How do you e-file your taxes? What are the new tax laws you should be aware of and what exemptions do you qualify for?
Post personal finance columnist Michelle Singletary and Sam Serio of the IRS Baltimore field office were online Wednesday, March 10 at 1:30 p.m. ET to discuss everything you need to know about filing your taxes.
The transcript follows.
Editor's Note: Washingtonpost.com moderators retain editorial control over Live Online discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions.
Welcome. Sam Serio was so good and there were so many questions last time that I asked him to come back. So let's get started.
Another question from a reader sent to my e-mail:
We have filed our joint federal return using Turbotax. As part of this return, we listed a contribution to one IRA account which is less than would be allowed. If, before April 15, 2004, we decide to contribute more to this account or an amount to my husband's account, should we file an amended return.
Sam Serio: If it's a traditional IRA you're talking about, YES you can claim a deduction -- if you filed Married-Filing-Jointly, and your income is less than $60,000, you can file an amended return to pick up the additional contribution. If your income is between $60,000 - 70,000 dollars, you can claim a partial deduction. If your qualified income is $70,00 or more you cannot claim the deduction.
The money you can't claim as a deduction should be reported on a Form 8606, Nondeductible IRAs...
If you're talking about a Roth IRA, then NO you cannot take deduction, because it's already taxed.
This question comes from a reader in Rochester, NY:
I have read your columns in the past and find them interesting. The latest one on tax deductions for caregiver is most interesting, due the fact that I am doing this for my in-laws, Mother
and Father-in-law. I take them to church
every day and pick them, to doctors,
senior meetings,to the store etc. We,
my wife and I cook for them also. We
would like to know what the tax laws
allow for us to deduct some of this help we are giving to my in-laws, they are my wife's mother and father. We also live next door to them and they rely on us quite a bit.
Sam Serio: There is no deduction for church, and only a possible .12 cents a mile (for 2003) and .14 cents a mile (2004) for medical transportation, ONLY if you can claim the parents as dependents... Except for the gross income test...$3,050.00.
Greetings to you both! Is it possible to open two Roth IRA accounts for tax year 2003? One would be about $95 and would be added to an existing self-directed stock Roth IRA. The balance of $2905 would be added to an existing Roth IRA that's in a bank certificate of deposit.
Can you split your money and make two contributions? I need the small amount in the stock account to cover a trade and a fee, but don't want to put in more than $95. I'd really appreciate learning your thoughts on this situation.
Sam Serio: YES... AS long as you don't go over $3,000 or $3,500 if you're 50 & older...
Falls Church, Va.:
I moved in December from CT to MD for employment reasons. I qualify in all respects for deducting the costs of my move (no reimbursement by my employer) for 2003 income tax purposes and understand all of the things I can include and what's excluded.
My question is this: Can I deduct the full cost paid to the professional movers who packed and moved my household goods? I contracted with them in November 2003 and paid them roughly half of the $10K estimate at that time. The goods were packed and moved into storage on December 12, 2003. On February 24, 2004, I paid the remainder of the charges to move my goods out of storage and to my new Maryland home. The IRS instructions say I can deduct the moving expenses in the year they were incurred or the year they were paid.
Every definition of "incurred" I've read says something to the effect "obligated to pay", so my take is that I can take the entire deduction for tax year 2003 because I became obligated then to pay the full amount even if I didn't. Can I take the full deduction in 2003 or must I take a partial deduction for 2003 with the remainder being deducted in 2004?
Sam Serio: Normally, you deduct expenses when paid. With moving expenses you have a choice: either in the year incurred or the year paid. It's your choice...
Please explain the Alternative Minimum Tax, which groups are most likely to fall under that, and how you calculate it.
Sam Serio: Could be a lot of us... Usually, if your income is over $75,000 and you have four or more exemptions, and live in a high-tax state, you probably should complete Form 6251...
Where can I download free software for e-filing? Or do I have to go out and buy and install something? What do you recommend in regard to this choice? In case it pertains, I usually itemize my deductions and sometimes have mutual-fund dividends.
Sam Serio: At irs.gov, click on FREE-FILE and go to the tax preparer's site to use their web-based software if you qualify, and over 60% of all taxpayers do. All approved software free or not, will make the calculations for you.
Mr. Serio: My 20 year old college junior worked only a few days last year. Even if your W-2 shows a couple of hundred $, are you required to file federal and state (VA) tax returns?
Sam Serio: Normally not, but this is an example of someone who might not have to file but SHOULD file to recapture any withholdings.
I have started giving some fairly old (bought in 1994 or 1996) clothes away to the Goodwill in my town. The clothes are perfect because I have a wonderful dry cleaners and alterations guy. The problem is they are no longer super stylish. I think that if I paid $60 for gorgeous wool pants in 1996 and they still fit great (but are a little out of style) then I at least deserve a $15 tax deduction. Others tell me that is wrong and that the pants have a value of maybe $5.00. What determines value?
