You Hired a Nanny – Now What?

May 18, 2012 in Potpourri of Tax Topics with 1 Comment

Are you thinking about hiring a nanny? If so, I recommend planning ahead and making sure you have the information you need about your tax obligations.

You’re an Employer Now!

When you hire a nanny, you must generally apply for an Employer Identification Number (EIN) with the IRS. Why? Because you’re an employer now! In addition to an EIN, you’ll need to apply for an identification number with your state revenue department to make deposits of tax withholding. And you’ll probably have to set yourself up with your state’s unemployment agency (in Iowa, it’s Iowa Workforce Development).

Once that’s done, you’ll need to:

  • Have the nanny fill out a Form I-9 and W-4 (and possibly a state equivalent to the W-4, such as the Iowa W-4).
  • Withhold income tax and FICA (if the wages you pay your nanny are high enough).
  • Set aside funds to pay your share of FICA, as well as any unemployment taxes you might owe.
  • Set aside the federal taxes withheld from your nanny’s paycheck (this will be accounted for on your personal 1040 at tax time).
  • Periodically deposit your state tax withholdings and unemployment taxes.
  • Issue your nanny a W-2 at the end of the year.
  • Complete Schedule H when you file your personal Form 1040. The Schedule H will account for federal taxes withheld from your nanny’s paycheck, as well as your share of FICA and federal unemployment taxes.

Aside from consulting a tax professional for more guidance, a good resource to consult is IRS Publication 926.

Enrolled Agents Finally in the Dictionary!

May 16, 2012 in Potpourri of Tax Topics with 3 Comments

Enrolled Agents have finally made the dictionary! As I blogged about a couple of weeks ago, the National Association of Enrolled Agents was encouraging people to write to Merriam-Webster’s to get “Enrolled Agent” included in the dictionary. The effort was successful, and quickly.

From the National Association of Enrolled Agents:

The power of membership! In a stunning example of what individual EAs can do to promote the designation, the requests to Merriam-Webster that enrolled agent be included in the dictionary have resulted in this response: “I am happy to tell you that we agree with you and that enrolled agent is on a list of entries to be included as part of our work on a new Merriam-Webster’s Unabridged Dictionary.”

Click here for the entire press release from the NAEA.

Community Property Allocations for Same-Sex Married Couples

May 14, 2012 in Same-Sex Marriage and Taxes with 1 Comment

Couples in same-sex marriages can’t file their federal taxes as “married.” But if a same-sex married couple lives in a community property state, they must apply community property laws on their federal tax returns.

What is community property law?

Nine states follow community property law. The 40,000-foot definition of community property for tax purposes is that each spouse is entitled to 1/2 of the other spouse’s income and deductions. These states follow community property law:

  • Arizona
  • California
  • Idaho
  • Louisiana
  • Nevada
  • New Mexico
  • Texas
  • Washington
  • Wisconsin

When married couples in these states file separate tax returns, they must apply community property law. So each spouse must claim 1/2 of their own income and deductions and 1/2 of their spouse’s income and deductions.

Of the states shown above, California, Nevada and Washington recognize same-sex unions in the form of “registered domestic partnerships” (there are also some same-sex married couples in California, because California allowed same-sex marriage for a few months in 2008).

While couples in these 3 states can’t file as married on their federal returns, they MUST apply community property laws on their federal tax returns.

How Does it Work?

Here’s an example:

Mike and Ike are in a same-sex domestic partnership in California. Mike has income of $60,000 and Ike has income of $40,000. They cannot file their federal tax returns as married, but they must apply community property laws on their federal tax returns. Mike will file a tax return as either single or head of household, and will show $50,000 of income on that return (1/2 of his income and 1/2 of Ike’s income). Ike will do the same thing.

Is this Required or is it Optional?

The short answer is, per the IRS, it’s required.

Resources

Image: Pixomar / FreeDigitalPhotos.net

An Ode to Tony LaRussa

May 11, 2012 in Editorial Commentary with 0 Comments

I’m stepping away from the tax world today to write about Tony LaRussa, former manager of the St. Louis Cardinals. LaRussa led the Cardinals to 2 World Series titles during his time as manager, and the team is retiring his number tonight.

