Tax Time

Washington Post business writer Kathleen Day will be online Thursday at Noon ET to help answer your tax questions.

She will be joined by Grace Allison, lawyer and tax strategist for The Northern Trust Co., who focuses on tax issues involving gift-giving, estate planning and new tax legislation; and Mark Luscombe, a CPA and attorney for the CCH Tax Legislation team, who can offer his analysis of federal tax, its application and its impact on both the individual and corporate taxpayer.

A transcript follows.

For more help in filing your taxes, go to washingtonpost.com's Tax Time Resource Guide.

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Kathleen Day: Hello everyone! Thanks for joining us. We'll try to answer as many tax questions as possible. I'm joined by two experts: Grace Allison, a lawyer and tax strategist for The Northern Trust Co., and Mark Luscombe, a CPA and attorney for the CCH Tax Legislation team. Please remember that we are offering guidelines and suggestions only; we can't possibly know all the details of each individual's situation. That means that ultimately what you decide to do is up to you. If you are uncertain, run it by a professional whose advice you are paying for.

With that caveat, let's get started!

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San Bruno, Calif.: I was told by my accountant NOT to take a full deduction on Schedule A for Federal Taxes--- she said that I would actually pay more taxes because I would now be subject to the Alternative Minimum Tax. I don't understand how this could be true.

Mark Luscombe: I believe that the advice must have been not to take a full deduction for states taxes, rather than federal taxes, since federal taxes are not deductible on Schedule A. The advice might make sense for the state tax deduction since it is allowed for regular tax purposes but not for alternative minimum tax purposes. Since a lot of factors influence that alternative minimum tax calculation, you might have to plug in a lot of numbers to figure out the amount of regular tax that gets you to the alternative minimum tax without going over. As a cash basis taxpayer, foregoing a state tax deduction on the 2006 return would not at this point permit you to claim the remaining state tax deduction in another year so it would just be a lost deduction from which you get no advantage due to the AMT.

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Bethesda, Md.: Perhaps you can help explain the Alternative minimum tax because I don't quite get it. I know why it was established, but now that my wife and I (late 50's) are approaching $200K combined gross income and have only a relatively small remaining mortgage and no more kid deductions, what is the potential impact of this. For 2006, we are still paying the "regular" tax, not the AMT. Thanks in advance for your enlightenment

Kathleen Day: the amt was adopted in 1969 after outrage over a handful of wealthy families that paid no tax. The intent was to make sure everyone who makes a substantial sum pays some tax. It was a question of fairness. But in the intervening decades, it's impact has changed. It's not indexed for inflation, so it's potentially impacting more and more taxpayers---while $200,000 a year is certainly a good income, it's not the super-wealthy sum it was in 1969! Today about 4.2 million filers pay the amt. The only reason it's not more is that every year Congress at the last minute adopts measures to limit the AMT's impact. By one estimate, if Congress stops these yearly "fixes," an additional 19 million filers will have to pay under the amt by 2017, many earning as little as $50,000 a year.

many professionals suggest using a tax software program which will calculate which you must pay automatically.

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Gaithersburg, Md.: In looking at my tax form, I noticed a deduction for moving expenses. Are all moves eligible for this, or are there specific circumstances in which this applies. I moved because my father died and his will stipulated that the house be sold. Am I eligible for the moving expenses deduction? If so, what sort of documentation do I need?

Mark Luscombe: The federal moving expense deduction in general must relate to moving to start a new job. It does not appear that this deduction would apply in your situation.

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Arlington, Va.: Rather complex question but I will try and summarize as best I can. Have not filed taxes for several years, I was laid off EOY 2004, got divorced 2005, unemployed for most of 2005 got a new job in 2006 but did not file. What can I do about those missing years if I file this year? Can I file 2005 return and 2006 return together? Or is there additional forms required to do that? Can I use this years form? Would I be better served just going to a tax pro (HR Block/J.Hewitt)?

Grace Allison: You can find tax forms for prior years on the IRS website under "Tax Professionals." You should complete your 2005 Form 1040 on the 2005 tax form. Your best bet is to complete and file both years forms as quickly as possible.

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Fort Lauderdale, Fla.: I moved in 2006 from VA to FL. I am going to have to do both states but there is no state tax in FL- what do I do- file VA state and a joint for federal? Also, what is the tax write off for moving out of state for work- I heard there is one. Thanks!

