tax question help!!!!?

Question

I am a full time student , work and have 1 dependent...does anyone know what all I can use on my taxes....

Answer 1

If you have to take loans or pay out of pocket to fund your education you can claim education expenses. If you were no higher than a sophomore on 1.1.06 you can claim the Hope Credit, provided you have only claimed it once before. Otherwise, you can claim the Lifetime Learning Credit or the tuition and fees deduction. Usually, the most favorable, in order, are Hope, LLC and then tuition and fees. You can only claim one per student. You do need to crunch the numbers to work out which is best.

You have not said if your dependent is a child. If so, you can potentially claim Child Tax Credit and Earned Income Tax Credit (but only if your income is within certain limits and you have less than $2,700 investment income). If the child lives with you, you can claim Head of Household (provided you do actually maintain a household and you are unmarried).

Do you contribute to a retirement plan at work? If so, remember you cannot qualify for the Saver's Credit, as you are a full-time student. Just make sure, though, that your school really does treat you as full-time. Sometimes the workload just feels like it! Savers Credit is a nice thing to have if you qualify. In any case, you will still have received tax relief for any deductions from your pay.

Normally, I recommend going to a CPA to have taxes done, but if your question adequately describes the major part of your tax position, you could probably go to H & R Block or similar and get decent service. Alternatively, go to irs.gov and click on the FreeFile icon, but this is only if you are confident you can do them yourself.

Answer 2

I assume your dependent is a child. In this case you may qualify for the Earned Income Credit, Child Tax Credit, Additional Child Tax Credit, Child and Dependent Care Credit.

If you paid for tuition and fees there is a Tuition and Fees Deduction, Hope Credit, and Lifetime Learning Credit. You may qualify for one of these.

Answer 3

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Answer 4

If you plan on itemizing your deductions, use the 1040A form. If you aren't going to itemize, you should be able to file the 1040EZ instead.

If you're going to file for EIC, there will be some additional paperwork to include.

Answer 5

Sorry i cant answer ur question, maby if u were Canadian, i know the taxes here. Not there apparently.

Answer 6

claim 2 if single. and write of student expenses.
...

Answer 7

First-time homebuyer deductions question. I know I can deduct mortgage interest and property taxes paid. What about fees from a real estate attorney we used and points paid?

Answer: Mark - Generally attorney fees are considered personal legal expenses except when incurred in an attempt to produce or collect taxable income. If the legal fees in connection to the purchase were for a title search and preparation of the sales contact and deed, for example, they would be added to the basis of the home you purchased. They would be considered part of the settlement costs.

Points or loan origination fees are considered prepaid interest and generally not deductible in full in the year paid. However, there is an exception. There are nine tests that you must meet in order to fully deduct points in the year paid. More information can be found in IRS Publication 530, First-Time Homeowners. To order IRS forms and publications call [phone] or on-line at www.irs.gov.

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Self-Employment Income
Question from David
January 31, 2005 at 5:17pm

I am employed full-time, and in 2004 as in the past few years, I performed computer consulting side jobs in my spare time for a few different clients. In the past, each of these clients have sent me a form 1099, which I then use to claim the income on my tax forms.

I have just learned, however, that one of my newer clients is not intending to send me a 1099 for 2004 as they did not account for their payments to me as a "contractor expense".

Setting aside this client's questionable accounting practices, will I have any difficulty claiming this income on my taxes as I normally would, without the 1099 as documentation? Is there some alternative form of documentation that I need to file, or request from the client?

Thanks in advance for your help!

Answer: David - Giving your client the benefit of the doubt was it possible your fees were less than $600? If so they had no requirement to send one to you. (You still have an obligation to report all income received.) If the earnings were for more than $600 and you already contacted them and still have not received the 1099 by February 14 you can contact IRS at [phone], provide us basic information about the company and we will send them a letter requesting that they send you a 1099. Often that gets results. If not, don't worry, you would still report the income you received. You do not send in the 1099 with the return. If you are a sole proprieter you report the income as you normally would on either Schedule C or C-EZ, Profit or Loss from Business. For more information please refer to IRS Publication 334, Tax Guide for Small Business (For Individuals Who Use Schedule C or C-EZ. To order IRS publications call [phone] or on-line at www.irs.gov.

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Dividend Income
Question from Bruce
January 31, 2005 at 8:13am

I have a mutual fund that I let all of the dividends roll back into the fund but I still get a 1099-Div from the fund. Do I report the dividends on my taxes eventhough I have not taken them or do I wait until I sell the fund?

Answer: Bruce - Most mutual funds permit shareholders to automatically reinvest distributions in more shares in the fund, instead of receiving cash. The dividends are still taxable and reported as dividend income on your tax return. We refer to this as constructive receipt of income. It is credited or made available to you. You do not need to have physical possession of it. For more information on mutual funds IRS publication 564, Mutual Fund Distributions, will provide guidance that includes keeping track of your basis in the shares. You can get IRS publications and forms by calling [phone] or on-line at www.irs.gov.

