The April 17 deadline to file your taxes is fast approaching, and according to the results of Yahoo Finance’s recent survey, many of you are still preparing your returns. To help you get to the finish line, we invited certified public accountants Sheila Brandenburg and John Lieberman for a live Q&A session where we answered audience questions.
Below are 19 viewer questions they answered during the 35-minute Q&A.
1) Is the interest paid on a reverse mortgage deductible, like it is on a regular 15- or 30-year mortgage? —Jack [This question was answered at timecode 1:21 on the video player above]
Reverse mortgages allow for cash-strapped homeowners age 62 and older to tap into their home equity through a lump sum, a line of credit, annuity payments, or some variation of the three, explains Brandenberg. Because no mortgage interest is due until you leave the property or pass away, you can’t think of it in the same way as a regular mortgage.
“Even if they were to pay that [interest] before they pass away, the interest that they’re paying is under the home equity rules, and that interest is really quite limited, so even in that case, it might not be deductible,” says Brandenberg.
2) I’m a college student living with my family while going to school full-time. Last year, I worked full-time for about 5 months making ~$10 an hour. How do I know if I’ll need to pay taxes for this year? [This question was answered at timecode 3:13 on the video player above]
It doesn’t matter how many hours you worked or how much you got paid – if you were paid for work, your employer would’ve issued you a W-2 and that employer is required to withhold taxes, says Lieberman. “If the child is on the parents’ tax return, it has to be looked at and they may not be entitled to the full deduction, but generally speaking the tax would be zero for them based on the standard deduction,” says Lieberman.
For students taking small part-time jobs, Brandenberg says you can put “exempt” on your W-4 so that taxes won’t be taken out. “That way, at the end of the year, that student won’t really have to file a return except to get those taxes back,” she says.
3) I was given some property as a gift from an estate. I am trying to determine the cost basis. Would I use the fair market value at the time it was given to me or the tax value? [This question was answered at timecode 4:43 on the video player above]
Brandenberg explains that if it’s an estate, then generally that person is the beneficiary of the estate and was probably given this as a bequest or they were left the property. You want to look at the fair market value at the date of the death of the decedent. That’s really going to govern what your cost basis will be, she says.
4) I work as a graphic designer and use my home as my office. If I deduct normal business expenses like utilities and supplies, am I guaranteed to be audited? —Brian [This question was answered at timecode 6:00 on the video player above]
Probably not, says Lieberman. Normal, reasonable, and customary expenses are deductible and if you’re using the apartment or house as a work environment the IRS has now issued a safe harbor; that means you can take $125 a month or $1,500 a year, without fear of the IRS using the percentage of the apartment used for your business to calculate your allowed deductions.
5) My kids go to private school. Besides paying tuition, the school also receives donations. Can I deduct my tuition payments as donations on my taxes? [This question was answered at timecode 8:31 on the video player above]
“That’s a great question, but that will guarantee you an audit,” says Lieberman. If you are donating goods or monetary items such as stock or cash, such as a the school’s building fund, that is deductible. Tuition payments are not deductible as a charitable contribution.
6) I worked three different jobs this year and on my first W-2, I marked that I was head of household (which I am not). How do I fix this mistake? (I haven’t filed yet this year.) —Ann [This question was answered at timecode 9:25 on the video player above]
It sounds like they prepared your W-2 based on your W-4 and it can be confusing filling out those forms, says Brandenberg. But when you file your 1040, it will be cleared up because if you owe additionally money, you will pay it with your 1040, so it’s not a matter of having to go back on the form to make the correction, but you will be able to make that correction on the 1040 form. But going forward, to ensure you’re withholding the correct amount, Brandenberg advises you use the withholding calculator on the IRS site.
7) My mom wants to put her home under my name. Will this affect my income tax? I own my home, this will give me a second property. —Isabel [This question was answered at timecode 11:24 on the video player above]
There’s no straightforward answer – we’d need to know more about the situation. First, what is the value and what is the purpose of moving the home under your name? Is there a mortgage attached to it? While there is no immediate tax repercussion, there may be gift tax that needs to be filed and liabilities attached to it, and for any type of property transfer you would be in the best hands to seek legal counsel, advises Lieberman.
8) I’m a freelancer who buys his own health insurance in the open market. I don’t have a C or S-Corp. I’m issued W2s when I work. I live in MA. Can I deduct my insurance premium on Form 1040 line 29 (Self-employed health insurance deduction)? And can I deduct my premium on my MA state tax form? —Roger [This question was answered at timecode 14:00 on the video player above]
The bad news is that the IRS has really been coming down on employers to get it right, whether you’re a 1099 contractor or an employee, Brandenberg says. In the past, many freelancers were able to consider themselves as self-employed, receive 1099s, report this on Schedule C, deduct their expenses before they were taxed on their net income, and they were able to get this self-employed health insurance deduction on line 29. Unfortunately, now for those same jobs, those companies are now issuing W-2s to freelancers like Roger, which makes him fall under the “employee” category rather than being “self-employed,” she says.
