What Did you Learn From Doing Your 2009 Taxes?

[donheff]

I learned that since DW "ERd" but will retain a stipend from her firm for many years to come I will still have to wait until the end of March to get her K1s or whatever those partnership forms are.

[RedHawk]

Quote:

Originally Posted by FIREdreamer Last March, in an effort to make my portfolio more efficient and harvest some losses, I sold the shares of Vanguard Wellington I had accumulated for years in my taxable account. A couple of weeks later, I added more money to Wellington held in my wife's IRA. It didn't even occur to me that it would trigger a wash sale but it did.

I would have guessed that this would not have triggered a wash sale since the shares were bought in an IRA. What do you do with the loss not allowed since your cost basis in an IRA is meaningless?

[donheff]

Quote:

Originally Posted by RedHawk I would have guessed that this would not have triggered a wash sale since the shares were bought in an IRA. What do you do with the loss not allowed since your cost basis in an IRA is meaningless?

I was wondering the same thing. Can some of you tax gurus chime in, in the future, if I sell from a taxable account and buy the same thing in an IRA does that constitute a wash? If so I will need to make sure that I use slightly different funds in IRAs/taxable.

But what if you sell for a gain in taxable but invest immediately in an IRA. Does that "wash" out the gains?

[Sue J]

I always do a rough estimate in Oct or Nov so I knew what was coming. 2009 was our last year for having any kind of meaningful tax break. Our younger son graduated from college in Dec 2009 so that's the end of the lovely education credits. He was our last dependent so from here on out it's just the 2 of us, MFJ with no deductions except for the standard deduction (the additional $1000 for Real Estate taxes is only for 2008 and 2009 unless they extend it) and then the 2 exemptions for the 2 of us. We'll still be in the 15% bracket, I just have to look back fondly at all those years of Child Tax Credits and Education Credits.

[FIREd]

Quote:

Originally Posted by RedHawk I would have guessed that this would not have triggered a wash sale since the shares were bought in an IRA. What do you do with the loss not allowed since your cost basis in an IRA is meaningless?

The IRS (Rev. Rul. 2008-5, http://www.irs.gov/irb/2008-03_IRB/ar08.html) says that if you sell shares at a loss in a taxable account, any purchase of the same or substantially identical security by a related entity (such as a spouse or an IRA) triggers a wash sale.

In my case, the loss became permanently disallowed. I should have been more careful.

[DeborahB]

Quote:

Originally Posted by FIREdreamer The IRS (Rev. Rul. 2008-5, Internal Revenue Bulletin - January 22, 2008 - Rev. Rul. 2008-5) says that if you sell shares at a loss in a taxable account, any purchase of the same or substantially identical security by a related entity (such as a spouse or an IRA) triggers a wash sale. In my case, the loss became permanently disallowed. I should have been more careful.

REALLY good to know. I wonder - if you had bought some other (different type) mutual fund, if the same thing would have happened. Or a different mutual fund company?

I would never have expected the "related entity" issue to exist. Your taxable account... her IRA... strange that they connect.

[FIREd]

Quote:

Originally Posted by thinker25 REALLY good to know. I wonder - if you had bought some other (different type) mutual fund, if the same thing would have happened. Or a different mutual fund company? I would never have expected the "related entity" issue to exist. Your taxable account... her IRA... strange that they connect.

The taxable account is joint, but even if it had been mine I believe that it would still have been a wash.

Now, "substantially identical" security is still subject to interpretation. So if you replace the VG 500 index fund with the VG total stock market index, most people think it is not a wash sale because the 2 funds track different indexes (even though they move pretty much in unison). If you replace the VG 500 index fund with the Fidelity Spartan 500 index fund, then it would certainly be a wash sale.

[donheff]

Quote:

Originally Posted by thinker25 REALLY good to know. I wonder - if you had bought some other (different type) mutual fund, if the same thing would have happened. Or a different mutual fund company? I would never have expected the "related entity" issue to exist. Your taxable account... her IRA... strange that they connect.

Yeah, I have bought similar but not "substantially" the same funds in an IRA when I sold mutual funds in a taxable account. In the past I was doing it to maintain a balance when the sale went through so I didn't experience an unanticipated change if the market moved dramatically after I made the sale. In those cases I was liquidating managed funds so I could buy indexes. In the future I will be selling index funds in taxable and may want to balance the transaction by buying equities in an IRA. I guess if there are CGs, no harm, no foul. But when CGs are involved I think I would have to avoid using an index fund that substantially matched the one I sold.

[calmloki]

taxes just require a little focus. focus. focus....

http://koikoikoi.com/wp-content/uplo...t4vjo1_500.gif

[freebird5825]

I was very surprised to learn that I was still able to itemize on Schedule A, by a slim margin of approx $1500 of itemized deductions above the standard deduction. Everything else was pretty much the same old, same old.
My refund is already processed and sitting happily in the bank.
Look out Atlantic coast of Florida...here comes Freebird on another adventure in late April.

[ERD50]

Quote:

Originally Posted by FIREdreamer The IRS (Rev. Rul. 2008-5, Internal Revenue Bulletin - January 22, 2008 - Rev. Rul. 2008-5) says .... In my case, the loss became permanently disallowed. I should have been more careful.

IMO, instead of being more careful, you should have ignored it. I am all for following the letter and the spirit of the law, however...

Quote:

Originally Posted by FIREdreamer Now, "substantially identical" security is still subject to interpretation. ...

So not only are the rules complex, but they are imprecise and subjective. I'll use the 'reasonable man' defense here. If the IRS themselves cannot tell me what "substantially identical" is, then why should a taxpayer who is just trying to use the retirement tools that the govt offers (not a pro trading stocks for a living), be held accountable for following these rules? I don't think they should.

