What Did you Learn From Doing Your 2009 Taxes?

[DeborahB]

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]

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]

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/uploads/2010/02/tumblr_kx0vudxfPD1qzt4vjo1_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]

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...

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]

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]

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]

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]

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]

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.

 

[flyfishnevada]

I learned that sending another $150 dollars to the government every payday and being furloughed one day a month means I will only send $65 dollars on April 15th instead of $2000. I guess that's good, right?

 

[sheehs1]

That the government gets too much of my money at the time I need it to save for retirement. Can't wait to formally retire so my bracket will change. I am unable to take advantage of most deductions as they are phased out....but don't think I haven't pumped my CPA husband as to why not!
By the way...have never been able to contribute to a Roth. Am thinking about a Roth conversion for 2010. Several years ago knowing this was coming I started putting the 6K a year into a Nondeductible IRA. (since I had maxed out my Simple IRA)....thinking ...oh...I will just convert my Nondeductible IRA and I won't have to pay any tax for the conversion. Wrong! And to complicate things still further I have losses from 2008 on my basis in this Nondeductible IRA....that I can not take advantage of ...unless I convert all of my IRA's to a Roth....which I won't do as I'm not giving the government that much money right now.
Sadly I also found out that while the income level for converting to a Roth IRA has been eliminated for 2010....the allowed contribution levels to continue to contribute to that Roth have not changed (and I probably won't be allowed). So I would have to still make a contribution to a nondeductible IRA...and then do a conversion to the Roth...year after year...after year. Of course...until they change the rules. If anyone has any different thoughts than what I have found out from the 8606 form, the IRS and my broker investigating the Nondedutible IRA conversion...please let me know.

 

[Walt34]

I learned that more money is better than less money.

It did mean we were bumped into a higher tax bracket. That part is not better.

 

[HsiaoChu]

I've learned in the past that the IRS can be very difficult to deal with if you have a dependent in college and fail to write her correct social security number on your return. And I learned that just because you make this nasty mistake one year, you may not remember and you might actually(using the error ridden return as your guide) do it for three out of four years of her college career. By the 3rd time of four, the IRS got kind of nice about it: I got a letter that in so many words said: "You did something wrong in your return, we know what it is, but you have to call us about it before we can fix it." I got a little old lady sounding person on the phone who said, "Oh poor dear, what did they do to you? Did they take your college deduction away? Did they take away your dependent deduction. Oh, we'll fix what they did right now."

She was being so nice, I couldn't say, "Um..... aren't "THEY" actually "YOU"?"

I also learned that you need to use the programs and that you can't do it yourself. I thought I could, and checked the box for final return(I figured it was my final return for the year). What I got was an audit because final return proved I was DEAD. When they discovered I wasn't actually DEAD, they were annoyed. And when they discovered that all they had to audit was my income and one small CD, they were even more annoyed that they had to call. But I discovered that my small town actually had an IRS office in it!!

 

[rescueme]

I learned that I paid much less tax than I forecast, in retirement.

Sometimes, you do get ahead by "dumb luck" ...

Last tax year (2008) I did screw up by purchasing a vehicle and paying cash from my retirement portfolio. I learned quickly about how taxes in retirement are important (since my withdrawl put me in a higher tax bracket).

 

[Martha]

In tax year 2008 we paid no federal taxes. So, I decided not to pay federal estimated taxes last year as no matter what there would not be a penalty provided that I paid my taxes by April 15 of this year. I know we will pay fed taxes this year due to the sale of real estate and other income. I have no idea how much and I am on a trip and it is going to be tough to even guess by April 15 in order to file an extension and pay the estimated amount.
Didn't think that one through.

 

[Gone4Good]

I learned that I may be entitled to the "First Time Home Buyer's Tax Credit" in 2010 for the purchase of my motorhome, even though I already own a home. But will probably still earn too much this year to take advantage of it.

 

[audreyh1]

In tax year 2008 we paid no federal taxes. So, I decided not to pay federal estimated taxes last year as no matter what there would not be a penalty provided that I paid my taxes by April 15 of this year. I know we will pay fed taxes this year due to the sale of real estate and other income. I have no idea how much and I am on a trip and it is going to be tough to even guess by April 15 in order to file an extension and pay the estimated amount.
Didn't think that one through.

Whoops!

I guess one advantage of being a fulltimer is that we always have all the docs, etc., with us.

Most 1099s etc. are available for download - assuming you have a computer with you and can run some tax software for at least estimating. I guess you need some other docs as well from your sales? Can additional copies be forwarded to you?

Audrey

 

[Martha]

Whoops!

I guess one advantage of being a fulltimer is that we always have all the docs, etc., with us.

Most 1099s etc. are available for download - assuming you have a computer with you and can run some tax software for at least estimating. I guess you need some other docs as well from your sales? Can additional copies be forwarded to you?

Audrey

The 1099s and K-1s are doable. The tough nut is the sale of rental real estate. I don't have the depreciation information and a bunch of other info I need to estimate the gain, a good portion of which is recapture of depreciation. So I am going to wing it and likely over pay but file as soon as I can after I return north.

 

[audreyh1]

I learned that I may be entitled to the "First Time Home Buyer's Tax Credit" in 2010 for the purchase of my motorhome, even though I already own a home. But will probably still earn too much this year to take advantage of it.

You can choose which year you apply the tax credit - 2009 OR 2010. I am choosing 2009, even though we are closing in 2010.

By some miracle they are allowing you to take the credit against the prior years taxes if you so choose. I guess the reasoning was so that you would "know" in advance if you qualified for the credit income wise. What a gift!

This is great for us, because I had no problems keeping 2009 income down (happened all by itself!), but this year will be close already as I am realizing some cap gains before the tax rates change.

Anyway - since we don't expect to close until early May, we'll be filing an extension for 2009 taxes and then filing as soon as we have all the house paperwork.

Audrey