From: Somewhere in California...

Dear TaxMama,

In 1999 Jack and I both claimed both our children. We all live together but have never married, although we have been together for 15 years. would common law be be an option in California?

Anyways, I made little money, $8,000.00, because I lost my job in March of 1999, I also received $4,500.00 from unemployment. Jack claimed the max. during the year because money was tight and only got a refund of about $700.00.

He claimed head of household and both children, electronically through H&R Block. A few weeks later I went to H&R Block only to find out I was going to owe around $1,400.00 or more.

The tax preparer told me the children had already been claimed and that I might fall into a loophole in addition to the fact that Jack had no legal right to claim them with out my permission...?

She wound up figuring my refund for $4,000.00, charged me $98.00 and gave me everything in an envelope and had me mail my return in. My status was Single with Earned Income Credit.

Jack and I both got our refunds . Only 2 weeks ago did we each get a notice from the IRS that someone else had claimed the same children the same year (ourselves) and that we had 30 days to provide the requested documentation.

I just became re-employed a month ago and don't know what we should do. We wanted so badly to buy a house this year. Should we/I file a revision? What should be expected? etc....

Thank you in advance for your response,

Lori

Dear Lori,

Unfortunately, California is not a community property state. So you can live together for life and not accrue the kind of marital benefits that are automatic in some other states.

Under NO circumstances should you EVER both claim the children.

There is no loophole - there is just - getting Jack into trouble for claiming children he isn't entitled to. (Why isn't he entitled to claim them if they are also his children and live in his home?)

That was criminal advice you got! I am furious that a tax professional, especially one from a large, reputable company would dare to give you advice like that.

You don't need to file an amended return. Just reply to the notices.

Since you took an earned income credit (EIC) on your return, I suggest you make that the return that is CORRECT. If you don't, there are some pretty heavy consequences for EIC fraud. You won't be able to use that privilege for 10 years.

And it may mean that Jack gives up the children on his return. This may cost you a lot more than you had intended.

You may want to go back to that nice H&R Block office and have them help you fix this mess.

Please, please....don't get involved in committing tax fraud. This kind of thing ALWAYS gets caught. And you are the one who suffers the harm - not the sweet, helpful, little preparer.

And, with your new job, maybe you'll just buy the house next year.

Your TaxMama,

Eva Rosenberg

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Teachers Subsidies
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From: Venice, CA

Dear TaxMama

I am a teacher in a public school. I understand that the $2,000 I spend on my classroom each year may be deductible. That amount is more than 4 percent of my AGI.

I already filed for this year. I have receipts for everything. Can I do an amended return and itemize?

Laurel

Dear Laurel,

Are you already itemizing deductions?

If so, you bet.

While you're at it, see if there's anything else you forgot to include:

Tax preparation, safe deposit boxes, investment advice and publications, IRA fees, mileage to continuing education courses, seminars and any special trips related to your classroom work.

The form is confusing if you don't know the trick to it.

The trick?

Prepare a new tax return with all the correct information before you start the Form 1040X.

Then, pull out the old return and fill in all the numbers in column A 'Original Amount.'

Then, take the new return and fill in all the numbers on column C 'Correct Amount.'

THEN, and only then, do you calculate column B. It will be the difference between A and C.

Make sure that you remember to use line 17, if you paid any money with your return when you filed it --- OR line 19, if you had a refund.

Be sure to print out the instructions and keep them by your side, if you are confused.

Best wishes

Eva Rosenberg

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No More SS Repayments?
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From: Kingman AZ

Dear TaxMama,

Didn't the government recently pass a law stopping repayment of Social Securities (2 for every 1 dollar earned).

Wasn't this stopped?

Pat

Dear Pat,

What is your real question?
Is someone having a problem?

The law that was passed was to remove the earnings limit for those between ages 65-72, effective (I believe) as of January 1, 2000.

Now they can work and draw Social Security benefits without having to pay them back. (Of course, if their income is high enough, naturally, there is still tax on those benefits.

Anyone who drew SS before that and earned over the limits, sadly, is still subject to repayments.

Best wishes,

Eva Rosenberg

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Throw it Away!
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From: Roslyn Hts., NY

Dear Eva,
I am going to be moving to Virginia in 10 days. I've been in the marketing business for over 16 years and have lots of old files. I'm trying to weed out what I don't need but, like most small business owners, I'm unsure as to what amount of stuff is necessary. Can I throw out:

• 1. Invoices from customers no longer in business?
  
