Tax Time Tips

Have a last minute tax question you need answered? Are the numbers not adding up correctly? Wondering what new laws may affect you or your family?

IRS Spokesman Jim Dupree was online Monday, April 10 at Noon ET to answer any last minute tax-filing questions.

A transcript follows.

For complete Tax Time coverage, go to http://www.washingtonpost.com/tax

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Jim Dupree: Hi folks! Glad you could make it... There are many questions here, so let's get started!

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Annapolis, Md.: Good afternoon -- Am I correct in assuming that as a Maryland resident, I can mail both my state and federal returns next Tuesday, April 18? Thanks.

Jim Dupree: You're right -- Maryland and DC residents have until Tuesday, April 18th to submit both federal and state returns...

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Washington, DC: Jim, I'm a government employee (CSRS) and my wife is a retired school teacher. We are both over 50. Can we deduct an IRA contribution on our 2005 taxes if made before 04/17/06 and if so how much?

Jim Dupree: In general, for taxpayers 50 and over, the limits for IRA contributions increase up to $4,500.00 each... The phase-out range falls between $70-80,000 MAGI (Modified Adjusted Gross Income) for Married Filing Joint returns. The limit for the Spousal IRA contribution is also $4,500.00...

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Washington, D.C.: When I filed my taxes electronically, I got a message saying I should pay estimated 2006 taxes because my husband and I owed $5000 (I think because we did not fill in our W-4 forms correctly so did not have enough withheld each pay period). We both work for companies and are not self-employed so we file as individuals. Do we have to pay these estimated taxes for 2006? Can we just file new W-4s instead so more is withheld?

Jim Dupree: In general, you must pay estimatd taxes for 2006 if both of the following conditions apply:

1. You expect to owe at least $1,000.00 in tax for 2006, after subtracting your witholdings and credits.

2. You expect your witholdings and credits to be less than the smaller of:

a. 90% of the tax to be shown on your 2006 return, or

b. 100% of the tax shown on your 2005 tax return. Your 2005 tax return must cover all rwelve months.

It is allowable to change your W-4s to have more taxes witheld from your wages, in order to not have to pay estimated taxes and avoid paying an estimated tax penalty.

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Laurel, MD: My husband and I had our taxes done a couple of weeks ago which were electronically filed by our tax preparer. After we got home, we found a large error that resulted in a much larger refund than we should have received. Our tax preparer just corrected the errors yesterday and again filed the tax forms electronically. Should we worry that this action may trigger an audit? What if the first refund gets deposited in our checking account?

Jim Dupree: Don't worry - and spend your first refund without fear. You'll receive an additional refund check for the difference shortly...

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Herndon, VA: Mr. Dupree: My 22-year old son graduated from college last May. He was able to pay for his 2005 tuition from savings. He lived at home the rest of the year, and started a paying job in September. Since was at home for over half the year, getting room and board from me June through December, may I still list him as a dependent?

Jim Dupree: To claim a person as a dependent that person must be your qualifying child or qualifying relative. There are several tests to determine if your son can be claimed as a dependent.

For Qualifying Child, the two most important tests -in this case - are:

- has he lived with you for over half of the year?

- have you provided more than half of his total support for the year?

To be qualified as a Qualifying Relative, the person's gross income must also be less than $3,200.00

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Washington: Help! Last year I used an accountant and this year I'm doing my taxes on my own. The accountant told me last year to remember that I had "carryover" for my federal return for capital gains/loss. It's a couple hundred dollars. I have the dollar number from my notes from last year, but am not sure what to do, where to enter it on the form, and if I need to attach a schedule. Any guidance you have will be very much appreciated. Thanks thanks thanks.

Jim Dupree: A person must carry over capital losses totalling more than $3,000 (unless married-filing seperately, which is $1,500).

Short-term losses are assets held less than one year, and are placed on line 6 of Schedule D. Long-term (held over one year) capital losses are placed on line 14 of Schedule D.

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New york , NY: I owe federal taxes but did not contribute to an IRA or 401k. Can I do so now?

Jim Dupree: Yes... You have until April 17th, 2006 to make IRA contributions. The maximunm contribution can be as high as $4,000.00 or up to $4,500.00 if you are over 50.

