Nonbusiness Bad Debt

"Neither a borrower nor a lender be, for loan oft loses both itself and friend." William Shakespeare
Well what can you do if you have ignored Shakespeare's good advice and lent money to a friend who won't or can't pay you back. The IRS lets you take a short term capital loss on your tax return if the loss meets certain qualifications.  It has to be a legal obligation meaning a written document signed by both parties, and the loan has to be totally worthless not just partially worthless. Loans to relatives face much greater scrutiny by the IRS and should in most cases just be considered gifts and not deductible bad debts. You have to attach a statement to your tax return indicating the following: description of the debt, amount, and date due, debtor's name and relationship, efforts made to collect debt, and why you think it is worthless. Vigorous documented efforts to collect the debt and a letter from the debtor explaining why he can't repay are good ways to support your deduction.

Kiddie Tax

It might not be a good idea to transfer investment assets to your children age 23 or younger that generates more than $2,000 in income. If you do, the investment income over $2,000 is subject to Federal tax at the parent's rate so as a family you're not saving any tax dollars. The rules apply to children age 19 to 23 only if they are full time college students.

An IRA for Your Spouse

You have to have earned income or compensation to make an IRA contribution. However, even if your spouse does not have any earned income, they can still make an IRA contribution by using your compensation to the extent you have any left over after your IRA contribution. For example, if the husband age 49 has a W2 showing $10,000 in wages and the wife has no earned income, he can make an IRA contribution of $5,500 and she can make one for $4,500.

Efiling

Most CPAs including me efile every possible tax return now because it creates less paper to mail, performs diagnostics tests like checking social security numbers, and avoids keypunch errors at the IRS. Taxpayers expecting refunds get them weeks earlier especially if they allow direct deposit into their bank accounts. The tax return can be efiled when the return is ready, but the payment doesn't have to be sent in until the due date.

Recharacterization of Roth IRA Conversions

If you convert part of your regular IRA to a Roth, you are subject to income taxes on the amount of the conversion. The IRS allows you to change your mind up until the extended due date of the return which would be 10/15/2014 for a 2013 tax return. This recharacterization has to be done through a trustee to trustee transfer. If you transfer the entire amount back to a regular IRA regardless of the earnings or losses for the period of time it was a Roth then there is no tax liability. For example, if you converted $10,000 of your regular IRA to a Roth on June 1, 2013 and then on March 31, 2014 when the value was $12,000 you recharacterized the entire amount back to a regular IRA, then you have to report only the $10,000 on  line 15a on your form 1040. You also have to attached a statement to the 2013 return  indicating the details of the recharacterization.