http://www.picpa.org/askacpa PICPA members answer questions from individuals and business owners. en-us Copyright 2008 PICPA info@picpa.org webmaster@picpa.org http://www.picpa.org/images/picpa.gif http://www.picpa.org/ 100 34 Pennsylvania Institute of Certified Public Accountants http://www.picpa.org/askacpa/answer.asp?id=382 I would like to take a non-hardship 401(k) distribution from my current employer without resignation. I realize I will have to pay taxes and a penalty. Since I currently have a 401(k) loan, is there any way to default on the loan so that it becomes a distribution? My employer has automatic deduction, so I can’t just not make the payment. Can I change the payment, or does the IRS say I would have to go into a non-payment status up to a year? Without getting a complete picture of your situation, I am left to conclude that you are seeking to recharacterize your current loan against your employer’s 401(k) plan as an in-service, non-hardship distribution. There may be several obstacles to achieving your goal. First, such a recharacterization may be prohibited in your plan. In other words, you may be required to repay the loan in full before being eligible to receive money as in-service, non-hardship distribution. There is also a possibility that your plan does not provide for in-service, non-hardship distributions of any amount. If it does allow such distributions, they will be generally limited: only certain employer contributions may be distributed, and the funds must have been in the plan for at least two years. There may be other obstacles too, including mandatory withholding of federal taxes in connection with such distributions. If you are eligible for a non-hardship, in-service distribution under the plan, a distribution of the loan from the plan may be made. This could potentially be at the same time as the loan default. This is called a loan offset. In the event of an offset, the loan obligation is actually distributed from the plan and goes away. You would need to find out what events are considered distributable events under the plan, and what the plan’s loan procedures dictate regarding loan defaults and loan offsets. However, if you have a loan default, in the event that you wish to take a loan out in the future, the defaulted amount is counted against the amount that you can borrow in most cases. If you haven’t already done so, obtain a copy of your plan document and discuss your specific objectives with your financial advisor or your CPA. Make certain you understand the extent to which you will be taxed and penalized. http://www.picpa.org/askacpa/answer.asp?id=381 An LLP is a limited liability partnership. All partnerships are viewed as a collection of individuals. Therefore, they would be classified as an individual for purposes of the W-9. http://www.picpa.org/askacpa/answer.asp?id=380 Generally, the standard mileage deduction is available when traveling from job to job. It is not deductible in regards to commuting, which would be from your home to your first job and from your last job of the day back to your home. Please note that the mileage rate changed to .505 cents per mile effective Jan. 1, 2008. http://www.picpa.org/askacpa/answer.asp?id=379 I am an unpaid, full-time minister. I am not paid by the church or compensated for my vehicle use. Can I use the .485 cents business deduction for my vehicle use? I have a full-time job in another capacity. You are not in the business or employed as a minister, therefore the .485 cents per mile is not available to you. The job performed is voluntary, therefore the mileage rate for your volunteer work is .14 cents per mile. Also, volunteer out-of-pocket expenses incurred when serving a qualified organization are deductible. The cost of uniforms and the cleaning of them, if used when performing donated services, are deductible if such uniforms are not suitable for everyday wear. http://www.picpa.org/askacpa/answer.asp?id=378 I am the personal representative of my deceased mother’s estate/trust. In addition to a home valued at $350,000, she had five interest-bearing accounts, one of which was an IRA. There are three beneficiaries (my brother, sister, and myself). The total value of her estate is under $900,000. Can you tell me what, if any, taxes will be due from the estate and/or its beneficiaries? Assuming no significant taxable gifts were made pre-death, the estate would not appear to be subject to federal estate tax. If the decedent was a Pennsylvania resident, Pennsylvania inheritance tax will be owed on the taxable value of the estate. The tax rate for transfers to lineal descendants is 4.5 percent. This tax would be paid by the estate. Additional information can be obtained on the Pennsylvania Department of Revenue’s Web site, including the following linked brochure: http://www.revenue.state.pa.us/revenue/lib/revenue/rev-584.pdf. The beneficiaries do not pay income tax on the value of the inherited assets, however, they will be required to take distributions from the inherited IRA account, and these distributions will be subject to income tax to the extent the value of the account was not previously taxed. Also, depending upon how the assets were titled and when they were distributed to the beneficiaries, the estate may be required to file federal and state fiduciary income tax returns.  