Questions

As the old adage goes, “the only stupid question is the one not asked.” Here I will post questions that I’ve received, and answers that I have given. Questions are presented in red, and answers are presented in black. If you have a question that you would like me to answer, send me a request at:  QUESTIONS@HOWARDTAXPREP.COM  Please read the following disclaimers prior to reading the questions and answer section.

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TAX QUESTION: Earlier this year I birthed triplets, but one passed away in the ICU ward of the hospital after 12 days. She does not have a social security number. Do I have to file her on my taxes even if she never came home?
 
#SMALLBIZTAXLADY ANSWER: I am so very sorry to hear about your loss. Per IRS publication 17 “If your child was born and died in a tax year, and you don’t have an SSN for the child, you may attach a copy of the child’s birth certificate, death certificate, or hospital records instead. The document must show the child was born alive. If you do this, enter “DIED” in column (2) of line 6c of your Form 1040 or Form 1040A.”
TAX QUESTION: For my grandchild should I do a Roth or 529.

#SMALLBIZTAXLADY ANSWER: What a great question! Let’s start with the qualifications for a Roth 401k. A Roth 401k would require your grandson to “earn” the income as a wage, so if he is under 7 years old, and if you don’t own a small business, a Roth would not be the answer. As a tax professional I recommend that you begin by maximizing a COVERDELL ESA that you can self direct; self directing simply means that you can invest in what you know, rather than stocks and bonds. Although a Coverdell contribution is capped at a $2,000, in as little as 5 years you’ll have $10,000 to invest into a small piece of property, a small business, etc. Once you max out the Coverdell, if law makers approve the Universal Savings (USA) Account, you would be able to contribute a maximum of $2,500 annually, and withdraw the earnings TAX FREE. You would be able to self direct the account (invest in what you know), and withdraw the money at anytime, for anything. After you have maxed out both of these accounts (assuming the USA is passed) then I would put the remaining monies into a 529. Lastly, a grandparent owned Coverdell or 529 is not reported on the FASFA, but at the time of this post, any DISTRIBUTIONS WILL BE REPORTED AS UNTAXED INCOME on the students FAFSA for the following year, so you may want to wait until the child’s junior or senior year before using the funds. While this comment is detailed, it’s not all inclusive. Please schedule a consultation with our tax office, or your tax professional

TAX QUESTION: “I had a client that found out during the underwriting process for her mortgage loan approval that her” tax preparer” took 17k deductions on her actual return which was different from copy she had ..it caused her from being able to move forward with her purchase contract to not being to move forward at all. The worst part was she was not in a role that she can take deductions…”–Is there anything that can be done?

#SMALLBIZTAXLADY ANSWER: The old 4506-T caught them! Many people don’t know that mortgage companies pull the returns from the IRS when it’s time to verify. This young lady needs to amend her tax return for several reasons:

1.)She’s responsible for what’s on that tax return. Even if she paid a tax Return preparer, the IRS will hold her liable for what’s on the return.

2.) A lot can happen in 3-6 months that can hinder your chances of getting a mortgage loan: medical bills, student loan default, change in job, etc.

3.) Because we will be reducing the income by $17,000 (unless we can find some overlooked deductions) SHE WILL OWE, but we can negotiate a payment plan.

4.) Since we know that she will probably owe, TIMING will be everything. What we don’t want, is to have a new expense added to her monthly budget while we are waiting on the loan approval.

5.)Had this gone through, the tax payer would have unknowingly committed mortgage fraud; so it’s good that this didn’t go through.

Lastly, your client is not alone. We’ve seen “tax preparers” make up employee deductions, create fake businesses, & the worse case ever was when a “tax preparer” MADE UP W2 INCOME! 😂😂😂😂😂😂. Our office will be happy to help her as soon as she receives her W2.

TAX QUESTION: “Is there a such thing as getting a tax refund for adopted kids other than regular tax refund.”
 
#SMALLBIZTAXLADY ANSWER: Outside of the earned income credit, & the child tax credit, there is another credit: The adoption assistance credit and income exclusion.
 
If you incurred cost as a result of the adoption, you can deduct the amounts paid from your taxable income. For both the credit and the exclusion, qualified adoption expenses, (defined section 23(d)(1) of the Code) include: Reasonable and necessary adoption fees, Court costs and attorney fees, traveling (expenses (including amounts spent for meals and lodging while away from home), and Other expenses that are directly related to and for the principal purpose of the legal adoption of an eligible child. If your employer helped with the cost of adoption, you can exclude the amount received from your taxable income. #smallbiztaxlady #taxhelp #taxpreparation #taxes #taxaccountant