Mark Luscombe: Yes, you would file a Virginia return and a federal return. They would be joint returns if you and your spouse are filing together. Virginia may have a special form for part-year residents, as many states do.

If your move from Virginia to Florida was to start a new job, there is a federal income tax deduction for moving expenses. Get IRS Form 3903 and the related instructions to calculate the moving expense deduction. The amount determined is then deducted on Line 26 of the 2006 Form 1040.

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Carmel, Ind.: We replaced the Heating and Cooling system of our home with a more efficient one in Fall of 2005. But we did not claim energy credit/deduction on it for the tax year 2005, because it was either not offered, or, we simply missed it. Can I claim those credits for the tax year 2006?

Grace Allison: Assuming your purchase qualified for the credit, you should amend your 2005 return, using a Form 1040-X, to reflect the credit you missed. You can find the form on the IRS website, www.irs.gov.

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Anonymous: If I earned some dividend/interest on my certificate of deposit from the previous year, (about 5K) and filing joint (husband and wife), how much tax do I pay from these dividends I earned?

Grace Allison: A certificate of deposit earns interest, taxed at your highest marginal income tax rate. Unlike most dividends, interest does not qualify for the maximum 15% tax rate.

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Frankford, W.V.: I would like to know how the amount of social security you receive is calculated. For many years I have heard it is based on your last 3-5 years of work but can not get this confirmed even by my financial advisor.

Can you answer this question ?

Thanks,

Michael

Mark Luscombe: The Social Security benefit computation is very complicated and includes detailed information about the worker's earnings record, age, and date of retirement. For workers born in 1930 or later, the computation starts with the year in which the worker reached age 22. In short, it is not based on just the last three to five years of earnings. Some private qualified defined benefit plans offered by employers may base their benefits on the last few years of earnings, but social security does not.

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Tampa, Fla.: I have a comment for your panelists and readers, not a question, but I hope you will publish it. It concerns the dreaded AMT. As more and more individual taxpayers become subject to the AMT and as Congress whines that it is just SO expensive to fix it and comes up only with temporary fixes that last but a few years, we should keep in mind that Congress has never had this problem in scaling back the corporate AMT.

As soon as the AMT started in 1986 (before then, it was the add-on Minimum Tax on Tax Preferences, not the Alternative Minimum Tax; the 2 are quite different), Congress started scaling back the corporate and business adjustments and preferences. With Lloyd Bentsen as Chairman of the Senate Finance Committee, the oil and gas industry was the first to get out from under it (the former Alternative Tax Energy Preference deduction was his first attempt for AMT relief for the JR Ewings of the world). The 2004 tax act had almost $7 billion of permanent AMT relief for multinationals. I recall no Congressional squawking about the cost.

Further, the real cause the exploding individual AMT is not failing to index the exemption amount for inflation. The real cause was raising the individual AMT rate from the flat 20 percent to the current graduated 26/28 percent rate (this was done in two steps, in the 1989 and 1993 tax acts). I ask your panelists: which would benefit individuals more--increasing the exemption amount by about 50 percent, or cutting the AMT rate from 28 to 20 percent? I would like to see the results of running the numbers under these 2 scenarios.

So we should keep in that not only has Congress failed to give permanent AMT relief to individuals, it actually increased the bite of the AMT on individual taxpayers.

Kathleen Day: tax fairness has quickly become a very hot political issue, especially as the war in Iraq continues to strain U.S. resources---many members of Congress understand that many voters are voicing the concerns you are raising. At the end of the day the only real recourse individuals have is to vote!

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Crownsville, Md.: I am in the military. We sold my wife's condo in Virginia in 2006. She bought in June of 2001 for 80k and sold it for 250k. She lived in it for two years. I know about the 2 out of 5 yr rule for for the profit. I thought I heard something for the military for a longer period time. Is there such a for the military?

Matt

Mark Luscombe: It sounds like you would qualify for the exclusion under the two out of five year test, but there is a more generous test for the military. Members of the military can elect to suspend the five-year test period for up to ten years during any period of time which the serviceman or servicewoman, or his or her spouse, is on qualified official extended duty.