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Saturday, January 29, 2005

Amended State Return
Question from Jennifer
January 28, 2005 at 5:29pm

I filed an Oregon return for my husband as a full time resident(form 40), when in actuality, he is a part time resident. Which form would I use to fix this, 40X or 40P?

Answer: Jennifer - My friends at the Department of Revenue tell me that you should use Form 40P, Oregon Part-Year Resident Return, to amend the return in this situation. Write "Amended" at the top of the Form 40P and make the appropriate changes on the form. Make sure you attach a letter to the Form 40P and explain the changes that you are making. You can order State of Oregon tax forms and publications by calling [phone] if you are in Oregon or [phone] or go on-line at www.oregon.gov/DOR.

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Friday, January 28, 2005

Medical Expense
Question from Donna
January 27, 2005 at 4:58pm

In 2004, the IRS issued a ruling that permitted Gender Reassignment Sugery (commonly known as a Sex Change) to be an allowable deduction. I would like to know if associated costs of the surgery itself (i.e. plane fare, hotel costs, meals while away) are included in the overall deduction.

Thank You,
Donna

Answer: Donna - If your basis (authority) for claiming a medical expense is based on a ruling that says a particular procedure, in this case a Gender Reassignment Surgery, qualifies as a medical deduction, then yes, allowable expenses would include the amounts for transportation for medical care, lodging and meals at a hospital or similar institution as long as the principal reason for being there is to get medical care. The amount you can exclude cannot be more than $50 per night for lodging. I have to tell you in all honesty that I did research to try and find the specific ruling that your question is based on but I was unable to find one. It may exist but I can only spend a limited amount of time researching it. I don't want my answer to be interpreted by readers as blanket agreement as to its existence. For more information on medical expenses please review Publication 502, Medical and Dental Expenses. You may order IRS forms and publications by calling [phone] or on-line at www.irs.gov.

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Capital Loss Carryforward
Question from Thiep Vu
January 27, 2005 at 4:09pm

Dear Kathy,
I had about $6,500.00 loss in selling stocks in 2000.I did claim the #3000.00 deduction on 2001 but did not claim the remain 3,500.00 loss the following year. Can I deduct the remaining loss in 2004 income tax return. Thanks

Answer: Thiep - No in this case you must file two amended returns - tax year 2002 and tax year 2003. You will claim $3,000 on the 2002 tax return and the remaining $500 on the 2003 tax return. You will amend the returns using a 1040X and Schedule D for each tax year. You can order IRS forms and publications from [phone] or on-line at www.irs.gov. Remember to also order the 1040 instructions for each year so you can calculate the correct amount of tax.

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Rental Income and Expenses
Question from Steven
January 27, 2005 at 1:10pm

We have a rental house (sunriver) and after depreciation, interest - we have a large mortgage, hot tub, owner's fees, utilities, etc. we lose about $10,000 a year on it (deductions capped - graduated) due to income over $100M - currently $145M. My question is, can I use this $10M/year - total is now @ $75,000 to offset capital gains when I sell it - I should sell if for around $85M more than basis?? How do I do this?

Answer: Steven - Basically stated, in the year of sale you will get to take into consideration any unallowed passive losses from prior years. This is quite complex and I would recommend seeing a tax professional. If you want to try to tackle this yourself informaton on dispositon of a passive activity is discussed in Publication 925, Passive Activity and At-Risk Rules. IRS forms and publications can be ordered at [phone] or on-line at www.irs.gov.

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Withdrawal from 401(k)
Question from Douglas
January 26, 2005 at 8:44pm

If I withdraw $10,000 from my 401K and use it as a downpayment on a house I understand there are no penalties but do I have to include the $10,000 as income on my tax return.

Answer: Douglas - There is no exception to the early distribution penalty for withdrawals from a 401 (k) to buy, build, or rebuild a home. Your distribution if before age 59 1/2, is subject to the 10% distribution penalty and is added as ordinary income. Possibly you received a loan from your pension plan? There is an exception concerning the treatment of the loan if used to buy your main home. The confusion may be that an exception to the penalty is allowed for an early distribution from an Individual Retirement Account for buying, building or rebuilding a first home. Publications 575, Pension Income and Annuity Income, outlines the exceptions to the early withdrawal penalty on page 28 and on loans treated as distributions on page 15. IRS publications can be ordered by calling [phone] or on-line at www.irs.gov.

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Need to File Past Year's Returns
Question from Marty
January 26, 2005 at 7:31pm

Almost 10 years ago my spouse died instantly and unexpectedly. Sometime later I discovered that several years of our joint returns weren't filed although I signed them. During our marriage, I developed a serious phobia about the IRS and attorneys, and have been scared all these years about what to do. I haven't sent in my own returns since, because I'd have to explain the previous years. Now I think I'm ready to face the problem, but am shakey about where to turn. My questions:
- Am I liable for the entire outstanding tax owed?
- Is there a reputable tax attorney, IRS customer service person, or other entity that I could contact? I am afraid of having to go to jail because of what my spouse started. I'm also afraid of what any assistance will cost.

Your column may just provide the push I need to clear my conscience. Thank you for being willing to provide this public service.

