It's tax season again and it's been a learning experience for me. The last couple of years, I had our CPA prepare my tax forms because it was a little complicated with my home and mortgage, stocks, and real estate activities. This year, I decided to do it on my own since it's no difference from last year and I thought I'd use my last year's tax forms as a model. Besides, since I claim high exemptions (and get more monthly take-home salary that way), I know that I won't be getting a lot of refund, if there's any. So, I decided to save that hundred something dollars CPA fee and do it myself. You can deduct tax preparation fees along with your unreimbursed employment expenses (e.g. union fees) but it only helps when it adds up to more than 2% of your Adjusted Gross Income and ofcourse, the excess is the only thing that can help. Anyway, this year, due to the Paper Reduction Act, I did not receive any 1040 and 540 in the mail. I have to order them online. Unfortunately, I have to prepare my brother's tax forms too so I have to place an order twice since they only allow you to order one booklet/form per person. At first, I tried to print the forms I need from the IRS and Franchise Tax Board website. But, I find myself making several trips to the computer as I complete a form. The instruction packet wants me to fill out more forms (Schedule D-1, form 8863, etc.). It only took me 15 minutes to do a rough calculation on my federal and state tax and get an estimate of how much refund I'm getting (thank God!). But, it took me hours to actually gather up all the forms, carefully read and follow the flow chart-like instructions, and finally fill out the worksheets and forms. Whew!
Unfortunately, things are not going well with my roommates. They both have to foreclose on their houses. One of them did it in 2008 so she has to declare it in her tax forms this year. The other one did a short-sale last February so it will not affect her tax-wise until she has to do her tax next year. The one who did a foreclosure in 2008 got a 1099-A and a 1099-C (Cancellation of Debt) forms. She hired an IRS attorney to prepare her tax so she doesn't have to worry about it. Unfortunately, there are a lot of things that the lawyer was uncertain about after he prepared her tax forms. There are a lot of shady area with IRS forms and instructions as far as the foreclosure process. See IRS Publication 4681 for more information on Cancelled Debts, Foreclosure, Repossession and Abandonment. Fortunately, the Bush Bill that allows forgiveness on foreclosure (instead of having the debtor declare it as income) is in effect until 2010. However, the California 540 instructions are much worse! I went through the booklet instructions and the forms from beginning to the end and did not find any instructions as far as foreclosure. This is her biggest worry. The attorney did not take into account the 1099-A and C that she got this year when he filed her CA-540 form. So, she was able to get some refund. However, if she actually have to declare it in her CA-540 as an income, she will have to pay about $16,000 something dollars! I told her to get a second opinion from a CPA lawyer instead of an IRS attorney and to also check with the Franchise Tax Board office in Oakland. I checked out mymoneyblog.com but they don't have anything that's specific to California taxation. I really feel bad for my roommate and my other roommate is already stressed out with her next year's tax. I just pray to God that I wouldn't have to go through this myself in the future and that my roommate will finally get their forms figured out and not have to pay any ridiculous sum of money and if they do - I hope that the IRS/state won't go after their retirement savings.