Q:

Subject: How long to wait for a refund?

Dear Mr. Kerstetter,

I wonder if you could point me to a simple explanation of what happens if you think you deserve a rebate but the taxing authority thinks you’ve paid the right amount?

I would assume they would at least have to tell you that they disagree with your tax return.

Also, how long should it take to hear back?  I filed my taxes in the last week of March, and received my Maryland refund a couple of weeks later, but I still have not heard anything from California.

Thanks for your time.

A:

It is normal practice for IRS and State tax agencies to send taxpayers a notice if any change is made to the tax return that was filed.  The explanations often leave a lot to be desired, but there is notification of a change.

If you have heard nothing from the FTB, you may want to contact them to see if they even received your 540.  Tax returns do get lost in the mail every day.  You may need to send a replacement copy if they have no record of receiving the one you mailed in March.  You should also know that they advise to wait eight weeks after submitting a tax return before getting concerned.  They process a lot more tax returns than any other state, and thus take more time to get refund checks out.

You can call the FTB at 1-800-852-5711 or try to locate info on your taxes online via their website.

Good luck.

Kerry Kerstetter

 

Q:

Subject: question

 

We need to help a family member track down his assets (bank accounts, CDs, etc.)  His wife had taken care of all this, and since her death several

years ago, he has lost track of important details.

 

Do you have any suggestions as to who we might hire to help us do this on his behalf?

 

Thank you,

A:

It’s been a while since I mentioned Mark Colgan’s excellent resource for people in your situation, his Survivor Assistance Handbook.  It is packed with tips on how to take care of matters such as tracking down a decedent’s various assets. 

You can order the handbook from Mark’s website. 

Good luck.

Kerry Kerstetter

Follow-Up:

Thank you so much for your helpful reply!!

 

 

Q:

Subject: LLC vs S-Corp

Kerry,

You raised some interesting points to consider when choose b/t a S-corp and C-corp. I wanted know what you thought the important points to consider when choosing b/t a S-corp and a LLC taxed as a partnership (besides the fringe benefits).

Thanks again for your input.

A:

Listing all of the distinguishing factors of LLCs and S corps isn’t the way to approach this.  What you and the business’s other owners need to do is all meet with a qualified professional tax advisor, who should ask you a ton of questions related to the business goals, before mutually working out what would be the best entity for that particular business venture.

Good luck.

Kerry Kerstetter

 

Q:

Subject: Question for your Blog:  Adjusting W-4 Withholding Allowances

Dear Kerry,

 

For both 2004 and 2005, my wife and I, who both work, filed our federal income taxes as “Married filing jointly,” and in both years, we received over $4,000 in federal refunds.  I am assuming this is because neither of us has changed our withholding allowances on our W-4s (both of our W-4s list us as “Single” with only one allowance each).

 

When I went to the IRS “2006 Withholding Calculator” and entered all of our information, the web site directed each of us to REDUCE the number of allowances for 2006 to zero and to specify that we withhold an addition $45 from each of our paychecks.

 

I thought that if we wanted our employers to withhold LESS tax, we should INCREASE the number of allowances.  I didn’t think we would need to see a CPA for something as “simple” as this.  What is going on here?

 

Thanks in advance.

A:

You are correct that you need to increase the number of exemptions you booth need to claim on your W-4s.

Most people don’t handle the itemized deduction part of the W-4 calculator and under-count the number of exemptions they are entitled to.

This is the kid of thing you should be working with a professional tax advisor on.  Nothing in the tax arena is simple enough to handle on your own.

Good luck.

Kerry Kerstetter

Follow-Up:

“Nothing in the tax arena is simple enough to handle on your own.” — I’m beginning to see that.

Thanks for your quick response and help, Kerry.  I certainly appreciate it.

 

Q:

Subject: Exchange Question

My wife and I own 2 homes within 55 miles of each other.

We consider one our primary, the second we are there all our free time.

With retirement coming in 8 years or less we wonder if we will be able to afford to keep both and if not is there a way one of us can change address, auto registration, voting etc. and have 2 primary residences with the hope that if we had to sell one or the other we could avoid capital gains ?

Thank you.

A:

This is the precise kind of thing that you need to be working with your own personal tax professional on.

Issues that you will need to consider when working up a strategy with your personal professional tax advisor should include the fact that no person is allowed to simultaneously have more than one primary personal residence.  You and your wife could each have one, but you would have to be ready to prove that you each lived full-time in separate homes.  Each house would also only be allowed a maximum of $250,000 tax free gain.

A more lucrative plan, depending on the size of the profits involved, would be to sell the home in which you have lived for at least two years, claim up to $500,000 of tax free profit, and then move into the second home, live there for two years, and sell it with up to $500,000 of tax free gain from its sale.

This is a overly simplistic description of the plan and will need to be fine tuned with your own personal professional tax advisor, especially in regard to any depreciation that may have been claimed on either home.

Good luck.

Kerry Kerstetter

Follow-Up:

 Thank you Kerry, I hope to get help soon as I am a “pre-retirement” person of 58 yrs old.

 

From a Reader:

Subject: Multiple residence sales

Dear Mr. Kerstetter,

On your blog page someone asked about selling multiple homes in less than 2 years.

You told him he could not exclude all the sales and should see about amending past filings to decide which one he would be better off having taxed and which excluded.

This is missing something though.

You referenced him to From IRS Pub 523.

If you look closely, he could qualify for a partial exclusion.  He didn’t say the reasons for selling or his profits, but if he sold for one of a few certain specified reasons, he might be able to exclude a portion of the allowed limit.

You said it’s part of the tax code that is not a gray area.

That doesn’t mean it’s free from exceptions.

I’m only aware of this because I’m in a similar circumstance, trying to time a move such that I can avoid the tax hit on the house since I sold my last house less than a year ago.

My Reply:

You are correct that some people may qualify for a pro-rated tax free exclusion for more than one home sale within two years, if it was caused by unforeseen circumstances.  I have covered dozens of such examples in postings over the past few years.

I didn’t mention it with this person because he didn’t claim to have any such special circumstances and was actually claiming to never have known about the two year rule at all.  I posted it as an example of how slowly details of tax laws spread, even after being around for almost nine years.

Thanks for writing.

Kerry Kerstetter

 

Who’s opposed to free tax help? – The old saying, “you get what you pay for” isn’t strong enough for people crazy enough to allow the PRC’s Franchise Tax Board to prepare their income tax returns.  Another appropriate issue is “conflict of interest.” As the most aggressive tax agency in the country, how can anyone trust the FTB to help people minimize their taxes?