Editor’s note: The following questions and answers on tax subjects were compiled by Internal Revenue Service spokeswoman Jennifer Jenkins from the IRS website and edited by Beacon Journal business writer Betty Lin-Fisher. More questions and answers can be found online at www.irs.gov.
Today’s report is the second of two days of tax coverage. Sunday’s Beacon Journal Tax Guide stories can be found at www.ohio.com/taxes.
Q: I moved. Which address should I use on my tax return, and where should I send it?
A: If you move before you file your return, put your new address on the return and submit it to the IRS Return Processing Center that services your new address.
If you move after you filed your return, complete Form 8822, Change of Address, and send it to the IRS Return Processing Center serving your old address.
The form is available online at www.IRS.gov or by calling 800-TAX-FORM. If you are expecting a refund and did not use direct deposit, also notify the post office serving your old address.
Q: If I make a mistake on my return, will I be in trouble?
A: If you’ve made a mistake and it wasn’t a willful and intentional attempt to evade taxes, you are not going to be “in trouble.” Errors need to be corrected and you are responsible for paying any additional tax, as well as any penalties or interest that may apply. Errors may delay your refund or result in notices being sent.
If you discover a mistake on your return, you should file an amended return using Form 1040X if you did not report some income, claimed deductions or credits you should not have claimed, did not claim deductions or credits you could have claimed, or should have claimed a different filing status.
Q: I am in a same-sex marriage. How do I file?
A: If you were legally married to a same-sex spouse in a state (or foreign country) that recognizes same-sex marriage, you and your spouse generally must use the married filing jointly or married filing separately filing status on your 2013 federal income tax return.
For Ohio taxes, each individual who has entered into a same-gender marriage outside Ohio must file an Ohio return in accordance with the following guidelines:
• File a separate Ohio income tax return using Form IT 1040 and check the box on the first page indicating that Schedule IT S (explained below) will be filed.
• Use the filing status of “single” or, if qualified, “head of household.”
• Complete Ohio Schedule IT S, Federal AGI to be Reported by Same-Gender Taxpayers Filing a Federal Joint or married Filing Separately Return, which is a supplement to Form IT 1040. This is a schedule to determine federal adjusted gross income (“federal AGI”) as if they had filed using the “single” or “head of household” filing status. These amounts shall be reported as the individuals’ federal AGI for Ohio purposes including, but not limited to, on line 1 of the IT 1040. One Schedule IT S shall be completed and a copy submitted with each individual’s IT 1040. The schedule and instructions are available online at http://www.tax.ohio.gov/Forms.aspx
Q: Can a student file a return claiming a personal exemption if the parents list the student on their return as a dependent?
A: No. A student may not claim a personal exemption on his/her own return if the parent qualifies to claim them as a dependent. Generally, the parents may claim a student as a dependent if the child: did not provide more than half of his/her support, is under age 24 at the end of the year and a full-time student, lived with the parents for more than half the year, does not file a joint return, is a U.S. citizen, national or resident, or is a resident of Canada or Mexico.
Q: What income is considered taxable or nontaxable?
A: Generally, you must include in gross income everything you receive in payment for personal services such as wages, salaries, commissions, fees and tips.
Other items considered taxable income include: fringe benefits, stock options, unemployment compensation including unemployment insurance benefits and benefits paid by a state (may also be subject to Social Security and Medicare taxes), canceled debts and all other items, unless specifically excluded by law, including income in a form other than cash.
Some common items that are not taxable income are: adoption expense reimbursements for qualifying expenses, child-support payments, gifts, bequests and inheritances, workers’ compensation benefits, public assistance benefits based upon need (food stamps, Medicare), meals and lodging for the convenience of your employer and cash rebate from a dealer or manufacturer.
Some items may or may not be included in taxable income depending on the facts and circumstances: life insurance, scholarships and fellowship grants.
Q: Are tips taxable? How are tips reported?
