PhillyTalk: Ask the Writers and Experts

Please reference Chapter 25 in Publication 17 Nonbusiness Casualty and Theft Losses… http://www.irs.gov/publications/p17/ch25.html. This chapter explains the tax treatment of personal (not business related) casualty losses, theft losses, and losses on deposits.

The chapter also explains the following topics.

How to figure the amount of your loss.

How to treat insurance and other reimbursements you receive.

The deduction limits.

When and how to report a casualty or theft.

Forms to file.    When you have a casualty or theft, you have to file Form 4684. You will also have to file one or both of the following forms.

Schedule A (Form 1040), Itemized Deductions

Schedule D (Form 1040), Capital Gains and Losses

 ******** This response does not represent a legal opinion from the IRS. To address your specific circumstances consult with a tax professional. **********

TAX TIP: TELEPHONE EXCISE TAX REFUND -

The Telephone Excise Tax Refund (TETR) is a one-time payment available on your 2006 federal income tax return. It is designed to refund previously collected long distance telephone taxes. You can request a standard amount or request the actual amount paid. Individuals, businesses and tax-exempt organizations are eligible to request it. ********

For more information visit us at IRS.gov.

This is from page 18 of Publication 505 ("Tax Withholding and Estimated Tax"):

Higher Income Taxpayers

If your AGI for 2006 was more than $150,000 ($75,000 if your filing status for 2007 is married filing a separate return), substitute 110% for 100% in (2b) under General Rule on page 18. This rule does not apply to farmers.

The question does not address the requirements that, even if 100% (or 110% for high income taxpayers) of prior year tax is paid by 12/31, the taxpayer may be subject to an underpayment of estimated tax penalty if the required estimate is not paid by each quarterly due date. See this link for an article at irs.gov:

http://www.irs.gov/businesses/small/article/0,,id=110413,00.html

Also, from Publication 505… When To Pay Estimated Taxes

For Estimated tax purposes, the year is divided into four payment periods. Each period has a specific payment due date. If you do not pay enough tax by the due date of each of the payment periods, you may be charged a penalty even if you are due a refund when you file your income tax return.

This article also has some useful info on required amounts to send in each quarter:

http://www.irs.gov/taxtopics/tc306.html.

The worksheet to determine both the requirement to file estimated tax and the amount to send in each quarter, is contained in 1040-ES Form:

http://www.irs.gov/pub/irs-pdf/f1040es.pdf

Since there are so many variables you may wish to contact a tax professional for additional guidance.

******** This response does not represent a legal opinion from the IRS. To address your specific circumstances consult with a tax professional. **********

TAX TIP: TELEPHONE EXCISE TAX REFUND -

The Telephone Excise Tax Refund (TETR) is a one-time payment available on your 2006 federal income tax return. It is designed to refund previously collected long distance telephone taxes. You can request a standard amount or request the actual amount paid. Individuals, businesses and tax-exempt organizations are eligible to request it. ********

For more information visit us at IRS.gov. 

Although contributions aren’t tax-deductible (at least not on federal tax returns), earnings grow tax-free. Starting with passage of the 2001 federal tax law, withdrawals to pay for tuition or college expenses are free of federal income taxes, too.

 ******** This response does not represent a legal opinion from the IRS. To address your specific circumstances consult with a tax professional. ********

TAX TIP: E-FILE -

More than 50 percent of all Pennsylvania taxpayers filed electronically last year. It’s fast, easy, and accurate and is for individual taxpayers for tax professionals and for large and mid-size corporations. ********

This response does not represent a legal opinion from the IRS. To address your specific circumstances consult with a tax professional. ********

For more information visit us at IRS.gov.

In general loans of this type do not qualify as being interest deductible for fedeal tax purposes. Please consult with the administrator of your plan as well as Publication 571 (3/2006), Tax-Sheltered Annuity Plans (403(b) Plans) t... http://www.irs.gov/pub/irs-pdf/p571.pdf.

State or Local Government Obligations

Interest on a bond used to finance government operations generally is not taxable if the bond is issued by a state, the District of Columbia, a possession of the , or any of their political subdivisions. Interest on arbitrage bonds issued by state or local governments after October 9, 1969, is taxable.

Information reporting requirement: If you must file a tax return, you are required to show any tax-exempt interest you received on your return. This is an information-reporting requirement only. It does not change tax-exempt interest to taxable interest.

You do not mention if you received a 1099OID. Original Issue Discount (OID)

Original issue discount (OID) is a form of interest. You generally include OID in your income as it accrues over the term of the debt instrument, whether or not you receive any payments from the issuer.

A debt instrument generally has OID when the instrument is issued for a price that is less than its stated redemption price at maturity. OID is the difference between the stated redemption price at maturity and the issue price.

All debt instruments that pay no interest before maturity are presumed to be issued at a discount. Zero coupon bonds are one example of these instruments.

The OID accrual rules generally do not apply to short-term obligations (those with a fixed maturity date of 1 year or less from date of issue). See Discount on Short-Term Obligations in chapter 1 of Publication 550.

 ******** This response does not represent a legal opinion from the IRS. To address your specific circumstances consult with a tax professional. ********

TAX TIP: E-FILE -

More than 50 percent of all Pennsylvania taxpayers filed electronically last year. It’s fast, easy, and accurate and is for individual taxpayers for tax professionals and for large and mid-size corporations. ********

This response does not represent a legal opinion from the IRS. To address your specific circumstances consult with a tax professional. ********

For more information visit us at IRS.gov.

Complete a new Form 8606 showing the revised information and file it with Form 1040X, Amended U.S. Individual Income Tax Return.

