The Color of Money: Tax Season
with Michelle Singletary, Post Business Columnist
Tuesday, April 1, 2003; 1 p.m. ET
It's that time again. Have you started filing your taxes before the April 15 deadline? Need some last minute help? Are you aware of common mistakes and need a few reminders from the Internal Revenue Service? What are the new tax laws that will affect this year's filing?
Join personal finance columnist Michelle Singletary and her guest, Sam Serio, of the Baltimore IRS field office, online Wednesday, March 26 at 1 p.m. ET to answer your questions about filing tax returns.
Sam Serio handles media relations for the IRS in the Washington Metropolitan region. He has worked in Media Relations, Communications, and Public Affairs for the IRS for the last 16 years. Prior to his position as Media Relations Specialist, Sam worked for the IRS as a manager in the Taxpayer Service Division, a Revenue Representative in the Collection Division, and as an auditor in the Examination Division.
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.
Michelle Singletary:
Welcome. We are having some minor technical difficulties but Sam Serio will be getting to your questions in just a bit. So please stay stick around.
Michelle Singletary:
I'm so sorry for the delay but again we will be getting to your questions shortly. Thanks for waiting.
New York, NY:
Dear Mr. Serio:
Why does the IRS keep telling people that if they ask for their refund to be wire-transferred to their checking/savings account, they will get it more quickly, when it is just not true? On my 2001 return, I provided the routing number and account number of my checking account, but my refund was never put into it. I eventually called the IRS, and I was told that my refund had been credited to 2002, because I "checked the box" saying that I wanted it credited to 2002. "I am holding a copy of my return in my hand," I said. "There is no box to check. I indicated that I wanted the full amount of my refund put into my checking account." The IRS guy had to admit that he had lied, and he even said that he saw that I had written the routing and account numbers on my return. Nevertheless, he said that I would have to wait an additional three weeks for my refund, and it couldn't be wired into my checking account - it would be a check sent to me in the mail. So what good is it to ask for the refund to be wired to your checking account if you have to wait and wait and wait for it to come in the mail?
Sam Serio: I do apologize... but obviously, from our several year's experience, your situation was an unfortunate exception. This year, to date, we have successfully processed over 33 million worth $78 billion which is a 12% increase over last year's direct depoits.
Woodbridge, VA :
Hello Sam & Michelle,
I have already filed my taxes, however, I have a question which has been haunting me every since I filed with Jackson Hewitt. I am married however I have been seperated for 1 1/2 now NOT legally. He has his place I have my own. My nephew is now living with me and has been since Aug 2001, he's 15. I have been claiming married filing seperated even before we seperated but even now that I have a dependent, why did I still have to claim married filing seperate instead of head of household. I read AND was told by one of the IRS people that I could have claim the head of household status, however, jackson hewitt's computer filed me as married filing seperate. What's the catch, and can I do anything about this.
PS. A refund as little as it was this year was much better than paying back even with the married filing seperate status.
thanks,
Sam Serio: You may indeed be able to file as HoH... I suggest you check the filing status worksheets in your tax booklet.
PS. A refund as little as it was this year was much better than paying back even with the married filing seperate status.
Kensington, MD:
Hi Sam and Michelle - I was married in June 2002 and I have heard horror stories about getting hit hard with taxes the first year of marriage but my husband and I also sold a condo in DC and bought a house in MD so I'm thinking deductions may help....it is true you can deduct some of your settelment costs along with the mortgage interest? I'm looking for every deduction I can related to buying our house. thanks!
Sam Serio: No settlement costs just real estate taxes and interest., However, if you paid points on the new house you can take them as a deduction over the life of the new loan and if you paid off the old mortgage you can deduct any left over points all in the year it was paid off.
Bethesday, MD:
How much of my student loan interest is deductible and do I need to file a separate form?
Sam Serio: Up to $2,500.00 is deductible, no special form, just enter the amount on line 25 (Form 1040) There is a worksheet on page 31 of the 1040 tax booklet.
