Tax

Have a Tax Question? Ask a Tax Expert

Ask an Expert,
Get an Answer ASAP!

Tax
This answer was rated:

EMC011075 ONLY….PLEASE NO ONE ELSE RESPOND TO THIS

QUESTION…EMCO11075 _deductible only to the...

EMC011075 ONLY….PLEASE NO ONE ELSE RESPOND TO THIS

QUESTION…EMCO11075 _deductible only to the extent that all miscellaneous itemized deductions exceed two percent of the taxpayer’s adjusted gross income.25 Thus, the legal expenses will not be fully deductible. Second, taxpayers who are subject to the alternative minimum tax may not deduct any expenses as miscellaneous itemized deductions.26 Third, taxpayers with adjusted gross income in excess of $145,950 ($72,975 if married filing separately) are subject to an overall limitation on itemized deductions.27 Tax Consequences to the Payor. 1. From our continued discussion regarding the Legal Settlements were the person would take the below the line deduction; the $155,000 settlement would be reported on 1040 line 21 Other Income and the Legal Expense would be on Schedule A Line 23 subject to 2% and AMT Tax. According to the above reading this person would have to eliminate all the legal expenses if she made gross income of $145,950 and qualifies for AMT TAX…. Does this refer to the actual tax system calculation of AMT Tax form 6251 line 5 Miscellaneous deductions from Schedule A (Form 1040), line 27 which automatically transferred the $95,000 from schedule A line 23? 2. I assume we do not have to manually eliminate the Attorney Expense from Schedule A line 23?
Show More
Show Less
Ask Your Own Tax Question
Answered in 9 hours by:
8/22/2015
emc011075
emc011075, Tax adviser
Category: Tax
Satisfied Customers: 3,242
Experience: IRS licensed Enrolled Agent and tax instructor
Verified

Good Morning, John.

The program should take care of it, you should not have to do it manually. That's what 6251 is for. The amount from Schedule A, line 27 should transfer to 6251 on line 5.

Form 6251 starts with taxable income AGI or AGI minus standard deduction if you don't itemize. Than you add certain deductions, line 2 - 24, to arrive at Alternative minimum taxable income. In part II you will calculate you taxable liability based on the AMT income. Now where it gets interesting. If your taxable liability calculated from Alternative minimum income is more than your tax on line 44 of 1040, the difference is added on line 45 to equal AMT tax liability.

You can check if the program is working. If you reduce the deduction on schedule A, the amount on line 44 of 1040 should go up and line 45 should go down. If you increase your schedule A deduction, line 44 will go down but line 45 will go up, that's the AMT at work.

Ask Your Own Tax Question
Customer reply replied 2 years ago

Interesting….I notice if I zero out all Schedule A Attorney fee the ATM goes to zero and the regular tax on line 44 goes up…creating a higher tax liability of about $3,000…therefore its still good to report Attorney fees because you will still receive some benefit based upon the AMT calculations?

Question regarding SCH CA (540) Part II Adjustment to Federal Itemized Deductions line 41 “Other Adjustments”. I am reading through all the Section Code Explanations of California Law Revenue and Taxation code Article 1 Definition of Gross Income, Adjust Gross Income, Taxable Income, etc…..and I am I’m also reading Instructions for Schedule CA (540) for line 41. Since I’m not a Tax Accountant, when I read through the Section Code Explanations sometime my understanding is not clear. Could my ultimate Control Check Point be: would be the “Instructions for Schedule CA (540)” for line 21 which actually list the tax Fed and State tax difference item and list each item clearly , for example; Mortgage Interest Credit, Health Savings Account, Private Mortgage Insurance etc….So if I think the section code states that I need to eliminate an expense for California but I do not see this item on the Instructions for Schedule CA (540) line 41; would the Sch CA (540) line 41 Instructions listing the Expense items on the Federal Tax return that should be eliminated for California prevail over my interpretation of the Tax Code Section? Have you ever seen an expense item in the Calif. Code Sections state it should be eliminated but were not listed on the Instructions for Sch CA (540) line 41 and the Expense Item was eliminated anyway?

Thank You as Always

Yes, it is still make sense to report attorney fees because AMT doesn't automatically eliminate the deduction, often the deduction is just reduced.

