LearnVester Tax Questions, Answered!

LearnVester Tax Questions, Answered!

You've come to us with tax questions, and we've heard you. That's why we sat down with Inna Merzheritsky, a partner specializing in international tax at accounting firm Burr Pilger Mayer in San Francisco, to answer YOUR questions about taxes.

I love getting cash back from my refund, but some of my friends say it’s a bad thing. Why?

Don't think of your refund as some sort of bonus. It’s your own money that you’re getting back, which means that you've basically given an interest-free loan to the government. Put it this way: If you could stash money under your mattress and get nothing from it, or invest it in a CD so you earn interest over time, which would be the better thing to do? (The latter, of course!) Getting a tax refund is like stuffing money under your mattress.

How do student loans affect my taxes?

You can count up to $2,500 in student loan interest as a deduction, though it starts to phase out if you make over a certain income limit. This probably doesn’t matter for recent college grads, but it could very well affect someone coming out of law school or business school. The phase out level is between $60,000 and $75,000 for singles. So, if you make more than $60,000, you won't be able to deduct quite as much. If you make $75,000 or more, you'll lose the deduction completely.

If I donate to charity, can I deduct it all?

Probably, if you donate within a certain range. The general upper limit is 50% of your adjusted gross income (AGI). So, if your AGI is $100,000, you could donate and deduct up to $50,000. But, if your total itemized deductions are less than the standard deduction you'd get anyway, then you would simply take the standard deduction ($5,700 for single people filing 2009 taxes). That means that you either need to donate more than $5,700 to charity during the year, or have additional deductions that you list in the tax form Schedule A, in order to make the charity deductions worth your while.

We just had a baby. Are there any tax credits for 2009?

There is a tax credit of $1,000 per kid, though it's phased out for people with higher income, starting at $110,000 for joint filers. Additionally, you can earn an additional personal exemption for your new dependent, in the amount of $3,650 in 2009. If you are married and both spouses work, you can receive a child-care credit. If your employer has a 125 Plan (often called a dependent care spending account), which lets you contribute pre-tax money to pay for daycare, Inna always recommends that you use it. You can’t take the tax credit and use the pre-tax spending account, so you’re usually better off with the 125 Plan. Of course, take the credit if your employer doesn’t offer such a plan.

I don’t have an expense account at work, but I do a lot of networking anyway. Can I write off my cocktails and Lunches? Taxi fares or fees for professional events?

You can write off unreimbursed expenses if they amount to more than 2% of your AGI. You need to itemize your deductions to get credit for the expenses, and things like coffees and lunches are only 50% deductible. Inna cautions, "If you want to take this deduction, you should keep receipts as well as...logs of who you met with and why." She recommends keeping these records in your Outlook calendar.

Can I write off my tuition for tax purposes? What if I'm changing professions? (I'm a teacher but want to get my MBA.)

Previously, you couldn’t write off tuition if you were changing fields, but that’s changed. There is a new and temporary deduction for any type of tuition and fees. It won't be available beyond the 2009 tax year, unless a new law comes into affect. The deduction is $4,000, limited like many others by your level of income; it phases out for AGIs between $65,000 and $85,000. Note that you don’t have to itemize your deductions to take it. There are other credits and tax breaks for education (like the HOPE credit), but you can’t take the credit and the deduction. So, calculate your income tax bill with both scenarios, and take the one that gives you bigger savings.

I sold about $3,000 worth of jewelry on eBay; how do I deal with the taxes?

Do you have a business, or was this jewelry you inherited from Grandma that you weren’t so crazy about? If the latter, then this would count as a capital gain and you would have to fill out Schedule D. Now, if you have a business that sells jewelry, you'll need to fill out schedule C, which is for people who are self-employed.

Have other questions? Add them to the comments section or get in touch with LearnVest.


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