Fairfax, Va:
I was just married last year, and my spouse still has some unpaid student loans and the gov't has taken the returns to help settle the loan. Can we file married but seperate, in order for me to protect my spouse's return? In other words, the gov't would take my return and not my spouse's? Thanks.
Sam Serio: If you file as "Married filing Seperately", the outstanding will be satisfied by the social security number of the responsible party (your husband).
Baltimore, MD:
I refinanced my mortgage in 2002. Is the point I paid deductible?
Thanks!
Sam Serio: The point is deductible when you refinance your home - however, this is over the lifetime of the loan. (If it was $1,000, it would end oup $33.33 per year)
Fairfax, VA:
According to TurboTax, I am way "above average" in terms of charitable contributions for my income level. Should I be concerned that this may trigger an audit?
Sam Serio: While it is possible that it might, American's should never make honest tax decisions based on the possibility of an audit. My suggestion: claim all deductions you're entitled to.
Student tax issues:
Dear Mr. Serio,
I was hoping that I could get some advice about whether or not I am eligible to contribute to an IRA. Right now I’m working for a federal agency, but I’m classified as a fellow. I am a recent graduate, but am not currently enrolled in school. My paycheck comes through another organization (not the federal government) and this organization does not take any taxes out (I pay estimated state and federal quarterly taxes). This fellowship is my only source of income. I’m not married.
At the end of the year, the only tax document that I receive is a 1099-misc; I don’t receive a W-2. When I look at the IRA publication 520 relating to scholarships and fellowships, it says that an individual can set up and make contributions to an IRA if you received taxable compensation. Under this rule, a taxable scholarship or fellowship is compensation only if it is shown in box 1 of Form W-2, Wage and Tax Statement.
As I read it, it looks like I can’t contribute to an IRA with my current source of income, even though I pay income taxes just like everyone else. Is this correct? Is there any way that I can contribute to a retirement account in my current job situation? One of my friends (who is in the exact same situation) called the IRS help line and was told that she could list this income on line 1 of her return and indicate that it is a scholarship, and therefore this money would be eligible to be contributed to an IRA. However, this seems odd to me because we’re not currently students. Or is my only option to take a second job (on top of the 40+ hours I already work) in order to get the right sort of income to be able to contribute to an IRA? (I have a feeling that it is, and I’m more than a little bitter about this). Before I learned about all of this, I had already contributed money to an IRA during 2003, so I’m not sure what to do about that money next year at tax time.
Thanks for your assistance!!!!
Sam Serio: The bottom line: If the fellowship income is taxable earned income, you can contribute to an IRA up to $3,000.00 of earned income. The grantor of the fellowship should be able to tell you if it is taxable income, or check out IRS publication 520 Scholarships and Fellowships...
Washington DC:
I volunteer at a tax clinic, and a client did not know his exact Social Security benefits from 2002 (benefits were below $5,000 and total income below $10,000). I was just going to put his best estimate on the Federal form, since it wouldn't affect taxable income. However, we needed the exact amount for the DC form, which would be submitted later. I didn't want to have inconsistent information. Should have I have worried? Does the IRS compare tax filing data with state governments?
Sam Serio: If the correct amount on taxable social security does not affect the IRS return, there is no problem - but, there is certain tax information shared with local taxing authorities. To be on the safe side, you could file an amended Federal return to IRS, stating the correct non-taxable social security.
bethesda, MD:
Hi, I just graduated from college and will be filing my taxes on my own for the first time. My finances are very simple -- one job, one school loan, and that's about it. Can you please tell me how to begin in filing my taxes? Thanks!
Sam Serio: Check out our website: www.irs.gov, and click on Free-File. Use the Free-File Wizart to quickly have your return prepared and filed -- for free!
washington, dc:
How do a divorced couple decide who gets to claim the children as a deduction on tax filings?