Sam Serio: Sounds like my suits.... Call around to thrift stores in your area, and they can give you a good idea of fair-market value of these clothes...
Washington DC 20009:
There is a rather simple questionnaire in the 2003 tax book for determining if you should do the AMT. I did it, and it said I didn't need to do the AMT. Is that a good enough defense for not completing the AMT calc.? BTW, I made about $95K, am single and live in DC.
Sam Serio: YES... As long as you computed correctly.... Another good reason to electronically file, because the software does the CORRECT calculations for you.
If we file married-joint with the federal govt. can we file married-separate with the state -- VA to be specific? My husband is active duty and we are residents of FL. We must pay state income taxes on my income, but not his, how does this work? Turbo Tax just based our tax liability on the federal taxable income number and not just on my salary.
Sam Serio: Call Virginia Department of Revenue, or Florida for this answer, as it's not a federal issue.
I mailed several checks to charities in early Dec 2003, but they weren't cashed until Jan 2004. For which tax year can I take the deduction?
Sam Serio: 2003...
I was unemployed part of last year and am unemployed again. I cashed in the last of my 403B money last year to stay afloat. I paid a lot of taxes at the time. I thought I would break even on 2003 taxes overall. I went to a tax preparer who told me that I have triggered the AMT. I owe more taxes than I can possibly pay. I was already concerned about losing my home, and now this happens. If I call the IRS and explain the situation, what are the options? Thanks.
I just wanted to say I'm so sorry for your job situation. I do hope it all works out!
Sam Serio: I too am sorry... But, file your return anyway. Pay what you can... It seems you had some withholdings on the 403(b) distributions... and complete Form 9465... Making your own INstallment Agreement... And attach it to your return, or call the IRS and explain you're unable to pay at this time. We may ask for a financial statement.
I don't own a home, and usually qualify for Earned Income Credit (1 kid). So I always do my own taxes. But last fall, I moved to a new state and have a lot of moving expenses I want to deduct. Is this going to make doing my taxes a lot more difficult--and should I just have a professional do them for me?
Sam Serio: YES, it will make it a little more difficult but NO you don't need tax preparer - try FREE-FILE or e-file at irs.gov, and let the software handle the difficulties..
Owings Mills, MD:
Wife uses car for her job & company pays mileage. If we were to buy her a car (new or used), then for the year that we buy it, can we deduct the depreciation on the full purchase price or the purchase price divided by 5 (years of financing)????
Sam Serio: You could certainly take the actual method of auto expenses which includes depreciation... Remember, you can only take the business percent of your vehicle... Another consideration is whether her employer has an accountable plan or not, i.e. is the reimbursement not in her W-2, or IS in her W-2... Get Publication 463 to make this choice...
Michelle and Sam,
New home owner so I am a real tax novice. I bought in May of 2003 and only had $3920 in interest for the year. How does a home benefit my tax burden/situation? My boyfriend explained it but I want to know more. I have outstanding credit but I purposely took a house loan that makes me pay what I would pay in PMI as extra interest so that more moolah is tax deductible. Was that a dumb move? I get jealous because my brother and his wife are paying a super low arm payment.
Sam Serio: Never make life decisions based solely on tax implications... You must be able to itemize deductions in order to take advantage of mortgage interest. Sounds like you can. Get Publication 936, Home MOrtgage Interest Deduction.
Our adjusted gross income this year fell in the window where the Roth IRA contributions are limited. I have taken out the excess contributions and earnings, but I don't know where to report the earnings on my 2003 taxes.
Sam Serio: Just report earnings as interest if you are over $150,000 gross income.
I spent most of the year last year unemployed, yet was hit with an enormous tax bill this year - mostly due to the fact that for various reasons I chose not to have taxes withheld from my unemployment checks. I recall hearing that there is a form I can fill out and file with my return where basically I pay what I can now, and they put me on a payment plan for 12 months for the rest? Hopefully I didn't make that up, but then I additionally heard this is like opening a line of credit and will reflect on your credit report?
Can you clear this up for me? If I cant pay all at once, what are my options and what are the impacts on my credit?
Sam Serio: As mentioned before, file with form 9465, and create your own payment arrangement. It shouldn't affect your credit.
What is the alternative minimum tax? And what is its purpose? I was stumped by this last year when I was preparing my Federal tax return.
Sam Serio: Originally to make sure wealthy folks payed at least some tax... Been around since 1969. Unfortunately it hasn't kept up inflation or lowering of the regular income tax rates, AMT, 26% 28%, regular 15% and 27%... It would take new legislation to adjust this AMT for these factors.
We purchased computer equipment for part of our home-office in Dec 2003 but it did not arrive until Jan 2004 (and the credit card was not charged until then either). Do we claim the deduction for 2003 or 2004?