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D.C.... sorta: Okay, I really need a tax expert on this one:

My whole life, I've lived in Alexandria, and maintained VA residency and an Alexandria address (my parents' house) through college and my post-college years, even when I was technically renting a house in the District (I'm a leach, I know). However, when I moved to a new neighborhood, I had to start parking my car on the street, requiring me to get a D.C. license and to register my car in D.C. so as to obtain the proper parking permits. However, nothing else has changed. I haven't registered to vote in D.C. yet, I haven't changed the address on any of my bank statements, and my employer has been operating as if I were a VA resident throughout all of this. Does getting a drivers license and registering my car in D.C. make me a D.C. resident, or am I still a VA resident as far as the IRS and the VA Dept. of Taxation are concerned?

Grace Allison: Rules on residency vary from state to state. Although just having a driver's license in a given state is not generally enough to make you a resident, I would check with the Virginia Department of Revenue to be sure.

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Chicago, Ill.: I confess I don't understand the recovery of the phone tax. Can you explain in relatively simple terms about who can or can't benefit?

Kathleen Day: everyone is eligible to claim the set amounts the IRS has established, and to claim these you don't need any documentation you ever even paid the tax (though unless you have lived in a cave with no telephone service you probably have). A taxpayer with one exemption can claim $30, two can claim $40, three exemptions, $50 and four or more $60.

If you want to claim more, you will have to have your actual phone bills for the time in question-----the 41 months from Feb. 28, 2003 through July 31, 2006---

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Bethesda, Md.: I am firmly in AMT land, without earning enough to benefit from the Bush tax cuts for the rich. This is not only the valley of death for taxes, but also for tax advice.

What can you say to help people who earn too much to take the deductions for college tuition, Roth IRAs, insulated windows, etc. and who have to pay the AMT?

Grace Allison: My condolences! You are not alone. We can only hope that Congress will fix the AMT problem this year. In the meantime, make use of the tax breaks you can use--like maxing out contributions to a Traditional IRA (even if they are nondeductible)and contributions to employer plans.

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Arlington, Va.: During the course of last year, I donated household items to Goodwill and to the St. Vincent DePaul society at a local church. Both have drop-off bins that provide a means for donating the items without getting a receipt. I donated a few items at a time many times during the year.

I have a list of the items and their condition (all excellent or good)--I even have photos of what I donated. But the value of the items is over $1,000 in total, even though the donation at any one drop-off was maybe $100.

What documentation do I have to have to be able to claim these donations as deductions? Am I out of luck because I didn't get receipts? If I do claim them and get audited, what is the IRS likely to do?

Thanks!

Mark Luscombe: It sounds like you have adequate documentation to support the deduction. Since you state that the item are in good to excellent condition, you avoid a problem in a new law passed last year prohibiting deductions for items not in good used condition or better. The list of items and photos should also be adequate documentation for what you gave. You do not state how you determined the value to place on the donated items. It is supposed to be fair market value at date of donation. Organizations like Goodwill and the Salvation Army have guidelines on the typical fair market value of used items.

Kathleen Day: It's good you have so much documentation because the IRS is really cracking down on this, even for small donations

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Silver Spring, Md.: I sold a stock that was given to me by my parents - bought for $1,000; worth $3,000 when they gave it to me, and sold for $2,000. According to IRS Publication 551, I have neither a gain nor a loss. How do I record this on my Schedule D? Do I set he basis equal to the proceeds? What purchase date do I use - original purchase or date of gift? Thanks very much for your help!

Grace Allison: As I understand the tax rules, to compute gain on an appreciated gifted security, you will use the donor's basis and holding period. Your parent's basis is $1,000. You sold it for $2,000. Therefore, you have a $1,000 gain.

This is not a situation where the security declined below its original basis. Your holding period is computed based on the date your parents bought the security.

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D.C.: My father passed away in 2005, and he held some stock in his name that I transferred over into my mother's name in the middle of 2006. Because this was done in the middle of 2006, I received a tax statement in his name for the dividends paid, even though the stocks are in her name now and she will be filing as a single person.

Does it matter that the tax info was in his name and I should proceed anyway and apply the taxes to my mom? I don't see a point or possibility in filing a married filing jointly tax return if I reported him as deceased for 2005's return.

Grace Allison: You are correct: you cannot file a joint return in 2006 if your father died in 2005. The only way to report this income is on your mother's return.

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re DC . . . sorta: Isn't it fraudulent to maintain VA residency without, y'know, actually LIVING there? Sounds like you just like living in D.C. without paying the DC taxes. It seems to me that the question of where your car is registered pales in comparison to the question of where you, in fact, live. If you're a college student, that's a different story. Frankly, I don't know if anyone in the world could actually catch >you, but it seems to me that D.C. has a big enough problem with its commuter workers and tax base without its actual residents also skipping out on their tax obligations.

