Back in 2005 we claimed a casualty loss for our damaged home on our tax return. The IRS has decided that since we did that, the $150,000 we received from the Road Home will be taxable income. My wife and I are in education, and typically we earn salaries that put us in the 15-20% range. Now with the Road Home funds we'll be in the 33% bracket. If our insurance company would have paid us instead of the Road Home, this wouldn't be a problem. Also, in hindsight we should not have taken the casualty loss, as it is going to cost us dearly in the 2007 tax return. Senatory Landrieu and U.S. Representative Jindal introduced legislation to exempt the grants from taxes, but the chance of these bills passing is slim to none. I again feel that if Katrina hit New York or Idaho these so-called "duplication of fees", like the Stafford Act taking away my SBA loan, would be waived. So all of these funds that would have gone in to rebuilding New Orleans will now be used for improving streets in Oregon and paying Haliburton to feed troops in Iraq.
Read more in "IRS has bad news on Road Home" by David Hammer in today's Times-Picayune.
15 comments:
You rich people. Always complaining about your taxes!
Our taxes will be higher this year than our combined income from teaching. Usually we make a combined income of about $85,000, and we anticipate our taxes to be even higher.
That's a definite ouch! Sorry to hear about it.
On an unrelated subject, I got tagged for this 8 Random Things Meme, which I hesitantly participated in. If you'd like to hesitantly or eagerly participate, read more about it on my blog, 'cuz I'm tagging you. :)
Can you fix it by filing an amended return for 2005?
I don't know how to to that Ann, but it might be a great idea. I'll ask around.
It's actually pretty easy. I filed one for different reasons for 2006, and it's basically just "here's my old deductions/here's my new deductions". It'll still cost you (you'll have to pay them the difference in your 2005 taxes) but that could probably be a lot better than $150 in extra taxable income.
I am not an accounting person. Maybe Clifford Wright over in business admin would give you some free advice - he's a CPA and a really really nice guy, IMO.
i understand from zeitgeist the movie that there is no law that says you have to pay taxes.
Really, as in just don't pay them like Willie Nelson? I don't mind paying taxes, especially if they go for good schools, good infrastructure, etc. But what I don't like about this is that it isn't fair. This is money I should have received from my insurance company to fix my home, or the federal government because their levees failed. It should be used to fix my house, and not taxed.
Damn right it ain't fair.
There is an extensively long and amazingly boring (though I assume rather exciting compared to the tax law) document published by the IRS on why all arguments that tax protestors put forth are wrong. Yes, it's by the IRS, which is not impartial. But you can find the information on many, many other websites. Tax protestors use a lot of fancy sounding words, and they are selling a story we want to hear. But some of the famous ones sit by idly and pay their taxes while they encourage others not to.
Make no mistake about it - if you work for a company that reports the wages it paid you to the IRS and you do not file taxes, they will find you. And you will go to jail. You are a citizen and you do owe taxes.
There are many things that are not fair about our current tax system, and I personally hate it. But that's no excuse for not participating in the obligation to file a return - no matter how many snake oil salesmen tell you differently.
IRS doc: http://www.irs.gov/pub/irs-utl/friv_tax.pdf
So to anyone thinking of pursuing that, be aware that it IS indeed considered illegal, and has been held as such in court numerous, numerous times.
/lecture
I checked with an accountant. You CAN re-file your 2005 tax returns. You'll have to pay your taxes from 2005 and probably interest, but if you're in a lower tax bracket that will probably be less than 33% on your grant as well your regular income. Check with an accountant, yourself, first, because this won't be a catch-all solution. Some people may end up paying more this way and for some it might not make a difference.
If people like you and Editor Bart can spread the word, maybe more people will be able to avoid the hit.
One more thing:
It really would have helped if one of our local "journalists" could have pursued this possibility instead of just scaring the crap out of everyone and making them angry.
The IRS has said clearly that we cannot ammend our 2005 tax return because of this.
We are in late 70's with only income from Social Security & pension. We also am subject to the increase in taxes this year because we claimed a casualty loss on 2005 return and amended 2004, 2003, &2002 returns. When we were in Houston the IRS encouraged us to file amended returns to get additional funds, Road Home funds were delayed and uncertain when we filed.Without grant money our taxes would be $64. Because of grant money our taxes are $6871.
Only half of our property is repaired because of low appraisal,
deduction of 30% because of no flood insurance, the deduction of our entire insurance proceeds from grant now we must pay these taxes from what is left.To repair the part of the house we are now living in we had to make a SBA loan which further erodes our monthly income.
Ray in Gentilly
Sorry, but if you had gotten insurance, that also would have been taxed the same because you no longer have the loss which you received benefit of on your 2005 taxes. Also, the paying Road Home funds to SBA is also fair, because, again, you no longer have that loss. Most people who received Road Home funds are better off now then they were before. Those who had insurance, not so much.
Only thing I think IRS is doing wrong, is they should allow a revision of 2005 to even out the income with the loss.
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