Answer: Marty - I am glad you are asking this question. This is a dilema that many people face. Why do otherwise law-abiding, conscientious citizens suddenly stop filing federal income tax returns? IRS research has shown taxpayers first fail to file a return in a year when circumstances change. For either emotional or financial reasons (or a combination of both), they are unable to prepare and file a return. The reason might even be procrastination, but whatever the reason, failure to take corrective action only compounds the problem.
When the next year’s return is due, the taxpayer faces a dilemma. Will filing call attention to them? What about the forms needed to prepare the earlier return? What about the financial burden of paying taxes due in previous years? What if they have lost some of the records needed to prepare the earlier return? There is also the stress of worrying about being discovered by the IRS.
So, what should a person do who has one or more unfiled federal tax returns? They should immediately contact a tax professional or the IRS and get the delinquent returns filed. Failure to take prompt corrective action only compounds the problem!
For people with multiple unfiled returns, IRS practice is generally to limit investigations and examinations to the last six years. Anyone unable to fully pay their liabilities immediately should not let that prevent them from filing as payment options may be available. For more details, ask your tax professional or an IRS representative.
The bottom line is IRS is used to dealing with these issues. This is part of our job. Contact us at [phone] or go into an office close to you or call a tax professional make an appointment with them and discuss the situation with them. Any of these our good options for you. It will be a big relief for you to get this resolved.

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Itemizing Deductions
Question from Mark
January 26, 2005 at 4:56pm

We just bought our first house in August 2004. Besides the property taxes and mortgage interset paid, what other basic deductions can we take? We are a family of three (one child) and have one wage earner. Thanks!

Answer: Mark - Since it appears that you already understand that real property taxes and mortgage interest are generally the only items deductible when you purchase a home you may be talking about other deductions to itemize on Schedule A, Itemized Deductions. Medical expenses such as insurance and unreimbursed medical expenses; state income tax withholding or sales tax; charitable contributions (cash and property); miscellaneous deductions which consist of unreimbursed business expenses, tax preparation fees and others. Publication 17, Your Federal Income Tax, gives a nice overview of all deductions allowed as itemized deductions. You can order IRS publications by calling [phone] or on-line at www.irs.gov.

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Question from Ron
January 26, 2005 at 4:38pm

Hi Kathy. I'm using turbotax for my taxes this year and I'm hoping to deduct my child's pre-school costs. Are they deductible and is there any limitation to the deduction?

Thanks.

Ron

Answer: Ron - Nursery school or pre-schools costs may only be deducted as a child care expense when it is work-related. Expenses are considered work related only if both of the following are true:

They allow you (and your spouse if you are married) to work or
look for work.
They are for a qualifying persons' care.

For example: You take your 3-year-old to a pre-school that provides lunch and a few educational activities as part of its preschool child-care service. You can count the total cost to figure the Child Care Credit up to $3,000 for one child. The credit is a percentage of the expenses based on your adjusted gross income.

Expenses for first grade or higher are not expenses for care.
If you meet these qualifications and you are using the interview format on TurboTax when the program asks you if you have child care costs you would answer "yes" and the program will generate the Form 2441 or Schedule 2 depending on whether you are filing Form 1040 or 1040A. For more information you can obtain Publication 503, Child and Dependent Care Expenses. You can order IRS publications and forms by calling [phone] or on-line at www.irs.gov.

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Retention of Tax Records
Qeustion from Britney
January 26, 2005 at 4:19pm

Kathy,
I have heard conflicting information on how long you have to keep Federal tax records? I've heard anywhere from 3 - 12 years! Can you tell me definitively how long I must keep my financial records for tax purposes?

Thankyou!

Answer: Britney - The reason why you may here different timeframes is because this could vary based on an individuals circumstances. You basically have to keep records as long as they are important for the federal tax law. Generally this is 3 years from the date you filed the return. We recommend keeping the actual copy of the return indefinitely. It makes a good record. You don't have to keep the supporting documents just the return itself. For more information on recordkeeping, get Publicaton 552, Recordkeeping for Individuals. You can order IRS forms and publications by calling [phone] or on-line at www.irs.gov.

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No Withholding
Question from Brian
January 26, 2005 4:01pm

I was hired in July, at which point I filled out my W-4 claiming 1 allowance. I never looked close enough at my paychecks, but they never deducted any state or federal taxes from my wages. What options do I have when it comes to filing my 2004 taxes?

Answer: Brian - This is an unfortunate situation. Did they withhold Social Security and Medicare Tax? This is a reminder for eveyone to review leave and earnings statements. You don't say how much your income was and it may be possible in your situation that the way the tables are set up for withholding that based on the dollar amount and the how often you are paid there was no required withholding of federal and state taxes. If tax should have been withheld you need to make sure that you have corrected the problem for this year with your employer. You could ask the employer what happened but ultimately the burden is on you to file and if you owe tax you will have to pay it. It is important that you file on time and if you owe, pay what you can when you file. If you are unable to pay when you file there are some options i.e. installment agreement or paying by credit card. But first you need to see if that is the case. To check the withholding tables you can use Pub 15, Employer's Tax Guide. To order IRS publications call [phone] or gon on-line at www.irs.gov.