I'm pretty sure I've done this kind of thing a time or two. Yes, I could have bought a slightly different index, and then traded back later or something. I just don't think the govt should be putting that kind of burden of compliance on people.

So what if it truly was a wash? What are the odds that I would get audited, that they would look at that transaction, that they would put it together and catch it?That *they* would even *know* what to do with the transaction? And what are the odds I'd actually owe anything overall (washes push the gain forward anyhow, depending on my tax situation that year, it might be better taking the gain then anyhow). And since it can be avoided by a different trade on my part, it's is not like I'm keeping any extra revenue from the IRS, so I have no guilt feelings, I just chose not to take the extra step to avoid it.

Let 'em catch me on stuff like that. I've had enough with jumping through their flaming hoops, on one leg.

-ERD50

[FIREd]

Quote:

Originally Posted by ERD50 IMO, instead of being more careful, you should have ignored it. I am all for following the letter and the spirit of the law, however... So not only are the rules complex, but they are imprecise and subjective. I'll use the 'reasonable man' defense here. If the IRS themselves cannot tell me what "substantially identical" is, then why should a taxpayer who is just trying to use the retirement tools that the govt offers (not a pro trading stocks for a living), be held accountable for following these rules? I don't think they should. I'm pretty sure I've done this kind of thing a time or two. Yes, I could have bought a slightly different index, and then traded back later or something. I just don't think the govt should be putting that kind of burden of compliance on people. So what if it truly was a wash? What are the odds that I would get audited, that they would look at that transaction, that they would put it together and catch it?That *they* would even *know* what to do with the transaction? And what are the odds I'd actually owe anything overall (washes push the gain forward anyhow, depending on my tax situation that year, it might be better taking the gain then anyhow). And since it can be avoided by a different trade on my part, it's is not like I'm keeping any extra revenue from the IRS, so I have no guilt feelings, I just chose not to take the extra step to avoid it. Let 'em catch me on stuff like that. I've had enough with jumping through their flaming hoops, on one leg. -ERD50

It's certainly your prerogative to interpret IRS regulations any which way you want and to defend that interpretation when they come knocking. I personally prefer to be on the conservative side when I deal with the IRS because our high income puts us at greater risk of being audited.

[frayne]

In the IRS tax code there is black and white, and many shades of grey.

[ERD50]

Quote:

Originally Posted by FIREdreamer It's certainly your prerogative to interpret IRS regulations any which way you want and to defend that interpretation when they come knocking. I personally prefer to be on the conservative side when I deal with the IRS because our high income puts us at greater risk of being audited.

I agree, and I also generally take the conservative side on almost every entry. But I hit my limits when it comes to these convoluted rules, especially when it appears that it really makes no difference in the amount due. So you chose a different limit, that's fine.

But my real point is, this should not be "what do I think", "what do you think", "what does the IRS phone rep think", and "what does the IRS auditor think". There ought to be one and only one explicitly correct answer. This isn't rocket science, and they needlessly complicate it.

-ERD50

[Dawg52]

Taxes? Time to do taxes? Maybe I'll look at it this weekend.

[FIREd]

Quote:

Originally Posted by ERD50 But my real point is, this should not be "what do I think", "what do you think", "what does the IRS phone rep think", and "what does the IRS auditor think". There ought to be one and only one explicitly correct answer. This isn't rocket science, and they needlessly complicate it. -ERD50

Oh I agree, It's way more complicated that it ought to be.

[easysurfer]

I learned that since retiring I now pay for all my insurance premiums (health, vision, dental, LTC) on my own, when I tally up the payments for year, some of it is deductible.

[scrabbler1]

Quote:

Originally Posted by TeeRuh I learned that I like the 15% bracket much better than the 28/33% bracket! (First full year of retirement with only DW's income to report.) Paid almost $35K less in taxes! WhooHoo! (It's great to have no income. Wait I need to think about this a little ....) t.r.

Similar story here. I retired in late 2008 and had a very complicated return one year ago because I took a huge company stock payout, triggering the AMT and its headache-inducing cap gains section for the NUA on the company stock.

However, for 2009 things are much simpler for the most part.

(1) No more New Jersey non-resident income tax form for the first time since 2000 because I don't work in NJ (or anywhere else) any more.

(2) No more New York Resident Credit form to calculate the NJ tax credit.

(3) No more W-2 forms, including the IT-2 form for New York (posting relevant data from the W-2).

(4) No cap gains taxes if your income is in the lowest two tax brackets (down from 5% in prior years).

I do have a few things I have not had before or in a while, though.

(1) Because I am buying my own individual HI policy, I can deduct those premiums, along with other out-of-pocket med costs (i.e. dental).

(2) For the first time since 1997 (the year before I paid off my mortgage), I am itemizing my deductions on my state return. However, a few years ago NY redid their long form so that you don't need to itemize on a separate form.

Overall, a good tradeoff. And no more FICA taxes, either!

[NW-Bound]

This is the 2nd year I used TaxAct, then eFiled. When I printed out a copy to keep as a record for myself, the whole stack of just IRS Forms and not including supplemental pages came out to 26 or 27 pages. Ridiculous! Thumbing through it, I saw a Schedule L. What is a Schedule L?

When I did taxes by hand many years ago, I read through the IRS instructions and actually understood the tax laws that applied to me. Now, the whole thing gets way too complicated, and because most people use a computer program, they can make it ever more complex and people may not know to complain. Why worry? The computer can figure it all out for you.

[Nords]

Quote:

Originally Posted by jimnjana I haven't learned anything new, but then again, I am procrastinating again this year, still working on schedules A,B,C,D, and E.

Pretty much the same here. This time we're learning from all the other posters.