Form 1099-A vs. Form 1099-C – And What Do I Do With Them On My Income Tax Return?

By JC Leahy, MA Accounting

jcleahy@TaxHelpWhenYouNeedIt.com
Twitter@TaxHelpWhenNeed

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There is a lot of misinformation out there about the Form 1099-A (Acquisition or Abandonment of Secured Property.  Taxpayers are often confused because they were expecting to receive a 1099-C (Forgiveness of Debt) and found a 1099-A in the mailbox instead.  Alternatively, they are confused because they received both a 1099-A and 1099-C from the same foreclosure.  I’ll try to clarify this for you as succinctly as possible.

To put it in context: The IRS needs to be notified every time real property is sold.  After a normal real estate sale, the seller receives a Form  1099-S (Proceeds from Real Estate Transactions) to report the sale to the IRS.  In a “short sale” or deed in lieu of foreclosure, the property owner also receives a 1099-S because he gave up the property willingly.  In the case of a foreclosure, however, the property owner’s giving up the property was involuntary.  That property owner receives a different form; namely, Form 1099-A.  Form 1099-A serves the same basic purpose of reporting to the IRS that the property has changed hands.  The lender will issue the 1099-A.

Form 1099-C, on the other hand, indicates that the lender forgave  the mortgage debt.   You won’t always get a 1099-C after a foreclosure.  For example, the value of the seized property may be enough to pay off the mortgage; therefore, there’s nothing to forgive.   You might receive a 1099-C but no 1099-A because filing the 1099-C satisfies the lender’s obligation to issue a 1099-A.  You may also receive both, but in that event  Boxes 4, 5, and 7 on the 1099-C would be left blank.

Use the 1099-A just as you would a 1099-S: to calculate gain or loss on the “sale” of the property.  Use 1099-C instead of 1099-A to calculate gain or loss if you did not receive a 1099-A.  Then, in any event, if you received a Form 1099-C, use that to calculate your forgiveness-of-debt income.

That’s it in a nutshell.  For more details about how to compute gain/loss and forgiveness of debt income, see my earlier article at the link below:

Tax Implications of Foreclosures and Short Sales

PAY WARY ATTENTION TO 1099-A OR 1099-C FROM FORECLOSURE

By JC Leahy, MA Accounting

jcleahy@TaxHelpWhenYouNeedIt.com
Twitter@TaxHelpWhenNeed

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The income tax problem for the down-and-out property owner is twofold:  First, when the bank repossesses your house – whether your home or your rental property – the tax law views that as a SALE of the house.  Viewing a foreclosure as a sale can crush you with big capital gain tax, especially if you have owned the house for a long time.  The second problem is that after you lose your house and the bank sells it at auction and the paltry proceeds don’t satisfy the mortgage – if the bank doesn’t come after you for the unpaid mortgage balance, the Internal Revenue Service views that as a big windfall for you  –  which means income that is fully taxable.  In summary, not only do you get to lose your house, but in the process you may realize a big capital gain and a huge windfall called Cancellation of Debt income.  Obviously this could produce a giant income tax liability.  Sigh….I kid you not!!  So pay close attention when you receive a 1099-A or 1099-C in connection with a foreclosure.  

WHAT TO DO WITH A 1099-A

Information About How to Report A Mary Kay Business On Your Income Taxes

Reporting Mary Kay income follows the same principles as accounting for and reporting any business.  Here are some good, quick-read Mary-Kay-specific bits of information:

Cost of good sold for Mary Kay business:

How to report selling Mary Kay on my Taxes



About Mary Kay gross sales (from the above link):

"Enter your gross receipts on a Schedule C. The easiest way to keep track of this is to keep copies of the receipts that each customer gets with her order. The total of all of the receipts is the consultant's gross receipts."

Good advice.

How Much Can I Contribute to My IRA for 2013, and How Much Can I Deduct??

By JC Leahy, MA Accounting
jcleahy@TaxHelpWhenYouNeedIt.com
Twitter@TaxHelpWhenNeed

CAN I ESTABLISH A TRADITIONAL IRA?
If you have taxable earned income and you are less than 70.5 years old, you can establish a traditional IRA.  Earned income includes salary, wages, commissions, self-employment income, alimony, and combat pay.  It does not include any pensions (including Social Security), interest, dividends, or annuities.  In the year you reach the age of 70.5, you can no longer establish or contribute to a traditional IRA.


HOW MUCH CAN I CONTRIBUTE?
For 2013 you can contribute $5,500 per year or the amount of your taxable earned income, whichever is less, to a traditional IRA.  This is true whether you are covered by a retirement plan or not!!  If you have reached the age of 50 during the year, you may contribute an additional $1,000 catch-up contribution.  This makes a total limit of $6,500.


Here's the exception.  It's a good one: If one spouse doesn't work or earns less than $5,500, he/she may establish and contribute to an IRA based on the earnings of the other spouse.  Between them, there is a limit of $11,000, which can be allocated in any way they wish between their two IRA accounts -- provided that neither one's account receives more than $5,500. For example, if the husband makes $100,000 and the wife makes zero of earned income, the wife may contribute up to $5,500 into her traditional IRA and the husband, likewise, may put up to $5,500 into his IRA.  This also applies to the $1,000 catch up contribution.


