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You'll notice that I put a
new 'subscribe' page up on the site,
http://taxmama.com/subscribe-ATM.html
- I am so proud every time I create another page.
Another page you'll like is
the Investment Secrets page
http://taxmama.com/Articles/invest.html
Best wishes,
Eva Rosenberg, EA
Your TaxMama is watching...out
for you.
Fixed
Income
Dear TaxMama:
I am 59 ½ years old. I
have a non-qualified fixed annuity now earning 5.5% a year. If
I use the Section 1035 (exchange) to go with another company,
do I have to reinvest all the money-- -- or just the money that
has accrued untaxed??
Thank you,
Jerlyn C
Tax Mama Replies
Dear Jerlyn,
Knowing nothing about this
area, I asked attorney Bruce Drooks for
the answer. His reply:
mailto:BRUCETAX@aol.com?CC=asktaxmama@taxmama.com
If the fixed annuities rolled
over there is no tax.
If some money is kept, it
is first considered income (profits) and
taxes at ordinary income rates, after all income is received,
then
principal is taken not taxed.
i.e. put in $50,000 now worth
$60,000 the first $10,000 is
considered income the rest principal.
If you annuitize (less than
1% of annuity contracts are annuitized)
then you receive a percent that is taxable and recover of capital.
in the above example 1/6 of all money is taxable and 5/6 is
considered return of capital.
--
Thanks Bruce!
Your TaxMama
New Business
at home
More from...
I am starting a new business
in my home. How do I apply for
a federal tax I.D. # ?
Thank you,
Jerlyn C
TaxMama Replies
Hi Jerlyn,
This, I can handle! Use Form
SS-4
http://ftp.fedworld.gov/pub/irs-fill/fss4.pdf
If you read the instructions,
you'll see how you can call or fax it in to get the number more
quickly.
Best wishes,
TaxMama
Stock Options
Dear TaxMama,
I have been granted stock options
in my company. The company was recently acquired and I will be
leaving and exercising my options with a same day sale. How is
this treated for taxes? Will the gains be taxed as ordinary income
or capital gains? If capital gains, at what rate?
Cori D
TaxMama Replies
Hi Cori,
Have a conversation with your
payroll department and ask them if they are treating those options
as part of your wages.
Typically, what happens is,
a) The broker sells the stock
and deducts your option price (your cost) and their fees from
the sale and credits your account with the difference. This is
the cash you receive.
b) The payroll department
takes the difference between the sales price and your option
cost and adds it to your wages - and generally takes withholding
(depending on your instructions), so the profit amount is included
in your wages.
Under these circumstances,
your basis (tax cost) will be:
Your option costs +
The amount added to your wages.
In other words, you will have
either paid for the whole amount of stock, or you will have paid
taxes (ordinary income, as wages) on the profit already.
Scenario two:
If your payroll department
does not add the profit to your wages, you will have either a
short-term or a long-term capital gain on the stock sale. This
will depend on how long you've owned the options.
This is one of those issues
that is different in each and every instance. Sit down with a
tax pro who understands the handling of these transactions -
not all do. (This is definitely not MY strong suit, but I know
people who do know how to handle it.)
Best wishes,
Eva
Corporate
Being
From sunny San Diego...
Dear TaxMama:
To incorporate or not? In which
state, CA or Nevada or Delaware? And LLC or S Corp?
Rob
Tax Mama Replies
Hey Sveetheart!
A. Are you planning to leave
California in the next couple of years?
Go ahead and incorporate in
Nevada - as an S-Corp. The laws for S-Corps are uniform throughout
the US. So you'll have personal liability protection in all states.
AND after your wages, your profits will come to you free of Self-Employment
taxes - save you a bundle
over using a Schedule C. (On either LLCs or S-Corps, all the
income will flow through to your personal return, here in Calif.
So you'll be paying CA taxes anyway.)
However, LLCs have different
rules in each state. Since your business really cuts across state
lines, and since you don't have a team of attorneys, in each
state, at your disposal, like KPMG or the big boys...stick with
something, safe, easy and understandable.