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Thursday, January 27, 2005

Sale of Residence
Question from Ryan
January 26, 2005 at 7:51pm

I recently sold my home and lived in it for less than the two year threshhold. My question is, what options are out there and allowed by the IRS to avoid capital gains, or at least minimize them. I sold due to my child attending a school 20 miles away and we have been driving her for two years and finally decided to move there, close. I also have another child who was under 1 when we moved. Do these reasons change anything? Just curious. I am trying to avoid having to go to a CPA for the first time. I'm 28 and have always done my own returns. thanks, Ryan

Answer: Sorry Ryan, in this case there is no provision that would allow the exlusion of gain on a personal residence lived in for less than two of the last five years. However, if the home was owned for more than a year you will receive a more favorable capital gains rate. Since you do your own return you may want to check out IRS FREE FILE. This would allow you to file your return using a computer software program and e-file it for free. For more information Publication 523, Selling Your Home, will help. You can order IRS forms and publications by calling [phone] or on-line at www.irs.gov.

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Working Outside of the Country
Question from Mark
January 26, 2005 at 6:43pm

I am going to work out of country starting approximately June 1 for 12 mos. I understand I have to be out of country for 355 days out of 365. Will I get a full tax exemption or just the first 80,000. Also how do I go about still wanting to pay into social security.

Answer: Mark - If you are out of the country 330 out of 365 days, you can exclude up to $80,000 each calendar year. These wages are not subject to social security or self-employment tax. You cannot voluntarily pay into social security in this situation. More information can be found in Publication 54, Tax Guide for US Citizens and Resident Aliens Abroad. IRS publications
can be ordered by calling [phone] or on-line at www.irs.gov.

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Last Names on Tax Returns
Question from Mike
January 26, 2005 at 7:46pm

my wife and i recently married but she kept her last name how does that affect our filing can we file married filing joint

Answer: Mike - As long as your wife's last name matches her Social Security Number and she uses her last name on the return there will be no problems. IRS checks every last name against the Social Security Database to make sure they match. You can safely file Married Filing Jointly.

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Tax Refunds
Question from Herb
January 26, 2005 at 5:28pm

If tax refunds are considered taxable income, isn't that double taxation? Why am I paying for money I earned that I already paid taxes on the year before?

Answer: Herb - You are correct and that is why federal tax refunds are not included in your income because they are never allowed as a deduction from income. Your state income tax refund may be taxable on the federal return but only if you itemized deductions in the prior year. Then some or all of it is taxable because you overstated the amount of withholding from the state and received a federal tax benefit from it. More information can be found in Publication 17, Your Federal Income Tax. IRS publications can be ordered by calling [phone] or on-line at www.irs.gov.

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Withholding
Question from John
January 26, 2005 at 3:52pm

What's the best way to figure out how many allowances my wife and I should take on your w-4's? I don't want to end up owing taxes. We are both new to the workforce (I was 1099 contractor and she was a student). Married and have no children.

Answer: John - We have a great feature on the IRS website. It is called The IRS Withholding Calculator. It's purpse is to help you determine the right amount of withholding so you don't have too much or too little withheld. Here is the web address: http://www.irs.gov/individuals/article/0,,id=96196,00.html
If you would like additional information Publication 919, How Do I Adjust My Withholding, will help. IRS publications can ordered by calling [phone] or on-line at www.irs.gov.

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Filing Prior Year Returns
Question from BillyBob
January 26, 2005 at 3:40PM

I have a cousin who has not filed in years. The longer this continues the harder it is for him to do it, he says. I know he'll get money back, but he's afraid of other unknown consequences. What should he do and how can I convince him to file? Thanks!

Answer: BillyBob - You can let him know that he is not alone. People who miss the due date and delay filing often end up putting if off and one thing leads to another and several years have gone by. Very often people who put off filing do end up getting refunds. There are no penalties assessed on a late filed return if you are getting a refund. I would make sure that he has the necessary documents to prepare the return - W-2' and 1099's. If he does not then he can request copies by calling [phone]. Once he has his documents then you can either go to a tax preparer or if the returns are fairly basic you may want to consider using volunteer tax preparation. If you are in Oregon there are many locations. To find a location of an AARP Tax-Aide site call [phone] or check their web site at http://www.aarp.org/money/taxaide/. The statute of limitations on refunds is three years from the due date of the return. The statute for Tax Year 2001 expires April 15, 2005. He would need to file his 2001 return before that date. He will feel much better once he has filed his returns and he is up-to-date. Thanks for helping him.

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Single or Married Filing Separate
Question from LR
January 26, 2005 at 3:31pm

Dear Kathy,
Why is it that I cannot claim my Student Loan interest if my filing status is Married Filing Separately? Also, I have been separated (not legally) from my wife for over 6 months, could my filing status be single? Sorry for the two question but I think they sort of relate. Thanks for your help.