• 2. Invoices from customers I no longer do business with? How Old?
  
• 3. Old invoices to current customers? How Old?
  
• 4. My paid invoices from suppliers that are how many years old?

Thanks for your expert help. You always have such valuable info.

(I love your style, too!)

Roberta

Hi Roberta,

[blush] Thank you. You've been pretty special, too.

Funny, I was just having the semi-annual, 'Can't I throw it all away, yet?' conversation with my cousin, again, yesterday.

Frankly, I am kind of a pack rat. It chills me to the core to see something get thrown out, shredded or destroyed. I suppose, perhaps, it's a sense of history. Years from now, you may want to look something up and remember. (I have ever personal letter, card and postcard I've ever received since I was 9 years old. Those have become treasures.)

But, you want to know about business records.

The rule of thumb? You can be audited by IRS for up to three years after you file your tax returns. Your state usually adds at least one year to that, so they can reap the rewards of an IRS audit.

The safe number is five years.

After 5 years, you can dump all the business records you no longer use. But keep, permanently, all records about assets you've purchased, especially if you still own/use them.

As to client records - dump the ones who are no longer clients. Do a favor to your current clients - keep their records for about 10 years. You never know when one of them needs information or proof. (I deal with a lot of non-filers who would salivate to get their hands on records from 10 years ago.)

Just remember one thing - there is a Rule of Thumb:
The minute you throw it out - You will need it!

Incidentally, you've done some pretty clever marketing jobs over the years. Keep the information about the ones you liked best. Keep those forever. You just never know when you'll want to write that autobiography.

Best wishes

Eva Rosenberg
TaxMama

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Many More Organizers
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Last week, someone asked where to get good organizers online. I didn't really have a good answer for free organizers.

But Victor McDonald did! Look at all he found!

Dear TaxMama,

Regarding freebie tax organizers available online:

Yes, there's lots of material available for free. I just went to the web and did a quick search. I was immediately rewarded with:

http://www.taxtrimmers.com/taxorg.htm
(has a downloadable program, as well as a printed list)

http://www.supertax.com/organizer.htm (a basic checklist)

http://www.allardklickcpa.com/organizer.html (the link from this page is in Adobe format, so you'll need the reader installed)

Those with a small business might want to try...
http://www.smallbiztaxes.com/free_gift.htm

Clergy (who have somewhat unique tax situations) might find this one useful:
http://www.clergytaxnet.com/tax_organizer_intro.htm

Finally, long-haul truckers migh benefit from...
http://innercite.com/~bjrsales/myorg.html

Good luck to all of us-- we'll need it!

Vic McDonald

Eva Rosenberg
Your TaxMama

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No Income at all??!
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From: Redondo Beach, CA

Dear TaxMama,

My husband of 20 years deserted me last year. He "gave" me grocery money during November & December of last year, but it was not alimony. Because I spent the year in and out of the hosptial, I had zero income.

My attorney doesn't seem to think I have to file at all, but I'm not so sure. Would you please give me your opinion?

Sally

Dear Sally,

Your spouse sounds like a prince.

But, my love, I would file a return - even if only to establish that you owe ZERO.

That's my policy - always.

Why?

Because once you file that return, IRS only has three years to audit and object.

If you don't file, they have the rest of your life to come back and open up that year and claim that you had income.

I do hope this is a better year for your.

Best wishes

Eva Rosenberg
Your TaxMama

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TaxMama On the WWW & Tooting Her Own Horn
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Critical Dates: _________________________________________

Ask TaxMama is published by the good folks at http://taxmama.com ISSN 15320790
© copyright, Eva Rosenberg, 1999, 2000, 2001

Written (email) permission is required to copy or redistribute this publication or to use it on your site. mailto:taxmama@taxmama.com However, you are encouraged to forward an intact copy to all your friends and invite them to subscribe!

legalese and disclaimer This publication is not designed to offer legal advice. It is designed to point you in the right directions so you can ask the right questions or do your own research. It is designed to alert you to issues and encourage you to think and plan. When you read it, the information may already be outdated. Tax laws do change quickly. Please, please engage the services of a competent tax professional if you do anything the least bit complicated. It will save you so much money and grief in the long run.

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