ( 2,500) – Deduct any fees the attorney must disburse.
3) ( 9,000) Deduct IRS and state taxes. (Approx 30%)

So, what’s left?About $21,000 or so.

That planning meeting will help you decide if the net check
is really worth it. Before you turn down any offer, speak with your attorney about the realistic chances of getting a higher settlement – or of winning a larger judgment in court (after court costs).

Stay tuned to the Comments on TaxQuip #1134 to see if anyone has any further suggestions.
http://taxquips.com/index.php?id=1134

Good luck!

And remember, you can find answers to all kinds of questions about sexual harassment and other tax issues, free. Where? Where else? At TaxMama.com

[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the subscribe link and join us.]

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Reporting Mexican Income

February 27, 2009 by Tax Blog  
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Today TaxMama hears from B in Washington State, with this question. “If I have passive rental income of $100,000 from a business in Mexico that goes into a trust in Belize, am I required to report that on my 1040 in the US? I am a US citizen and live in the US 100% of the time.”

Dear B,

Bad news?

Yup! As an American, you are required to report your world-wide income. IRS has some delightful penalties they enjoy imposing on unreported income.

IRS doesn’t really recognize those ‘trusts’ as real entities. To IRS, the trust is just you.
http://www.irs.gov/businesses/article/0,,id=180946,00.html

These offshore ‘schemes’ (as IRS calls them) are expensive to set up. The real money is made by the promoters.

In fact, you should probably be reporting the bank accounts using Form TD F 90-22.1.
http://www.irs.gov/pub/irs-pdf/f90221.pdf

Failure to disclose your offshore bank balances of $10,000 or more could just generate penalties of up to $500,000. Not a nice thing to happen, is it?
http://www.irs.gov/irs/article/0,,id=184037,00.html

On the other hand, you’re probably paying taxes in Mexico. When you report the income in the US, the Mexican taxes you paid might just offset any U.S. taxes you would have to pay. You’ll probably break even, or come close to it. So, you can go straight – and not spend much in the process. Be careful.

And remember, you can find answers to all kinds of questions about hiding income offshore and other tax issues, free. Where? Where else? At TaxMama.com

[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the subscribe link and join us.]

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Offsetting Capital Losses

February 27, 2009 by Tax Blog  
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Today TaxMama hears from Praveen in North Carolina, who asks. “Can I deduct gains from a rental property sale against my capital loss carryovers from stock sales?”

Dear Praveen,

That’s a very good question.

The way to do this is a bit complicated, but you probably can offset those stock losses. Essentially, when you sell real estate at a gain, you’re apt to have two kinds of gain (though not in all cases):

1. Ordinary gain – comes from recapture of deprecation.

This gain is reported on page 1 of your Form 1040.
2. Capital gain – from the rest of the profits
This gain is reported on Schedule D. This will offset your capital losses.

Read IRS Publication 544 to learn how to report the sale of assets.
http://www.irs.gov/publications/p544/index.html

You will use Form 4797, Part III to report the sale.
http://www.irs.gov/pub/irs-pdf/f4797.pdf

As I said, sorting out the ordinary and capital gains can be complicated. Someone with experience will know whether or not your sale is subjected to depreciation recapture. So, please get professional help when you report this sale. And if you haven’t sold the property yet, but are just making plans, meeting with a tax pro to test the results before selling the property.

And remember, you can find answers to all kinds of questions about selling real estate and other tax issues, free. Where? Where else? At TaxMama.com

[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the subscribe link and join us.]

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My Bank Account is Frozen!

February 27, 2009 by Tax Blog  
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“My bank account is frozen!!!!” . I hear this often when talking to clients who have liabilities owed to the IRS and have failed to resolve the issue. This is why it is best to be proactive in resolving any tax issue, especially when there is a balance due or an amount owed. If you do not then the IRS will eventually begin to enforce collection through wage levies and/or bank account levies.

So what is a Bank Levy?

A bank levy is a seizure of the funds in your bank account on the day that the bank receives a levy notice from the IRS. More specifically, the bank must do the following as stated in the Internal Revenue Manual

1.The bank must send the amount in the taxpayer’s accounts. However, it must send no more than the amount shown on the notice of levy.

2.The notice of levy only reaches the amount on deposit when the levy is received. Money deposited later is not surrendered, including deposits during the holding period. Another levy must be served to reach this money. Also, the levy only reaches deposits that have cleared and are available for the taxpayer to withdraw.

3.Levy proceeds must not be reduced by any fee charged by the bank for processing the levy.

What is the holding period?

1.A bank must wait 21 calendar days after a levy is served before sending payment. Then, on the next business day, it must turn over the taxpayer’s money. The depositor(s) can waive this waiting period. The bank will not send money that is subject to attachment or execution under judicial process. “Bank” includes credit unions, savings and loan associations, trust companies, and others described in IRC 408(n) and Treas. Reg. §301.6332–3(b).

