Monday, March 30, 2009

You think the tiny folk can reclaim a little satisfaction vs. the Powers That Be? WRONNNG!

I've always prided myself in doing our taxes by myself each year. (Well, not exactly, I enlist the help of TurboTax, which I use to do not only our income taxes, but the mother-in-law's as well.) But armed with that and 'my brilliant accounting accumen' (sic), I've always had the bravado to curse the screwed up income tax system of this country saying, "If I and TurboTax can't solve it, 'Fuck the government,' they can go without!"

If I have been distracted from blogging these past few days, it's because I'm choking on my words. With two weeks til the filing deadline approaching, it appears I may have to swallow my pride.

My first mistake came in bragging to Mrs. Dada -- after completing the M-I-L's return, "I filed electronically!" It was free, no printing a return, preparing/stamping it for mailing, etc. Within five or six hours the return was kicked back -- apparently an irresolvable conflict with the M-I-L's date of birth between Social Security and the IRS.

Then came our return. Seems last September we received a check in the mail -- the result of a class action suit we joined some years ago and forgot about. It was against our mutual fund company whose brochures back at the end of the last Century looked more like a promotion for a ski resort than an investment company. But, hey, it was the "Age of Irrational Exuberance." Everyone in the market was getting "rich", right? (Ask our former sorry-assed and irrationally exuberant Fed Chairman, Alan Greenspan.)

Why, hell!, I confess: Back then I was thinking if the bloated stock market continued after Bush won office in 2000, I'd probably be a Republican by '04 and vote for the bastard's reelection, right? Just like all our fat, sorry-assed conservative friends (now former friends).

But that didn't happen. We lost money. But our mutual fund investment advisors kept skiing and living the high life, assuring us our retirements were secure with them.

So this past September comes the long since forgotten lawsuit settlement against this company for their questionable trading practices in the form of a check for $359+. A FREAKIN windfall that extends the Dada's comfortable, care-free life expectancy another week and two days!! But here's the part I didn't pay a lot of attention to in "the warning" (in bold type) about cashing the check, to wit:

"CAUTION: Before you deposit or otherwise negotiate this check it is very important you understand the tax implication that my arise in connection with this payment."

Long story, short, I ignored it. I figured the $359 was our entitlement and I would simply claim it on our '08 taxes...but I couldn't have been more wrong.

And now I am faced with several alternatives after searching for the proper way to claim/pay for/resolve this "windfall" -- without any help from TurboTax. It appears I've finally reached that pinnacle of American financial success, i.e., I need financial advice!

My choices go from pretending I forgot to include this on our 2008 return and spend the rest of my life in dread of every day mail as it is delivered to the house that it may contain an official looking envelope from the IRS, to filing an extension, admitting I am no longer capable of interpreting IRS tax codes and go to H&R Block, or one of numerous tax preparers, and fork over a goodly portion of our last September's "windfall."

But here's the real kicker: Over the weekend, we received yet another check in resolution of another class action lawsuit against this same ski-bunny company. In a moment of what should be glee, one of unexpected monies to pay for an extra week or two or groceries, we are instead confronted with the same "Before you deposit or otherwise negotiate this check....." warning.

And now, instead of a windfall, I'm seeing this newest $check$ as a curse and, pending the outcome of the first one, I may decide it's cheaper to just concede to the threat, forgo the money and burn my latest god-damned settlement check's "windfall" I can't really fuckin' afford!


Fran said...

Ohhh poor Dada is in tax hell. Can you believe those bastards?
Can you just make an appointment with an IRS person for a consult.

Usually whatever item must be reported has some kind of code linked to the special form needed to report said windfall.

All that stuff is online- the special form & the 9 pages of instructions for the one sided special form.

I felt like a mouse in a maze doing taxes.... fill out all these worksheets just to find out you don't qualify for said item.

Don't let them get to you.

Maybe if what you got was pennies on the dollar of your mismanaged ski resort fund- it is a write off as a net loss?

In a perfect world.

D.K. Raed said...

Did you receive a Form 1099 for your "windfall"? If you did, it will point you toward the proper place to claim the income on your return.

