Accounting Question

[Trouble]

Do we have any accountants or tax people on the PC?

Basically I'm wondering to what extent losses from rental properties can be used to offset earned and/or unearned income. I'm pretty sure losses from rental properties can not be deducted from earned income (salary) unless you consider your job to be real estate management, but I think it may be deducted from unearned income sources, like investments. Anyone know?

[Keller]

The critical question is whether you're engaged in a business or a hobby through your rentals.

How long have you been renting?
Have you reported a profit in 3 of the last 5 years?
(if yes to this question, do not continue)
Do you have another job which makes up the majority of your income?
How do you approach rentals? Do you keep good records?


If it's a business then you can deduct your losses. If it's a hobby you can only deduct your losses to the extent of your profits from the activity subject to some complicated pre-deduction deductions.

[Keller]

Wondering if this was helpful or if you need more info?

[Celephais]

Hey I got a tax question...So if I called the IRS because I forgot my last years pin number and wanted to submit this years, and didn't feel like digging up my records, turns out they never got my returns last year. Obviously this isn't an issue I should be looking for help from people on these boards about, but what kind of penalty can I expect? (at least it means I get a second refund this year, heh) And I did submit it, just looks like taxact F'd up the eFile on me... annnyho.Penalty like... $100? oh and I did have tax withheld, so it's not like I looking at tax avosion

[Sean of the Thread]

If it's a business then you can deduct your losses. If it's a hobby you can only deduct your losses to the extent of your profits from the activity subject to some complicated pre-deduction deductions.

HEHEHEH You mean like gambling!?!

Not that I know anything about that.

[Jorddyn]

Hey I got a tax question...So if I called the IRS because I forgot my last years pin number and wanted to submit this years, and didn't feel like digging up my records, turns out they never got my returns last year. Obviously this isn't an issue I should be looking for help from people on these boards about, but what kind of penalty can I expect? (at least it means I get a second refund this year, heh) And I did submit it, just looks like taxact F'd up the eFile on me... annnyho.Penalty like... $100? oh and I did have tax withheld, so it's not like I looking at tax avosion

If you didn't owe, then there's no penalty, and you can stop reading here.

If you did owe, continue.

Failure to pay interest:

Interest, compounded daily, is charged on any unpaid tax from the due date of the return until the date of payment. The interest rate is the federal short-term rate plus 3 percent. That rate is determined every three months.

Failure to pay penalty:

In addition, if you filed on time but didn't pay on time, you'll generally have to pay a late payment penalty of one-half of one percent of the tax owed for each month, or part of a month, that the tax remains unpaid after the due date, not exceeding 25 percent. However, you will not have to pay the penalty if you can show reasonable cause for the failure. The one-half of one percent rate increases to one percent if the tax remains unpaid after several bills have been sent to you and the IRS issues a notice of intent to levy.

Failure to file penalty:


If you did not file on time and owe tax, you may owe an additional penalty for failure to file unless you can show reasonable cause. The combined penalty is 5 percent (4.5% late filing, 0.5% late payment) for each month, or part of a month, that your return was late, up to 25%. The late filing penalty applies to the net amount due, which is the tax shown on your return and any additional tax found to be due, as reduced by any credits for withholding and estimated tax and any timely payments made with the return. After five months, if you still have not paid, the 0.5% failure-to-pay penalty continues to run, up to 25%, until the tax is paid. Thus, the total penalty for failure to file and pay can be 47.5% (22.5% late filing, 25% late payment) of the tax owed. Also, if your return was over 60 days late, the minimum failure-to-file penalty is the smaller of $100 or 100% of the tax required to be shown on the return.

From Here (http://www.irs.gov/faqs/faq-kw136.html)

Basically -

Interest at Federal Rate + 3% compounded daily from original due date
PLUS
0.5% per month failure to pay penalty, maxed at 25%
PLUS
4.5% per month failure to file penalty, maxed at 22.5%

So, lots. I'd highly recommend filing immediately, paying the amount due at the end of the return in full. In addition, include a letter explaining the situation, and offering to pay the interest, but requesting waiver of the penalty. You'd be surprised how often they will.

I'd also recommend keeping track of your refund/payment to make sure it goes through and you don't run into the same thing again.

Jorddyn

[Celephais]

If you didn't owe, then there's no penalty, and you can stop reading here.

Thanks a bunch, that's all I needed :-D

Really do appreciate the rest of the info though. I normally do try to keep track, and I had gotten a "post filing somethingorother" email from the eFile, it just turns out that the company assumed I printed and mailed it in... oh well.

[Keller]

HEHEHEH You mean like gambling!?!

Not that I know anything about that.

Recognizing gambling losses is actually much more restrictive than recognizing hobby losses.

Unless it's your profession, and then it's pretty liberal.

[Sean of the Thread]

Gambling losses deducted vs your (on the books) gambling winnings.

[Keller]

Gambling losses deducted vs your (on the books) gambling winnings.

That's true, but only for each "session." What's a session? Is it each table? Each slot machine? Each casino? Each night? Each trip to Vegas?

Most likely each casino/night. So if you go to X casino on the 1st night and win $500 and then to Y casino on the same night and lose ($500) you can NOT deduct those losses against your winnings. Same if you win $500 on night 1 at X casino and then lose ($500) on night 2 at X casino. Can't deduct.