Sam Serio: 2004... It's when put in use...
April 15, April 15, April 15 - everybody knows the deadline is April 15. But then we always hear about the people who are due refunds and have to file within a 3 year window to get the money due them. So for those of us who are sure we are getting a refund, what's the real deadline? Is there any penalty to filing after April 15, as long as it's within the 3 year window?
Sam Serio: No penalty if you're due a refund. IN fact, we'll pay interest after June 1, 2004. HOWEVER, if it turns out you really owe, it's a hefty penalty for not filing, AND if you wait the three years, you let Uncle Sam keep your money...
I have a 401k from a former job which was rolled over to an IRA several years ago. It's gone untouched for a long time, and now that I am looking to purchase my first home, I'd like to use the funds from the IRA. I understand I can use up to $10K from the IRA towards the purchase of a first home without penalty; can that only be used for a down payment? Or can the funds also be used for closing costs? Thanks!;
Sam Serio: Down payment or settlement costs are purchase price, so you're fine...
I am confused about how to treat some extra income I received last year. I am a scientist for a company as my main job, and do some consulting and editing on the side. For some of the consulting I received W2 forms (from one company and a university) and for most of the editing I get checks made out to me. My question is, can I count all of it as part of a consulting business (I want to deduct some business expenses) or are these all like separate jobs I have?
Sam Serio: You'll want to treat it as separate... Since the W-2 employers paid half your FICA, and for the consulting business, you'll owe all of the self-employment tax yourself.
We bought a house last year and now we want to sell it and buy a less expensive in the same area. Assuming we have a gain on the sale, will we have to pay capital gains or can we roll over the gain into the next, less expensive house. Also, what is the capital gains rate? Thank you very much.
Sam Serio: As long as the gain is under $500,000 you don't have to report the sale of the first house. As long as you lived in and owned the house two of the last five years and filed jointly...
For the reader asking about deducting the care for the in-laws. Are there any deductions he can take as a result of caring for his in-laws? Are there any deductions they can take?
Sam Serio: No. Not unless the in-laws are dependents - except for the gross income test...
Hi -- I was wondering about the deduction
for health insurance if you're self
employed. In 2003, I was employed full
time for nine months at a company that
did not provide health insurance. In
addition, I was self employed the last
three months of the year (continuing to
pay for my own health insurance). Can I
deduct 100 percent of my insurance costs
as a self employed individual?
Sam Serio: If the insurance plan was established under your business name, then you can take all of it...
I'm new to the freelance world and am trying to figure out when to file my taxes. Am I required to file them quarterly or is that just an option so I don't have to pay them all at once in April? Thanks!;
Sam Serio: You're required to PAY your taxes quarterly. You file once a year. This is a pay as you go tax system, whether you are an employee or self-employed.
As a parent, I can give my 17 year old daughter money up to $10,000. Obviously, most of that goes to college. BUT can she put some in a Roth?
Sam Serio: No. Roth contributions are based on EARNED income.
I just moved to the east coast and have to pay a huge monthly fee to park for my job (first time I've EVER had to do this). I could not believe it wasn't tax deductible. With all the commuters in DC who have to pay to park, I'm surprised there hasn't been a lobby for this. (I guess the people who would change this DON'T have to pay!)
Or they work from home like I do. It's so nice to be able to show up for work in your pajamas :)
Sam Serio: Join the club... I have to pay for parking too, and it's NOT deductible...
New home owner in Alexandria, Va.:
I just purchased a home this summer. Can I deduct the closing costs I paid?
If so, where on the form can I deduct them?
Sam Serio: NO.. ONly interest and real estate taxes are deductible.
Hi Michelle: I think you give very good advice. My accountant recently omitted the interest income statements that come from the financial institutions but did itemize those amounts in the return itself. Do I need to turn those in now or does the IRS get duplicates from the banks directly? Tx.
Sam Serio: You don't have to file 1099s with your return, unless there was withholding...
Washington, DC 20011:
This is really just a kudos for the Wash, DC and IRS tax offices. I filed my taxes for free online on Sat., Jan. 31 and I got my DC refund back Wed., Feb. 4 and my fed tax refund back on Fri., Feb. 13. Good job people! Also, for all those people out there afraid to do their own taxes, just do it. I've never paid a soul to do my taxes and believe me, I am not a math whiz or numbers cruncher. I did them wrong once in ten years (the year I had a fellowship and my stipend didn't have taxes taken out). And I do the long form. Unless you have lots and lots of different deductions and stuff the directions are pretty straightforward.
Wow. A compliment for the IRS. Are you mad :) Just kidding. Good to know there are folks who appreciate the work the IRS does.
Sam Serio: THANKS! I needed that.... Just under half of all taxpayers prepare their own returns.