Now, if the lecture hasn't changed your mind, may I suggest that you obtain residency in FL instead of VA? They have no state income tax at all--even better for you. And just as honest.

Kathleen Day: Here's one reader's view!

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Washington, D.C.: Help. Turbotax says we owe $4k for some reason, we don't make that much and we own a house so we are panicking.

Two questions:

TT mentions we can contribute to an IRA to lower this bill, is there an income cap (we earn $150k total, filing jointly) and is it dollar for dollar?

Someone mentioned we have to pay a fee because we owe so much, is this true?

Any thing else we can do?

Thanks for the chat.

Kathleen Day: If you think turbo tax is mistaken it might be worth hiring a paid-by -the-hour tax advisor to straighten this out. you might have entered incorrect information or perhaps you are not withholding enough at work. Either way you need to straighten it out

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College Park, Md.: I don't think that everyone can take the excise phone tax credit, only those who paid for long distance phone service.

Can you correct your earlier message to reflect the correct information?

Thanks

Kathleen Day: anyone can take the IRS set amounts, even if you didn't pay the excise tax---if you want to take more than those amount then yes you have to have paid the tax and you will have to have the phone bills for all the amount you take.

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Friday Harbor, Wash.: I am a British citizen who is inheriting $300,000 from my aunt who lived in England. I am a resident alien here in the U.S.. My husband and I are about to redraft our wills.

I have two questions:

1. What are the laws regarding aliens inheriting money in the U.S.?

2. What are the tax ramifications of bringing my aunt's inheritance money into the U.S.? (Inheritance tax has already been paid in the U.K.)

Grace Allison: Not trying to dodge your question, but this is a highly specialized tax area, where you will need to seek the advice of tax counsel expert in international law.

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Rockville, Md.: Last year my wife and her sister started to make jewelry for sale to the public. My wife's sister spent one day most weekends at markets selling the jewelry. They kept track of the items, and my sister-in-law sold more of the jewelry she made than my wife did. My wife spent about $1000 for supplies (beads, etc) on this, but earned only about $20 in sales. This was not a "hobby" in the sense that the purchases were made for the sole purpose of selling to the public, not for her own use. The remaining jewelry is in inventory for next summer's selling season.

Should she file a Schedule C form, with a loss of about $980 for the year on a cash basis?

Grace Allison: Yes.

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Bowie, Md.: My mom moved last year, so she must pay tax for two states. A question is how much income was made in each state and the total deductions for time spent in that particular state. When I take the deductions into account, do I include capital losses from Schedule D also, as it's already a separate item?

Grace Allison: I can't understand your question. Could you rephrase it?

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Alexandria, Va.: Hi,

Thanks for your help. I already submitted and received my refund for my federal return. However, as I was doing my state taxes (i have two states to file with since I moved during 06)I realized I made an error on my 1040 and so I filled out a 1040X to amend my return and sent it in the mail. I used the correct numbers to calculate my state taxes for both Michigan and Virginia. My Michigan return states that I need to submit a copy of my 1040 with the return. Do I also include a copy of the 1040X as well? Should I send the same for my Virginia return too (although it doesn't specify if I need to send a copy of my 1040)?

Grace Allison:

To be safe, I would include a copy of my Form 1040X as well with my Michigan return. Do not attach a copy of your federal return to your state return unless the instructions require you to do so.

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Memphis, Tenon.: I am a waiter and I have not filed federal income taxes for the last five years. I want to get this situation rectified and return to the tax pool. What do you suggest I do and will the IRS work with me to eleviate this problem?

Sincerely,

Hal N.

Mark Luscombe: It always works best with the IRS if you come forward voluntarity rather than if they have to find you. You should file the tax returns for those years. Past years' forms can be found on the IRS website. If you cannot pay all of the tax due at once, you can propose to the IRS an installment payment agreement or an "offer and compromise". These can get a little complicated and may require the help of someone familar with these procedures. You may qualify for assistance at a taxpayer assistance office (look in your local phone book). The IRS will probably impose interest and even some failure to file and late payment penalties, but coming forward voluntarily may help in pursuading the IRS to waive at least some of the penalties.