Watching the Cardinals has been strange for me this year, looking into the dugout and not seeing LaRussa scowling behind his dark glasses. It’s almost like watching a different team.

I literally grew up with LaRussa as the manager of the Cardinals.  He managed his first game with the Cardinals in the spring of 1996 — when I was a junior in high school. He retired after the Cardinals won the World Series last October — not long after my second child was born. In between, I graduated from high school, graduated from college, got married, completely changed careers, opened my own accounting firm and had two kids.

So for me, he was like that grandparent or older relative when you’re a kid — always there and always the same and you think they’ll always be there and always be the same.

My best memory of the LaRussa era is being at Busch Stadium for Game 5 of the 2006 World Series, when the Cardinals beat the Tigers to win it all. I still pinch myself when I think about being there for that. I was there with my friend, Sam. Sam died in a car crash a few years later, so that road trip (which was a spur-of-the-moment thing) is a memory I hold onto.

I remember staying up late during the team’s postseason run in 2011, watching every game. I remember watching Game 6 of the World Series in horror as the Cardinals were dropping popups and routine fly balls and looked like they were finished. And then they staged an amazing rally (twice in two innings!) to win that game. My wife went to bed during the middle innings but I stayed up to watch what I thought would be the bitter end. And I remember my wife waking up and coming out to check on the game right as David Freese won the game with a home run.

I could go on with the memories. The Cardinals being outscored by the Braves 32-1 in the last 3 games of the 1996 National League Championship Series. The Mark McGwire era, where there were plenty of home runs but not a lot of winning. Daryl Kile, Jack Buck and my favorite childhood pet all dying within days of each other in the summer of 2002. Jeff Suppan, of all people, outdueling Roger Clemens in Game 7 of the 2004 NLCS — and then Suppan winning another Game 7, against the Mets, in the 2006 NLCS. The Pujols homer off Brad Lidge in the 2005 NLCS. Taking my wife to her first baseball game on a blazingly hot August day in 2007.

And on and on the memories go.

The Cardinals go on, of course. And I’m still a fan, same as always. But watching the Cardinals won’t quite be the same without LaRussa. Watching his number being retired will be like saying goodbye, in a good way, to a lengthy chapter of my life.

How Long Can Rental Property Sit Vacant and Still Be a Rental?

May 9, 2012 in Potpourri of Tax Topics with 1 Comment

This question comes up frequently: how long can a rental house sit vacant and still be a rental for tax purposes? The answer: there doesn’t seem to be a hard and fast rule.

In this Tax Court case from 2011, the Court ruled that a vacant rental house was still a rental because the owner still had a profit motive. Here’s what the Court said (my emphasis added):

In the case of an individual, section 212 allows as a deduction all ordinary and necessary expenses paid or incurred during the taxable year for the production or collection of income or for the management, conservation, or maintenance of  property held for the production of income …. For purposes of this section, the term “income” includes not only income of the current year but also income that may be realized in a subsequent year.

As always, it depends on all the facts and circumstances. If the property is sitting vacant but you’re hoping to sell it for a profit someday, then you might be able to convince the IRS (or the Tax Court) that it is still a rental.

Taxation of Discrimination Lawsuits

May 7, 2012 in Same-Sex Marriage and Taxes with 0 Comments

In Iowa, the former Workers’ Compensation Commissioner, Chris Godfrey, is suing Governor Terry Branstad for discrimination. Godfrey alleges he was the victim of discrimination because he is gay. Godfrey is seeking $1 million in damages.

If Godfrey wins the case, or if he receives some amount from the state in an out-of-court settlement, will it be taxable?

Yes.

Amounts received in discrimination lawsuits are generally taxable. Amounts received for back wages, or amounts awarded as punitive damages, are also taxable.

Godfrey may be able to take a deduction in full for the amount of legal fees and court costs he incurs. Such expenses are deductible on the front side of the federal Form 1040, as long as the amount being deducted does not exceed the amount of the settlement.

Image: sscreations / FreeDigitalPhotos.net

Enrolled Agents in the Dictionary?

May 3, 2012 in Potpourri of Tax Topics with 1 Comment

No one knows what an Enrolled Agent is. Such is the plight of those of us with this designation. We’re not even in the dictionary! 

