Q:

Subject:  declaring bad loans

Hi
 
we have made some loans guaranteed by mortgages. However these are in different countries.
 
The amounts are quite large. Basically I have lost the money and the individuals are nowhere to be found. We are speaking in the hundred of thousands of dollars. the loans were securied by foreign real estate. The foreign country is Lebanon and in a semi state of war or civil unrest so it is hard to foreclose as well.
 
How can I take a deduction on my taxes. I have not declared the interest income.  I am thining of filing a 1040 X for last year and declaring the interest income. Have not filed 2007 taxes this year and am getting ready to do so. I want to take a the bad loan deduction in 2008
 
Do not want the deduction to trigger an audit.
 
can you help.

A:

You need to be working with an experienced professional tax advisor to make sure you do things properly here.

Interest income that has accrued on the notes but hasn’t been received does not need to be reported as income on your 1040.  However, if you did receive actual interest payments, those should be reported for the years in which they were received.  If that is the case, you should file amended Federal and State income tax returns to correct that situation.   You will have to pay the additional taxes plus interest, but IRS and most states will waive late penalties if you voluntarily disclose the under-reported income rather than wait for them to catch you.

Writing off investments as uncollectible and worthless can trigger an IRS audit if the tax return doesn’t include a lot of attached documentation as to why you have concluded that 2008 is the appropriate year it became completely worthless and how you calculated your unrecovered adjusted basis.  IRS loves to disallow bad debt deductions for either being claimed too early or too late.  A good tax pro can help you document the proper year to claim the loss.  A good tax pro can also ensure that you are claiming the proper amount.  A common mistake people make is to try and claim a bad debt loss for accrued but unpaid interest. That is not allowed.

Good luck.  I hope this helps.

Kerry Kerstetter

Q:

Subject: 2009 Standard Deduction >65

On your web page “2009 Individual Income Taxes Federal – Form 1040“, the section “2009 Standard Deductions” shows:

Single: $5,700 + $1,350 if over 64 and/or blind

However Form 1040es for 2009 shows:

• An unmarried individual (single or head of household) and are:
65 or older or blind . . . . . . . . . . . . . . . $1,400

A:

The $1,400 figure is correct, as you can see on the attached excerpt from the latest TaxBook.

I will fix that on my website as soon as we get our power back and can start up our main computers.

Thanks for catching that.

Kerry

[Update] The web page has been updated to correct the figure.

Not that I would ever condone creating false documentation, but this tool to create cash register receipts does make the mind wonder about the possibilities.

Anyone who has been frustrated by having to wonder what a faded out cash register receipt originally said might like this tool.

Thanks to The Generator Blog for noticing this.

Q:

Subject:  Deducting Website Expenses

What is the accepted protocol among CPA’s for deducting the costs of building, updating, and maintaining a website and is there a difference beteween the costs of an ecommerce vs. a branding site?

 

Thanks,

A:

There is no universal answer for this because too many variables need to be taken into account.

Your own personal professional tax advisor should be considering such things as how much the design of the website cost, when it started generating income, and how long it will be before it needs another expensive overhaul, in order to determine whether it makes more sense to immediately expense the costs or amortize them over the expected useful life of the design.

That would only apply to the up-front design cost.  Monthly maintenance costs, including hosting services, would be expensed as paid or incurred, depending on whether you are on the Cash or Accrual tax basis.

Good luck.

Kerry Kerstetter

Follow-Up:

Thanks for the info.