Newsletter Topics

Including Extensions

on .

In reading code (if you ever try to read it you will know why it is called CODE) and regulations (U.S. Treasury Dept interpretation of the Code--this is what we think it means) you will find the term INCLUDING EXTENSIONS.



Earned Income Credit & Valid Social Security Number

on .


Earned Income Credit & Valid Social Security Number

To qualify for the EITC (Earned Income Tax Credit), everyone you claim on your taxes must have a valid Social Security number (SSN). To be valid, the SSN must be:

  • Valid for employment
  • Issued before the due date of the tax return you plan to claim (including extensions*)

For the EITC, IRS will accept a Social Security number on a Social Security card that has the words, "Valid for work with DHS authorization," on it.

For the EITC, IRS will NOT accept:

  • Individual taxpayer identification numbers (ITIN)
  • Adoption taxpayer identification numbers (ATIN)
  • Social Security numbers on Social Security cards that have the words, "Not Valid for Employment," on them

For more information about the Social Security number rules for the EITC, see Rule 2 in Publication 596, Earned Income Credit.


Rule 2—You Must Have a Valid Social Security Number (SSN) To claim the EIC, you (and your spouse, if filing a joint return) must have a valid SSN issued by the Social Security Administration (SSA) by the due date of your return (including extensions*). Your qualifying child must have a valid SSN issued on or before the due date of your return (including extensions*) for you to claim a higher EIC credit amount based on that child.

Note *Including extensions” means a timely filed extension.


When is 28% bracket not 28%?

on .

This is real from a 2014 tax question
I had a 401K that I cashed in back in November. I paid 20% taxes on it when I did that. I received my 1099-R and while doing my taxes I entered that in and am now being charged another 30% in taxes. I have double checked that I entered everything correct and so has my father. It just seems to be taxed a total of 50% all together is a lot of money. Any suggestions?
Our answer
First thing is…. When the 401K distribution occurred, the broker had no idea what your personal tax rate is.
They withheld 20%..
But you could be in a 28% bracket….. (or even higher up to 39.6% plus more on investment income).
Now, on top of that, if you are under age 59 ½ you are charged an additional 10% penalty…
So, in my example, the total tax is 38%, not 20%. Again, your broker handling the distribution would not know your individual tax circumstance.
Then, that additional income effects some itemized deductions, effects some child credit issues….. etc. so, while your tax rate may be 28%, you lose some itemized deductions (or lose some credits) effectively making the tax rate even higher… but Congress doesn’t want you to know that….
It is not the answer you want, but it is the answer!

Sale Primary Residence BUT NOT TWO YEARS in Last Five

on .

Reduced Maximum Exclusion Code Sec. 121(c)(2) provides for a reduced maximum exclusion for a taxpayer who sells or exchanges his or her principal residence but fails to meet the use-and-ownership requirements or the two-year limitation.


In order for a taxpayer to claim a reduced maximum

I.R.C. § 121 (c) (2) (B) — such sale or exchange is by reason of a change in place of employment, health, or, to the extent provided in regulations, unforeseen circumstances. I.R.C. § 121 (d) Special Rules

It works like this….

You lived in it one year of the last 5 from date of sale…… so, you met one half of the requirement to exempt the gain. A single person has the full exclusion of $250k. You only have an exclusion of $125k.

We calculate the gain to be $70k. The only issue you have is depreciation recapture. If you took $20k of depreciation, you have to recapture it (taxable).

So, of the $70k gain, $20k is recaptured and the difference of $50k is exempt.