Oh - and Nevada is easier
than Delaware - much less complicated to set up. Much fewer reporting
and update requirements.
B. Are your offices here in
CA? Do you want to be free to do business, openly, in CA and
be able to sue people in Calif courts, etc.?
If you're not a Calif corp
- you'll have trouble filing, even in small claims court. Legally,
you'd have to register as a foreign corp anyway and pay all the
fees.
Currently, Calif has waived
the base taxes for the first two years for new corporations -
no $800 minimum tax each year!
We just incorporated my tax
practice, with a new partner - as Tax Anxiety Inc. (Named after
my 1984 book) for under $500, including the fees to our illustrious
Secretary of State.
Talk to Dottie at http://www.Biz-Usa.com <mailto:dottie@BIZ-USA.com>
- she's much cheaper than an attorney.
Oh, and convince her that
she needs an affiliate program for all the referrals I send her.
<g>
When you're done, sit down
with your tax pro to work out the details and do the filing of
the S-Corp election forms for you - she doesn't do that.
Best wishes
Eva
Your TaxMama
The Entire
USA
Hi TaxMama,
I am looking for a list of all
states' sales tax offices addresses.
Bobby
TaxMama Replies
Hi Bobby,
Just go to http://www.taxmama.com
Then, click on the link at
the top left side of the page "Link to State forms."
How much easier can it be?
Best wishes,
TaxMama
Outside the
Lines
All the way from Massachusetts
Dear TaxMama,
Can college professors use the
OCONUS (Outside Continental United States) rates for Lodging
as well as Meals (on Form 2106) or are they required to submit
actual expenses incurred for lodging and travel?
Professor David
TaxMama Replies
Dear Professor Dave,
The rate is permissible for
'employees.' Most professors are on payroll.
But be careful, have lots
of documentation that the trip outside the US really was primarily
for business purposes, not just a disguised vacation.
So, keep all the actual expense
records to substantiate the number of nights, etc. And keep an
appt book or logs to show how the time in that country was spent.
I hope this helps.
Best wishes,
Eva
MONEY
FUNNIES
Submitted by Arizona tax pro
Joyce Ragels, EA <mailto:jragels@uswest.net>
Charitable Contributions
The bartender was washing his
glasses, and an elderly Irishman came in and, with great difficulty,
hoisted his bad leg over the barstool, pulled himself up painfully,
and asked for a sip of Irish whiskey.
The Irishman looked down the
bar and said, "Is that Jesus down there?" The bartender
nodded, and the Irishman told him to give Jesus an Irish whiskey
also.
The next patron was an ailing
Italian with a hunched back and slowness of movement. He shuffled
up to the barstool and asked for a glass of Chianti.
He also looked down the bar and
asked if that was Jesus sitting down there. The bartender nodded,
and the Italian said to give Him a glass of Chianti, also.
The third patron, a redneck,
swaggered into the bar and hollered, "Barkeep, set me up
a cold one. Hey, is that God's Boy down there?" The barkeep
nodded, and the redneck told him to give Jesus a cold one, too.
As Jesus got up to leave, he
walked over to the Irishman and touched him and said, "For
your kindness, you are healed!" The Irishman felt the strength
come back to his leg, and he got up and danced a jig out the
door.
Jesus touched the Italian and
said, "For your kindness, you are healed!" The Italian
felt his back straighten, and he raised his hands above his head
and did a flip out the door.
Jesus walked toward the redneck,
and the redneck jumped back and exclaimed, "Don't touch
me! I'm collecting disability!"
Because
We Care
AccountingWEB will be celebrating
its one-year anniversary. By encouraging the accounting community
to join us in the fight against Diabetes, a disease affecting
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You are encouraged to join our campaign to help fight Diabetes
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Your TaxMama
is watching...out for you.
"Please
click here, if you want to read this week's Ask
TaxMama.
**
Your questions are welcome. Please include your real name and
your city, country. mailto:asktaxmama@taxmama.com If you want me to include
your name and URL with your post, please tell me when you write
to me. Otherwise, I'll keep your identity private.
Copyright ©2000, Eva Rosenberg, Reprinted
with permission.
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