"joetaxpayer" <joetaxpayer[at]nospam.com> wrote in message
news:VOudnQaRKch5ANXYnZ2dnUVZ_tadnZ2d[at]comcast.com...
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Splicing together the pieces of the tax code to get to this is more tedious
work than I'm willing to put in, but here are a few other references that
should suffice:

American Century: "The mutual fund will pass through to shareholders any
qualified dividends it receives from stock in the fund's portfolio. ... The
qualified dividend rules do not apply to bond or money market investments."

wwwDOTamericancenturyDOTcom/workshop/articles/mf_distributions.jsp

Motley Fool: "Not all dividends qualify [for the qualified dividend tax
rate], such as ... [d]ividends from mutual funds attributable to interest
and short-term capital gains (but 'pass through' dividends from the mutual
fund and long-term capital gain dividends do qualify)"

wwwDOTfoolDOTcom/taxes/2003/taxes031003.htm

------------

Note to Moderators - isn't it a little silly to obfuscate links that are
clearly to information sites (albeit commercial ones)? The value of a
citation, even when a quote is provided, is that the reader may easily check
the quote both for fidelity in transcription/editing, and for meaning within
the broader context of the entire article.

I could transcribe whole pages, but that would violate other rules (not to
mention copyrights :-)

Mark Freeland
BnetOnewsX[at]sbcglobal.net

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No, because MMF dividends derive from interest
paid on fixed-income holdings.

And interest on bonds isn't dividends paid
from earnings by corporations.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

Will Trice wrote:
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I just looked at my 2005 taxes.
The difference (from 1099-DIV form from broker) between Box 1a (tot
dividends) and 1b (qualified dividends) appears to be the exact amount I
received as money market dividends. Leads me to conclude that MM
dividends are not qualified, or that the MM I chose is somehow not
qualified.
I did search a bit, both on the IRS site, and broker sites, and came up
pretty empty for a good reference.
JOE

"Piggy" <pigglywiggly711[at]yahoo.com> writes:

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Yes.

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See IRS Publication 590 (among other things). The allowable
IRA contribution is the *lesser* of $4000 or your earned income.

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Doesn't matter where the money is coming from.

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Correct.

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Legitimate business expenses related to that $600 job are directly deducted
from that $600 on Schedule C/C-EZ whether or not you itemize.
Itemized deductions (like charitable contributions, property taxes,
mortgage interest, etc.) are taken on Schedule A.

- quote -

You'd be taxed on the interest whether or not you withdrew
funds from the account.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

But the
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Really? from all the research i have done, i haven't heard of this
limit. even if i am transferring the 4K out of what is basically an old
savings account?

So if you are single, not
- quote -

if i did decide to itemize deductions then i would not be able to
claim the 5150 deduction but i would still claim the 3300? can the
deductions then only be used for expenses incurred while working for
the job that paid me 600?


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actually i believe i am going to be taxed on the interest earned since
the account went under my name (although it is almost negligible).

woessner[at]gmail.com wrote:
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Are money market dividends typically qualified dividends? I assume that
this is the implication here. Otherwise the OP would pay income tax
rates on the dividends, right?

-Will

"Piggy" <pigglywiggly711[at]yahoo.com> writes:

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That totally changes things. The money-market being in a plain
old taxable account means that *none* of the money withdrawn from
it is taxable, which changes the entire calculation.

However, this also means you aren't doing an IRA conversion.
Instead you are making a plain old Roth IRA *contribution*.
That means you are subject to contribution limits. The
hard limit is no more than $4000 (unless you're over
age 50, in which case it is $5000, I believe). But the
other limit is that you can't contribute more than the
earned income you had in the year. Unemployment doesn't
count as earned income. Your earned income will only be
$2700 ($2100 job and $600 teaching), so your max contribution
will only be $2700.

That said, if you can afford to make it, definitely make the
$2700 Roth IRA contribution. Making it won't cause you any
taxes, and when it comes out in retirement, it and all the
earnings on it will be tax-free.

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Your understanding is incorrect. Sounds like you are confusing the
requirements for the PAYOR to issue a 1099-MISC with the requirements
for the PAYEE to report the income. If it's even $1, you have to
report it. So yes, you need to fill out a Schedule C (probably can
get away with a Schedule C-EZ) and Schedule SE to report the income
and calculate the SE tax.

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If you are a single filer, the combined standard deduction
and personal exemption is $8450. So if you are single, not
anyone's dependent, and do not itemize deductions, then yes,
you will subtract $8450 from your adjusted gross income to
arrive at your taxable income.