Schedule CA is reconciliation of CA and Federal income. In your case you enter amount of the settlement claimed on federal return on line 21 under, column A. The settlement is included in Federal as well as CA taxable income so you don't do any adjustments in Column B or C for this line. If her only income is social security and the settlement, your only adjustment should be line 20, column B (CA doesn't tax social security income at all).

Regarding line 41, CA allows itemized deduction. Most of the deductions you claim on your federal Schedule A can be claimed on CA itemized deductions, except 2 things state taxes and Ca lottery winnings. As federal will not allow you to deduct federal taxes you paid, most state will not allow you to deduct state taxes you paid. Again, if her only income is social security and the settlement, line 44 (Schedule CA) should same as your itemized deduction.

CA has also AMT, similar to Federal AMT form which will eventually reduce some of the itemized deductions.

Instruction for line 41 lists specific adjustments. If it is not on the list and Attorney fees are not, no adjustment necessary.

Ask Your Own Tax Question
Customer reply replied 2 years ago

The California Question was more a General Question regarding other issues when reading the Federal and State Tax Differences….not in regarding to the Settlement. Do you have a general opinion if the 540 Sch CA will prevail over the Code Section…I ‘m sorry I should have explained this is a separate general question….nothing specific. (If you read the CA question and tell me what you think, it would be appreciated).

Thank You

Schedule CA should follow the revenue and tax code but ultimately you follow the instructions. If there's a discrepancy between the state revenue law and California Franchise board form instructions that's not taxpayer's problem. You file return with CFB and you follow their instructions. When it comes to IRS forms or state tax forms, I usually go by what in instructions, especially if an adjustment not listed in instructions will increase taxable liability. I never volunteer more information than really necessary, why to give them reason to poke around or start asking unnecessary questions?

Ask Your Own Tax Question
Customer reply replied 2 years ago

Excellent.....but if the Franchise Tax Board finds something in the Code Sections that was not in the Instructions and you use the instructions; the franchise could make an adjustment stating it was in the code? It was seem odd and highly unusual that they would leave something out the instructions?

Thanks

No, it is not your responsibility to study the code. And frankly they cannot expect that everybody will understand legal language. To understand the code you need certain level of education or practice reading legal documents. That's where instructions comes in play. Instruction should be plain and simple, easy to understand and follow.

What exactly did you read in tax code that contradict or is not listed as necessary adjustment in instructions?

Ask Your Own Tax Question
Customer reply replied 2 years ago

I’m just trying to understand how the Code Sections relates to the Instructions….I through, I read there could be something in the tax Code Section not in the instructions……Let say a Tax Expert who has all the Education, 30 years of experience etc. and sees something in the code Section not in the Instructions….if the Tax Expert takes the position of following the instructions but sees there are a code section that are not in the instructions and therefore just follows the Instructions:



  1. If the Franchise tax Board found the code section but was not in the instructions; the Franchise tax board has the power to adjust the tax liability even though they were not in the instructions?


I am very conservative in doing my personal taxes or anyone close to me….in other words I like to comply to tax law 120% to make sure I am always complying 100% to Tax Law. Myself and everyone around me wants to make sure nothing could come back at them/myself in the future; and we believe in paying our fair share of taxes according to tax law. Your answer will tell me that you can’t be 100% complying to tax law by just following the Tax Instructions, but you must also know all the Tax Section Codes in case they are not in the instructions….and because the Franchise Tax Board has the power to Adjust the Tax Return for this type of situation.

Thanks You

I believe in fair share and I don't think is right that some people quite their job in the middle of the year and than walk away with 4-5K refund, mostly because they know exactly how to play the system. I turned away clients who told me that they were getting paid under the table and had no intention to claim the income. On the other hand, if I can save my client money by claiming a legitimate deduction I have no problem to challenge tax authorities, local, state or IRS.

Does the Franchise tax board has the power to adjust the tax liability even though they were not in the instructions? Yes, they can make the adjustment but it doesn't mean they can get away with it and you can always appeal the decision if you disagree. You are reasonably expected to know tax law but reasonable doesn't mean you have to go out and beyond to research or know all tax section codes. And I can guarantee you, not even tax lawyers knows the entire tax code. Publications are considered a reliable source of information, which means if you rely on publication published by CFB you can dispute the adjustment based on the fact that you used their own approved source of information. You can also engage CA taxpayer advocate services, who specializes in disputes between CFB and taxpayers.

