Investors can avoid ‘stupid is as stupid does’ defense – Some excellent tips, especially when working with commission based advisors who love to churn accounts – something I see far too often.

South Carolina Man Allegedly Sells Fraudulent “Untaxing Packet” Nationwide 

How a Small Biz Can Get No-Cost Expert Advice – SCORE is a very handy free resource.

To the cyber scammers in Nigeria who trawl for victims on the Internet, Americans are easy targets. – Amazingly, people still fall for these scams that have been going on for decades.

Tax Credits for Driving ‘Green’ – From Gail Buckner. 

Senate’s Treasury Bill Would Bar IRS From Creating Tax Prep Software – Who in their right mind would actually trust IRS software to help them minimize their taxes?  Can anyone say “conflict of interest?”

Q:

Subject: Online Bill Payment and the IRS

Mr. Kerstetter-

Came across the following statement in an article in the NYT about online bill pay.

“As long as I see that I.R.S. wants a canceled check as proof of payment, I will recommend that people who want to deduct their personal or business expenses pay them by check,” advised Eva Rosenberg, publisher of TaxMama.com.

Your thoughts?

Keep fighting the good fight-

A:

I do agree that cancelled checks are the best way to document expenditures.  That is why I have long had battles and refused to work with banks that don’t return the actual checks.  I have explained to them that the little pictures of the check-fronts often aren’t good enough.  This is especially true when trying to track down how IRS applied a tax payment, a frequent problem.  The tiny tracking numbers are on the backs of the checks.

This is why I have gladly paid my bank (Regions) an extra two dollars each month so they will include my actual canceled checks along with my monthly bank statement.  Many other banks refuse to even make that available, claiming that it’s for the customers’ convenience, when we all know that it’s strictly for theirs.

You can use credit card statements to prove expenses, but you will also have to have a receipt showing the details behind it in order to prove to IRS auditors that it wasn’t a personal expenditure.  Eva had an excellent point in the article about not wanting to allow IRS examiners a peek at other things on the credit card statement.  Auditors are notorious for snooping around in things that have nothing to do with the actual examination in a fishing expedition for other items they can hassle the taxpayer about.

Thanks for passing that along.

Kerry Kerstetter

 

Q:

Subject: Penna Question

When as a recipient of a gift from the death of a friend, do we as the recipient pay tax on it?

Also is this added into our income?  (State or Federal or Local)

http://www.taxguru.org/estate/706.htm

I have read your site, but it talks to more of the donor than the receiver.

Thanks

A:

You first need to be clear about your terminology.  A gift is something you receive from another person while s/he is alive.  An inheritance is something received after the person passes away.

There are very few things that are not subject to income tax on the recipient.  Gifts and most kinds of inheritances are two of them.  The only potential tax, if the gifts or bequests are large enough, are on the former owner of the item being transferred.

The most common kind of inheritance that would cause income tax obligations for you as the recipient would be of something like a pre-tax retirement account.  If you were named beneficiary of someone’s IRA or other kind of tax deferred account, you will probably have to pick that up as taxable income.  In that case, you should definitely work with a professional tax advisor to see what can be done to limit your tax hit.

If what you received wasn’t from a retirement account, there should be no income or other tax for you to worry about.  You are not even required to report it on your income tax returns.  However, I often do disclose large gifts and inheritances on a statement with tax returns where it would explain why certain deductions, such as charitable donations, are much larger than would normally be expected for someone with a certain sized taxable income.

I hope this helps.  A tax pro can help work with your particular situation.

Kerry Kerstetter