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(1) I want to give my father one of my cars. The value of
the car is between $9K-$11K. I was wondering if its better to give it to him as a
gift or just sell it to him for $1? If he ever sold the car or was compensated by an
insurance company if the car was totaled or stolen, would he have to pay any income
tax?
(2) If I bought the car for $11.2K back in 1998 and I sell it for less than the
book value, such as $1, can I claim the difference as a loss (deductible) on next
years taxes?
(3) What is the total amount one can claim as losses in one year, for both capital
losses and losses after 1 year has lapsed?
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 (1) You may give your father a gift in
money or property to a maximum of $10,000 in any one calendar year. If the car is
worth $11,000 and you sell it to him for $1,000, the balance will be considered a
gift. Your father would have taxable income if he sold or received more than what he
paid for the car - so any amounts over $1,000 received, as in my example above, would be
considered income to him.
(2) You cannot claim the balance as a loss. If this car was used in
business, then you have been depreciating it (or taking the standard mileage deduction)
according to the automobile depreciation rules.
(3) Capital losses are netted against capital gain, plus $3,000 may be
used against ordinary income, each tax year. Losses are carried forward until they
are used up.
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My wife and I plan to sell our current house and rent a home where
we plan to move. Once we determine where we want to live in the new area, we will
buy a home. We owe $135K on our current home and expect to sell it for $320K,
netting us $185K.
Question (a): The $185K placed in our savings account will earn interest and I believe
the interest earned will be subject to tax. Is my understanding correct?
Question (b): I know there is a tax relief act which states that a married
couple is allowed up to a $500K gain on a principal residence without being subject to
capital gains tax. So, our "gain" of $185K is not subject to a capital
gains tax, correct?
Question (c): If we buy a house for $250K, the capital gain would be $320K-
$250K = $70K; again, less than $500K so the gain is not subject to a capital gains tax. Is
this correct?
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(a) The gain from the sale of your residence, provided you meet the
exclusion requirements, is tax-free up to $500,000 for married couples - the earnings on
those gains, however are taxable.
(b) Your gain is based on the difference between the selling price and your adjusted
basis in the property (usually the purchase price) - in either event, you'll owe no tax if
you meet the exclusion requirements.
(c) The new $500,000 exclusion rule has eliminated the sale-repurchase
rules so it does not matter whether you purchase another home. The exclusion rules
may be used once every two years.
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n the last year I have worked for three employers as a freelance
assistant. I have W2 forms for two of them. The third, however, led me to
believe that I was being paid "under the table." I've just received a 1099
from her. What should I do?
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Check out the articles I've written about independent
contractors vs. employees. I have a tax class on the subject (see my home page
sub-sections for the tax class). If you are an independent contractor, complete
Schedule "C" to the Form 1040 and take the appropriate deductions there.
If you are an employee, then your employer is obligated to withhold and pay the taxes (it
is her burden). You can request a ruling from IRS as to whether you were an
independent contractor or an employee.
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We
went from A C Corp to an S Corp in 1999. Our current accountants claim our 1999
taxes had to be amended because of the tax consequences resulting from the switch (gains
tax). Another accountant has informed us that we do not have to pay any gains tax
unless we sell our company within the first ten years. We are very confused and
don’t know who is right on this point.
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A switch from a C Corp to an S Corp can cause
accounting changes - usually with respect to inventory. However, the switch is not
treated as a sale for capital gains treatment. The "C" assets have a
"built-in" gain for 10 years, which means if they are sold within 10 years of
the C-to-S conversion, there will be a corporate (C level tax) on the difference between
the basis and the FMV on the date of the C-to-S conversion. Therefore, it is
important to obtain an appraisal of your assets at the time of conversion, because any
post-conversion appreciation is subject to the more-favorable "S" corporation
rules (no corporate level tax). Once 10 years elapses, then all gains are taxed
under the "S" corporation rules.
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Is there a special IRS form I must fill out to elect mark-to-market
accounting for my trades? What steps do I need to take to use mark-to-market on my
return? I am a full time day trader.
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There is not a special form that you use, but
you must attach a written election explanation with your 2000 return, or with the
automatic extension form. It cannot be send in separately. Note: the election
for 2001 must have been filed no later than 4/15/01. The election can be made by signing a
declaration that you are electing mark-to-market accounting for tax year _________.
For example: “ Election for Mark-to-Market Accounting, Attached to Form
_______ I hereby elect mark-to-market accounting under IRC Sec. 475 (f) for my securities
business for the tax year beginning ______________. ______________________ Joe Taxpayer,
SSN: xxx-xx-xxxx dated: ____________________ ”
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Gift of Car
