Federal Income Tax Planning Chat (March 24, 2009)

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Chat Session: Federal Income Tax Planning: Answers to Your Questions from eXtension Experts

Date: Tuesday, March 24, 2009
Time: 11:00 - 12:30 p.m. Eastern Time (10:00-11:30 p.m. Central Time; 9:00 a.m.-10:30 p.m. Mountain Time; 8:00 - 9:30 Pacific Time)


INTRODUCTION

STIMULUS

DEALING WITH MULTIPLE STATES

INVESTMENTS AND TAXES

TAXES AND FAMILIES

USING THE REFUND

TAX CREDITS

CREDIT CARD SETTLEMENT

DISASTER

RENTAL PROPERTY

EITC

FILING STATUS

LEVERAGING VITA

FLEXIBLE SPENDING PLANS

GENERAL TAX RESOURCES

POLLS

INTRODUCTION

Michael: Welcome to our Chat on General Tax Tips. Hi! I’m Michael Gutter (University of Florida) your moderator for today’s chat along with our technician, Dustin Hyatt (Connect System). Today’s chat, that will last about one hour to 90 minutes, is sponsored and supported by members of the Financial Security for All Community of Practice. Out team of experts listed on your screen will be responding to your questions. All are highly qualified to talk about this subject.

Michael: We are now ready to receive your questions. You will find the rectangular box at the bottom of your screen to type in your question. DO NOT HIT THE ENTER KEY UNTIL you are finished typing your question; your typed message will wrap around. You do not need to print your name; the program tells us who is sending the question. Your questions please

STIMULUS

Linda Law-Saunders: we have been told that public employee checks will have the stimulus included, but may need to have more taxes taken out to compensate at the end of the year. What's the scoop?

Celia Hayhoe: Linda - If you are working more than one job than one or are married and both working you may have your withholding adjusted by too much. You will need to go to an employer and change your w-4 to correct this. Linda Law-Saunders: Celia- why are we being given money only to have to pay in later because of it?

Celia Hayhoe: Linda- You don't have to give it all back. It is just that you will get the credit taken out at each job when you are only entitled to it once.

Tamara: Are there any tax credit items we should be aware of for this 2009 tax season? Or are all the credit revisions for 2010? Thank you Pat Swanson: Tamara -- There have been two new home tax credits. The first credit of $7500 is for first homes bought between April 9, 2008 and end of last year. It is really an interest free loan to be paid back over 15 years starting with 2010 return. If one moves from the home before 15 years, outstanding balance at that time is due. The second credit is a real credit. It is for first homes bought between January 1, 2009 and November 30, 2009 but you can get the credit on 2008 return. This credit is $8000 for maximum of 10% of purchase price. You must live in home for 3 years or credit must be repaid.

Mary: is the home buying credits different if you are single or married?

Pat Swanson: Tamara -- The homebuyer credit is the same for both single and married filing jointly taxpayers.

Karen Saley: Is it true that the federal government is lowering the deduction rate starting this month?

Celia Hayhoe: Karen- the lowering of deductions to give you your rebate

Michael: This is actually tied to the change in the withholding tables. Note that while withholding will change, the tax tables for the next returns will not reflect this. This will result in decrease in refunds or increase in amount owed for some. This will be offset by the Making Work Pay Credit.

DEALING WITH MULTIPLE STATES

Judy French: How do you file when there are w-2s from two separate states? Examples: NY & VT

Andrew Zumwalt: @Judy French Multiple w2s will require you to file with any state that you worked in and established residency with. Some states will however give you a credit for taxes paid in other states. Some VITA sites have multiple states installed and can help a taxpayer figure two states out. Most states will tax you on all your income and multiply the resulting tax by the percentage of income earned in that state to determine the tax owed to that particular state.

INVESTMENTS AND TAXES

Karen Saley: Can loses from investments be deducted? If so, how

Michael: Karen - realized capital losses can be used to offset capital gains. In addition if there are no more gains, up to $3000 of realized capital losses can be used as a deduction against ordinary income

Gnye@agcenter.lsu.edu: Michael, what do you mean by realized, is that the same as paid out?

Kimberly Nute-Jones: Realized losses are losses after an investor has actually sold investment property, stocks, etc.

