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Ask the taxgirl: Legally Separated

Kelly — Thu, 18 Mar 2010 01:25:38 +0000

Taxpayer asks:

Hi There,

I am totally confused as to how we should file our taxes. By December 31st 2009 my husband and I had paperwork in the court in California that specifically states we are separated, a division of property and finances and an order for him to pay alimony. We have never lived together as the marriage failed on the honeymoon in 2008.
I have always lived in Colorado and have paid my own expenses entirely, including mortage and tuition.
I want to file single, but am not sure If we can.

Thanks,

Taxgirl says:

Filing status is determined by state law as of the last day of the tax year (December 31 for most taxpayers). I’m not sure what the rules are in California but if your state allows for a legal separation (and it sounds like it does from your comment about paperwork from court), and you are classified as legally separated, then you may file as single. If, however, your state does not offer legal separation, then you cannot file as single. You may only file as single if you are unmarried, divorce or legally separated.

Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.

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Ask the taxgirl: Valuing Your Services for Charity

Kelly — Tue, 16 Mar 2010 12:14:10 +0000

Taxpayer asks:

Hi, I read your blog entry that explains that service time donated to a charity is not deductible. What if there is an actual assignable value of the service time to the charity? For example, I am donating my services as an auction item for a charity auction; if somebody buys it for $600 from the charity, then I perform the service for the purchaser; can I deduct that $600 value as a donation to the charity? Or, if the IRS sees no “value” in the service being donated and sold, does the buyer of the auction item get the full $600 deduction as a cash donation to the charity? Thanks in advance

Taxgirl says:

Nope, it doesn’t make a difference if you can value your services or not – the donation of personal services is never deductible as a charitable donation. I can value my services pretty easily since, in many instances, I charge by the hour as an attorney. But it doesn’t matter: the IRS will not allow you to assign a value to your time for the purposes of a donation.

The second part of your question feels like it should be related but the IRS doesn’t consider the two pieces together at all. It’s clear that the value of your services isn’t deductible as a donation. However, on the buyer’s side, a charitable donation is deductible only to the extent that the donation exceeds the value of any goods or services received in exchange. So when you donate to public television and get a tote bag in return? You can deduct the cost of your donation less the value of the tote bag. The same analysis applies to services. If you bid at auction for, say, $1000 and you “win” a personal training session worth $150, the value of your deduction is the price paid for the item ($1000) less the actual value of the item ($150) – in this case, $850. Most charitable organizations will do the math for you and document the value of your donation on their thank you letter.

But if you’re that personal trainer? You can’t deduct the $150. You can only deduct related out of pocket expenses.

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Ask the taxgirl: Making Work Pay Credit (once more with feeling)

Kelly — Tue, 16 Mar 2010 02:10:33 +0000

Taxpayer asks:

Hello,

I appreciate reading your comments about this topic and hope that you can tolerate one more.

First, do I understand it correctly that married couple filing jointly can claim $800, even if only one of them earned an income?

Second, I’ve never heard about this credit so I went to the IRS site which says

http://www.irs.gov/newsroom/article/0,,id=205922,00.html

“For people who receive a paycheck and are subject to withholding, the credit will typically be handled by their employers through automated withholding changes to be made in early spring 2009. ”

So, yes, one of us was a salaried employee for part of the year and withholding were reduced. Can we still claim the full credit, or do we need to reduce it by the decrease in withholding?

Thank you,

Taxgirl says:

Yes, a married couple is entitled to the entire credit even if only one taxpayer worked. The credit is based on filing status. It may be reduced if one or more of you received the Economic Recovery Payment during the year. See the instructions on Schedule M for more information (will download as a pdf).

The adjusted withholding doesn’t affect the amount of your credit – it was just an attempt to get more money in your pocket during the year. You can read more about withholding and the Making Work Pay Credit here.

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Ask the taxgirl: Energy Efficient Appliances

Kelly — Wed, 10 Mar 2010 20:59:01 +0000

Taxpayer asks:

Can you get money back for purchasing a washer and dryer in 2009 that has the energy star on it. Thanks for the info!!!!

Taxgirl says:

Unfortunately, no. What you’re probably thinking about are Home Energy Efficiency Improvement Tax Credits. Those credits were for the installation of specific products like energy-efficient windows, insulation, doors, roofs, and heating and cooling equipment for an existing residence (new homes don’t qualify). “Regular” appliances, even if they’re energy-efficient don’t apply. Trust me, I wish they did as those in my kitchen apparently had a recent suicide pact. You can find out more about how those HEEIT credits work at this prior post.