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Washington, D.C.: If I am involved in a LLC and there is a taxable distribution, who is responsible for paying the taxes? The shareholders or the LLC?

Grace Allison: Most LLCs elect to be treated as partnerships. If this is the case, income from the partnership will be taxed to you pro rata as a partner. Keep in mind that in a partnership, taxable income can be quite different from what is distributed--so wait for your Schedule K-1, if you have not already received it. (If you haven't already received it, call to determine when it will arrive.)_

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Bowie, Md.: This question does not relate to my taxes as much as it relates to my accountant I've used for nearly 10 years. Recently the accountant ran into financial problems and asked my husband and I if we could loan them money. The person even suggested that we tap into our long term savings- something they've in the past admonished us not to do since we could incur a tax liability. We told them no and since then we just don't feel good about turning to them to prepare our taxes- it is late in the game however and we still have not done our taxes. Should we consider using the accountant or try using TurboTax or some other tax software?

Kathleen Day: If it were me, I'd ditch the accountant and either hire someone else or get a software program!

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Arlington, Va.: Hello. Is it true you can deduct taxes you paid for personal property, such as a car, on you federal taxes? If so, what documentation do you need to send in with your w2s? And finally, where can I get this info from Arlington County? I'm pretty sure those records got tossed a while ago (I know I should have held on to them, but I'm only 24 and I'm still trying to figure all this stuff out).

Grace Allison: If you are talking about sales taxes---yes, there is a provision that allows you to deduct sales tax on Schedule A as an itemized deduction instead of state income tax. The deduction is taken on Schedule A, line 5. Put ST on the dotted line to the left of line 5 to indicate you are claiming the sales tax deduction. For details on taking a formula state sales tax deduction, see the state sales tax calculator at www.irs.gov.

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Arlington, Va.: I submitted my 1040EZ on line in mid-Feb. using one of the free services because my income is low. I'm still waiting for my refund. How can I check with the IRS to see when it will be processed?

Kathleen Day: You should go to irs.gov on-line and click on "where's my refund?"

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Finding a tax pro: I'd like to start hiring someone to do my taxes, but have never done so in the past and don't have any recommendations from friends.

Is it too late to find someone that has time to do my taxes? How do I find one? How much do they typically cost? Are they worth using when I make in the low six figures but don't have any major (obvious) deductions? Next year that will change as I just bought a home.

Thanks.

Grace Allison: At this point in the tax season, your best bet is to file for an extension to file Form 2006 income tax. I would suggest contacting your local CPA society in order to find a qualified accountant.

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Ruidoso, N.M.: I tried to withdraw money from my 401k on December 19, 2006. The money was removed from my account on December 20. Because of a mistake by my broker the money was not transfered to my bank account until January 7, 2007. What year is the money taxable?

Mark Luscombe: The year of taxation would generally be the year of the withdrawal from the 401(k) account. If you would rather have it treated as a 2007 withdrawal, and can get the parties to acknowledge a mistake and report it as not withdrawn until 2007, you could report it as such. Otherwise, if it is reported to the IRS as withdrawn in 2006, that is how you should report it on your return.

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Washington, D.C.: I received a settlement from the WorldCom case. Do I report this as income and if so as what type?

Kathleen Day: In general, income from a settlement is taxable.

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Annapolis, Md.: I received a small inheritance from a relative who died two years ago; the estate's attorney sent me a copy of the K-1 form once probate was finished. Do I need to attach the form to my 1040?

Grace Allison: The Schedule K-1 need not be attached to your income tax return. However, the items on the Schedule K-1 need to be entered on the appropriate lines on your Form 1040. They represent your share of the income from the estate.

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Milwaukee, Wis.: I have a 401(K) at work that I max out at 14 or 15K (I earn about 190K). My wife just got a part-time job where she can also contribute to a retirement account. Will she be able to put some money into a 401 or 403(b), if so how much? We would like to put the maximum. Thanks.

Kathleen Day: your wife's employer will be in the best position to answer that because it depends if they offer a retirment plan. If they do they can also tell you how much she can put into it.

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Maryland: Hi,

Thanks for doing this chat. I had been doing my taxes with one of the online programs. I'm single, make around 80K and bought a house last year in MD after living in VA for a while. I am now considering going to an HR Block-type because I fear that I'm not getting enough on my return--which may be because I don't understand that much about tax deductions and how much one really gets back.