Answer: LR- Married Filing Separately is the generally the least advantagous of the filing statuses as you have already determined. This is to eliminate couples from manipulating the system to double up on credits, deductions, etc. Married Filing Separate (MFS) eliminates most credits and deductions that couples who file jointly can claim. Is there a possibility that you and your wife could agree to file Married Filing Jointly because it would be more beneficial for you both? The only way to file a return in your circumstances other than MFS is if you have a child and your child lives with you for more than half the year and you claim an exemption for the child. Then your filing status would be Head of Household. Please see Publication 17, Your Federal Income Tax, pages 24 & 25 for additional information. You can order IRS publications by calling [phone] or go on-line at www.irs.gov

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Verification of Non-Filing
Question from Dan
January 26, 2005 at 3:22pm

How do I find out what years I still need to file for?

Answer: Dan - You can get verification of non-filing by calling [phone]. You can also receive information to help you file such as Form(s) W-2 and Form(s) 1099 that were sent to IRS by payers of that income. It takes approximately two weeks to get the information and it is free of charge.

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Part Year Resident
Question from Kelsey
January 26, 2005 at 3:02pm


I worked and lived in Arizona from August of 2003 to March of 2004 and then moved back to Oregon. Do I need to file Part Year Resident Forms for both states?

Answer: Kesley - Since you are asking about two state returns I need to refer you to the Oregon Department of Revenue and the Arizona Department of Revenue. They can help determine the correct return to prepare on the state level. Federal tax is the same in all 50 states. The Oregon toll-free help line is [phone] and their web site is www.oregon.gov/DOR. The Arizona web site is http://www.azdor.gov/

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Sale of Personal Residence
Question form Richard
January 26, 2005 at 3:25pm

Can you tell me where I can find information of tax treatment of sale of home and purchase of a new one. Thank you, RB

Answer: RB - IRS Publication 523, Selling Your Home, will have that information and more. You can order IRS publications by calling [phone] or on-line at www.irs.gov.

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Car Allowance
Question from Cindy
January 26, 2005 at 2:51pm

My husb gets a car allowance from the company he works for. He uses the car primarily for business. Can we write off the car as a business expense? or the money he is given as a business expense?

Answer: Cindy - Generally it depends on how your husband's employer is accounting for the allowance. If it is an accountable plan and he receives a mileage allowance up to the federal rate - 37 1/2 cents a mile in 2004 - and any excess is returned to the employer then the employer would not report the allowance as wages on the W-2 Form. He would not claim any amount as expenses because none of it is taxable. If it is a nonaccountable plan with either adequate accounting or return of excess, or both, not required by the plan then the allowance is reported in Box 1 of the W-2 and then expenses would be reported on Form 2106, Employee Business Expenses. Employee business expenses are deducted on Schedule A - Itemized Deductions. For definitions of an accountable and nonaccountable plan please refer to Publication 463, Travel, Entertainment, Gift and Car Expense. page 28. You can order IRS publications and forms by calling [phone] or check on-line at www.irs.gov.

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Wednesday, January 26, 2005

Corporate Tax Return
Question from Mitch
January 25, 2005 at 4:33pm

A couple years ago I formed a corporation. I made some money and had some expenses. Last year I made less money in the corporation and had less expenses. This year almost nothing in both the made money column and expenses column. Both last year and this I paid a tax consultant to do my taxes because of the corporation. My question, do I have to keep filling out a tax form for the corporation if I didn't make any money or have any expenses?

Thanks, mitch

Answer: Mitch - All domestic corporations in existence for any part of a taxable year (including corporations in bankruptcy) must file an income tax return whether or not they have taxable income. If you would like more information on corporations check out IRS Publication 542, Corporations. You can order IRS publications by calling [phone] or on-line at www.irs.gov.

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Tuesday, January 25, 2005

To expense or not to expense
Queston from Jan
January 24, 2005 at 5:06pm

Hi Kathy, In your opinion would it be better to buy a new 6,000+ vehicle and take the maximum deduction...I think it's $25,000 OR buy a 1-2 yr. old smaller vehicle with better gas mileage and not take the maximum $25,000 deduction? Thanks

Answer: Jan - It is a good question that many individuals face each year. Since you are talking about tax year 2005 tax matters you will need to determine for your individual circumstances which is most beneficial. When you purchase a vehicle there are generally two methods of claiming expenses for the car - actual expenses or the standard mileage rate. How long you will keep the car and how much you drive the car for business should be considered. What is your projected income for 2005? Would it be beneficial to have a $25,000 deduction to reduce your tax liability? These are just some of the factors that need to be taken in consideration. I would suggest talking to a tax professional or tax planner about your options. If you would like to do some research on tax deductions for autos Publication 463, Travel, Entertainment, Gift, and Car Expenses, would be a good place to start. You can order IRS publications by calling [phone] or at www.irs.gov. Good Luck!

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Resident or Part-year Resident
Question from Travis
January 24, 2005 at 5:21pm

I recently was married in December. Therefore we will file our taxes together. She was a partial resident in Oregon, moving back here 6/1/04. If we were not married she would do a part-time Oregon tax return. How does it work since we are married filled jointly? Does the marriage trump the part-time Oregon resident? Thank you.