This type of windfall income is generally reported as "other income" on your return & taxed as ordinary income. You'll see a little blank space to indicate the type of income. That's where you usually write in 1099-MISC or whichever 1099 you received. If you didn't receive a 1099, you'll have to attach an explanation to your return.

But if it's related to an investment in which you still have a "basis", forget the "other income" line (you might still have a basis if you never reported the final transaction that cashed out that mutual fund). You will have to file a Schedule D, because that is where you'll figure out your original investment, add any income on which you already paid taxes (mutual funds make you pay those taxes on earning each year). The sum is your basis which sounds like it is probably greater than any amount you received as earnings or windfall. If it is, congratulations, you have a loss to deduct from your income (Sch D will tell you where to deduct it). If not, you will have a gain to report. A Schedule D gain will mean you'll have the pleasure of computing capital gains tax. Use the worksheet in your 1040 booklet for 2008 to compute your total tax. You'll be pleasantly surprised to find having a cap gain for 2008/2009 will lower your overall taxes more than you'd think possible as a result of some last minute Bush tax thing (but still not enough to vote repub).

The biggest complication is if that mutual fund was for any type of pension plan. If so, they have handed you a little problem with that windfall. I THINK it'll necessitate filing the same types of forms you would file for any pension plan distribution. If you're already filing those types of forms, you know what I mean.

BTW, good luck getting an appt with a competent tax preparer this late in the season. Fran had a good idea about calling the IRS for phone consultation.

eProf2 said...

DK, can we all just hire you to do our taxes? Wow! What an explanation! Before reading DK, I was going to suggest you treat the claim check as simple income along with your other income and attach an explanation of the sum if you didn't get some kind of 1099 with the check or later from the law firm that settled the claim. The latest sum will be filed with next year's taxes. By then, the universe may have ended, so enjoy it while you can. Remember, death and taxes are the only certain things in life. Ha!

Dada said...

OK - first the apology. In posting this -- realizing the valued opinions of those who post here regularly that might appear -- I was being a bit devious.

Secondly, I should like to thank each and every one of you who did. I took something from each of your comments. Collectively, you have given me renewed energy to tackle this.

But perhaps the most important thing I came away from your inputs with was a real sense of "community." Thus, feeling less alone, I suddenly feel very reinvigorated.

I confess to little patience with tax procedures that seem far, far more complicated than they need be. No, I haven't any suggestive solutions that wouldn't be in some way regressive, unpopular or unfair to someone.

I really appreciate your suggestion, Fran, re taking this directly to the horse's mouth, the IRS. I am stubborn and fight tooth and nail having to enlist help, but this is an avenue I hadn't even thought about. TYTYTY!

Eprof, I also liked your idea of just reporting this as simple income. (I'll explain why I would have to pretend ignorance if I did, but this is truly an attractive tack, one I may ultimately take if all else fails.) And your suggestion Deke do all our taxes was spot on.

I suppose, knowing as I do, Deke has been doing taxes for years, I was hoping to provoke her, for her input. I wasn't disappointed. God, D.K., how many years did you spend as a tax accountant? Excellent comment for the little details you were given.

So before I start to seriously tackle this tomorrow (oh wait, that's April Fool's Day, maybe I'll wait one more day?), I'll just share a bit more of what I know:

The $359+ dividend involved BOTH a regular investment acct and Mrs. Dada's IRA. That makes it even more challenging. In that I didn't even think about that, if I interpret the IRS correctly, because I was careless and cashed the whole damn check w/o placing the proper portion that was IRA directly into Mrs. Dada's IRA, *BOINGO* 10% penalty. So it appears I have to go back 7 years or so and break it out between Investmt. and IRA. The part that resulted from the investment we can subtract from our aggregate losses instead of reporting it as income. (NOTE: I will die years and years before we recoup our $3,000 deduction [MAX} per year before we've claimed all of our losses.) There's more....something about the $200+ and + that was a fee for the legal team, which I need to read more about because what I saw before I quit and went gun shopping (JUST/KIDDING!) was something about my tax obligation for THAT portion of our "reward". (Hopefully, I misinterpreted that part, i.e., shouldn't the damn legal offices claim that as THEIR income???!!!)

