Tax Question Recent Graduate, No Income

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Tax Question Recent Graduate, No Income

Postby Allan12 » Fri Apr 05, 2013 9:13 pm

My sister last May graduated with a degree in engineering.

She spent a year traveling and had $0 income in 2012.

She cashed in $15,000 of series HH bonds in 2012. She used the money to pay down student loans.

She went to our CPA and he says that she owes $1200 federally because she traded in the bonds. This sounds correct since they are series hh.

However, she had no income and they were used to pay down us government loans.

Shouldn't she owe $0 because she had no income?

Please help.

A
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Re: Tax Question Recent Graduate, No Income

Postby damjam » Fri Apr 05, 2013 9:34 pm

Treasury Direct wrote:An HH/H Bond's face value may include deferred (postponed) interest from an earlier bond. If it is carrying deferred interest, you will receive that interest as part of the bond's face value when you redeem that bond.

So the HH Bond could have interest payable at redemption. Interest is income.

Is it taxable?
Federal income tax: Yes

State and local income tax: No

You must report HH Bond interest on your federal income tax return for the year in which we paid the interest.

HH/H Bonds were offered in exchange for EE/E Bonds and some other older savings bond series. Interest on the EE/E and other bonds exchanged may have been deferred through the life of the HH/H Bond.


Your sister should have received a 1099-INT from whomever cashed the bonds and the portion attributable to interest would be listed in box 3.

To estimate the tax I would need to know the amount in box 3, also I don't know what your sister's filing status is for 2012. Is she being claimed as a dependent on your parents return?
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Re: Tax Question Recent Graduate, No Income

Postby JW Nearly Retired » Fri Apr 05, 2013 9:39 pm

Allan12 wrote:My sister last May graduated with a degree in engineering.

She spent a year traveling and had $0 income in 2012.

She cashed in $15,000 of series HH bonds in 2012. She used the money to pay down student loans.

She went to our CPA and he says that she owes $1200 federally because she traded in the bonds. This sounds correct since they are series hh.

However, she had no income and they were used to pay down us government loans.

Shouldn't she owe $0 because she had no income?


She had some income because the interest on the bonds is income. But it would not all be income and $1200 tax sounds high. She should have received a 1099 from the bank or whatever financial firm cashed in the bonds stating how much of the $15,000 was interest . What did it say the interest income was? Whatever the interest income amounted too, she gets a std deduction of $5950 and an exemption of $3800 leaving taxable income of only about $5k. Except if she is being claimed as a dependent on your parents return and they are using the deduction. If that's the case maybe the $1200 seems about right. Did the CPA fill out a tax form for her? If so look at it to see what's going on.
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Re: Tax Question Recent Graduate, No Income

Postby Allan12 » Fri Apr 05, 2013 9:44 pm

Box 3 says $529. She is filing single. I will find out tomorrow whether they are claimng her as dependent.

Thanks for the help so far !
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Re: Tax Question Recent Graduate, No Income

Postby kaneohe » Sat Apr 06, 2013 3:32 am

Were the HH bonds purchased w/ EE bonds and the interest deferred as damjam asked earlier? If so, there might be two parts to box 3 ...current interest and deferred interest making for a larger total interest (at least for the 1099-INT issued by US Treasury)
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Re: Tax Question Recent Graduate, No Income

Postby Rainier » Sat Apr 06, 2013 5:42 am

Doesn't matter, with only $600 of interest income there is no tax. Run from the tax advisor she first talked to.
- Bill
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Re: Tax Question Recent Graduate, No Income

Postby Allan12 » Sat Apr 06, 2013 6:20 am

Bill, that's what we are thinking.

I am going to look it over myself today and find out if she is a dependent or not.

As far as the Series HH totally agree with the discussions of interest in this thread.

Just find it hard to believe that she owes so much
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Re: Tax Question Recent Graduate, No Income

Postby damjam » Sat Apr 06, 2013 10:09 am

I agree the amount of tax sounds high given the information we have.
Also check that your sister is getting the deduction for student loan interest (line 18 on 1040A; line 33 on 1040). Although for the amount of income we are talking about ($529), her tax should be -0- even without the student loan deduction. Now it's a game of how fast we can get to -0-.
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Re: Tax Question Recent Graduate, No Income

Postby Allan12 » Sat Apr 06, 2013 5:00 pm

Turns out that our parents claim her as a dependent.

Also, that $529 figure was from only one 1099. There are more 1099's. She received a total of $11,749 in taxable interest, line 8a on 1040.

Lastly, I see no student loan interest deduction on line 33. We are going to look into the accounts online tonight.

What does everyone think now, owing $1202 still sounds high to me.

Second follow up question, she can deduct student loan interest paid even as a dependent correct? She physically paid it.
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Re: Tax Question Recent Graduate, No Income

Postby damjam » Sat Apr 06, 2013 6:07 pm

Sorry, since your parents are claiming your sister as a dependent she can not take the student loan interest deduction. Neither can your parents if the loan is your sister's legal obligation.

As for the tax owed, this is what I got:
your sister's taxable income is $11,749 - $950 = $10,799. ($950 is the standard deduction for someone claimed as someone else's dependent)
Using the tax tables that comes to a tax owed of $1,181.
Not that far off, but still not the same number. Perhaps she is being assessed a penalty for not making estimated payments?
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Re: Tax Question Recent Graduate, No Income

Postby Allan12 » Sat Apr 06, 2013 6:22 pm

damjam wrote:Sorry, since your parents are claiming your sister as a dependent she can not take the student loan interest deduction. Neither can your parents if the loan is your sister's legal obligation.

As for the tax owed, this is what I got:
your sister's taxable income is $11,749 - $950 = $10,799. ($950 is the standard deduction for someone claimed as someone else's dependent)
Using the tax tables that comes to a tax owed of $1,181.
Not that far off, but still not the same number. Perhaps she is being assessed a penalty for not making estimated payments?


Thanks so much for your help.

Very frustrated :(
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Re: Tax Question Recent Graduate, No Income

Postby donall » Sat Apr 06, 2013 7:07 pm

Perhaps there should be a comparison of claiming your sister as a dependent and not claiming her as a dependent done. Note the following taken from the IRS site:
Relationship — the taxpayer’s child or stepchild (whether by blood or adoption), foster child, sibling or stepsibling, or a descendant of one of these.
Residence — has the same principal residence as the taxpayer for more than half the tax year. Exceptions apply, in certain cases, for children of divorced or separated parents, kidnapped children, temporary absences, and for children who were born or died during the year.
Age — must be under the age of 19 at the end of the tax year, or under the age of 24 if a full-time student for at least five months of the year, or be permanently and totally disabled at any time during the year.
Support — did not provide more than one-half of his/her own support for the year.

As details of your sister are not known, her travel may negate residence, or she may be over 24, or she may have supported herself.
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Re: Tax Question Recent Graduate, No Income

Postby kaneohe » Sat Apr 06, 2013 9:23 pm

Using the HR Block tax calculator, AGI of 11749, std deduction & exemption yields tax of 200. Parents lose 3800 exemption leading to increase
in their tax of 950 if in 25% bracket . Combination is 1150, very slightly lower than the previous 1181.

Problem is if parents can claim her as dependent she cannot claim any exemptions for herself. I believe that is regardless of whether they do claim her or not. That makes the situation much worse if they don't claim her if they could.
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