Few years ago I had a client who lost his job and decided to get a professional license to improve his skills. We claimed misplaced worker credit because there was nothing in instructions that would say he cannot take it. The instructions were not specific. The state disallowed his credit with explanation that my client was not registered with the state work placement agency and he didn't register for the approved classes. I responded with a copy of the paragraph from instruction booklet that was specifically talking about the credit, asking why the instructions don't mention anything about the requirements. They responded with a letter approving the credit. They had no ground for dispute, I used their own resources.

From my experience, at least 1/3 of notices sent by various tax authorities are just fishing around, a new strategy to increase revenue since certain percentage will never respond or will accept the change without questioning it. In many cases all it needs is a simple explanation. Between 2001 and 2009 number of IRS notices increased by more 500%. And the reason is not because there are more incorrect returns, the main reason is that because of the budget cuts, IRS had to cut number of agents and the responsibility to investigate/explain had been shifted on prepares. We have no increased responsibility to question every notice if there's a ground for adjustments. And I am pretty sure CFB face the same problems.

emc011075
emc011075, Tax adviser
Category: Tax
Satisfied Customers: 3,242
Experience: IRS licensed Enrolled Agent and tax instructor
Verified
emc011075 and 87 other Tax Specialists are ready to help you
Ask your own question now
John, thank you for your positive rating. If you have any further questions about this topic you can return to this post and I will be more than happy to answer them.
Have a great weekend.
Ask Your Own Tax Question
Customer reply replied 2 years ago

GENERAL CODE QUESTIONS:

This is repeated in several sections of the tax code:

shall not apply to any deduction in excess of the amount includible in the taxpayer’s gross income for the taxable year

I assume this could only mean the Expense can’t Exceed or be Greater than the Income?

Let me know if this I a different topic question.

Thank You as Always,

John

That's right. If you have expenses associated with producing income, for example attorney fees to seek settlement, to sue ex-spouse for alimony, expenses associated with hobby income, not-for-profit rental income as well as expenses associated with investments (trading, real estate), you can deduct those expenses but only up to the income included in your AGI. For instance if you rent out your vacation home for less than fair market value (not for profit renting) and you receive $1200 rental income, you can only deduct $1200 of expenses. If you like painting and received $800, you can only deduct $800 in expenses. And you will not be able to deduct any expenses, if income is nontaxable. A common example is tax free inheritance child support. If you pay attorney to get your inheritance, you will not be able to deduct the fees at all.

No need to rate this respond. I will consider it follow up question.

Ask Your Own Tax Question
Ask emc011075 Your Own Question
emc011075
emc011075
emc011075, Tax adviser
Category: Tax
Satisfied Customers: 3,242
3,242 Satisfied Customers
Experience: IRS licensed Enrolled Agent and tax instructor

emc011075 is online now

A new question is answered every 9 seconds

How JustAnswer works:

  • Ask an ExpertExperts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional AnswerVia email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction GuaranteeRate the answer you receive.

JustAnswer in the News:

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.

What Customers are Saying:

I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response...

T.G.WMatteson, IL

I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight.

BonnieChesnee, SC

Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation.

JohnMinneapolis, MN

Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with.

OrvilleHesperia, California

Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help.

Mary C.Freshfield, Liverpool, UK

This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!!

AlexLos Angeles, CA

Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult.

GPHesperia, CA

< Previous | Next >

Meet the Experts:

Wallstreet Esq.

Wallstreet Esq.

Tax Attorney

586 satisfied customers

10 years experience

Mark D

Mark D

Enrolled Agent

1,300 satisfied customers

MBA, EA, Specializing in Business and Individual Tax Returns and Issues

Richard

Richard

Tax Attorney

4,310 satisfied customers

29 years of experience as a tax, real estate, and business attorney.

Robin D.

Robin D.

Senior Tax Advisor 4

13,695 satisfied customers

15years with H & R Block. Divisional leader, Instructor

Megan C

Megan C

Certified Public Accountant (CPA)

8,651 satisfied customers

Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

jgordosea

jgordosea

Enrolled Agent

2,885 satisfied customers

I've prepared all types of taxes since 1987.

