Posted byon April 15, 2008
Previous article: « Do You Back Up Your Financial Data?
Next article: Credit Card Arbitrage, Investing, Lending Club and More! »
Photography by: corrinely
Tax day is here! Luckily we filed our taxes this past weekend, so we won’t have to worry about staying up late to get them done tonight. Hopefully yours are done too.
There are bound to be questions while finishing your taxes. Over the last couple weeks readers submitted some last minute tax questions to take advantage of the gracious offer from our local IRS agent. Here’s some of the highlights.
I have a rental home that was damaged last year from a drunk driver. I had to have the house repaired with insurance funds. Can I write off the repairs that were covered by the insurance funds? I was told that insurance monies cannot be taxed, is that correct? – Submitted by John
You cannot deduct the amounts that you repaired with insurance funds. For example let’s say the repairs cost $10,000 and the insurance received was $9,500. You do not have to report the insurance funds received as income and you can only deduct the difference ($10,000 – $9,500) $500 on Schedule E as rental expenses.
We had a family medical emergency during a complicated tax year and ended up not completing a return in 2005 (for tax year 2004). Since then, we’ve meant to complete returns including those past ones and just keep putting it off for whatever reason (Stupidity! Embarrassment! Fear! No money!)
How do we go about cleaning up this mess? It is likely that there are payments due. Do we start with the current tax year and then just work our way backwards? Can we set up a payment plan if it spans more than one tax year? – Submitted by a reader
I would start with the current year and get it filed timely. Then go to the oldest unfilled year and get it prepared and filed. Then the subsequent year and so on until all are filed. Keep a copy of all the returns. When you get the bills for the years you owe money on, go to the nearest IRS office during office hours (usually M-F 8:30 to 4:30 closed from noon to 1 pm) and ask to set up an installment plan covering all the years for which you owe money. Take a copy of all the returns you have just filed.
There will be interest due, late filing penalties, late payment penalties and a fee to set up the installment plan. In addition, if your return for 2004 would have generated a refund, you’ll want to file that this year. Otherwise you’ll lose your chance to get the refund. See How Long Does it Take to Get Your Tax Refund Back?
Because of our high taxable income this year (due to an inheritance), Turbo Tax told us we needed to make estimated tax payments for 2008 and included vouchers for the payments with the printout of our return.
Now I know we aren’t going to have a high income this year, so I’m pretty confident we aren’t going to owe estimated taxes. Can I just ignore the vouchers? Or is the IRS going to be looking for estimated taxes from me? – Submitted by Lynnae
Yes, you can ignore the vouchers! They’re trying to help you by assuming that you will continue to make that much again this year. Your only obligations are to have enough withheld, however you choose to do it. You can meet the withholding minimums through one of the following requirements:
Special thanks to the IRS agent for lending your expertise to our readers. We look forward to you helping answer questions again next tax season.