Sarah: Is the $3000 that can be used as a deduction against ordinary income different than the capital loss carryover? If so, how do you know which is better to use?

Michael: Sarah - the carryover is the idea that you can save that loss for the following year if it is more advantageous to do so. Debra: Can a person, if they meet income guidelines, participate in both a Roth IRA and a Roth 403(b)? And is Roth information ever required on tax returns or is the documentation just needed in a file to verify at the time of withdrawal?

Pat Swanson: Debra -- One can contribute to both Roth IRA and Roth 403b. Debra: Thank you

Judith Wilson: Are survivor annuities taxable at the federal level? Celia Hayhoe: Judy - You will have to pay tax on the income part, you will get a statement from the annuity as what is taxable?

TAXES AND FAMILIES

Celia Hayhoe: If you are interested in tax issues for new families, email me I have a new series coming out but will be happy to send it anyone in draft form, chayhoe@vt.edu

Karen Saley: If a divorced man is not paying alimony or child support, but paying mortgage and all other living expenses for ex and child, can those expenses be deducted from his taxes?

Kimberly Nute-Jones: Karen would the divorced man be paying the expenses at his ex-wife's house? Is he claiming the dependents and ex-wife? Karen Saley: He is the owner of the house, she lives there. He does not claim the ex as a dependent and he claims the child every other year.

Kimberly Nute-Jones: Karen, as long as the mortgage interest is reported on form 1098 in his name, he can claim the interest paid. In addition, he can file head of household even in the years that he does not claim his child as a dependent

Andrew Zumwalt: @Karen you can get the specifics for your case on page 151 of the pub 17 http://www.irs.gov/pub/irs-pdf/p17.pdf

Karen Saley: Kim, he was told he could not claim head of household because he does not live in the house.

Kimberly Nute-Jones: Karen, he would not have to live in the household to file head of household. Children of divorced parents are a special case. I will get the IRS link and post it Kimberly Nute-Jones: Karen, Andrew gave you Pub. 17, also Pub. 501 http://www.irs.gov/pub/irs-pdf/p501.pdf


USING THE REFUND

Pat Swanson: Rosemary Heins (University of Minnesota Extension) wants me to let you know about a publication “Tax Refund Decisions.” See www.extension.umn.edu/ResourceManagement

TAX CREDITS Pat Swanson: Do any of you have questions on any of the tax credits?

Gnye@agcenter.lsu.edu: Tax credits: what is there for senior citizens?

Kimberly Nute-Jones: Seniors receive an additional credit for being 65 and over. Additionally, new for this year, if a taxpayer is no longer itemizing, the property tax deduction is available; $500 for singles, $1000 for couples.

Judy French: What qualifies for residential energy efficient? Does a new furnace put in by a homeowner?

Pat Swanson: Judy -- There is no energy credit for individuals in 2008. A tax credit for energy efficiency is available up to $1500 in 2009 and 2010 for existing homes for windows and doors, insulation, roofs, HVAC, water heaters.

Karen Saley: What are new saver credits?

Pat Swanson: Judith -- The savers credit looks at $2000 of contributions to IRA, 401(k), etc. Then you can get a credit (meaning it comes from tax liability) of 10%, 20% or 50% of that $2000 contribution depending on income.

Lyla Houglum: Can we take advantage of energy tax credits for a remodel job that spanned several months of 2008 and 2009?

Lyla Houglum: Back to energy tax credits--how do you include upgrades on a major home remodel that spans several months of 2008 and 2009?

Liz Gorham - SDSU CES: HOW CAN WE BEST COMMUNICATE ALL OF THE TAX CREDITS AVAILABLE EACH YEAR - NEWS RELEASES, YES, BUT FEWER PEOPLE ARE READING NEWSPAPERS AND SOME ARE NOT ONLINE? DO MORE PEOPLE DEPEND ON THEIR INFORMATION FROM CNN OR OTHER NEWS LINKS? HOW DO WE MEET THESE EDUCATIONAL NEEDS FOR THE RURAL NON-COMPUTERIZED FAMILIES?

Pat Swanson: Liz, that's a great question. How do all of you educate about taxes?

Celia Hayhoe: Liz what about fact sheets in grocery stores, etc?