Specifically, I paid about 14,000 in mortgage interest and about 2,500 in real estate taxes. But this didn't seem to affect my return that much--maybe by 2 or 3 thousand, which seems odd. Does it seem like something is off here?

Also, do you really think going to an HR-Block type of place is worth it or are the on-line programs really that good now?

I could certainly use the money and want to make sure I'm getting back what I should be.

Thanks!

Grace Allison: Without seeing your return, it's hard to know what went wrong! There has been a lot of press lately about less than stellar performance by franchise tax preparers. I would go either with a CPA or with a good tax program--and there are several out there!

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Ohio: I am contributing to two Virginia Prepaid tuition plans (two kids). However, I no longer live in VA or have any VA wages. When I lived in VA, I was able to claim up to $2,000 of contributions as a deductible item. Did I give up that deduction when I left the state? Thanks!

Kathleen Day: rules on pre-paid tuition and on 529 college savings plans vary from state to state. Look at www.savingforcollege.com-- it's a clearinghouse for information on 529 college savings plans and has state-by-state comparisons. It also has links to the Web sites for the District, Maryland and Virginia. Most of the site is free.

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Chicago, Illinois:

Hi Mark,

What do you think of the Roth IRA's? Are they a better long term investment for an aging baby boomer who wants to retire to Baja?

Thanks.

Mary

Kathleen Day: The rules for Roth's are changing, so whether they are better for you than a traditional IRA will vary according to your situation.

Roth's were created for lower-income earners and have several tax advantages that have been off limits to individuals making more than $110,000 or couples making more than $160,000. That will change in 2010, but taxpayers should be preparing now to take advantage of it. You should consider putting more money into a regular IRA account this year and for several years in anticipation of being able to convert it to a Roth down the road, when you can do so regardless of income.

Contributions to a traditional IRA that were tax-deductible will be taxed when converted to a Roth IRA, as will earnings on that money. Non-deductible contributions to the regular IRA that are converted to a Roth won't be taxed.

Roth IRAs have several potential benefits for taxpayers of all income levels. Money from a Roth can be withdrawn at retirement tax-free, while withdrawals from traditional IRAs count as taxable income. And unlike traditional IRAs, from which a retiree must start making withdrawals at age 70 1/2 or face a penalty charge, a retiree is not required to ever make a withdrawal from a Roth. A Roth account can be held untouched and bequeathed to children or grandchildren tax-free, making it a valuable estate-planning tool.

People who will need the money that's in their regular IRA during retirement might find it makes no sense to plan for a Roth conversion. But for people above the current Roth income limits who won't need the money for 10 years or so, or possibly not at all, planning for Roth conversions could make a great deal of tax sense.

In 2006, the maximum contributions allowed for IRAs of either type is $4,000 for folks under 50 and $5,000 for those 50 and older.

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Salt Lake City, Utah: I did not file my taxes last year (I did not owe any) and I plan to file both 2005 and 2006 now. Should I file 2006 and then go back to 2005? May I use 2006 forms for both years as well?

Mark Luscombe: I would file them both now. If you file 2006 first, the IRS might send a letter asking about 2005 before you get that return filed. You should use 2005 forms for the 2005 return since the rules change a little every year. You can find 2005 forms on the IRS website. You will probably face interest and penalties for the 2005 return, but by coming forth voluntarily, you may be able to persuade the IRS to waive some of the penalties.

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Reston, Va.: Do you have to provide receipts for all your charitable donations? Ours may total $1,200.00 and all went to the same place.

Grace Allison: You now need receipts for all charitable deductions, whether of cash or of property.

Kathleen Day: The IRS is really cracking down on this. For smaller amounts in 2006, you might get by. But starting Jan. 1 of this year and applicable for the 2007 tax year, donors must keep better records -- canceled checks, receipts, credit card statements -- for all cash donations, no matter how small. That means there will no longer be write-offs for undocumented charity of $250 or less, even if given at church.

You will need to save receipts for three years. The IRS says a checkbook entry does not count as a bank record; a canceled check does. The new rules do not change existing requirements that taxpayers get a receipt from a charity for each deductible donation of $250 or more, whether it's money, clothing or other items.

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Ashland, Mass.: We filled a 1040-ES online, along with our return even though we were not required to do so since all our income has direct tax withholdings. Are we obligated to pay these estimated taxes once we've filed the return?

