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Ask a CPA your really dumb tax questions


Amar and Deval Desai

Consult a tax professional with all of your personal tax questions. The following is merely meant to provide general information and entertainment.   
 
If you’re anything like me, a dull panic invades your brain as December becomes January becomes April, because you know it’s time to find the envelope you labeled “Taxes 2015.” Or was it labeled 2014? And then you begin to sift through pages of W2s, 1099s and leftover boxes of Girl Scout cookies you plan to write off as donations.
 
 Yes, tax time is here. And while many of my peers seem perfectly comfortable buying TurboTax and spending an afternoon calculating their accelerated depreciation (I googled “tax terms”), that’s just not in the cards for me.
Deval Desai 
But, thankfully, I found the perfect solution to the problem and I’ve come to share the solution with you.
 
I married a CPA.
 
While that might not be an option for you, I thought I would ask my wife, Deval Desai, some really dumb tax questions that I’ve had throughout the years and share her answers with you. Hopefully this prevents the tax man from knocking on your door down the road.
 
Deval Desai is an MBA/CPA who spent eight years at Pricewaterhouse Coopers before starting her own CPA firm, 216 Financial. She has almst 10 years of tax and finance experience. So she knows what she’s talking about
 
Amar: So Deval, I “donated” $250 to the Horseshoe Casino after watching “Rounders” and falsely believing I can count cards.  I can definitely write that off right?
 
Deval: Well now that I know to lock up my valuables around the house when I’m not home, I can say that you’re somewhat on the right track.
 
Believe it or not, gambling losses are deductible – but only in relation to your winnings. If all your winnings are claimed as taxable income on the “other income” section of your Form 1040, and you itemize your deductions (instead of claiming the standard deduction) then you can claim losses up to the amount you report as winnings.
 
The IRS requires you keep a log of your winnings and losses in order to deduct your losses – which includes the date, location, the people you gambled with, and the type of gambling performed. I must stress this very clearly, the government is not subsidizing gambling - you may only claim losses after reporting your winnings, thus the best case scenario allows you to avoid paying taxes on the winnings.
 
But let’s talk about actual donations. You may deduct charitable contributions in the form of cash, time or goods. You can deduct travel expenses directly related to service. For instance if you drove 30 miles to volunteer for Habitat for Humanity, you can deduct the IRS standard rate of 14 cents per mile, or $4.20.
 
Goods can be deducted at the fair market value of resale, not the price you paid. So don’t try claiming your fourth grade Florida State Seminoles starter jacket for the $49.99 your aunt paid in 1996. It’s probably worth more along the lines of $3.50.   
 
A: I’ve been getting a little fed up with having to go to work every day, and I’m hoping that you can take care of the both of us. Assuming I go this route, are unemployment benefits taxable?
 
D: Well I’m glad I’m hearing about this for the first time, but yes, unemployment benefits are taxable and should be included in gross income. If you did receive unemployment benefits throughout the year you should receive a 1099-G form that will show the amount you received.
 
If you prefer, you can also choose to have tax withheld from each unemployment paycheck you receive, which will amount to 10 percent of each check.
 
A: Asking for a friend - Can I, I mean he, still be claimed as a dependent?
 
D: Well, make sure to explain to your friend that there are two types of dependents.
 
First there is a Qualifying Child, who must be under the age 19 or, if a full time student under the age of 24; must live with the claimant for more than half the year; and cannot earn income that provides more than half of the financial support.
 
Second is a Qualifying Relative, who must live with the claimant; cannot make more than $4,000 a year; and the claimant must provide more than half of financial support.
 
A: Considering the national student loan debt has surpassed $1.2 trillion, this question is probably relevant to a lot of people out there. Are college loan payments tax deductible?
 
D: So this one is a bit trickier than you would think. Conventionally speaking, only the interest portion of the student loan payment is deductible, up to $2,500. For example if you have $22,000 of student loans with a 6.84 percent interest rate, you can write off $1,500. However you can only do that if the following qualifications are met:
 
  • You were enrolled at least half-time in a degree program.
  • The loan was not taken from a relative or under a qualified employer plan.
  • Your income is less than $80,000 if filing as single head of household, or $160,000 if married and filing a joint return.
  • The loan was only used to pay for qualified education expenses (tuition, room and board, books, etc.).
Thankfully, you do not have to itemize the deductions in order to claim them, but if you paid more than $600 in interest to a single lender you should be receiving a 1098-E form in the mail soon.
 
A: Last question and then we can go back to watching “Boy Meets World.” What’s the best way to increase your refund?
 
D: This is my favorite question because there are a lot of overlooked expenses that most taxpayers don’t account for. Let’s maximize that refund, people!
 
  • Job search expenses are tax deductible when looking for work in your current occupation.
  • Sales and local sales tax are tax deductible. You have the option of claiming state and local income taxes or state and local sales taxes for your itemized deductions on Schedule A.
  • Business expenses are usually deductible when incurred for a for profit business.
  • Medical expenses you paid throughout the year for medical and dental care may be tax deductible. 
  • The earned income tax credit is a commonly ignored tax credit. This is applicable to low to moderate income working individuals (working families with incomes below $44,000-$53,000, depending on the number of children, and childless workers with incomes below $15,000).
  • Rethink your filing status to increase your return. Married filing jointly and married filing separately often have different tax effects.  Compare different filing status to ensure you are getting the best return.
  • Invest in a traditional IRA to claim a deduction on your individual federal income tax return.Tax time is the best time to start saving money. There are plenty of ways to reinvest your tax refund to improve your financial situation. A little bit can go a long way.
Do not act upon information presented without individual professional consultation.  For more guidance, contact Deval Desai.
 
Amar Desai is a Post-Doctoral Research Associate in the Department of Medicine at Case Western Reserve University. While he usually writes for Fresh Water’s Lab Chat about the goings on in the Cleveland biomedical world, he occasionally leaves the lab to get some Vitamin D and freak out about taxes. You can contact him here.
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