Sam Serio: The general rule is whoever had custody of the child the longest throughout the year should claim the child.
Arlington VA:
My husband and I were expecting to receive $600 for the 2001 rebates, but the entire check was seized because he had some previously unpaid charges. A friend recently told me that I was still eligible for my share since it was not my debt (and in fact, the IRS website had told me to expect a check). My friend suggested I fill out an "injured spouse" claim to receive my $300 share. Is it too late to do that?
Sam Serio: No. It is not too late to file an "injured spouse" claim.
Michelle Singletary:
Just wanted to let you know we will run the chat a little longer today to compensate for the technical difficulites. Again, thanks for hanging in there.
Springfield:
Today is April 1. I working on my taxes and am short one 1099. It was for a contracting job last summer. The CPA claimed it was returned to sender for a wrong address and that it would be sent out immediatly to my correct address. That was over a month ago. I have been calling on a regular basis to find out where it is, but they will not answer the phone. I've left messages to return calls, fax it to me, overnight it to me, something please! The firm in in Tennessee, so visiting in person is not an option. What should I do? Can I file an extention? And no, I do not have good enough record keeping to know what the numbers shold be and what box they go in.
Sam Serio: Call us at 1-800-829-1040... We will contact the payer and at the same time send you a substitute 1099. However, without proper record keeping of the amount, it may be necessary for you to file an extension if the 1099 does not arrive by April 15th. I suggest having a Form 4868 Extension ready so you can call 1-888-796-1074 on April 15th if necessary.
Herndon, Va:
Mr. Serio: This year, a bond ($25,000) purchased by my in-laws for my son's education expenses matures. My wife listed as trustee for "the account of ..." When the bond is cashed, does the money count on our income tax, or our son's? Also, since he's a full-time university student, not 21 until 2004, can we still claim him as a dependent for 2003?
Sam Serio: Interest income would normally be your son's, under the Uniform Gift To Minors Act. As long as you provided over 50% of the child's support, and the child was under 24, a full-time student, you can still claim the child as a dependant.
San Jose, Calif:
Thank you for the chat. I only need one question answered to finish by tax return, so I hope you can help:
When computing AMT income (form 6251), is it true that mortgage interest for your primary residence is not included (i.e., still a deduction)?
Sam Serio: Yes. Only interest on a SECOND mortgage, for a purpose other than expenses related to the home, is considered a tax-preference item.
Orono, ME:
Tax preparation companies seem to be pushing these Refund Anticipation Loans pretty hard. But I've red that they aren't a particularly good deal for taxpayers because they have high interest rates and the companies that make the loans like to pile on the fees.
Does the IRS have any advice for taxpayers who may be considering RALs? It seems to me that filing electornically with the IRS and using direct deposit is a better deal. Any thoughts?
Sam Serio: You're right! Filing electronically and using direct deposit will get your refund to you within 10 days. RALS can charge interest rates in excess of 100%. Do the math. I suggest waiting the 10 days...
Washington, DC:
I filled out my 1040 form by hand the other day and was pleased to find out that I would be receiving a $500 refund. However, when I went to actually file my taxes online (through TurboTax), they found that I should be receiving a $980 refund! I'm a bit worried - could I possibly have missed something this huge when I was doing my form by hand? Or should I just go with the flow and enjoy my $400 profit?
Sam Serio: When you file electronically using Tax preparation software on the web, you are in effect getting competent tax advice from the software company. If you answered all probes correctly, I'd say enjoy your $400!
Arlington, VA:
We are a two-income couple with a high gross income, for the first time this year. Is there a cap on how much we can claim as itemized deductions? Can you explain why our deductions are limited? Thank you.
Sam Serio: The short answer: It's the Law, period.
For 2002, AGI greater than $137,300.00 will reduce the amount of itemized deductions claimed by 3% of the amount that exceeds the $137,300.00 threshold. You might try both filing Married Filing Seperate to see if this provides any relief.