 ******** This response does not represent a legal opinion from the IRS. To address your specific circumstances consult with a tax professional. ******** 

TAX TIP: AUDITS –

If you receive a notice from the IRS in the mail, do not panic. Open the letter and contact the IRS as soon as possible so you can start to address the issue. If your return is selected for examination, it does not suggest that you made an error or are dishonest. Returns are chosen by computerized screening, by random sample, or by an income document matching program. You should also know that many examinations result in a refund or acceptance of the tax return without change. ********  

For more information visit us at IRS.gov.

The nature of the work and the conditions under which the work was performed as an Independent Contractor would have to be significantly different from the work performed as an employee.  The correct classification of employment status would depend upon the rules for Independent Contractors versus Employees.

In determining whether the person providing service is an employee or an independent contractor, all information that provides evidence of the degree of control and independence must be considered.  The employer must define the working  relationship that exists between the company and the person performing the services. The person performing the services may be -

An independent contractor
A common-law employee
A statutory employee
A statutory nonemployee

It is critical that the employer correctly determines whether the individual providing service is an employee or independent contractor because the employer must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee. Employers do not generally have to withhold or pay any taxes on payments to independent contractors.

Caution: If the employer incorrectly classify an employee as an independent contractor, the company can be held liable for employment taxes for that worker, plus a penalty.

For additional information please visit the IRS.gov Web site to review "Distinguishing Between Self-Employed Individuals and Independent Contractors" (http://www.irs.gov/businesses/small/article/0,,id=115041,00.html)

 ******** This response does not represent a legal opinion from the IRS. To address your specific circumstances consult with a tax professional. **********  

TAX TIP: TELEPHONE EXCISE TAX REFUND -

The Telephone Excise Tax Refund (TETR) is a one-time payment available on your 2006 federal income tax return. It is designed to refund previously collected long distance telephone taxes. You can request a standard amount or request the actual amount paid. Individuals, businesses and tax-exempt organizations are eligible to request it. ********

For more information visit us at IRS.gov.

The nature of the work and the conditions under which the work was performed as an Independent Contractor would have to be significantly different from the work performed as an employee.  The correct classification of employment status would depend upon the rules for Independent Contractors versus Employees.

In determining whether the person providing service is an employee or an independent contractor, all information that provides evidence of the degree of control and independence must be considered.  The employer must define the working  relationship that exists between the company and the person performing the services. The person performing the services may be -

An independent contractor
A common-law employee
A statutory employee
A statutory nonemployee

It is critical that the employer correctly determines whether the individual providing service is an employee or independent contractor because the employer must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee. Employers do not generally have to withhold or pay any taxes on payments to independent contractors.

Caution: If the employer incorrectly classify an employee as an independent contractor, the company can be held liable for employment taxes for that worker, plus a penalty.

For additional information please visit the IRS.gov Web site to review "Distinguishing Between Self-Employed Individuals and Independent Contractors" (http://www.irs.gov/businesses/small/article/0,,id=115041,00.html)

  ******** This response does not represent a legal opinion from the IRS. To address your specific circumstances consult with a tax professional. **********

 TAX TIP: TELEPHONE EXCISE TAX REFUND - The Telephone Excise Tax Refund (TETR) is a one-time payment available on your 2006 federal income tax return. It is designed to refund previously collected long distance telephone taxes. You can request a standard amount or request the actual amount paid. Individuals, businesses and tax-exempt organizations are eligible to request it. ********

 For more information visit us at IRS.gov.

We cannot speak for the State of Delaware but the IRS has a lot of information on our Web site... http://www.irs.gov/newsroom/article/0,,id=97273,00.html

At first glance, this might appear to be classifies as an unreimbursed insurance loss.  Such losses are deductible as Casualty, Disaster, Theft losses.  Unfortunately the definitions of these losses do not fit your circumstances.

Casualty loss ?  - Not a casualty loss since this a casualty loss is for the loss of property.  For more information regarding casualty losses of personal-use property and how to deduct them, refer to Topic 507 and Publication 547, Casualties, Disasters, and Thefts.

Deposit loss? - Not a deposit loss since deposit losses apply only to losses of depsits in a financial institution.  A loss on deposits can occur when a bank, credit union, or other financial institution becomes insolvent or bankrupt. If you incurred this type of loss, you can choose one of the following ways to deduct the loss:  a casualty loss, an ordinary loss, or a nonbusiness bad debt.  See Publication 547.

 It might also appear that you have an avenue to deduct the legal expenses involved; however again your cicumstances do not appear to fit the criteria.

Legal expenses? - Attorneys fees and personal legal expenses are not deductible in this circumstance. Generally, personal legal expenses are not deductible, but an employee who incurs legal expenses related to doing or keeping his job could deduct these expenses on Schedule A as a miscellaneous itemized deduction. In addition, the American Jobs Creation Act of 2004, an individual with legal fees and court costs arising from a discrimination suit may deduct the costs directly from income on the front of the tax return; this is known as an above-the-line deduction.  It does not appear that this circumstance fits either of these descriptions. See Publication 529.

There are deductions for business losses and investment losses but there is no indicatiion that this trip had any connection with business travel or investment activities.  See Publications 535 and 550, respectively.

Bottomline, there are many types of deductions for losses and expenses but this does not appear to fit into any deductible category.  For a genral review of deductible personal expenses , which are clled Miscellaneous Deductions, see IRS Publication 529.

One possible exception it that some of your unreimbursed medical expenses may be dedcutible if they exceed 7.5% or your adjusted gross income.  See Publication 502.

******** This response does not represent a legal opinion from the IRS. To address your specific circumstances consult with a tax professional. ********

TAX TIP: E-FILE - More than 50 percent of all Pennsylvania taxpayers filed electronically last year. It’s fast, easy, and accurate and is for individual taxpayers for tax professionals and for large and mid-size corporations. ********