Answer: Travis - Since you are asking about the state return I need to refer you to the Oregon Department of Revenue. They can help determine the correct return to prepare on the state level. Federal tax is the same in all 50 states. The state's toll-free help line is [phone] and their web site is www.oregon.gov/DOR.

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Address on Return
Question from Brianna
January 24, 2005 at 4:16pm

I have been working in the Portland area for the past year straight, but I still have a permanent address with my parents in Seattle since I just graduated from college in spring "03 and have been taking a few classes. I am currently waiting to find out about graduate school here in Portland. That's my situation, my question is, am I allowed to still be considered a Washington resident? Do I put my parent's address as my permanent when doing my taxes (since I still do my banking through that location, and car insurance). I want to make sure that I have this all straight. Thank for your help!

Answer: Brianna - Since you are asking about what address to put on your state return when you file it, and since it is not an issue on the federal level, I need to refer you to the Oregon Department of Revenue for an answer. Their toll-free help number is [phone] and their web site is www.oregon.gov/DOR.

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Babysitter
Question from Olivia
January 24, 2005 at 7:11am

Hi Kathy,

What form do I need to give to my babysitter to reflect what I paid her last year? And, on what form of my taxes will I report what I paid her?

Answer: Olivia - If you pay someone to come into your home and care for your dependent you may be a household employer who has to pay employment taxes. Usually, you are not a household employer if the person who cares for your dependent does so at his or her home or place of business. It is not clear from your question what the circumstances are. If you are a household employer then you would need an Employer Identification Number and may have to report employment taxes using a Schedule H that is attached to your individual tax return. You would provide your employee with a W-2 Form showing wages paid. Additional information can be found in Publication 926, Household Employer's Tax Guide. To claim a tax credit for work related child care expenses you use Form 2441, Child and Dependent Care Expenses. IRS publication 503, Child and Dependent Care Expenses, has information about taking this credit. To order IRS forms and publications you can call [phone] or go on-line at www.irs.gov.

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Filing Requirement
Question from Patricia
January 24, 2005 at 11:26pm

Hi Kathy,

Do you know what is the income limit for tax filing in Oregon...another word, if my income is $3k or less, do I need to file an Oregon tax return?

Answer: Patricia - since you are asking about the state return I need to refer you to the Oregon Department of Revenue. They will need to ask some additional questions i.e. are you self-employed, do you have any dependents, and is someone else entitled to claim you as a dependent on their return. Just a reminder for everyone there are some valuable tax credits that you may qualify for and the only way to receive them is by filing a tax return. If you have withholding the only way to get a refund if you owe no tax is by filing also. Just because you may not be required to file it could be beneficial. The state's toll free helpline number is [phone] and their website is www.oregon.gov/DOR

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Multnomah County Tax
Question from Beth
January 24, 2005 at 9:12pm

hi there - appreciate your help. i got a mult county assessment for 2003 at the full year resident rate. i only lived in multnomah county 2 months of 2003. do i have to pay the tax on the full year?

Answer: Beth - My good friends at the Multnomah County Personal Income Tax office tell me that you only pay the tax on the actual number of days you resided in Multnomah County in 2003. What is important is to respond to the notice. For more information you can contact the Multnomah County ITAX Helpline at (503) 988-ITAX (4829) or check their website at http://www.co.multnomah.or.us/tax/.

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Capital Gains Tax
Question from Bruce
January 24, 2005 at 7:50pm

RE: Cap. Gains - if I sell my home just six months after I bought it, because of an unexpected pregnancy, and realize a $200K gain from what I bought for, minus improvements and real estate and bank fees, how much cap. gains tax will I be liable for?

Answer: Bruce - the amount of tax you pay will depend on your tax bracket. The gain on the sale is considered ordinary income and not given any special treatment. It will be added to your other income. The gain is considered short term.

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Per diem rate for Amsterdam
Question from Travis
January 24, 2005 at 5:48pm

Dear Kathy, My company sent me to Amsterdam two times last year. My food per diem rate was only $31. The government rate through the DOD for 2004 was $112 in Amsterdam. This was just for food and did not include incidentals and lodging. So if the government is allowed $112 per day, can I subtract $31 (what I was allowed) to write off $81 per day X the # of days I was over there on my 2004 taxes? Thanks for your time. Travis

Answer: Travis, you are allowed to deduct the difference as an employee business expense. Use Form 2106, Employee Business Expenses, to claim the deduction and Publication 463, Travel, Entertainment, Gift, and Car Expenses , for further guidance on this subject.

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$5,000 from Builder
Question from Kevin
January 24, 2005 at 4:44pm

The builder of my home offerred me $5000 in closing costs on my home loan if I used their preferred lender. Can I deduct this $5000 from my income taxes?
Thanks for your time.

Answer: Kevin, it would not be deductible even if he had not paid it. You can refer to Publication 530, Information for First-Time Homebuyers, page 9 for additional information. Order IRS publications by calling [phone] or go on-line at www.irs.gov.