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Fairfax, Va.: I was RIF'ed in December 2004; in January 2005, my former employer direct-deposited my severance, over $7,000 in my checking account, and sent me a pay stub indicating that all federal & state taxes had been taken out. This year, I received a W-2 that only showed a small amount, for my final "actual" paycheck, also direct-deposited in January 2005. I asked the former employer to correct the discrepancy, but they refused, stating that the severance had been paid to me in error, and asking me to return the money since they never received my signed separation agreement. (No kidding - why would I bother AFTER they paid me the severance?) I have no intention of returning the severance without a court order. I reported this to the IRS and will file a form 4598 if my former employer doesn't send me a corrected W-2 by April 17. My question is: Can you comment on whether or not the IRS will care that the amount of severance is (apparently) in dispute as income? Thank you!

Jim Dupree: If you received the income, you must report it....

If it turns out that this money must be returned later, you can ammend your tax return.

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Fairfax, VA: I purchased and sold home in 2005. I didn't live in it before selling, and know that I must pay taxes on the capital gains - and treat it as a short term investment. I put major repairs/upgrades into the home before selling it. May I deduct the cost of repairs, closing costs, realtor fee's, mortgage payments and upkeep of the home before selling?

Jim Dupree: Check IRS publication 523, "Selling Your Home," to determine which expenses are tax deductible, and what amounts can be added to your basis.

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Edinburg, Texas: Can people who work abroad file an income tax? if so, which form must be fill out? do people working abroad (i.e. Mexico) can get a return on taxes already paid to the Mexican government?

Jim Dupree: If you are a U.S. citizen with income from sources outside the United States (foreign income), you must report all such income on your tax return unless it is exempt by U.S. law.

If you reside outside the U.S. you may be able to exclude part or all of your foreign source earned income. Check IRS Publication 54, "Tax Guide for U.S. Citizens and Resident Aliens Abroad.

You generally can choose to take income taxes you paid or accrued during the year to a foreign country or U.S. possession as a credit against your U.S. income tax - or, you can deduct them as an itemized deduction.

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Arlington, Va: Hello,

Are all home remodeling/renovation costs tax-deductible?

Thanks

Jim Dupree: Improvements may increase the "basis" of your property which may offset any capital gains taxes that may be due at the time of sale.

For more information, check IRS Publication 523, "Selling Your Home."

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Washington DC: Can you please explain why MD and DC residents do not have to mail returns until April 18? I thought they had to be postmarked by midnight April 17. Thanks.

Jim Dupree: We're asking Maryland and DC residents to mail their returns into our Andover, Massachusetts processing center.

April 17th is a major state holdiay in Massachusetts, "Patriot's Day" - which commemorates the 1775 revolutionary battles of Lexington and Concord (Paul Revere mad his famous ride during these battles) - and our service center will be closed.

In short, Maryland and DC residents have until April 18th to submit their returns.

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Maryland: I read story that mistakes were found in 19 out of 19 tax forms done by paid preparers. The testing organization used ginned up data to create a profile of a certain taxpayer. What does the IRS think about this?

Jim Dupree: There are many good tax preparers out there - and a few bad ones - but the "bottom line" is this:

You are ultimately responsible for what is submitted on your federal income tax return, and its' accuracy, so choose your tax preparer wisely...

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Baltimore, MD: My husband and I did our taxes this past weekend. 5 minutes after hitting "submit" we realized that we made a mistake on our federal return (overstated our AGI by about 3k). We know that we can file an amended return, but my question is how will this impact our state return? We completed the state return using the correct information, but now I am getting paranoid that because the AGI on the state return does not match that on the federal return, something bad will happen (reduced refund, audit, etc)

Jim Dupree: Don't worry... Your correcting the federal return shouldn't impact the state return.

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Re: Laurel: I think you misunderstood Laurel - it sounded like they're going to get a larger refund than they deserve, and will owe money back after the returns are corrected. So they shouldn't spend that first refund, if it is deposited...it's not their money.

Jim Dupree: I blew it! I mistakenly thought Laurel was getting a larger refund the second time....

They will need to send the "difference" back to US before April 18th to avoid penalties and interest.

THANKS for catching my mistake!

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Washington, D.C.: I am a landlord of a small apartment. I pay my property manager to manage the property. What documents do I need to provide the property manager for tax purposes?

Jim Dupree: The Property Manager should provide you with all the documentation for expenses and income of your property.

If the Manager entirely manages this property, without your input or you making the major decisions, you cannot take a loss against your income, as it was a passive loss.

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Jim Dupree: WHEW!

Well folks, that's it. I'm so sorry if we didn't get to your question during this chat.

So many questions, so little time...

Again, THAN YOU all for joining me!

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