One other fine point:  If you have a Traditional IRA and also a Roth IRA, the $5,500/$6,500 limit includes both. In other words, you can only contribute $5,000/$6,000 TOTAL between the two.

DO I HAVE TO MAKE THE CONTRIBUTION BY DECEMBER 31??
The really great news is that you have until the April, 2012 tax filing deadline to open your Traditional IRA account and make your 2011 contribution. 


HOW MUCH OF MY TRADITIONAL IRA CONTRIBUTION CAN I ACTUALLY DEDUCT?
Don’t be confused on this point:  If you are not covered by a retirement plan at work at any time during the year, you can deduct every penny of your traditional IRA contribution.  Period. .


IRA Deduction Phase Out: It's slightly more complicated if you were covered by a retirement plan at work.  In that case, if your "Modified Adjusted Gross Income" (MAGI) is less than certain thresholds, you still get to deduct your entire Traditional IRA contribution.  For 2013, this threshold is $59,000  for Single or Head of Household filers, and $95,000 (up from $90,000 in 2012)  for Married Filing Jointly or Qualifying Widower filers.  Above those thresholds, the deductible portion phases out between $59,000 and $69,000 for Singles and Head of Household, and $95,000 and $115,000 (up from $110,000 in 2010) for Married-Joint and Qualifying Widower filers.  If MAGI is greater than $69,000 ($115,000 for Married-Joint) then NONE of your Traditional IRA contribution can be deducted.  But you can still make your $5,500/$6,500 contribution to the IRA account -- you just won't be able to deduct it. For married filers where you are covered by a company plan but your spouse is not, in 2013 the deduction for your spouse is phased out between $178,000 and $188,000 of MAGI.


One other important tax-law quirk: If your filing status is Married Filing Separately, you are screwed!  Your IRA deduction phase out starts at $1 of Modified Adjusted Gross Income and that deduction drops to zero when your MAGI reaches $10,000!!

 In situations when you can't deduct your Traditional IRA contribution, why would you want to make the contribution at all?  There are two reasons.  First, earnings accumulate and compound every year without being diminished by annual income taxes.  You only pay the tax on earnings when you withdraw them in your old age -- and you will probably be in a lower tax bracket then.  Second, if you have a nondeductible Traditional IRA contribution, you get what is called a "basis" in your IRA account.  This just means that when you eventually withdraw from your IRA, the "basis" portion will not be taxable.


If you need assistance with your income tax filing this Tax Season, you might want to contact:

JC Leahy, MA Accounting
TaxHelpWhenYouNeedIt.com
Silver Spring, Maryland
E-mail: jcleahy@TaxHelpWhenYouNeedIt.com
Tel. (301)537-5365

Safety Tips. Never Leave a Space Heater Unattended !!!

By JC Leahy

Here's collection of links for reading. Bottom Line: Never leave a space heater unattended.

News Report: Unattended Space Heater Probably Caused Fire, Minneapolis

 

Springfield Fire Department: Unattended space heater with inadequate extension cord cause of Indian Orchard blaze

 

Never Leave Space Heaters Unattended – Government of Yukon

 

Space Heater Safety Tips: Never Leave Unattended

 

Space Heater Info and Safety Tips – NYSEG (New York State Electric and Gas)

 

JC Leahy

NSEG Space Heater Safety Tips

• Choose models that have automatic safety switches that turn off the heater if it is tipped over accidentally. 
• Do not overload circuits. 
• Never leave the heater unattended and never leave the house or go to bed without turning off the heater.  Always turn off and unplug the heater when it's not being used. 
• Keep the cord and heater away from high traffic areas. 
• Never use electric space heaters with an extension cord. 
• Read and follow all manufacturer's instructions.

Getting it Right With Your Income Taxes !!!!

by JC Leahy, MA Accounting
twiter@taxhelpwhenneed

I just got IRS to reduce client's tax bill from $393,000 to zero.  She is a Mexican immigrant single mother working at  near minimum wage.  She cried in my office for half an hour when she found out, and brought me a nice gift two weeks later.  I love it when I can help someone like that!!!

Taxpayers who filed their income tax returns last year without professional assistance left a billion dollars behind in unclaimed refunds and overpaid taxes!!    Do yourself a BIG favor this year and get it right when dealing with the IRS!!!!! JC Leahy has a Masters Degree in Accounting, 35 years' accounting experience. He has been focusing on income taxes for 23 years. He has a dedicated office in his home in Silver Spring/Colesville, Maryland. In this private and confidential setting, he will spend as much time as needed to "get it right" when filing your income tax returns. Unlike certain tax-prep chain operations and franchises, when tax season has ended, if you have any questions or problems throughout the year, JC Leahy will be readily available to help you.

Make an appointment:  Phone JC Leahy at 301-537-5365.

Deducting Automobile Expenses on Your Income Tax Return

Here's a good summary about writing off your car and truck expenses as income tax deductions:

Writing off Automobile Expenses 101, by Chris Peden