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Bankruptcy
Question from RJ
January 24, 2005 at 4:26pm

I filed bankruptcy in 2003,discharged in November. The only 1099 form I got was for the house I lost, showing the market value was more than the mortgage company sold it for. How do I report that? There were other leins that were discharged, including IRS. Do I report those? I don't have an accurate accounting of the totals. I haven't file dfor 2003 yet becasue I didn't know what to do with the bankruptcy data and can't afford to have them done by a professional.

Answer: RJ - You will need to file your 2003 tax return and attach Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness , to your return. This will establish for IRS that the discharge of indebtness, reported to us on the Form 1099, is related to a bankruptcy. For more details, get Publication 908, Bankruptcy Tax Guide. You can order IRS Publications by calling [phone] or go on-line at www.irs.gov.

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Travel Expenses
Question from V Bailey
January 24, 2005 @ 7:21pm

can travel expenses be deducted when applying for phd degree internship

Answer: V You may have either job hunting expenses or work related education expenses. There really is not enough information in your question. I would suggest calling IRS at [phone] and asking your question or order Publication 970, Tax Benefits for Education or Publication 529, Miscellaneous Deductions to see if that will help you answer your question. Publications can be ordered by call [phone] or on www.irs.gov.

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Tax Preparation Fees
Question from John
January 24, 2005 at 7:35pm

How much money should I expect to pay for tax preperation for a small oregon S-corp with about $220,000 gross income. and no real complicated scenarios, just 2 employees, no unusual paperwork and typical accounting, expenses deductions, plus tax preperation for myself (owner) same (typical situation nothing unusual) I feel like I have been paying too much, but dont really have the knowledge to do it myself? what other options are viable for my situation. Thanks, John.

Answer: John I am not sure what you do as an SCORP but I bet you and your employees are really good at it and probably would cringe if someone said that what you do is not really complicated and they think they are paying you too much. Regardless of what they say you are the expert and people pay you for your expertise. This is the way I feel about tax professionals. Unless you think you can do the job as well as they can - leave to the experts. Sometimes things seem simple but are not. Does the firm also do the required payroll accounting year round for you and your employees? If you think you are paying too much then I would call a few tax professionals give them your scenario and ask what they would charge. Remember not all tax professionals are trained in the preparation of corporate tax returns. Good luck!

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Real Property Tax Deduction
Question from Jane
January 24, 2005 at 6:20pm

My real estate tax statement shows the amount due for the County's fiscal year, not the calendar year 2004. Do I need to figure out what I paid in 2004 for my federal tax form?

Answer: Jane you can deduct real property taxes imposed on you. You must have paid them either to a taxing authority (either directly or through an escrow account or if you purchased a home at the time of settlement or closing. They must have been paid in 2004. Regardless of the County's tax year you are a calendar year taxpayer and can deduct what you actually paid in 2004. That amount would be fully deductible if you itemize your deductions.

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SUV Loophole
January 24, 2005 at 3:57pm

Did the SUV Taxloophole for 6000 GVR vehicles expire in 2004? The president changed some rules and I cann't find them. What is the current rules for business deduction on these type of vehicles Thanks

Answer: Effective for sport utility vehicles placed in service for business use after October 22, 2004 applies to sport utility vehicles that do not exceed 6000 gross vehicle weight. The new limit on the 179 expense deduction (what you can expense in one year) is $25,000. The 2004 Publication 463, Travel, Entertainment, Gift, and Car Expenses gives a detailed explanation. You can order that publication by calling [phone] or obtain it at www.irs.gov.

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Points
Question from Hung Hguyen
January 24, 2005 at 7:02pm

I Just refinance My house on May last year,
Could I claim the Charge fee from new loan and discount point etc..? Please help. Thanks Hunguyen

Answer: The term points is used to describe certain charges, paid, or treated as paid by the borrower to obtain a home mortgage loan. Points can also be called loan origination fees, maximum loan charges, loan discount, or discount points. Generally you cannot deduct the full amount of points in the year paid. They are prepaid interest, so you generally must deduct them over the life (term) of the loan. There are some exceptions. Please refer to Publication 17, Your Federal Income Tax, page 165, under the heading Refinancing for specific details on the exception to the General Rule. You can order Publication 17 by calling [phone] or at www.irs.gov.

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Filing Status
Question from Valerie
January 24, 2005 at 6:40pm

My partner and I are 2 of the 3000 "March marriages" of same sex couples. Oregon tax instructions say to claim ourselves as we do on our federal filing. If we claim ourselves as married it could be considered fraudulent because that fact is still up in the air. If we claim ourselves as single the same thing is true. What would you do in this situation?

Answer: Valerie, for federal tax purposes your filing status depends on whether you are considered unmarried or married. IRS Publication 17, Your Federal Income Tax page 23 states; "a marriage means only a legal union between a man and a woman as husband and wife". For federal tax purposes you are considered single. You can order Publication 17 by calling [phone] or at www.irs.gov.