But the National Association of Enrolled Agents is trying to change that. Here’s something from a recent “NAEA E@lert” from the National Association of Enrolled Agents:

NAEA President-Elect Frank Degen, EA has a special interest in getting Webster’s to print the term “enrolled agent” in its dictionary. Many messages from NAEA to Merriam-Webster requesting that “enrolled agent” be included in their definitions have gone unanswered. In a situation like this, we call in the “A Team” – our wonderful members! When you have a moment, help support NAEA’s quest to make the definition of enrolled agent easily available by writing to the company.

 Editorial Department
Merriam-Webster, Inc.
47 Federal St
Springfield, MA 01105

I hope this effort is successful. I doubt it will garner much “brand recognition” for EAs but it would be a positive development!

Image: Arvind Balaraman / FreeDigitalPhotos.net

IRS Releases 2013 HSA Limits

May 1, 2012 in Potpourri of Tax Topics with 0 Comments

The IRS has issued the 2013 limits for health savings accounts. Joe Kristan at the Tax Update Blog has all the details here.

Tax Season is Officially Over in Iowa!

April 30, 2012 in Editorial Commentary with 0 Comments

Today is April 30, the last day to file your Iowa tax return. For accountants who practice in Iowa, that means today is the official end to our tax season. Hooray!

It was another year of great growth for my firm (75% growth, by my count). Perhaps as the year goes on, I will tell more of the story of my firm, how it started with 3 clients and a dream in 2009 and is now my full-time endeavor. It hasn’t been easy, but my firm is getting bigger and bigger every year.

This was a long, exhausting tax season. I haven’t really had time to process everything I learned this season, but it was a marathon.

I have compiled a list of more than 50 things I want to research this offseason, based on situations that arose during the season or things that clients have going on in their financial lives that I need to learn more about so I can serve them better.

I am also planning to write a desk reference guide for accountants regarding the tax issues of same-sex marriage. I also want to add a “companion guide” for same-sex married couples who are trying to do their taxes on their own. If anyone — accountant or do-it-yourselfer — has a topic you would like to see addressed, feel free to e-mail me with it and I will make sure to include it.

The research and writing will keep me busy in the offseason, as well as all the quarterly calculations for self-employed clients and the other things that pop up from time to time. And before we know it, it will be Tax Season 2013!

Further Reading

Image: Salvatore Vuono / FreeDigitalPhotos.net

A Few Changes Coming to the Website

April 27, 2012 in Potpourri of Tax Topics with 0 Comments

Now that tax season is over, a  few things will be changing on this website. For those who care, here’s a summary:

No More “Ask Jason” Segments

“Ask Jason” had a nice run, but I am retiring it, effective with the April 13th edition. There are better websites out there for Q & A from web visitors. Such websites include www.taxmama.com and Tax Girl.

New Name to Blog

People sometimes ask where the name “Dinesen Tax Times” came from. I wish it was a dramatic story, but alas, it has humble beginnings.

In 2009, when my firm was in its infancy, I decided to publish a newsletter for my clients. My wife helped with the layout and design and we self-published it. (I only had 3 clients in 2009, so “publishing” wasn’t too difficult of a task.)

The name we came up with for this little newsletter was “Dinesen Tax Times.” When I launched my first website — a hideous, self-designed free Google website — I carried over the  name.

But now it’s time to change the name on the website to something else. I don’t know what I will change it to, yet. Perhaps something boring like “The Jason Dinesen Tax Blog.” I don’t know yet.

I want to make this change so that web visitors more clearly understand that this is not an online newspaper and I am not a journalist who they should e-mail with their life story about why the receipt of a 1099-K is such a hardship. I want it to be clear that I am a practicing accountant.

Slightly Different Content Focus

The type and tone of the content will be changing, although not in a huge way. You will find less of the “how-to” stories and more stories dealing with my specialties. You already get a flavor of that with my stories every Monday about gay marriage and taxes. I have also been asked to provide more commentary, so expect an uptick in me giving my opinions.

Thanks to everyone who visits my site. If you have a particular topic you would like me to blog about, feel free to contact me.

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