The Small Business Tax Help Blog

Archive for October, 2008

Question: IRS form 1041 and bank interest?

My mother died in 2007, proceeds from the sale of her house were distributed in 2008 including 3 (testamentary) bank accounts in my nieces names, NOT in their SS #’s but with EIN’s that I obtained from the IRS (I am the trustee). Withdrawals were made as requested by my nieces (one is NOT a minor, the other will be 18 in July) for college fees, etc. and the interest on these accounts combined is under $600. do I need to file a 1041 or issue K1’s? thank you

Answer: The estate has a $600 exemption. If the nieces are US citizens and the ONLY income is the interest and it's less than $600, no you don't need to file.

However, if you sold the house and that was in, 2008, you need to show the sale of the house (usually at a loss) and issue the k-1s. If you don't show the sale, the IRS assumes the estate got it for free.

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Question: Am i alone?

my father was a achololic for most of my life, there were times though when he was okay, but a lot of the time he would be drinking and lie to me. it has really affected me because i have trust problems with any one i have any sort of relationship with. i constantly find my self feeling like everyone i know is hiding something from me. my dad just recently died from his drinking problem and i am 13. i have a lot of rly good friends who will listen to me, but none of them can seriously relate to me and how i am feeling. i know there are lots of people with acholics in their family, but is any one out ther ein the same type of situatuion as me? am i really alone?

Answer: My husband is an alcoholic and hides things from me as well. I know how you feel with not be able to trust anyone because he has made so many promises and broke every one of them. How can you trust after experiencing something like that. Just keep in mind there are good people out there.
Hang in there sweetie. You have a lot of life ahead of you and wonderful things will come. People will have to earn your trust and if they are worth it they will.
Take care

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Question: In a Roth IRA Conversion (from a traditional IRA) how do I answer on the Tax Withholding election?

I am transferring a traditional (rollover) IRA to a ROTH Ira, both within the same company (Ameritrade). The form gives me options in the “Tax Withholding Election” section
1) I elect not to have Federal Income Tax withhold effective (enter the date you wish)
2) Please withhold taxes at the rate of 10%
3) Please withhold taxes at the rate of X% (enter the % you wish)

My goal is to transfer all the money into the Roth IRA and then I will pay taxes out of my regular income, i.e. money in a bank or whatnot. I’d rather have the full amount transferred into the ROTH, and than pay taxes out of my own pocket instead of having anything withheld. Is this legal and possible and if so should I just choose I elect not to have federal income tax withheld. Also if I choose this option what do I enter as the date effective? I don’t want to be hit with penalties. Thanks

Answer: Yes, you can pay the taxes without them withholding, excellent idea, but be aware that you may have to pay a penalty as a result if you do not file and send estimated payments. There is an IRS rule that if the amount you owe in taxes is more than I think it is 10% of what you paid, they penalize you.

Now also be aware that if you have a great deal of money in your traditional IRA, tranfering it all in one year may bump you into a higher tax bracket also. That will not be a pleasant experience.

You do not have to transfer it all at once. You can perform the transfer over a number of years so as not to be screwed by your wonderful uncle.

I just last year did a transfer of a portion of mine. I will transfer some more this year and next.

Letters to the Editor (Jan. 10, 2010)

Freedoms given to us by God, not veterans

Question: Do I need to incorporate, form an LLC, or obtain some other form of business license?

I recently purchased the licenses to 6 online stores, fully equipped with credit card processors, shopping carts, and merchant accounts. I have already found a product I wish to sell using the first of my 6 websites. However, the distributor needs an EIN before I enter into business with them. What all do I need to get to conduct business legally from my home over the internet? I will be particpating mostly in dropshipping and I am located in Michigan. Is it necessary to form a business and register a DBA?

Answer: to form an LLC you have to file a certificate of formation with the secretary of state in the state in which your business is located. it sounds like it would be a lot simpler for you to file a dba certificate with your county clerk and register as a sole proprietership, but remember that you would be personally liable for all business debts your company incurs. for more information on this check this website out: http://www.inc.com/articles/2003/09/legal.html just know that if you register as a sole proprietership and you don't hire any employees then you will not have to apply for an ein, and you will just use your social security number instead.

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Question: Should I just register as dba or create an LLC?

I recently went into a partnership for an online business. I have gotten the ein for the online business as well as registered the domain name(s). Right now that is one of many business online and offline that I plan to open in the future. The question I have is should I just create an LLC for our partnership as the umbrella business for the businesses I plan to open in the future? We plan to continue the partnership and have a name for that partnership. We want our businesses to fall under the name of our partnership company. I hope this is making sense. Thanks for your answers.

Answer: The purpose of an LLC is to isolate your personal assets from the liabilities of the business. That is important and you should do it. Using it as a holding company for other businesses is a good idea. Whenever one of the businesses gets big enough to support its own structure, it should have its own LLC. Whenever one of the businesses gets into something that has the potential of betting sued, it should have its own LLC.

The purpose of a dba is to comply with local law concerning fictitious business names. A dba is not an entity and cannot protect you from liability.

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