That said, in 2010, you might qualify for an energy efficient appliance rebate – these vary from state to state. My state of Pennsylvania wouldn’t cover a new refrigerator but Montana will; check out this map to see what your state covers.

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Ask the taxgirl: Are Economic Recovery Payments Taxable?

Kelly — Wed, 10 Mar 2010 19:53:46 +0000

Taxpayer asks:

Hi Tax Girl.

I on social security and am using Turbotax to file my taxes. I have not as yet found out where to put the $500 received by my wife and myself from the federal government in June of 2009. Is this taxed?

Taxgirl says:

It sounds like you’re talking about the Economic Recovery Payment(ERP). You and your wife apparently each received a one time $250 payment from SSA as part of the stimulus package.

That $250 is not taxable and need not be reported unless (and this is a big unless) you are also working and wish to claim the Making Work Pay Credit. In that case, you’d have to reduce the Making Work Pay Credit by any ERP amounts received – you’d do that on a Schedule M.

But if you’re not attempting to claim the Making Work Pay Credit, then you don’t need to claim the payment on your return.

In either event, it’s not taxable.

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Ask the taxgirl: Making Work Pay Credit for Married Couple

Kelly — Tue, 09 Mar 2010 03:28:03 +0000

Taxpayer asks:

If you are married and did not work, but your spouse earned $156,00, are you entitled to $800 credit or $400 for the working spouse?

Taxgirl says:

Your comma threw me – so I’ll answer it both ways.

If your spouse earned $15,600 and you file married jointly, you would be entitled to the $800 credit assuming that you otherwise qualify.

If, however, your spouse earned $156,000 and you file married jointly, you would not be entitled to the full credit. You’d be phased out to the tune of 2%. The phase-out works this way for married couples: subtract your qualifying income from $150,000 and multiply by 2%; subtract that amount from the full credit. If your income were $156,000, you’d have a credit of $680. Here’s the math:

$156,000 – $150,000 = $6,000

$6,000 x 2% = $120

$800 – $120 = $680

The result is that you’re totally phased out at $190,000 for married taxpayers filing jointly.

The key to remember is that the total credit for married credits is $800 irrespective of individual income. One quick caveat: if either spouse received an Economic Recovery Payment, you’ll deduct that amount from the full credit.

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Ask the taxgirl: Cheerleading Expenses

Kelly — Fri, 05 Mar 2010 13:34:44 +0000

Taxpayer asks:

Hi,

I am a stay-at-home from California and I have a daughter in Cheerleading. Can I deduct the expenses? She also attends a public school that requires uniforms – why can I not deduct those?

Thank you so much,

Taxgirl says:

Nope, you can’t deduct the costs associated with your daughter’s cheerleading (unless this was professional cheerleading, which I am guessing it is not). It stinks, I know – I have three kids myself and they are always needing money for this thing or the next. But not deductible, just the cost of raising a child which the feds make an effort to address through personal exemptions and child-related tax credits.

And nope, the cost of uniforms for public or private school is not deductible. Again, I feel your pain: two of my kids are in Philadelphia public school and have to wear school uniforms. But check out this post for some additional thoughts about reducing your costs. That said, be sure and check your state rules. In some states, like Louisiana, you can deduct the costs of school uniforms under certain circumstances.

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Ask the taxgirl: Did the Feds Make a Goof?

Kelly — Wed, 03 Mar 2010 12:41:19 +0000

Taxpayer asks:

Thanks for your blog entries on the Making Work Pay tax credit – very helpful. I’m wondering if the tax tables have been “fixed” for 2010 so that people with more than one job or spouses who both work don’t get the tax credit twice. About 3 – 4 months ago the story broke that the tax tables weren’t set up correctly by the US government. Some people got more of a tax credit than they should have and will therefore not receive as much money back in a refund or they may even have to pay the US government for taxes. The latest information on the IRS website I can find leads me to believe that the tables won’t be “fixed” for 2010, but employees should instead adjust their withholdings. Forgive me if I’m getting some of the details wrong. Below is a link to an article that references the problem I’m trying to explain.

San Francisco Chronicle

http://articles.sfgate.com/2009-11-17/business/17182034_1_tax-credit-refund-couples

Thanks!