Liz Gorham - SDSU CES: SOUNDS GREAT! ALSO TRIED RADIO BLURBS; it SEEMED APPROPRIATE TO DO THIS YEAR.

Kimberly Nute-Jones: Just as a reminder to everyone, when claiming education expenses on your return, remember to compare taking the education credit vs. the tuition and fees deduction to see which gives you a better outcome.

Andrew Zumwalt: Liz In addition, you should look at your state return. If the family owes tax at the state level but not the Fed, the deduction is better

Liz Gorham - SDSU CES: INVARIABLY IT HAS BEEN BEAST TO TAKE THE ED CREDITS!

Kimberly Nute-Jones: Liz it also depends on your income. It phases out for high income taxpayers

CREDIT CARD SETTLEMENT

Mary: can a 1099 from a credit card settlement be waived for tax purposes?

Michael: Mary, the 1099-C is needed because you have to claim the remaining balance of the debt as income on your tax return.

Mary: but can’t it be waived if you can show insolvency at the time of the settlement?

Andrew Zumwalt: @ Mary, it can be true that you can claim insolvency. The taxpayer can use form 982 to show the discharge

DISASTER

Andrew Zumwalt: Something to watch for in 2009: If you cared for someone from a Midwestern Disaster Area, you might to look at pub 4492-b to see if you can claim a special exemption for the person you're housing: http://www.irs.gov/pub/irs-pdf/p4492b.pdf

Andrew Zumwalt: @ Mary, you can also use the cancellation if you lived in a Midwestern Disaster Area. See Pub 4492-B for more info: http://www.irs.gov/pub/irs-pdf/p4492b.pdf

Pat Swanson: For the 2008 and 2009 tax years, losses in federally declared disaster areas get favorable tax treatment. Losses in these cases are not limited by the 10% of gross income threshold. Also, you don't have to itemize to claim them.

Pat Swanson: Also for taxpayers in a presidentially declared disaster area in 2008 and 2009 who receive grants from state programs, charitable organizations or employers to cover certain disaster-related costs do not have to include these grants in gross income.

RENTAL PROPERTY

Lyla Houglum: How to handle rental property that is taken out of the rental market for a year. Can it continue to be depreciated?

Kimberly Nute-Jones: Lyla if the property is not being used as an income property during the year, depreciation cannot be taken. Once it becomes a rental property again, depreciation can resume.

Lyla Houglum: So does the rental property just not show up on the federal tax forms for the year it is out of the market? Or does the information for the tax forms continue to be provided?

Judy French: If a couple lives on property owned by a relative. They do not pay rent but pay the property taxes. Who claims the credit?


EITC

Tamara: An EITC questions. Would anyone have links to clear info on the changes to the EITC?

Andrew Zumwalt: @ Tamara: The Brooking Institute does a great job summing the changes to the EITC: http://www.brookings.edu/papers/2009/~/media/Files/rc/papers/2009/0129_eitc_kneebone/20090126_eitc_kneebone.pdf

FILING STATUS

Tamara: Just a general question, but what are some reasons for filing as married filing separately?

Andrew Zumwalt: @Tamara Great page on why it might be beneficial to file MFS: http://www.bankrate.com/brm/itax/news/20010524a.asp

LEVERAGING VITA

Tamara: At VITA sites, do any of you provide other services, e.g. bank accounts, financial education, etc.

Andrew Zumwalt: @Tamara we do offer the chance for people to sign up for accounts a local credit union and we take some time to talk about their finances at the site

Linda Law-Saunders: Tamara- as the coordinator of WISH Coalition sponsoring VITA in my county, I am in talks with a bank that has several locations in the county for starting accounts on site next year. We started the talks too late for our Super Saturday events this year

FLEXIBLE SPENDING PLANS

Andrew Zumwalt: Something that isn’t talked about much: Low income tax filers can be hurt by using a flex spending account for either health care of dependency; it can reduce their earned income and reduce the Earned Income Tax Credit.

