Taxability of IRAs; Reporting a 1099-K; Deductions for Payments to Consultants — Ask Jason


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DISCLAIMER: The answers to questions in this segment are intended to be general in nature and do NOT constitute tax advice. Please contact a tax advisor to discuss your unique situation.

Q: My mother had an IRA of $15,000. Do we have to pay tax on $3,700?

A: This is a tough question to answer without more information. I am not sure where you are getting $3,700 from ($3,700 is 24.7% of $15,000; not sure where the 24.7% is coming from). If you are a beneficiary of your mother’s IRA, you have two options: take a cash distribution now and be taxed on it at your regular tax rate, or roll it into a beneficiary IRA and start taking required minimum distributions (RMD) each year based on your life expectancy. The RMD would be taxable income each year. I suggest you contact a tax advisor to discuss these options more fully.

Q: What happens if I don’t report a 2011 Form 1099-K?

A: You still need to report the amounts that were reported to you on the 1099-K. You just don’t put the amounts on the line marked “1099-K” on the Schedule C or Form 1065/1120/1120S. Instead, you put it with your other receipts on the “Other Receipts” line. For example on a Schedule C, Line 1(a) is for 1099-K amounts. You put $0 there this year. Line 1(b) is for other receipts, which is where amounts from a 1099-K go this year.

(Before anyone else sends an e-mail about Form 1099-K, please read this post.)

Q: Can I take payments to an unlicensed consultant as a writeoff?

A: Yes, if they performed work for you. Remember to issue a 1099-MISC if they are unincorporated and you paid them more than $600.