Tax Debt Help – “The Luck of the Draw!”
I know lots of folks including friends and family members who gamble religiously. I’ve never actually been much of a gambler as my luck is between slim and none, but my friends have so much fun I’ve actually considered giving it a shot.
I’ve tried several different online sites, the occassional lottery ticket and of course, the office football pool. After some research, I’ve quickly discovered that there are about a zillion online gambling sites.
I decided to check out the IRS site to see what they have to say about gambling and taxes.
Gambling winnings are fully taxable and must be reported on your tax return. You must file Form 1040 (PDF) and include all of your winnings. Gambling income includes, but is not limited to, winnings from lotteries, raffles, horse races, and casinos. It includes cash winnings and also the fair market value of prizes such as cars and trips. For additional information, refer to Publication 525, Taxable and Nontaxable Income.
A payer is required to issue you a Form W-2G (PDF) if you receive certain gambling winnings or if you have any gambling winnings subject to Federal income tax withholding. All gambling winnings must be reported irrespective as to whether any portion thereof is subject to withholding. in addition, you may be required to pay an estimated tax on your gambling winnings. For information on withholding on gambling winnings, refer to Publication 505, Tax Withholding and Estimated Tax.
You may deduct gambling losses only if you itemize deductions. Claim your gambling losses as a miscellaneous deduction on Form 1040, Schedule A (PDF). However, the amount of losses you deduct may not be more than the amount of gambling income you have reported on your return. It is important to keep an accurate diary or similar record of your gambling winnings and losses. To deduct your losses, you must be able to provide receipts, tickets, statements or other records that show the amount of both your winnings and losses. Refer to Publication 529, Miscellaneous Deductions, for more information.
Think I’m gonna stick to those Friday night nickel and dime poker games with my girlfriends, and of course, the occassional lottery ticket. Like Kenny says, “you gotta know when to hold em and know when to fold em…….“
S. Raines, Sr. Financial Advisor/Tax Preparer
Tax Debt Help – “Disabled Veteran Payments Ruled Tax-Free”
IRS Newswire [irs-newswire@lists.qai.irs.gov]
Certain Payments to Disabled Veterans Ruled Tax-Free;
Some May Be Due Refunds
WASHINGTON — Payments under the Department of Veterans Affairs (VA) Compensated Work Therapy (CWT) program are no longer taxable and disabled veterans who paid tax on these benefits in the past three years can now claim refunds, the Internal Revenue Service said today.
Recipients of CWT payments will no longer receive a Form 1099 from the Department of Veterans Affairs. Disabled veterans who paid tax on these benefits in tax-years 2004, 2005 or 2006 can claim a refund by filing an amended return using IRS Form 1040X. According to the VA, more than 19,000 veterans received CWT in Fiscal Year 2007.
The IRS agreed with a U.S. Tax Court decision issued earlier this year, which held that CWT payments are tax-free veterans’ benefits. In so doing, the agency reversed a 1965 ruling which held that these payments were taxable and required the VA to issue 1099 forms to payment recipients.
According to the VA, the CWT program provides assistance to veterans unable to work and support themselves. Under the program, the VA contracts with private industry and the public sector for work by veterans, who learn new job skills, re-learn successful work habits and regain a sense of self-esteem and self-worth.
Related Item: Revenue Ruling 2007-69
Tax Debt Help – “The AMT and the 2007 Filing Season”
Although both the U. S. House of Representatives and the United States Congress have passed the AMT “patch” for 2007, the bills have yet to be reconciled.
The Senate-passed bill would leave a trillion-dollar hole in the federal budget over 10 years. The bill would spare the middle-class households touched by AMT an average of $2,000-per-family increase on 2007 income taxes and would ensure that refunds of as much as $75 billion would be distributed without delay.
The House-passed bill would be paid for mainly by forcing managers of private equity “buyout” firms and hedge funds to pay ordinary income tax rates on the millions of dollars they earn each year. Currently, much of those earnings are counted as capital gains and taxed at 15 percent, rather than at the 35 percent income tax rate paid by the nation’s highest earners.
What this all means to the tax professional:
The IRS is anticipating the AMT “patch” for 2007 however they cannot change the IRS programming for AMT until the act is passed and signed into law by President Bush.
After the law passes, the IRS will require a minimum of seven (7) weeks to reprogram their computers.
The challenge is to modify a program allowing some returns to be processed while restricting those returns which would be affected by the AMT.
Two potential options are:
1. Programming in stacking order to process returns that are unaffected by the AMT or
2. Not processing until the reprogramming is complete.
While IRS is uncertain of the date the legislation might pass as well as the particulars of the legislation, they are certain that:
the tax deadline of April 15 will not be extended.
Any potential delay will affect paper filed returns as well as e-filed returns.
The AMT was designed in the 1960s to prevent the very rich from using deductions, credits and other shelters to avoid paying taxes, but its income thresholds did not rise with inflation. Taxpayers are not hit by the AMT based on income alone. The number and type of deductions and credits they take also help determine whether they will be forced into the alternative taxation system. Because of rising incomes, the tax’s bite is expected to expand to more than 30 million households in 2010. Last year, the AMT affected 3.8 million mostly well-off households.
S. Raines, Sr. Financial Advisor/Tax Preparer
My StumbleUpon Page