Olney, MD:
I made the mistake of letting H&R Block do my taxes this year, and I found some major errors after filing. I submitted a 1040X last week to amend this year's return; do those take more or less time than full returns, or about the same, to clear? It will double my refund, so I'm awaiting it anxiously!
Sam Serio: Processing of current year returns (Jan. thru April) take precedance over amended returns for prior and current years. However, if the adjustments on the amended returns are fairly simple, it shouldn't take much longer to process than an original.
Randallstown, Maryland:
Thank you for your time,
Getting married in October. Fiance has house and I make almost 2x her salary. How do we file...joint or separate? If joint, then are our individual deductions combined? If separate, then do we calculate everything the same as presently except check "married, filing separately?"
Whew!!
Sam Serio: As I mentioned in a prior answer, for two-earner married couples, it is better to do returns BOTH ways to see which is the most advantageous. With improved technology tax software this is easier than ever before.
Lorton:
Is lifetime learning credit only for college? Can the tuition for my husband's apprintice training classes count?
Sam Serio: Yes. An elegible institution is any College, University, Vocational school, or other Post-secondary educational institution eligible to participate in a student-aid program administered by the Department of Educaation. The educational institution should be able to tell you if it is an eligilbe instition and therefore if the expenses can be used for the Lifetime Learning Credit.
Alexandria, VA:
We owe, we owe, we owe.... It appears my husband & I got hit HARD by the "marriage penalty" for 2002, even with owning our own home and student loan deductions. I even had an accountant recheck my numbers.
So we'll pay. But we were hoping to pay via credit card to earn frequent flyer miles - until we saw we would have to go through a third party and pay a "convenience fee" of over $100!
Why can't the IRS accept credit card payments directly?
Sam Serio: IRS is not a lending institution. For taxpayer convenience we contracted with companies who accept credit card payments for taxes owed. Those companies charge a 2.5% "convenmience" fee, not the IRS.
Arlington VA:
I received a gift of property last year (gifters tranferred a deed to us, and I bought property for $1), and I know I have to pay property taxes on it. Does this impact income taxes at all? I always hear about the 'gift tax' and want to make sure I'm not missing something.
Sam Serio: Gift Tax is assessed on the "donor" not you, as donee...
outside the beltway:
Hi. As part of a university neighborhood rehabilitation program, we receive $3,000 each year in the form of a loan that is forgiven once we declare that we are still residents at the end of the year.
Taxable income?
Sam Serio: WITHOUT KNOWING ALL FACTS AND CIRCUMSTANCES, most cases, "forgiveness of debt" is taxable.
Rockville:
I received a 1099-something (R? G?) telling me that I had to report about $1000 in a 2001 refund I received as income for 2002. I added it into the income section under "other income."
Was I supposed to attach this postcard-sized form to my return? It didn't say to, but I just realized maybe I should have sent that in.
Sam Serio: That was a Form 1099G, a state refund - which is only claimed on the federal return, line 10, if you itemize deductions in the prior year. No need to send a copy with your Form 1040.
Arlington, Va:
Hi. I tried to get the IRS to answer this one for me and they were not helpful at all. For the last two years I've had to pay a balance on my tax. This comes after I sold my home and now use the standard deduction instead of itemization. My wife and I both claim withholding of Married Zero exemptions. Don't the withholding charts work such that if we itemize and both put married with no examptions, we should come out at the end of the year relatively close to a zero balance? We haven't been remotely close the last two years. Thanks!
Sam Serio: Without looking at your actual income, deductions and credits, it is impossible to tell. However, this is not uncommon. I suggest requesting a set additional amount be witheld by your employers on new Forms W-4.
Sorry Folks, but I have to go... THANKS for the questions!
- Sam
Michelle Singletary:
Again, sorry for the early delay but thanks for your participating. See you in two weeks.
Michelle Singletary:
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