- quote -

Now that you've clarified the money-market situation, you won't
be paying any tax at all (other than around $85 of SE tax), so
there's no reason not to make the maximum Roth IRA contribution
you're eligible to make, assuming you can afford to do it.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

Piggy wrote:

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Which is why I quote for you a reputable source,
http://www.fairmark.com/refrence/2006reference.htm
which offers the current exemption/ standard deduction numbers, as well
as back to 2004 and the 2007 announced figures. On the same page on the
tax rate schedules as well.
You are only permitted to put into your Roth $4,000, up to your earned
income. Even if your taxable income is zero (i.e. less than 8450) you
still can, and should start the Roth.
JOE

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not an IRA - called a liquid assets fund - so basically a plain
account.

- quote -

my understanding is that one does not need to report self-employment
earnings of 600 or less under a single contract. i can't remember
wether this is actually 600 or less or if its LESS THAN 600.


- quote -

so as a single filer i automatically take out 8450? i have heard
different figures from several people and am a little confused.

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into next year. more likely only 1-3 months. also i am planning to go
back to school next year and not be working at all.

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If this is a plain old taxable account, you probably will owe very
little taxes on the withdrawal. Money market funds usually keep their
NAV at $1. So all the earnings would have come in the form of
dividneds. Assuming you've paid the tax on the dividends from previous
years, all you'll owe is the tax on the dividends from this year (which
you owe regardless of whether you withdraw the money or not).
Dividends are taxed at the 15% rate unless you're in a low tax bracket,
in which case they're taxed at the 5% rate.

On the other hand, if this money is in IRA account, you'll probably be
eligible to do a Roth conversion. In that case, you don't have to
worry about Roth contribution limit. However, you will owe ordinary
income tax on whatever portion you haven't already paid taxes on. As
Rich said, this could be a VERY smart move, since you're probably in a
very low tax bracket this year.

--Bill

- quote -

If this is a plain old taxable account, you probably will owe very
little taxes on the withdrawal. Money market funds usually keep their
NAV at $1. So all the earnings would have come in the form of
dividneds. Assuming you've paid the tax on the dividends from previous
years, all you'll owe is the tax on the dividends from this year (which
you owe regardless of whether you withdraw the money or not).
Dividends are taxed at the 15% rate unless you're in a low tax bracket,
in which case they're taxed at the 5% rate.

On the other hand, if this money is in IRA account, you'll probably be
eligible to do a Roth conversion. In that case, you don't have to
worry about Roth contribution limit. However, you will owe ordinary
income tax on whatever portion you haven't already paid taxes on. As
Rich said, this could be a VERY smart move, since you're probably in a
very low tax bracket this year.

--Bill

"Piggy" <pigglywiggly711[at]yahoo.com> writes:

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What is this money-market account? Is it in a traditional
IRA? Is it in a plain old taxable account? If it is in
a traditional IRA and you have never made non-deductible
traditional IRA contributions, the entire $8700 will be
taxable and on top of that, the $2000 you don't convert
will be subject to the 10% early withdrawal penalty (unless
you meet one of the criteria for an exception).
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The whole $3750 is taxable income. Doesn't matter that no taxes
were taken out of it.
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Of course you have to report it (why do you think you might not
have to?), though you can offset legit business expenses (if you
had any) against it. You'll also owe some self-employment tax on
that $600.

- quote -

Assuming you are single, take the standard deduction, and have
no business expenses you project out as follows:

Self-employment tax on teaching income: $85

Gross income:
IRA conversion/liquidation: $8700
Unemployment: $3750
Job: $2100
Teaching: $ 600
------------
$15150
adj for half of SE tax: (43)
------------
Adjusted gross income: $15107
Less std deduction: ( 5150)
Less personal exemp: ( 3300)
------------
Taxable income: $ 6657

Taxes:
Income tax: $666
SE tax: $ 85
Penalty tax: $200 (10% of unconverted part of IRA withdrawal)
-----------
Total Tax $951

- quote -

Maybe. It depends on your total income situation. For example,
if you have the job all of next year, it may well cost you
less in taxes to do the whole conversion this year.


--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

I am trying to convert 8700 from a money market account at one firm to
1) open a Roth IRA at Vanguard and 2) liquidate the rest.

My question, is there any way to avoid the tax, considering my annual
income (outside of the 8700) is less than 6000?! Specifically:

1) this year i received 3750 in unemployment income when i was laid off
my job. no taxes were taken out of that so i received the whole 3750.

2) i currently am employed part time and estimate to receive 2100 gross
income for 2006 from this job. i claimed single on my w-2.

3) i received 600 in self-employment income from one school where i
teach (do i have to report this since it's only 600?)

My main concern is around paying taxes on the 8700, because even at 10%
that is still almost 900.

If i were to withdraw half this year and half the next, would i be able
to alleviate the tax burden?