Taxpayer asks:
Hi Kelly,
I had a tax question about unpaid internships and being able to deduct the expenses of that internship on your taxes. From all of the research I did I was unable to find anything that would allow for such a thing. It seems that without a 1099 or w-2 from the company the person doing the internship is inelgible for any type of tax break for the cost she spent to participate in this unpaid internship. A client of mine recently moved for a few months to work on an unpaid internship, and she has to pay to live while doing this intern.. She was wondering if any of those expenses are deductible.
Taxgirl says:
This is a great question. I had to think about it for a bit. Here’s what I think (I think).
The best chance for your client to claim a deduction would be as an educational expense. To be deductible as an educational expense, the expense must be for (1) education that maintains or improves job performance or (2) serves the purpose of the employer and is required by the employer or by law to keep salary, status or job, and (3) the education is not part of a program that will qualify for a new trade or business.
If your clients meet that criteria, then she can deduct tuition, books, supplies, lab fees, and similar items; certain transportation and travel costs; and other education expenses. Moving expenses, however, would not be included.
In fact, even if the client wasn’t a student and could prove that she qualified as an employee, a seasonal internship (paid or unpaid) wouldn’t qualify for a moving expense deduction because it would not satisfy the “time test” requirement piece of the moving expenses criteria.
If the internship was paid, the intern could claim certain expenses on a Schedule C or Schedule A. I don’t think there’s any good argument for claiming expenses against zero income in this case on a Schedule C (unless one of my colleagues wants to make it for me). But I do think you might have a decent case for itemizing some expenses on a Schedule A, Miscellaneous Deductions as unreimbursed job expenses. I think you can make an argument that an intern could be considered an employee despite the lack of compensation.
Of course, the icky part of the Schedule A deductions is that you have to itemize to claim them. I’m guessing that an unpaid intern is also not a homeowner and likely doesn’t have enough deductions to itemize. But if, if, if the intern is itemizing, I think a deduction under Schedule A, Miscellaneous Deductions would work.
To qualify as an unreimbursed employee expense, the expense must be:
- Paid or incurred during your tax year;
- For carrying on your trade or business of being an acquired in your trade or business; and
- Ordinary and necessary.
This was my best guess on this one – it’s a tricky question for sure. I’d be interested to hear what my colleagues think…
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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Taxpayer asks:
Hello there and thank you for answering my question.
I am self employed and contributed nearly $8,000 in cash/non cash donations this past year (goodwill, church, habitat for humanity). When my friend did my taxes on her computer program it did not reflect a deduction upon entering in the charitable donation information.
I hve all proper documentation but I am wondering if there is some place in particular she has to put the amount on the form when not filing a long form?
Taxgirl says:
The short answer is that you have to use the long form.
The short form (1040-EZ) is a basic tax form for taxpayers who report wages, use the standard deduction and plan to claim no credits other than the earned income tax credit (EITC). You cannot claim itemized deductions on a short form.
Charitable contributions are itemized deductions. You report itemized deductions on a schedule A on your federal form 1040 on lines 16-19 (see below):
If your itemized deductions exceed your standard deduction ($5,450 if single and $10,900 if married filing jointly), you’ll want to claim the itemized deduction to get the bigger benefit. You should consider other deductions that might be included on Schedule A such as medical expenses, other taxes paid, casualty losses, job expenses and miscellaneous expenses to maximize your available deductions.
More importantly, however, than the charitable deductions issue is that if you’re self-employed, you can’t use the short form. You must use a long form (federal form 1040) if you had net earnings from self-employment of at least $400. You’ll need to file a Schedule SE to figure your self-employment tax – and you will likely want to file a Schedule C to claim business expenses against your business income.
Make sure you’re using a good computer program, like TurboTax or TaxAct, to walk you through these forms. If it’s still too confusing, consider hiring a tax professional.
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.
Have a question? Ask the taxgirl! – Now on Facebook!
Every year about this time, I get a lot of questions about deducting sales tax paid versus state and local income tax paid on your federal income taxes. Mostly, this comes up because your pockets are stuffed with receipts and you’re wondering whether you should keep them.
First, the important part: this option has been extended through 2007.
Here’s what to consider:
1, If you live in a state with a relatively high state income tax like Minnesota, North Carolina or Wisconsin, you’ll almost always choose the option to deduct your state income tax as opposed to your state sales tax. Of course, that depends on your spending habits.
2, If you live in a state with no state income tax, clearly you are going to choose the option to deduct your sales tax. Those states include Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming.
3, Everyone else has to do the math.
You can use the IRS sales tax calculator to figure your average sales tax expended – or you can actually tally your receipts to make the determination.
When you use the optional general sales tax tables, which is what the calculator figures for you, no receipts are required. The IRS just uses the average spending in your geographic area to figure the tax. You can add the tax on big purchases such as a car or home renovation to the total to figure your tax.
In Philadelphia, where I live, sales tax is 7% – that’s 6% for Pennsylvania and an extra 1% tacked on by the City because… well, why not? State and local taxes on income are much higher, believe it or not. While the state of Pennsylvania is just over 3%, Philadelphia likes to ramp up our taxes by almost another 5%.
Since the numbers are nearly the same, it doesn’t take a genius to realize that you’d have to spend roughly the amount that you make in order to hit the equilibrium. Clearly, that’s not the norm, so I decided to figure the difference between the sales tax using the IRS calculator and state and local income taxes paid. I used $100,000 only because it’s a nice round number. And for my experiment, I also assumed two exemptions (a typical married couple). According to the calculator, the sales tax deduction using the tables would be $1,056. The income tax for PA for the same amount would be approximately $3,000 and the Philadelphia tax would be approximately $5,000. Clearly, in this case, you would opt for the state and local income tax deduction (I always do).
But that “special items” exception keeps things interesting. If you do significant spending in your state during the year, you actually get a tax break – for shopping! Oh yeah.
So in the interest of helping hubby out with his end of the year tax planning, I would suggest that if we used the experimental numbers (which don’t really apply to us for a number of reasons, not the least of which is that we have five exemptions – and if I count my daughter’s imaginary friend who has been destroying our house, we qualify for six), the following would apply: the difference between the sales tax as calculated by the feds and the income tax works out to about $7,000. At a sales tax rate of 7%, this means that we’d need to spend more than $100,000 in order to benefit from this tax incentive – since that’s clearly what it is, an incentive. Why let it go to waste?
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