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December 2001, FAQs
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December 2001
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  Deduction for educational expenses
  Taxation of Incentive Stock Options Upon Sale
  Computation of adjusted basis for real estate
  Reporting requirements of foreign trust with a U.S. grantor or beneficiary
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I have a question on tuition reimbursement taxability. My employer reimburses me for tuition upon successful completion of each class. All courses improve skills for my current position but do not qualify me for a new trade or business. My employer believes that reimbursements may be treated as non-taxable up to a $5,250 maximum.
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I've written about this on my webpage. Also, check out Publication 17 from the IRS (Linked from my FAQ section). My understanding is that your employer may provide you with tuition assistance up to the limit you describe. If your employer pays more than this amount, it becomes non-deductible compensation to you. Also, if you pay for tuition and education expenses and are not reimbursed, you may claim this amount (provided you meet the education requirements) as an itemized miscellaneous deduction.
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SEE ALSO The Tax Prophet's Search Engine to find articles on this subject.
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An Employee is granted 30,000 options @ 10 cents/share. Employee exercises at $25/share and picks up AMT income of $747,000 (30,000 X $25-10 cents). In a later year, the employee sells the shares at $5/share. What happens?
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Your basis in the asset is $747,000 and when the asset is sold in the future, there is a basis adjustment that eliminates the regular tax on the asset. Once this occurs, you'll have an AMT credit as to the balance. The calculations are very complex and I'm not a CPA so I do not have the software to determine the exact amount of the credit. Part of the calculation includes reconfiguring your capital gains and losses on Schedule D. Capital losses for both AMT and regular tax purposes are limited to $3,000 per year. This indirectly affects the amount of the AMT credit you can use, because the spread between the regular tax and AMT will be smaller because of this limitation.
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The Tax Prophet's Section on Stock Options
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I read your article about the 'adjusted basis' of my home, but it only talked about home improvements. May I also include realtor commissions?
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If you are selling your home, the costs of sale decrease the "amount realized" from the sale, i.e. the amount you receive. If you purchase a home, then the purchase price includes costs associated with the purchase that were not deducted, such as commissions, closing costs, and your share of escrow fees and, therefore, increases the adjusted basis.
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The Tax Prophet's Tax Class on Real Estate
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An asset-protection attorney claims that a foreign grantor trust, with foreign trustees, but with a U.S. settlor and U.S. beneficiaries is considered a "grantor trust" in which case, no Forms 3520 or 3520A (related to foreign trusts) would be filed. Is this true?
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The asset-protection attorney is wrong. A U.S. person who is considered the owner of a foreign trust under any of the grantor trust rules is the one responsible for the requirement that the foreign trust file an annual return (Form 3520-A). The trust must provide an accurate accounting of all trust activities, trust operations and other relevant information required by the Treasury. See IRC Sec. 6048(b)(1). In addition U.S. beneficiaries of a foreign trust who receive trust distributions, either directly or indirectly, are required to file Form 3520, reporting the distributions on Part III of that form. The reporting requirement is limited to U.S. beneficiaries who know or have reason to know that the trust is foreign.
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The Tax Prophet's Tax and Trust Scam Bulletin Board
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