But the point is, you each have contributed, I feel so much less isolated, i.e., your comments were appreciated each and every one! TY, TY, TY!

SIDENOTE: This is the first year we were offered to file my M-I-L's return *free*. I screwed up royally, saying to Mrs. Dada, "I just saved an envelope, ink and 42 cents....I filed electronically! WRONG! They kicked the return back. Apparently, MIL's SSAN doesn't jibe between IRS and SSecurity, leaving another conflict to be resolved. This is just a bad filing experience year.

eProf2 said...

Hang in there, friend!

Fran said...

I bet it is tempting to walk in to the IRS, slap down $359 bucks on someone's desk, shrug & beg them-- You tell me! HEEEEEELLP

If they do help, just make sure you take names. If some other division disputes or denies it, you have a back up.

But that DK.... she sure is firing all cylinders with the tax stuff..... I would mention something (while she was in the thick of her taxes) & she'd fire back comprehensive answers complete with links & alternate suggestions.

She wowed me... as I slogged through my taxes.

I have figured out the basic formula:
In the end, the guvmnt takes it all. One way or another.

We are owed a bunch from the Feds, but owe all of it & more to the State.

The 'government givith & the government taketh away... all that for a net loss. Woo Hoo!

I'm rooting for the net loss write off for you!!!

Can one just include the check & ask them to figure it out??? Let them deal with it.

The IRS sure knows how to take the fun out of a windfall. Hrumph!

You are NOT alone. The mood around paying taxes to the IRS & padding the wallets of Wall Street tycoon thieves is a bitter scenario.

D.K. Raed said...

Dada, the problem with non-pro tax advice is quickly discovered when the person propounding the info refuses to sign the "paid preparer's" portion of your return. IOW, caveat emptor!

I can see your problem more clearly now, but not having personal experience with pension distributions (yet), I'm only able to speak theoretically. Still I trust my instincts more than Turbo's.

I THINK you should've rec'd a 1099-R for the part of your "windfall" that is a distribution of pension money. That needs to be listed on line 15 of your 1040 & will be taxed at the ordinary income tax rates.

Unless you REALLY robbed the cradle, I don't think Mrs D will be subject to the 10% penalty (that's for distributions prior to age 59-1/2), so it won't matter that you didn't roll it over.

Any am't of your windfall that wasn't related to investment is really just misc income (line 21), taxed at ordinary income tax rates. It's tempting to throw the whole thing into that line, I know. Know that if you do and if the mutual fund company in question has sent conflicting info to the IRS, you can expect an automatic IRS inquiry.

I stand by my Schedule D previous comment, because if you still have a basis in your original non-pension part of the investment, you can still generate a loss. Don't sneeze at the $3K/yr loss limit ... it all helps to reduce taxable income!

April 1st is the PERFECT day to call the IRS helpline. And as Fran says, get their name, ID #, etc, even though they will tell you they are not responsible for bad advice. At the very least, they should be able to point you to the publications you need to read to wade through the maze. Oh yeah, have coffee, puzzles etc nearby, because they will keep you on hold FOREVER ... and don't be surprised to find U.S. IRS advice is now being outsourced to the Punjab!

Dada said...

Fran: Well, as you probably know, here in Texas we have a state sales tax instead of a state income tax. It's terribly regressive, I know, but it's pay as you go, you don't have to come up with a goodly lump sum of money at the end of the year, but most of all there's no efeing paper work, oblique instructions, some open to interpretation, envelopes,
stamps or filing deadlines involved.

Deke: I'm trying to finally get serious about this. I'm thinking this may not be as bad as first thought, i.e., it may be I'm just to reduce my mutual fund losses by the amount of my windfall....stay tuned!

Fran said...

Long hold times with the IRS-- I once listened to the ENTIRE CD of Neil Young's "Everyone knows this is nowhere" album, while on hold w the IRS. Ugh!