A: Yes, all tips are considered taxable income. If you receive tips of $20 or more in any one month from any one job, you must report the total tips to your employer by the 10th day of the next month. The reason you must report your tips is so that your employer can withhold the proper federal tax (usually income, Social Security and Medicare, or FICA taxes) on your tips.
If you do not report tips to your employer, you must report them as income on your return, and you may owe Social Security and Medicare taxes on them.
Tipped employees are urged to keep a daily tip record (Form 4070A).
Q: How do I know whether to itemize deductions?
A: Nearly two out of three taxpayers take the standard deduction rather than itemizing deductions such as mortgage interest, charitable contributions and state and local taxes.
As a general rule, you want to itemize deductions (on a Schedule A) if the total amount of deductible expenses is greater than the standard deduction given to you based on your filing status. Some of the expenses you can include if you itemize are:
• Medical expenses that are greater than 10.0 percent of your adjusted gross income (or 7.5 percent if you’re 65 or older);
• Mortgage interest and points;
• Charitable contributions;
• Casualty losses that are usually greater than 10 percent of your adjusted gross income plus $100;
• Unreimbursed job expenses and miscellaneous deductions that are greater than 2 percent of your adjusted gross income.
To determine whether you should itemize, go online to www.IRS.gov and search for “Should I itemize?” or Schedule A.
Q: Are donations to an individual or family deductible?
A: No. When people give money to directly help a specific individual or family, it is considered a gift rather than a charitable donation and is not deductible.
There is a subtle distinction between a charitable cause (one-time fund) and a charity.
A true formalized 501(c)(3) may not solicit funds for a specific individual without having a set of criteria it applies and that would be applicable to others under similar circumstances. Local funds are often created to benefit a specific individual, but the fund can be created and then quickly dissolve.
An organization or fund formed to assist a particular individual or family will not qualify as a charitable organization and therefore donations to these organizations or funds are not deductible as a charitable contribution.
Q: How does an employee deduct business expenses?
A: It depends on whether your employer reimburses you for business‑related expenses.
If you are an employee whose deductible business expenses are fully reimbursed, the reimbursement should not be included in your wages on Form W-2, and you should not deduct the expenses.
If you are not reimbursed fully under a plan, your expenses exceed the reimbursement you received under an accountable plan, or you are not reimbursed at all, you may use Form 2106 or Form 2106-EZ to deduct allowable business expenses.
These expenses, including expenses that exceed the reimbursement under an accountable plan, are carried over to Form 1040, Schedule A, and are generally subject to the 2 percent of adjusted gross income limit.
Q: What kind of moving expenses can I deduct?
A: You may be able to deduct moving expenses if you meet three tests: your move is closely related to the start of a new job; your new main job location is at least 50 miles farther from your former home than your old main job location was from your former home and if you’re a full-time employee, you must work at least 39 weeks during the first 12 months after you arrive in the area of your new job location. If you’re self-employed, you must work at least a total of 39 weeks each year in the first two years at the new location.
Complete and attach Form 3903, Moving Expenses, to your tax return.
Q: I got a really big refund. What can I do to reduce my withholding?
A: Try to have your withholding match your tax liability. If not enough tax is withheld, you will owe taxes. If too much is withheld, you must wait for your return to be processed to get money.
In most situations, the tax withheld will be close to the figure on your return if you accurately complete all the Form W-4 worksheets that apply.
A “Withholding Calculator” is available online at www.IRS.gov.
To adjust the amount withheld, complete a new Form W-4 and give it to your employer.
Q: What receipts and records do I need to keep and for how long?
A: Keep copies of your return plus tax-related receipts and substantiating records at least three years from the filing date, or two years from the date you paid the tax, whichever is later.
Keep records of property you’ve sold as long as they affect the cost basis of replacement property you own; keep records of capital improvements to your property (e.g., new roof, landscaping and remodeling).
Keep bills, credit card and other receipts, invoices, mileage logs, canceled, imaged or substitute checks or any other proof of payment and any other records to support deductions or credits claimed on a return.