Andrew Zumwalt: sometimes the dependent care credit is better than the flex spending account for dependent care expenses

Andrew Zumwalt: The EITC is based on income, so for some low income taxpayers reducing their earned income reduces their credit. For some taxpayers that are actually over the EITC max income, using flex spending can actually increase their EITC credit as they fall back toward the EITC maximum

RESOURCES

Andrew Zumwalt: @Liz Great book for looking at the changes being proposed in our tax policy: http://www.amazon.com/Coming-Generational-Storm-Americas-Economic/dp/0262112868

Celia Hayhoe: Liz- I started a group on Facebook called financial check up for all types of financial tips.

Celia Hayhoe: the link for the Facebook group is http://www.facebook.com/home.php?#/group.php?gid=90149336144. It is new and members are welcome.

Celia Hayhoe: We have financial education and fact sheets Liz Gorham - SDSU CES: I WILL SEEK OUT YOUR FACEBOOK - ARE OTHERS USING THIS TECHNOLOGY? BUT I THINK THE RURAL ARE STILL LEFT OUT IN THIS VENTURE.

POLLS Question

Has this chat provided you with new ideas for programming

None 1

Some 14

A-lot 1

I do not program in this area 3

Have you increased your knowledge of the topic covered in this chat?

None 1

Some 14

A-lot 3

Do you plan to adopt or utilize the information from this chat in what you do in the future?

Yes 12

No

Not Sure 5


BIOS

Moderator:

 

Michael Gutter, University of Florida

Dr. Michael Gutter, Assistant Professor and Financial Management State Specialist, Department of Family, Youth, and Community Sciences, in the Institute for Food and Agriculture at the University of Florida
Michael Gutter's BS degree is in Family Financial Management and his PhD is in Family Resource Management from The Ohio State University with a specialization in Finance. The common theme that connects Gutter's Research, Teaching, and Outreach is helping households achieve financial security. This has involved research examining how socioeconomic status, financial education, personal psychology, and financial socialization are related to financial behaviors. In the context of this model, Gutter currently explores how financial education is related to financial behaviors and whether or not it is effective as a treatment resulting in improved financial decision making. This line of research has funding from the Great Lakes Higher Education Guaranty Corporation, the National Endowment for Financial Education, and the NASD Investor Education Foundation.

 

Panel of Experts for the March 24 Chat Session

Dr. Celia Hayhoe, Virginia Tech

 

Celia Hayhoe

 

Dr. Celia Hayhoe is an Associate Professor and Family Financial Management Specialist with Virginia Cooperative Extension at Virginia Tech. She received her Ph.D. in Family and Consumer Resources, M.S. in Finance, and her B.S. in Education at the University of Arizona. Celia received her Certified Financial Planner® designation in 1986. In 2006, Dr. Hayhoe won the Outreach Award for the College of Liberal Arts and Sciences at Virginia Tech. In 2007, she received the Distinguished Service Award from the Association for Financial Counseling and Planning Education.

Her research interests are college students’ use of credit and eldercare financial planning. She has authored three national programs: To Be a Have or Have Not: The Choice is Yours, Money Speaks: Helping Teens and Parent Communicate About Money and Protecting Your Retirement and Other Financial Information for Family Caregivers: What Every Adult Child Needs to Know. Dr. Hayhoe has authored many extension publications as well as refereed journal articles on personal finance topics. She has been interviewed by the popular press and the news media.

 

Kimberly Nute-Jones, University of Illinois

Kimberly Nute-Jones bio

 

Dr. Patricia Swanson, Iowa State University

 

Pat Swanson


Dr. Patricia Swanson is a Family Resource Management State Extension Specialist and Adjunct Assistant Professor at Iowa State University. She also has a Certified Financial Planner® designation.

Pat has authored many extension publications and has taught several online Money Talk and Smart Investing non-credit courses. She is currently the chair of the eXtension Financial Security for All community of practice. She also teaches investing and housing courses in the Family Financial Planning online graduate program of the Great Plains Interactive Distance Education Alliance.


Andrew Zumwalt, University of Missouri Exension

 

Andrew Zumwalt


Andrew Zumwalt is an Associate State Specialist with University of Missouri Extension. He helped create and currently manages the Missouri Taxpayer Education Initiative which focuses on providing taxpayer assistance as a gateway to financial education. Andrew operates a VITA site on the MU campus and supports Extension sponsored VITA sites across the state of Missouri that provide.

 

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