Q:

Subject: Unfair state tax structure for partial year residents

 

Unlike most states that I have lived at, Arkansas computes state income tax for partial year residents by adding both total year income and total Federal taxes paid in their calculations.  By doing this, it automatically raises the percent of tax because Federal taxes are higher.  This penalizes the part year residents because they pay a higher percent than full- year residents.  This doesn’t seem fair or legal.

Example:  I made $28,000 in Mississippi and paid $500 in state taxes (after my refund).  I made $17,000 in Arkansas and paid $875 and they want another $500!

Does that seem fair or legal to you?

I realize you may not want to answer that without a fee, but I was hoping to get advice from someone who had knowledge.

Thanks,

A:

While I don’t prepare any tax returns by hand, I do prepare several partial year and nonresident Arkansas tax returns each year with my Lacerte software.  Your description of how it’s done didn’t sound right; so I just reviewed the actual 2005 AR1000NR form. 

You are misinterpreting how the Arkansas state income tax form works.  It doesn’t add in Federal income taxes to the taxable income; although I have seen this on some other state tax forms. 

The Arkansas tax is calculated for nonresidents with the same tax rate schedule as for full year residents.  The twist comes in with the apportioning of the total tax based on the percentage of taxable income from inside Arkansas to all income.

While your claim that Arkansas is unfair to nonresidents isn’t correct in the context which you intended, I have seen plenty of cases in other states around the country where that is the case, especially California.  Some of the most outrageous examples are taxes on rental cars and hotel rooms, which are aimed at tourists from outside the state. 

How they can justify this is easy to explain.  Nonresidents can’t vote; so the rulers in those states have nothing to worry about in regard to punishment for screwing over those people.  In fact, they can sell the idea to their in-state constituents that the more money they are able to squeeze from out of towners, the lower the tax burden is on the full year residents.

In regard to your multi-state income tax returns, you really should be working with a qualified tax pro who can ensure that each state’s apportionment is calculated properly and that you are receiving the proper Other State tax credit on your home state tax return.

Good luck.

Kerry Kerstetter

Follow-Up:

Thanks for your help.  I certainly appreciate it.

Atlanta Man Helped Customers Falsely Claim They Are Exempt from Federal Taxes as Members of Purported Native American Tribe

Q:

Subject: quicken

wonder if you could help me with something.  I am using quicken 2006 professional and my calendar is using february 26 and it is the 18th?  how do I change this date to reflect it using the present date?

 

thanks for any help you can offer …it is also posting transactions on the 26th so this means to me some how the calendar think it is another day?

A:

My guess is it’s one of two things causing this.

1.  Your computer’s date is off and needs to be corrected.

2.  You have the box in the Options checked to “Complete Fields Using Previous Entries.”   If your previous entry was dated 2/26/06, all future entries will start with that date, until you manually change it.  Then, that new date will become the default setting for future entries until it is manually changed again.

Remember that even if you accidentally enter the wrong date, you can always go back in and correct it.

Good luck.

Kerry Kerstetter

Follow-Up:

thans Kerry..you were right..doh!!!

thanks

 

Tax cuts make money – Amazing to see this in the normally lefty US Today.

A Better Way to Tax – An endorsement of the FairTax plan from someone at MIT.

Treasury and IRS Provide Guidance for energy Credits for Homeowners

Feds Bust More Professional Tax Scammers

St. Paul Preparer Allegedly Claims False Head-of-Household Filing Status for Married Customers

Pure equity trust scams based in Tacoma

Q:

Subject: Kerry’s Quicken Tips

 

Thanks very much for this free article! This is by far the best information I’ve found anywhere to use Quicken for rentals I am starting.  A point of confusion (from Quicken Forums) I’m still working on is:

 

Do I need 2 accounts for each property, a cost basis account and an expense account?

 

Or is a Cost Basis account per property sufficient, where principle payments and improvements are transferred to it from cash/credit card, and expense reports are generated from classes ?

 

An article in Quicken Forums has one splitting an improvement expense so it is transferred to cost basis account AND is categorized in the  cash/credit card account. I just don’t know how relevant this is.

 

I’ll gladly pay for this info. Thanks

A:

If you are going to properly account for your rental properties, you are in serious need of some training from a professional accountant because I can see that you are very unclear on how things work. 

I don’t have time to give an entire lesson, but here are a few fundamentals that you will need to cover with your personal advisor.

There are basically two types of expenditure – those that affect the balance sheet and those that affect the income statement (P&L). 

Balance sheet payments are generally capital improvements that are set up as fixed assets and depreciated on your tax return, and payments of loan principal, which reduce the loan liability balance. 

Principal payments do not get transferred to the property’s cost basis.  When you book the purchase of your property, you debit the fixed asset account for the full cost and credit the cash you paid and the full amount of the loan.

Income statement expenditures are operating expenses, including mortgage interest.  Because you need to have  a Schedule E for each property, it’s best to set up a Class in your Quicken for each property that will coincide with the Schedule E columns when you run a  P&L with columns by Class.

Good luck.

Kerry Kerstetter

 

Q:

Subject: capital gains tax

 

Hello,

 

I am from Virginia and I have a property(condo) that I want to sell and have lived in for less than two years.  I only want to sell inorder to acquire a larger property for my family.  I have only gained 21,000 of value in my home and want to use that $ for closing costs and expenses.  I do not want to pay capital gains tax and am not sure what the regulations are.  Can you help me out or give me a place where I can get some information?  I have been getting confliction information from many different places.  I only have one primary residence.

 

Thank you

A:

You should be working with a tax pro to ensure that you have properly accounted for the total cost basis of your home.  There is a good chance that you may have overlooked a lot of additional costs that will reduce your net gain.  Your net gain will also be reduced by your selling and closing costs.  Chances are that the actual potential taxable gain will be either nonexistent or so small as to not be worth a lot of worry.

I have a lot of info on home sales here on my main website.

If you do a Google search on my blog, you will also find dozens of posts discussing home sales.

Good luck.

Kerry Kerstetter