We recently told you to “Wisen Your Wallet” and check out LearnVest.com, a new website designed to teach women about money. Too lazy to take a gander at their site? Don’t despair. LearnVest has agreed to periodically pay us a visit, to answer your questions about all things fiscal. Send your capitalist questions to email@example.com or leave them in the comments section, below.
We’re kicking off this series with a seasonally appropriate Q&A about – taxes. LearnVest teamed with Inna Merzheritsky – a partner specializing in international tax law at Burr Pilger Mayer accounting firm in San Francisco – to tackle some common queries.
I love getting cash back from my tax 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.
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 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.
I just had a baby. Are there any tax credits for 2009?
There’s 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’re 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.
What if I’m changing professions? Can I write off my tuition for tax purposes? (I’m a teacher, but want to get my M.B.A.)
Previously, you couldn’t write off tuition if you were changing fields, but that’s changed. There’s 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 effect. 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, below, or send them to firstname.lastname@example.org.