2.During the holding period, a levy might be released, or the amount owed could decrease.
Note:
If the bank receives no release, it must send the payment after the holding period. No additional notice is required

How do you get a bank levy released?

First, it is very difficult to get a bank levy released. Once the IRS has it’s claws on guaranteed revenue they are very reluctant to release those funds. However, they will release a levy under the following conditions and a release of levy notice (form 668–D, Release of Levy/Release of Property from Levy) must be issued to the Bank.

1. The liability is satisfied by full payment, i.e., is no longer owed.
2. The statutory collection period has run out (see CSED)
3. The release will facilitate collection of the amount that is owed.
4. The levy is creating an economic hardship, i.e., the levy will cause the individual to be unable to pay their necessary living expenses
5. The taxpayer makes an installment agreement, unless the agreement allows for the levy

In essence, there must be a resolution made with the IRS in order to have the levy released. The IRS may also require that all outstanding returns be filed prior to releasing a levy too.

So what should you do if your bank account has been levied or you have an outstanding tax liability?

Contact a Tax Professional who can help you!

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Ask TaxMama Issue 493 - Happy Tax Season

February 27, 2009 by Tax Blog  
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Happy Tax Season

Dear Family,

We’ve been hard at work on the Positive Idea site for you. Of course, since that domain name is taken, we’ve been looking around for appropriate names for the site and hit on the perfect one. WeFoundaSolution.com

It’s still very much in process. We’ll be ready to go live in about two weeks. But, you don’t have to wait until then. If you or someone you know are struggling right now – drop in and see if you can find any ideas to help you. Or tell us your ideas that people can implement right now, without government help or red tape – to help themselves, their neighbers and their friends.

Last week, we mentioned the new California homebuyers credit in the latest budget. It’s quite nifty! (Just about) Anyone buying a home in California will qualify. The $10,000 credit will be paid to you over three years. If you were following me on Twitter, you’d have gotten the link to the FAQs page for this credit. http://twitter.com/TaxMama

Today though, you can find the link in this week’s MarketWatch article. TaxMama®’s MarketWatch.com article this week is about the Pros and Cons of the federal first-time homebuyers credit. Actually, there just wasn’t room to get everything into that article. So stand by and I will be adding a lot more on TaxQuips.com .
http://snurl.com/homebuyers_credit

In the meantime, you will find more FAQs at
http://hometownamerica.com . They’re develop manufactured home communities around the country. You may find some good deals there.

In IRS News today, you’ll learn more about the new sales tax deduction for new car purchases. And for those who’ve been laid off, here’s the information you’ve been waiting for on the COBRA Health Insurance Continuation Premium Subsidy. It may be confusing, but take the time to read it thoroughly. When you’re paying expensive insurance premiums, being able to get 35% of the cost subsidized is a major benefit.
http://taxquips.com/index.php?cat=IRSNews

In today’s Money Funny you can read about celebrities’ Philosophy of Sex.
http://taxquips.com/index.php?cat=MoneyFunnies

In TaxQuips this week, we learn more about ITINs, offshore income and foreign trusts, emotional distress settlements and offsetting your capital losses by selling assets at a profit.
http://taxquips.com/index.php?cat=TaxQuips

In our Job Advice on the Week, you’ll learn how to dress down at work to disguise your interview attire – to keep your boss and co-workers from realizing you’re doing interviews that day.
http://taxquips.com/index.php?cat=JobAdviceoftheWeek

As always, we love your feedback, opinions and ideas.
You are what makes all this fun – and interesting!

Please use the Comments link online.
http://taxquips.com/index.php?id=1140

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Hugs from your favorite TaxNerd,

Eva Rosenberg, EA

Your TaxMama is watching…out for you.

www.TaxMama.com
www.TaxQuips.com
www.IRSExam.com
www.taxnerd.net
————————————————————-

TAX CALENDAR 2009
————————————————————-

03.02.2009 Mortgage Interest file Form 1098s with IRS

03.02.2009 File W-2’s with Social Security Admin

03.02.2009 File 1099’s with IRS

03.02.2009 File City of L.A. Business License/Tax Form

03.02.2009 Farmers & Fisherman – file and pay taxes due for 2007 and pay all tax due if estimated payments not made on 01.15.2009.
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Open your own Zazzle account and create personalized
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Get extra discounts for yourself and friends after you order.

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(They have a lot more than shirts – and all sizes)
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COBRA Health Insurance Continuation Premium Subsidy

February 27, 2009 by Tax Blog  
Filed under Questions & Answers

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The American Recovery and Reinvestment Act of 2009 establishes an employer-provided subsidy for employees who involuntarily lose their jobs. The IRS issued a news release Feb. 26 outlining information for employers. Individuals who qualify for the COBRA subsidy premium should see below for more information.