I used an IRS Free File site to do my taxes, but accidentally sent them before I had all my 1099s entered. The site says that it has been accepted by the IRS, but I haven't signed and mailed the Form 8453-OL yet. Is there any way to undo this so I can finish it up and re-efile correctly, or am I stuck with what I had entered and will have to file an amended return for the rest?
Sam Serio: No. You will have to file an amended return after the e-filed return has been processed... Wait for your refund.
please answer -- filling out my tax forms tonight.
can I deduct my closing costs for my new home?
Sam Serio: NO...
Sorry I don't understand your answer. We bought a house in July 2003. We want to sell it in May 2004 and buy another in the same area. Assuming we have a gain, will we have to pay capital gains or can we roll the gain into the next house (i.e., the rollover) to avoid paying any capital gain? Also, what is the capital gain rate? Thanks again.
Sam Serio: YES.. You will have a gain. As I said, you can exclude the gain, if you owned and lived in that home for two of the last five years... It appears you didn't.... There is no more rolling-over a gain after 1997...
My husband has worked the past two years as a sales rep for a company that pays him a salary as well as a monthly car allowance. Both last year and this year, they've sent him a W-2 for the salary checks, and a 1099-misc for the car allowance. Last year, this resulted in a large tax bill (since they did not deduct any taxes from the $350/mo checks.) Other employees at the company have itemized their deductions and deducted mileage/car depreciation, etc to avoid the tax bill, but we don't have enough other deductions to make itemizing worthwhile (no mortgage, minimal home office expenses, no major medical expenses.) Is there any way we can avoid a large tax bill this year?
Sam Serio: YES. IN the future, ask your employer to consider this car allowance as additional compensation, which can be withheld on.
I am a single person with an income in the $40K range and put about 10% into my 401K. No home ownership, no student loans. I use the standard deductions and doing my taxes is very simple. For the past few years I have received about $200 back from the Fed Gov. However, this year I will be owing about $400 to the Fed Gov. Nothing in my life has changed, is there any explanation for this increase? Thanks.
Sam Serio: Possibly you were hit by the Alternative Minimum Tax, or you had less withheld this year than last.
Is there an amount at which the IRS recognizes it's not worth filing an amended return?
The House of Representatives offered a new gym benefit this year, which counts as non-cash earnings. I included the value ($212) in my income when I filed my return. I just found out last week that the House paid its share of social security and medicare taxes on this amount, but was unable to include my share in my withholding.
When I called the finance office, I was told I should file an amended return with my Form 4137. I should cross out "Unreported Tip Income" on Form 4137 and handwrite "Non-Cash Earnings."
This seems like a ridiculous amount of effort for $16.21 in FICA taxes. I knew there would be tax consequences to signing up for the benefit, but I assumed when I received the additional W-2 for the gym benefit, that represented the additional tax effort.
Can I avoid filing the amended return?
Sam Serio: Sure... It's up to you... If you don't want it on the record that you had additional earnings for Social Security, then don't file the amended... I'd recommend filing it just so you don't get one of "those" letters us or Social Security...
RE: New Homeowner's Question on Closing Costs:
Would it be helpful to include points as tax
deductible, in addition to interest and real estate
taxes. Not everyone pays points, but they are
Sam Serio: Points are deductible if they are interest...
HELP! My husband is an active duty and a resident of FL. Although I too am technically a Florida resident (I vote there and have a license from there), we live in Virginia. As a result, I've been having VA taxes withheld. When it's time to file our taxes, can we file joint married with the IRS, but married-separate for myself in VA since my husband doesn't have to pay state taxes?
Sam Serio: Already answered... Call VA or FLA. It's not a federal question...
Is there a method to submit E-filing directly to the IRS rather than going through a third party? This just adds unnecessary consumer money for individual filing. I can send my taxes for 37 cents through the mail or approximately $35.00 for E-filing. Doesn't make any sense.
I'm with you. Why can't we all e-file for free.
Sam Serio: MOst Americans CAN e-file for FREE at irs.gov... BUt, to answer your question directly, you must always use a third-party to transmit electronically, whether free or using a paid-preparer...
A single person making $40K, no deducts, gets hit with AMT? Since when? I thought this kicked in at $75,000?
Sam Serio: Generally, it's around $75,000... However, to be sure, check the worksheet on page 38 of Form 1040 Instructions to be sure...
When the "marriage penalty" in regard to standard deductions was erased, was that a permanent change to the tax code? Or will it be rolled back in a few years? Thank you for your time.
Sam Serio: MOst of the recent tax law changes sunset after 2010... Including "marriage-penalty" relief... It might be interesting to note that the marriage-bonus actually affects more folks than the marriage penalty.
Well folks that's it. Sam has to go. Thank you for all your questions and I'm sorry we couldn't get to more. As they say (or should say in the IRS) Happy Returns. See you back here in two weeks.