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Earnest Money
Question from Salman
January 24, 2005 at 4:16pm


I paid 11K in earnest money for condo in 5/2004, am I able to write that off?? thank you in advance Salman

Answer: Salman if you actually purchased the home the earnest money is considered part of the down payment and not deductible. If the condo is for personal use then you may be able to deduct the home mortage interest and real property taxes that you paid in 2004. If the condo is going to be used as a rental property then you would establish the basis of the property and claim a depreciation deduction as well as other expenses of renting the property. If this is your personal home check out IRS Publication 530, Information for First -Time Homeowners, if this is rental property then Publication 527, Residential Rental Property will help you. You may want to consult a tax professional if this is rental propery. Order the publications by calling (800)-829-3676 or at www.irs.gov.

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Business Start-Up Costs
Question from Flying Tiger
January 24, 2005 at 3:10pm

Have a new embroidery business (LLC) founded last year (2004), invested about $30,000 in equipment and supplies to prepare for taking off this year, didn't have sales last year. What kind of expenses could be deductible? The $15,000 piece of machine could be expensed or have to depreciate over years? Thanks for your help! Tiger

Answer: Tiger Congratulations on your new business venture. I hope you are successful. Your question is quite complex and depending on your circumstances could have several different answers to the questions. In general start-up costs are deductible and the equipment you purchased could either be expensed or depreciated, however you need to be able to look at the whole picture. For example would it be wise to expense a piece of equipment if you have no income to offset? Maybe depreciation would be best in the long-term. There are several choices you have to make when starting a business and lots of issues to consider. My recommendation is to seek guidance from a tax professional especially in the first year you establish your business. If you really want to try to tackle this yourself IRS Publication 535, Business Expenses , might be a good place to begin. You can either order the publication by calling [phone] or go to www.irs.gov and view or print it.

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Oregon Full-Time Student
Question from Laura
January 24, 2005 at 3:17pm

If I moved here in August and am a full-time student (i.e. have not worked since I moved here) do I need to file a tax return in Oregon? I will file one in Massachusetts (where I did earn income), but am not sure about what I need to do here.

Answer: I am going to assume that you are living in Oregon to go to school and that you think of Massachusetts as your home; and Massachusetts is the center of your financial, social and family life; and Massachusetts is the place you intend to go back to when you are away from Oregon. If this is true you are not considered a full-year Oregon resident. According to my good friends at the Oregon Department of Revenue since you had no Oregon source income you have no filing requirement for Oregon. If you receive income while working in Oregon then that would change. For more information check the Oregon Department of Revenue website at www.oregon.gov/dor

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Monday, January 24, 2005

California Tax Question
Question from Charles
January 24, 2005 at 12:41pm

I am not a resident of California; in 2004, however, I earned approximately $700.00 from a company based in CA, for which I received a W-2. Do I need to file a state return with California?

Answer Charles my area of expertise is Federal Income Tax and that is really a question that you need to ask the Franchise Tax Board of California. You can find the answer at http://www.taxes.ca.gov/. Remember even if you do not have a filing requirement if there was California State Tax Withholding you would want to file to get a refund of withheld taxes. For federal tax purposes that $700.00 is taxable and included on your federal tax return.

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Non-receipt of W-2
Question from Steve
January 24, 2005 at 11:37am

I changed jobs this year and I am afraid my ex-employer will not send the W-2 form. What can I do?

Answer: Steve in general, employers must provide employees with Form W-2 , by January 31, 2005. After January 31, 2005, if you have not received Form W–2 you should contact the employer.
You may not have received your form because of an incorrect or incomplete address. Be sure to verify the address used if already mailed. If the form was returned to your employer because of an incorrect address, or never mailed, and the employer intends to issue or re-mail, allow a reasonable amount of time for this action to occur before calling the IRS for help.
After February 14, 2005, the IRS will help you obtain the missing forms. Call 1–800–829–1040. Be prepared to provide your name, address (including zip code), phone number, Social Security Number, and dates of employment and the name, address (including zip code), and phone number of the employer.
For additional information on this topic follow this link http://www.irs.gov/taxtopics/tc154.html

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Tax Forms
Question from Mary
January 24, 2005 at 9:30am

I moved this year and did not receive my tax forms in the mail? How can I get forms?

Answer: Mary you have several options:
You can order current year forms and tax form packages at www.irs.gov. They will be mailed to you.
You can print or download and print prior and current year tax forms from www.irs.gov Many forms are in a fillable format. Fill-in on line and print.
You can call [phone] and order tax forms.
Many local libraries carry a variety of tax forms.
Some post offices stock common current year tax forms.

Hope this helps!

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Tax Software
Question from Phil
January 24, 2005 at 9:23am

I want to file my return electronically. What software is approved for IRS e-file?

Answer:The IRS provides information about software companies that have passed IRS testing at http://www.irs.gov/efile/lists/0,,id=101223,00.html.
The IRS provides the information as a convenience to taxpayers. The IRS does not endorse specific software companies. You may also want to check the FREE FILE opportunites on our website www.irs.gov. You may be able to prepare and file your return for free depending on your income and individual circumstances.