Information for Employers

Do you have questions on how to administer the COBRA continuation premium subsidy to former employees? These questions and answers may help.

Employers should use the updated Form 941, Employer’s Quarterly Federal Tax Return, to report their COBRA premium assistance payments.

The Form 941 Instructions explain how to complete lines 12a and 12b, which address the COBRA premium assistance payments.

Information for Employees or Former Employees

Workers who have lost their jobs may qualify for a 65 percent subsidy for COBRA continuation premiums for themselves and their families for up to nine months.

Eligible workers will have to pay 35 percent of the premium to their former employers.

To qualify, a worker must have been involuntarily separated between Sept. 1, 2008, and Dec. 31, 2009. Workers who lost their jobs between Sept. 1, 2008, and enactment, but failed to initially elect COBRA because it was unaffordable, get an additional 60 days to elect COBRA and receive the subsidy.

This subsidy phases out for individuals whose modified adjusted gross income exceeds $125,000, or $250,000 for those filing joint returns. Taxpayers with modified adjusted gross income exceeding $145,000, or $290,000 for those filing joint returns, do not qualify for the subsidy.

More information on the COBRA subsidy is available from the U.S. Department of Labor.

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Sales Tax Deduction for Vehicle Purchases

February 27, 2009 by Tax Blog  
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The American Recovery and Reinvestment Act of 2009 provides a deduction for state and local sales and excise taxes paid on the purchase of new cars, light trucks, motor homes and motorcycles through 2009. The deduction is available regardless of whether a taxpayer itemizes deductions on Schedule A. Purchases before Feb. 17, 2009, are not eligible for this special deduction.

The deduction is limited to the tax on up to $49,500 of the purchase price of an eligible motor vehicle. The deduction is phased out for joint filers with modified adjusted gross income between $250,000 and $260,000 and other taxpayers with modified AGI between $125,000 and $135,000.

[TaxMama note: This is an above-the-line deduction. So don’t forget to include this in your 2009 tax return!]

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Interviewing On the Sly

February 27, 2009 by Tax Blog  
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When interviewing and employed, use these tips on dressing down interview attire for the office

by Joyann King

In a corporate culture where business casual is making waves, showing up to work in a three-piece suit is a dead giveaway to your colleagues that your dentist appointment is really an interview — somewhere else.

Fortunately, there are ways to tone down your look for the office but avoid a changing overhaul in the cramped restroom before your interview. By pairing a few casual items with your more formal interview attire, it will be anybody’s guess why you look just a little more polished today.

Women:

1. Wear flat boots or ballet flats.

Leave your gorgeous pumps in your car or under your desk in favor of lower heels. Bare legs and ballet flats or riding boots with tights will instantly dress down your interview appropriate skirt or dress. Bonus: Your feet will thank you.

2. Trade your jacket for a soft cardigan.

Layer a cozy cardigan in a soft color over your interview blouse or dress. Cardigans evoke a sense of casualness not usually appropriate for a formal interview. Leave your jacket hanging in your car or at your desk. Bonus: It will stay wrinkle-free.

3. Add a fashionable scarf or trendy jewelry.

A boldly colored necklace or Pucci printed scarf are a bit too fashion-forward for a formal interview. Add these fun accessories to your interview attire for a whimsical look; just don’t forget to tone them down before your interview. Bonus: Compliments from your colleagues.

Men:

1. Leave off your jacket and tie.

In this case, it is all about what you don’t wear. If a formal suit isn’t in your office dress code, simply leave your jacket and tie off till the interview. Bonus: Comfort! Isn’t that enough?

2. Wear a sportcoat or pullover sweater.

If you prefer to wear a coat to the office, opt for a more casual sportcoat or a cozy pullover. These layers will instantly dress down your suit pants and button down. Bonus: Style points for mixing it up.

3. Keep your shoes casual.

Leave your shiny Allen Edmonds under your desk in favor of a casual loafer or driving shoe. A low-key shoe even when worn with suit pants clearly will deter your colleagues from suspecting that you are looking for work elsewhere. Bonus: Your shoeshine will stay fresh.
——
Joyann King is a New York fashion editor and stylist. She has worked in the fashion departments of glossy magazines like Glamour and Self and contributes frequently to Elle.com and Instyle.com. Formerly the fashion editor at ELLEgirl.com and a stylist for Macy’s and JCPenney, Joyann loves helping real people find their own personal style. She can be seen in fashion videos on ELLE.com and CBSnews.com offering her unique perspective on current trends.

You’ll find Joyann King at TheLadders –
where you can Search 8016 New $100k+ Jobs This Week!

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