R. Klein, EA

R. Klein, EA

Enrolled Agent

1,839 satisfied customers

Over 20 Years experience

< Previous | Next >

Related Tax Questions
Form 886-A Deductible Home Mortgage Interest Taxpayer has
Form 886-A Deductible Home Mortgage Interest Taxpayer has $1,000,000 in Grandfathered debt. Line 9 Form 886-A - is this line amount after deducting the garandfathered debt… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
Dose mean can not deduct state income taxes only or dose it
dose mean can not deduct state income taxes only or dose it includes property taxes too … read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
Form 1120, cash basis. If Taxes paid to IRS are deductible,
Form 1120, cash basis. If Taxes paid to IRS are deductible, are refunds for overpayment the equivalent of income?… read more
Chad CFP ®
Chad CFP ®
Certified Financial Planner(R), Pro
Master\u0027s Degree
736 satisfied customers
Two questions on federal tax deductibility: 1. We personally
Two questions on federal tax deductibility: 1. We personally paid legal fees for our manufacturer C Corp. The fees were for assistance in preparing a Research & Development tax credit application. Can… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
REGARDING THE FEDERAL TAX LAW INTHE US. IF ONE RECEIVES
REGARDING THE FEDERAL TAX LAW INTHE US. IF ONE RECEIVES ALIMONY PAYMENTS, WHAT CAN QUALIFY AS TO ***** REDUCE THE TAX ON THE ALIMONY RECEIVED ? CAN BUSINESS LOSES BE CARRIED OVER TO REDUCE THE TAX ON … read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,695 satisfied customers
I had a California registered Limited Liability Company that
Hello, I had a California registered Limited Liability Company that went out of business in 2012. The California Franchise Tax Board won … read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,490 satisfied customers
Since my adjusted gross income is over $100,000, I can't
Since my adjusted gross income is over $100,000, I can't take the rental loss that I have even though I was actively maintaining the property. Since I have a mortgage and property taxes on that rental… read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,695 satisfied customers
Form 1040 line #44 what taxes--federal income tax + social
form 1040 line #44 what taxes--federal income tax + social security +medicare tax, all or just federal? … read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
I am not filing schedule A for itemized deductions, but
I am not filing schedule A for itemized deductions, but would like to include sales tax in 1040 Form. Where do I put it? … read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,695 satisfied customers
If my deductions are less than the standard deductions and I
If my deductions are less than the standard deductions and I have no taxes to file do I need to file. … read more
keeperumiami
keeperumiami
Sr Financial & Tax Consultant
Bachelor\u0027s Degree
1 satisfied customers
Dependent Children. 1. Taxpayer's adjusted gross income is
Dependent Children.1. Taxpayer's adjusted gross income is over $ 800K so personal exemptions are phased out. 2. Taxpayer's children are between ages 12 - 17. 3. All three children have earned income o… read more
emc011075
emc011075
Tax adviser
3,242 satisfied customers
If I prepare an itemized deduction, can I also deduct the
If I prepare an itemized deduction, can I also deduct the standard deduction? … read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
Do I reduce my adjusted gross income by the amount of a
Do I reduce my adjusted gross income by the amount of a forgiven debt(1099-c) before figuring the EIC? … read more
keeperumiami
keeperumiami
Sr Financial & Tax Consultant
Bachelor\u0027s Degree
1 satisfied customers
My adjusted gross income from 2016 was $199,397. If I take
My adjusted gross income from 2016 was $199,397. If I take an early withdraw of $26,700 from a 401k I know I will pay a 10% penalty but if I have them take an additional 20% Federal Tax will that sati… read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,695 satisfied customers
What is the standard deduction for Married filing separate
What is the standard deduction for Married filing separate on the Iowa tax form 1040a line 37? … read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
In 2016 my son adjusted gross income was $1,514. His federal
In 2016 my son adjusted gross income was $1,514. His federal withholding was $101. His tax for 2016 is $0. … read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,695 satisfied customers
My mothers adjusted gross income is 6033, her standard
my mothers adjusted gross income is 6033, her standard deduction is 6300, where will the 2000 that she won in the lottery be entered on the 1040 form and does she have to pay a tax on this money … read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
Are California tax lien payments deductible on Federal tax
Are California tax lien payments deductible on Federal tax returns? … read more
emc011075
emc011075
Tax adviser
3,242 satisfied customers
Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Show MoreShow Less

Ask Your Question

x