Editor’s note: The following questions and answers on tax subjects were compiled by Internal Revenue Service spokeswoman Jennifer Jenkins from the IRS website and edited by Beacon Journal business writer Betty Lin-Fisher.
More questions and answers can be found online at www.irs.gov .
Today’s report is the second of two days of tax coverage. Sunday’s Beacon Journal Tax Guide stories can be found at www.ohio.com/taxes .
Q: When should I get my Form W-2 and what should I do if it’s late or wrong?
A: Employers are required to provide or send 2012 W-2s to employees (current and former) by Jan. 31. Contact your employer if you have not received your Form W-2(s) by early February. Call the IRS at 800-829-1040 if you still have not received it by Feb. 15.
Q: How do I know whether to itemize deductions?
A: Nearly two out of three taxpayers take the standard deduction rather than itemizing deductions such as mortgage interest, charitable contributions and state and local taxes. As a general rule, you want to itemize deductions (on Schedule A) if the total amount of deductible expenses is greater than the standard deduction given to you based on your filing status. Some of the expenses you can include if you itemize are medical expenses that are greater than 7.5 percent of your adjusted gross income, mortgage interest and points, charitable contributions, casualty losses that are usually greater than 10 percent of your adjusted gross income plus $100, unreimbursed job expenses and miscellaneous deductions that are greater than 2 percent of your adjusted gross income.
Q: What is the filing deadline for Armed Forces personnel serving in a combat zone (or the spouse of a military service member serving overseas)?
A: Everyone should try to file by the deadline, but the IRS automatically extends some deadlines and actions related to federal income tax for U.S. Armed Forces personnel serving in a combat zone and those deployed overseas and away from their duty station in a qualified hazardous duty area.
Q: What can I do to avoid being audited?
A: A percentage of returns filed are selected randomly for audit, so there is no certain way to avoid being audited. Most tax returns are accepted just as they’re filed. Each one goes through a computerized screening. If there are discrepancies, you might receive correspondence from the IRS asking you to verify, correct, or explain information on your return. Many issues can be dealt with through correspondence alone. The best way to avoid an audit is simply to report all of your taxable income and claim only the credits and deductions you are entitled to by the tax law.
Q: What if I think identity theft has affected my tax records?
A: Call the Federal Trade Commission at 1-877-IDTHEFT (438-4338). Go online to the IRS Identity Theft and Your Tax Records web page or contact the IRS Identity Protection Specialized Unit at 1-800-908-4490 for guidance. Hours are 8 a.m. to 8 p.m. Monday to Friday.
Q: Can a student file a return claiming a personal exemption if the parents list the student on their return as a dependent?
A: No. A student may not claim a personal exemption on his/her own return if the parent qualifies to claim them as a dependent. Generally, the parents may claim a student as a dependent if the child: did not provide more than half of his/her support; is under age 24 at the end of the year and a full-time student; lived with the parents for more than half the year; does not file a joint return, and is a U.S. citizen, national or resident, or is a resident of Canada or Mexico.
Q: What income is considered taxable or nontaxable?
A: Generally, you must include in gross income everything you receive in payment for personal services such as wages, salaries, commissions, fees and tips.
Other items considered taxable income include: fringe benefits, stock options, unemployment compensation including unemployment insurance benefits and benefits paid by a state (may also be subject to Social Security and Medicare taxes), canceled debts and all other items, unless specifically excluded by law, including income in a form other than cash (barter).
Some common items that are not taxable income are: adoption expense reimbursements for qualifying expenses, child support payments, gifts, bequests and inheritances, workers’ compensation benefits, public assistance benefits based upon need (food stamps, Medicare), meals and lodging for the convenience of your employer, compensatory damages awarded for physical injury or physical sickness, welfare benefits, cash rebates from a dealer or manufacturer, work training programs, disaster relief grants and payments and disaster mitigation payments, mortgage assistance payments, payments to reduce cost of winter energy and tax exempt interest from municipal bonds and tax exempt bond mutual funds (must be reported on line 8b of Form 1040 or 1040A.)
Some items may or may not be included in taxable income depending on the facts and circumstances. These can include life insurance, scholarships and fellowship grants.
Q: Are donations to an individual or family deductible?
A: No. When people give money to directly help a specific individual or family, it is considered a gift rather than a charitable donation and is not deductible. An organization or fund formed to assist a particular individual or family will not qualify as a charitable organization and therefore donations to these organizations or funds are not deductible as a charitable contribution.
Q: How does an employee deduct business expenses?
A: It depends whether your employer reimburses you for business‑related expenses.
If you are reimbursed under an accountable reimbursement plan, it should not be included in your wages on Form W-2, and you should not deduct the expenses.
If you are not reimbursed under an accountable plan, your expenses exceed the reimbursement you received under an accountable plan, or you are not reimbursed at all, you may use Form 2106 or Form 2106-EZ to deduct allowable business expenses.
These expenses are generally subject to the 2 percent of adjusted gross income limit.
Q: Are work clothes and uniforms deductible?
A: Maybe. You can generally deduct the cost and upkeep of work clothes if: the clothing must be worn as a condition of employment, and the clothes are not suitable for everyday wear.
Examples of workers who may qualify: delivery workers, firefighters, health care workers, law enforcement officers, letter carriers, professional athletes and transportation workers (air, bus, rail, etc.).
Q: Is there a tax on inheritances?
A: Normally there is not. Property you receive as a gift, bequest or inheritance is not included in your income. If property you receive in this way later produces income, however, such as interest, dividends or rents, then that income is taxable to you.
If you inherited a pension or an individual retirement arrangement (IRA), you may have to include part of the inherited amount in your income. If you inherited a pension, see “Survivors and Beneficiaries” in Publication 575. If you inherited an IRA, see “What If You Inherit an IRA?” in Publication 590.