9) My husband and I both received Social Security disability in 2017. Our income together was over $34,000. Do we need to file a tax return? We had no earned income for the year. —Debbie [This question was answered at timecode 16:40 on the video player above]
“You don’t have to file,” says Lieberman. However, depending on the state you live in, he advises you investigate whether your state issues a refundable credit.
10) I am underwater on my mortgage. Is there any tax break I can get? [This question was answered at timecode 18:00 on the video player above]
Up until 2016, you may have been able to get a tax break, but things have changed with the new legislation. Now, if you have forgiveness of debt, you’ll be issued a statement that says this is income to you, resulting in a taxable event, says Lieberman. While he needs to know more about this taxpayer’s situation to advise fully, Lieberman points to two possible exits from getting taxed. The first is a straight bankruptcy which would eliminate the taxable event; the second one is called “insolvency,” which means your liabilities are greater than your assets. But again, you’d have to discuss this in full with an accountant to make sure you proceed in a way that’s best for your financial situation, he says.
11) I work full-time and also run a small online business. Should I file taxes for both jobs together? — Michelle [This question was answered at timecode 19:50 on the video player above]
You will be able to file it on one return, but on separate forms, says Brandenberg. From your full-time job, you’ll most likely get a W-2. For your online business, that’s reported on a Schedule C. The good news is that you’ll be able to deduct expenses related to your online business.
12) Do I need an accountant/CPA to handle my Bitcoin trading gains/losses? [This question was answered at timecode 24:40 on the video player above]
When preparing your own returns in the past, if you’ve been comfortable reporting the sales of your stocks and other investments, reporting your bitcoin gains/losses will be similar to that, says Brandenberg.
13) If I use a tax software program, how do I properly report cryptocurrency buys/holdings/sells? —Eubene [This question was answered at timecode 26:00 on the video player above]
Lieberman says because the cryptocurrency companies have been issuing form 8948 with all the trades listed on it, reporting on bitcoin, and any other type of virtual currency, has been relatively easy for accountants and those who are using tax software to file.
14) I’m a foreigner living abroad but trading online with a company in the US. Do I have to file a tax return? —JC [This question was answered at timecode 26:43 on the video player above]
There is no requirement to file, says Lieberman. However, there are disclosures depending on dividends and interest you may have to file. Otherwise, you may be subject to the U.S. withholding rate of 30%. So it may be worth it to file so that you can receive a refund.
15) Is a Roth IRA contribution beneficial if I can’t take a deduction for 2017? [This question was answered at timecode 27:37 on the video player above]
It depends on your situation, say both of our experts. You need to balance the tax effect versus the financial effect, and it can help to ask a tax pro or financial adviser.
16) If a county sent an appraisal for 2018 before December 31, 2017, can you deduct 2018 property taxes on your 2017 return? [This question was answered at timecode 28:55 on the video player above]
Note that there’s a difference between an appraisal valuation and an assessment of tax. “In order to get the deduction, there has to be a liability that exists for the taxpayer. If the town sent you the tax bill, which is an assessment, then yes, you would be able to make the payment and get that deduction,” says Brandenberg.
17) Parents go into assisted living. Their will says when they are no longer living at the house it goes to the children. Children sell the house. How is that income reported? Capital gain? —Joe [This question was answered at timecode 30:26 on the video player above]
It would be considered a gift and depending on how the estate and the recipients of that gift handle the transfer, this taxable event could be minimized or even eliminated, says Lieberman. But in order to do this, both Brandenberg and Lieberman agree that some advanced financial planning is needed, and that requires guidance from an adviser.
18) I have a small eBay store. Ebay does not provide a 1099. How much do I have to sell to report it to the IRS? [This question was answered at timecode 32:40 on the video player above]
If you’re in business, you need to report it, says Lieberman. Even if you earned as little as a dollar, you must file.
19) For 2017 I am expected to pay the AMT [Alternative Minimum Tax]. Last year I did not have to pay. Only thing that has changed is a slight increase in my AGI. Why do I have to pay AMT on top of regular taxes? [This question was answered at timecode 33:22 on the video player above]
“The AMT is the dreaded tax,” says Brandenberg. Based on what you shared with us, that slight increase in your income took you over the exemption amount when you do the AMT calculation. Depending on where your income is, you may have gone from the 20% tax rate and jumped up to the 28% tax rate, says Brandenberg.
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Jeanie is a reporter at Yahoo Finance. Reach out by email firstname.lastname@example.org; follow her on Twitter @jeanie531.