Taxgirl says:

Thanks for your email. I have a bit of a different perspective on this issue: I think the media has reported this irresponsibly. This issue isn’t *new* and it didn’t *just break* – no matter how the various media outlets are attempting to spin it. We’ve know about it since before the credit went into effect – I even blogged about it in March 2009 before the withholdings began.

In November 2009, the media tried to make a story out of it by suggesting that the government had a made a mistake on the tables. The NY Daily News ran the story with the headline “15M+ taxpayers could unexpectedly owe taxes due to gov’t mistake on Making Work Pay tax credit.”

That same month, Yahoo even appeared to revamp an earlier version of their story, titled “Stimulus surprise: 15 million people may owe taxes” from a piece they originally released in May (I blogged that they were late when they ran it in May). Clicking on the link from Yahoo’s prior story, formerly here, now gives you a 404 error. Hmm.

So here’s my take: It’s not a mistake and it’s not newsworthy. It smells a lot like yellow journalism. It’s definitely bad journalism.

The IRS has been aware that taxpayers who don’t qualify for the credit – but still work – may have too little withholding taken out of their checks. This is because Congress said “Yes, let’s give a credit but let’s leave out these people: the rich, working dependents, retirees and disabled people…” That created a hole that couldn’t possibly be addressed in the tax tables. It also couldn’t be addressed by your employers – can you imagine an employer the size of say, Ford, checking in with every single employee to figure out their withholding situation? So, the IRS urged employees to check their withholding if certain circumstances (multiple jobs, double income households with high earners, dependents and retirees who work). They sent out press releases, issued podcasts, put videos on YouTube – more than once – and directed taxpayers to the online withholding calculator.

Some news outlets – like PBS – (and my fellow tax bloggers) actually reported the potential problems with the program as the withholding began. Others chose to wait for the opportunity to report remarkable headlines later.

To be fair, I’m not a fan of the credit. I think it’s too complicated. And I wasn’t a fan of the rebate checks a few years back either – same issue, too complex, too many rules and exemptions. I think these retroactive or midyear tax credits from the current Congress (and those before this one) are political pandering to make you think you’re getting something. I find it wasteful, quite frankly.

But, that said, let’s call this particular credit what it is: it’s not a goof, error, mistake. It’s a tax law meant to benefit as many taxpayers as quickly as possible with minimum impact. And despite the fact that the media is making the anomalies in the credit to seem like a huge big deal, it’s not. On the high side, it’s estimated that the potential for over-withholding will affect fewer than 10% of taxpayers.

The Treasury did revise the withholding tables for 2010 to try and accommodate the effect of the credit for those subject to a phaseout. However, those tables will still not address the issue of those receiving pensions who work and joint filers with multiple jobs. That’s something that taxpayers will have to work out for themselves – much the same way that you make adjustments when you have a baby or buy a house.

While I sympathize with taxpayers who may find themselves surprised this season, I think anger towards the IRS or Congress is a bit misguided at this point. Blame the media, who have had the resources to get the story out to taxpayers since March 2009 but thought that it made better news at the end of the year. It can’t just be me who finds it more than coincidental that the story *broke* again during November and February sweeps…

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Economic Recovery Payment, IRS, stimulus package, tax, tax credit, making work pay credit

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Ask the taxgirl: Spousal Maintenance

Kelly — Tue, 02 Mar 2010 16:38:22 +0000

Taxpayer asks:

Can you tell me is alimony and maintence the same thing and do I have to claim this money on both my federal tax and NYS tax?

Taxgirl says:

If it’s court-ordered spousal maintenance, then yes, that’s likely alimony and you have to report that as income on your federal taxes. For more on alimony, check out this prior post which explains the details of qualifying alimony. Those details, including the nature of payments, are important.

The rules for deducting alimony payments can be found here.

Unfortunately, I’m not sure about NY state laws – I’d check with their Department of Taxes/Revenue for verification (though most states appear to follow the feds).

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Ask the taxgirl: Sales Tax Deduction & Leases

Kelly — Mon, 01 Mar 2010 03:59:25 +0000

Taxpayer asks:

hi can you dedcuct the sales tax paid if you leased a new car in june of 2009?

Taxgirl says:

Nope, sorry. If you’re referring to the new car sales tax deduction, leases are specifically excluded.

However, if you itemize your taxes, you might still be able to claim sales taxes paid as a deduction on your Schedule A. Check out this prior post for more details.

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