THE LAW OF BIG NUMBERS

As I have written before, it is impossible for a person to fathom how big a million, or a billion or a trillion is. To count to a million would take ten and ½ days...to count to a billion would take 31½ years...and to count to a trillion would take over 31,000 years.

I thought about this as I saw President Obama trim 100 million dollars from his 3.5 trillion dollar budget. A quick calculation shows that this is a drop in the bucket. For example, if a family with an income of $50,000 cut a comparable amount out of its budget, it would spend just $1.50 less over the course of a year.

Larry Kopsa CPA

EARLY WITHDRAWAL FROM RETIREMENT ACCOUNTS CAN BE REALLY EXPENSIVE

I have received a lot of questions lately from people that are considering taking cashing out of their pension plans before retirement. The taxes and penalties triggered by early withdrawals from 401(k)s and IRAs can be quite harsh.

The attached article from the Wall Street Journal provides a good summary of the costs involved.

The Wall Street Journal/Dow Jones Newswires (5/6)

SMALL BUSINESS LEFT IN COLD ON HOUSE CREDIT CARD BILL

Small business has been left out of a credit card reform bill that passed in the House of Representatives last week, as well as new truth-in-lending regulations that will take effect next year. An amendment that would have applied the credit card reforms to small-business owners never made it into the final House bill.

CNNMoney.com/Money & Main St. blog (5/6)

GAIN ON INHERITED PROPERTY

How do I record my gain on inherited property? I inherited property in 1982 when my husband died. I am considered 1/12 owner and received 1/12 of the proceeds when the house sold in 2008. If the house was assessed at $60,000 in 1982, then is my cost basis $5,000 (1/2 of $60,000)? In addition, do I reduce my proceeds by the settlement charges I paid at closing? Finally, does this get reported on Schedule D?

Molly

I am sorry Molly, but there are too many unknowns for me to answer your question. You really need to be working with a professional tax advisor on this. There are many factors that need to be considered. Some of the issues that you will need to discuss with your own personal professional tax advisor so that s/he will know how to properly report the sale include the following.

• For the basis of the property, it is important to know if it was owned as separate property by your late husband or jointly by both of you. The amount of the step-up in basis will also depend on whether or not you were in a community property state or not and if it was jointly owned.


• Any improvements to the property that you paid for will be added to the basis.


• You didn't say what kind of property it was and what it was used for. If it had been used for rental or other business purposes, any depreciation claimed or claimable will reduce the basis and trigger depreciation recapture at a higher rate than the other profit. It will also require reporting the sale on Form 4797, which will then flow onto Schedule D.


• I assume you received the full amount of your share of the proceeds; but if you are receiving periodic payments, it will probably need to be reported as an installment sale on Form 6252, with any interest received reported on Schedule B.


• If you had been living in the property as your primary personal residence, you would most likely be eligible to exclude up to $250,000 of profit.

These are all important items to clear up with your own personal professional tax preparer, who will then know how to show the sale on your 1040.

Good luck.

Larry Kopsa CPA

TAKE ADVANTAGE OF THE RECESSION

DON’T WASTE THIS RECESSION

I have to share with you a recent phone call from a client. She told me the following after our Survival Strategy meeting. In her words, “I am excited, energetic and upbeat, very different from a few months ago.” In particular, it’s how she’s managed to turn things around that I find so compelling – “I’ve decided to take advantage of this recession to revolutionize my industry."

"I recognized I had two choices given the changes around me:

1) put my head in the sand until the ‘change’ period is over and then adapt to the new world, or...
2) lift my head up now, get into the flow of the change, and find ways to ride it out effectively so that I’m out front when it finally settles down.”

And it will! She’s made up her mind to pursue the second option, and it’s already paying off – in dollars as well as drive.

Now is the time to “fix” all of those mistakes that you made in the past. Not working from a budget – fix it. No inventory controls – fix it. Weak retail sales and up selling – fix it. Paying too high of a commission – fix it.

In times like these you will find that change is easier to implement than in normal times. Now is the time to strike. Now is the time to take advantage of the recession.

Larry Kopsa CPA

QUESTION ON GAMBLING WINNINGS AND LOSSES

I got lucky and won quite a bit of money at the slot machines. I got a form from the casino showing my winnings. Can I deduct my losses? Are there any other deductions like driving back and forth to the track and casino? What about the losses I had in the previous years?

Wanda

Wanda, you may be able to deduct your losses but only the losses in the year that you had the winnings. In order to take your losses you must itemize your deductions. If you do not itemize you cannot take the losses. You cannot go back and take the losses in prior years. Finally, since this is not a "trade or business," your mileage would not be deductible.

Here are some general guidelines on gambling income and losses:

• Gambling income includes, but is not limited to, winnings from lotteries, raffles, horse and dog races and casinos, as well as the fair market value of prizes such as cars, houses, trips or other noncash prizes.


• Reporting winnings: The full amount of your gambling winnings for the year must be reported on line 21, Form 1040. You may not use Form 1040A or 1040EZ. This rule applies regardless of the amount and regardless of whether you receive a Form W-2G or any other reporting form.


• Deducting losses: If you itemize deductions, you can deduct your gambling losses for the year on line 28, Schedule A (Form 1040).


• You cannot deduct gambling losses that are more than your winnings.


• 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.

Good luck.

Larry Kopsa CPA

CHANGE OF ADDRESS

I filed my tax return and now I have moved to a new address. Do I need to do anything for the IRS?

Robin

Robin, if you move after you filed your return, you should send Form 8822, Change of Address, to the Internal Revenue Service. If you are expecting a refund through the mail, you should also notify the post office serving your former address, which will ensure your check makes it to your new address.

Larry Kopsa CPA