Grace Allison: The Form 1040-ES includes a worksheet for computing estimated income tax. If your only income is wages and if your withholding is adequate, you should not owe estimated tax.

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Mark Luscombe: In response to the several questions concerning reporting income in more than one state for a tax year, the specific rules vary from state to state. Some states do not even have income taxes. In general, if you were a part-year resident of a state, you report to that state earned income from any source while you were a resident and earned income from that state even while you were not a resident. Some neighboring states with a lot of residents working in adjoining states have enterred into multi-state compacts that might permit taxpayers to file only in their state of residence. Unearned income generally is allocated to the state of residence, so again would have to be split up if you were a resident in more than one state. It is best to work through the requirements of each particular state involved as set forth in their tax forms and instructions

Kathleen Day: Thanks Mark for taking a stab at what seems to be the issue in many of our questions today: how to file when a person or couple works or lives in more than one state during the tax year.

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D.C.: If a child is in college, but not taking a full schedule because of medical issues, can the child still be taken as a deduction. We are paying for the child's medical needs (expensive) and college classes.

Thanks

Grace Allison: There is an exception to the general rules about being a full-time student if the child is totally and premanently disabled at any time during the year. I would take a look at the IRS Publication on Dependents to check this out further.

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New York : Yesterday i received a refund from NYS. The refund was $2400 less than i expected. On an attached sheet, it said," We have made an adjustment to your return that has resulted in a change in the amount of your overpayment."

I had my taxes done professionally, and there is a section on this sheet to request a inforrmal review. Should i fill it out and mail it or should i give it to my tax professional? Furthermore, i really dont understand how one could, adjust something that results in a changes the amount of my overpayment.

Thanks

Grace Allison: I would give the notice to your tax professional immediately.

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Baltimore, Md.: I have 2 questions:

Can I deduct the entirety my full-time MBA? I know that there are some differing opinions on this.

When should I consider using a CPA versus a software solution? My husband and I don't really have any financial instruments outside of mutual funds that aren't actively traded.

Grace Allison: Whether you can deduct the MBA tuition costs depends on whether you meet the criteria of the relevant tax regulations. As I read them, the rule is this:

Tuition is deductible if it either maintains or improves a skill required in the taxpayer's employment or meets the express requirements of the taxpayer's employer, imposed as a condition to the taxpayer's retention of employment. Reg. Sec. 1.162-5.

It sounds as if a good software program would work for you.

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Arlington VA: Is there a deduction or credit that can be taken for payments to an individual for professional 'supervision'. My wife has been paying a certified Art Therapist in order to get the 100 hours of documented supervision needed to earn her Art Therapy credentials.

It doesn't sound like a business deduction for work-related education (because while she works as an art therapist, like an accountant obtaining a CPA, her getting a ATR would 'qualify her for a new job') nor does it sound like a learning credit or tuition deduction (because the professional she's paying does not work for an 'institution eligible to participate in a student aid program').

Is there something else?

Grace Allison: Not that I can think of.

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Mt Rainier, Md.: I share exactly half and half custody of my son with my ex-wife. Is there any way to share the child credit, or do we have to trade off with one of us lisitng him one year, the other the next?

We both pay for child care each year, and make about the same amount of money, so this is the one contentious part of filing the returns...

Mark Luscombe: If both you and your ex-spouse can claim the qualifying child and the reside resides with both parents for an equal amount of time, then the tie breaking rule is that the parent with the highest adjusted gross income is entitled to claim the child. Even though you state that your incomes are approximately the same, the tie breaker still goes to the highest. There are provisions in the law for divorced parents to agree on who is entitled to claim the child: see IRS Form 8332.

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Washington, D.C.: Hi there: If you increase the deductions on each pay check (i.e., more money is taken out of every pay check) do you see a dollar for dollar benefit come April 15 (whether you have to pay or they have to pay you)? Thanks!

Grace Allison: The more money that is withheld, the more tax you are credited with paying. Yes, it is a 1:1 ratio. But what you should aim for is paying as close to the tax actually due as possible. Using your tax withholding as a forced savings device is not a winning strategy because you lose the interest on the money.

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Kathleen Day: sorry everyone but we are already 10 minutes over our alloted time. Thank you to everyone for your questions. I'm sorry we could not answer them all. And thanks especially to the tax experts, Grace Allison and Mark Luscombe, who joined us today. And good luck to everyone in filing your taxes!

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