A qualified CPA or estate attorney will be able to assist in the estate administration, and guide you through the various legal and tax requirements. http://www.picpa.org/askacpa/answer.asp?id=377 Maybe, depending on why you received the 1099. A 1099 MISC is usually mailed to those who have performed some sort of duty or service for pay during the year. As such, it is self-employment income, and therefore subject to Social Security and Medicare tax. You may reduce these amounts by any costs you paid to produce this income, usually by filing a Schedule C with your return. The first $97,500 of net self-employment income is subject to both Social Security and Medicare tax (at about a 14.1 percent effective rate), as well as income tax. Once you reach $97,500, then each additional dollar of self-employment earnings is taxed only for Medicare (at a 2.26 percent effective rate) in addition to regular income tax. Some people receive a 1099 for jury duty or as an executor of an estate. Unless you administer estates on an ongoing basis, you would pay no Social Security or Medicare tax on these amounts. 1099s received for gambling winnings are not taxable for Social Security and Medicare unless you are a professional gambler. A 1099 INT and a 1099 DIV are issued for interest and dividend income, neither of which are taxable for Social Security and/or Medicare. So, the issue of whether the 1099 income is taxable for Social Security and Medicare depends on whether the income earned was from self employment, a one-time duty, a lucky day at the track or a winning lottery ticket, or from investments. http://www.picpa.org/askacpa/answer.asp?id=376 How do I treat a $5,600 wage attachment? I co-signed for my daughter’s apartment, and she defaulted on 6 months rent. They garnished my wages since I was a co-signer and she is my legal dependent. When individuals co-sign a loan, they are accepting financial responsibility for it, as if borrowing the money themselves. Repayment of debt is not deductible for tax purposes. This is why you have to be very careful about co-signing any debt. It’s always best to look at the worse case scenario when you co-sign a loan, and be prepared to have to repay the debt yourself. You may have legal recourse to collect from the primary signer – which you would need to consult an attorney to verify – but it’s a tough situation when it’s your child. http://www.picpa.org/askacpa/answer.asp?id=374 The Philadelphia wage tax is not an income tax. Therefore, it cannot be used to offset, or as a credit against, your Pennsylvania personal income tax. This is the answer to the direct question.  However, the Philadelphia wage tax may be used as a credit against any local earned income tax liability anywhere in the Commonwealth. It cannot generate a refund from your local earned income tax, but it can reduce the liability to $0. http://www.picpa.org/askacpa/answer.asp?id=375 I own vacant land, and a company paid me to allow a right of way for its pipeline. The property is not my full-time residence. Do I report that money as income, or do I deduct the amount from my land basis cost? The taxability of a pipeline easement was addressed by the IRS in Revenue Ruling 73-161, 1973-1 CB 366. The IRS concluded that the amount a taxpayer receives as consideration for granting a permanent right-of-way easement should first be used to reduce the basis of only the acreage included within the dimension of the permanent right-of-way. Any excess over that basis should be treated as recognized gain. The issue that needs to be resolved is the affected area of land through the dimensions of the easement. The portion that you will be receiving as a return of capital through the reduction in basis will only apply to the amount of basis allocated to the affected area of land covered by the easement, not the entire tract of land involved. http://www.picpa.org/askacpa/answer.asp?id=370 Real estate taxes and perhaps mortgage interest. You cannot deduct maintenance or condo fees, or other assessments. http://www.picpa.org/askacpa/answer.asp?id=371 My mother sold her home a year ago and now lives in my home. The money from the sale of her home is in an account, and she pays me monthly to live in my home. She is 82-years-old, and we provide all care to her. Do we report the money she pays us as income? To the extent that she is reimbursing you for expenses you incur on her behalf, then that is a wash. If she is paying you more than the amount to reimburse you, that could be considered a gift, which is not reportable as long as it does not exceed $12,000 per year. http://www.picpa.org/askacpa/answer.asp?id=373 Political contributions are not deductible on your federal tax return or your Pennsylvania tax return. http://www.picpa.org/askacpa/answer.asp?id=372 You cannot do both. The mileage rate includes all factors related to vehicle expenses, such as gas, repairs, insurance, depreciation, etc. The alternate option would be to keep track of all your actual expenses and use the total amount, if that is more beneficial. Also, keep in mind that the 50.5 cent rate is effective in 2008. If you are filing your 2007 tax return, the rate was only 48.5 cents per mile.