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Week of 4.3.09

Income Taxes: You Asked, He Answered

We received many questions for tax expert Brian C. Greenberg, who last week offered 11 useful tax tips and strategies for individuals, business owners, and parents. Read Greenberg's answers below:

Question: How much can I write off my taxes if I don't have a receipt for business expenses, charity, etc?

Brian Greenberg (BG): Everything is relative to the income. If you could substantiate that you drove, say, 10,000 miles during the year even though you don't have gas receipts, I would still deduct it. If there is another means of supporting the deduction, you should go for it. If you work from home, there are expenses you should be deducting, like a portion of utilities, rent, and phone. As for charity, my rule of thumb is $10 a week for a church, and $400 or so for good will.

Question: I lost my job in 2008. Can I deduct the expenses of finding a new job?

BG: Yes you can. This includes auto travel, costs for resumes, and joining career-related services.

Question: If I refinance my mortgage and lower my rate wouldn't I be claiming less of a deduction on my taxes, and therefore get less of a refund? If so, is it better to not refinance?

BG: Using that logic you should try to get a mortgage rate of 10%. Seriously, it's always better to spend less (have a lower interest rate), regardless of the tax rate.

Question: Is it true that unemployment benefits are not going to be taxed as part of Obama's stimulus package?

BG: The first $2,400 of benefits will not be. But the rest are. Therefore, when you get your benefits, make sure you don't spend it all—the government wants some of it back.

Question: I bought a home in 2008. Is there any way to be eligible for the $8,000 reimbursement for buying now?

BG: No. If you are a first time home buyer you can take the $7,500 "credit," which is in fact a loan that needs to be repaid over 15 years.

Question: Can you please clarify the deadline for converting an IRA to a Roth Ira? Is it December 31 or April 15?

BG: The deadline for converting an IRA to a Roth IRA is December 31. One needs to earn $100,000 or less regardless if married or single. However in 2010, and for 2010 only, that income limitation is waived and there is no income restriction on conversion.

Question: My boyfriend and I live together and have a baby. We both work, and he pays most of the bills. Can he claim head of household status?

BG: Since you live together, the person who pays the majority of the child's bills should claim head of household status and in turn claim the child on his tax return.

Question: Can I amend my taxes after the deadline?

BG: Yes. You have up to three years to amend your taxes.

Question: I take on freelance projects in addition to my full time job. How much can I earn before I have to declare the side income?

BG: You may be better off declaring the income regardless of how much you make, because your expenses may be higher, and you in turn will pay less in taxes.

Question: I have recently heard of a tax preparer that is "encouraging" the filers to report that they purchased or will purchase a home in 2009 in order to receive the $8,000 refundable credit. I am hoping that there is something in this recent perk that will track who took the credit and who actually purchased a home. Will it be tracked?

BG: You are referring to the credit available for first time home buyers, who can receive $8,000 from the IRS if they purchase a home in 2009 before December 1st. They do not have to wait, but can amend their 2008 tax return to collect their money. As for tracking the perk, you appear to be concerned there may be taxpayer fraud. In this country we reside under the honor code when filing our tax returns with the help of W-2s, 1099s and 1098s (forms to report income and mortgage deductions), but the penalties are very high for fraud.

Question: My husband and I were not working last year and basically were living from our interest income and savings. The income was minimal. We were paying COBRA for healthcare and we incurred a total of $11,500 for healthcare premiums, $2007 out of pocket expenses, and $1091 in dental COBRA premiums for a total of $14,581. I'm wondering if these expenses are tax deductible?

BG: Medical expenses are always deductible and all the medical expenses listed above would be considered deductible. But there is a catch. In order to have a deduction on your return, your total medical costs must exceed 7.5% of your adjusted gross income. At that point, the deduction is for only those dollars that exceed that 7.5% threshold.

Question: I have to wear a uniform for my job and I have to pay for it myself. Can I deduct this?

BG: Yes.

Question: It seems that tax accountants are "specialists" in various types of taxpayer categories. How does one find a tax specialist that can start with the end result and work back to ensure "optimal" preparation for tax treatments?

BG: I'm an old-fashioned accountant. We prepare the return before arriving at the amount due or to be refunded. I understand there may be a few accountant "specialists" who tell you what your refund is, then work backwards—i.e. figure your income and deductions. However, I would stay away from them.

Question: Parents I know have a mentally disabled, 26-year-old child living with them because she cannot live on her own. The parents are only able to work part time making about $12,000 a year. Can the parents claim the child as a dependent and would they report her income on their return or on hers? Would they be able to get an earned income credit? They have a doctor's note saying their child is permanently handicapped. The child does not want to file for social security benefits.

BG: A child can be claimed as a dependent if the child is under the age of 19 or in school and under the age of 24, or if the child earns less than $3,500 per year. That appears to be the case here and given the earned income of the parents, they may be eligible for the earned income credit. The income earned by the child is reported on the child's return, but given the assumption above, if one earns less than $5,000 no tax is due. I would encourage the child to file for social security benefits—he or she is entitled and it clearly would help ease the parents' burden.

Related Links

11 Tax Tips and Strategies

Retirement: You Asked, She Answered

Retirement, Interrupted: What to Do?

Housing Crisis: You Asked, She Answered

Coping with the Mortgage Mess

What You Should Know About Your Credit Card

Credit Cards: You Asked, She Answered

Note: The answers provided by Brian Greenberg represent solely his opinion and do not represent the opinion of NOW or its producers, who bear no responsibility for them. These answers do not necessarily reflect knowledge on Greenberg's part of all factors relevant either to the circumstances of the questioner, or to circumstances experienced by others in their own situations. You therefore should consult with, and solely rely on, your own professional advisors before making any material financial or legal decision rather than on the answers provided here.
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