Questions ranging from hobby income to the use of a home office kept tax experts busy on Monday night during the Beacon Journal’s first of three free call-in programs offering advice. Tax experts also answered questions in an online chat on Tuesday during the lunch hour.
There were 70 callers who participated in Monday night’s telephone program sponsored by the Beacon Journal and the Ohio Society of CPAs. A transcript for the chat can be found at www.ohio.com/taxes
The Monday night program was staffed by seven volunteers from the Fairlawn firm of Bober Markey Fedorovich & Co.
The call-in continues from 6 to 8 tonight, with the final session from 9 a.m. to noon Saturday. Call 330-996-3644.
Tuesday’s online chat was staffed by three volunteers from the Akron office of Cohen & Co.
A caller asked CPA Michael Hydell whether she should report income from a hobby. She sold jewelry at a craft fair and overall, didn’t make a profit.
“If you make 10 bucks, you’re supposed to report it,” said Hydell. She would put it on Line 21 of her 1040 form as “other income.”
The IRS says if someone loses money for two or more out of five years, it is considered a hobby. An operation run as a business would need to fill out a Schedule C.
Marianne Grega took a phone call asking about the tax treatment of a scholarship. She told the caller that as long as the student is registered at a school for a degree program and the money is being used for tuition, the scholarship is not taxable. But if the scholarship is specified and used for room, board or travel, it is subject to tax.
That brought up the question of tuition gifts from family members.
If a grandparent wants to pay for college, the payment must be made directly to the college and there will be no gift tax return filing requirement and no taxes due. If the grandparent pays the student and the student pays the college, that is subject to the $13,000 limit on reportable gifts. Grandma and Grandpa could each give $13,000 for a total of $26,000 without having to file a gift tax return. If the tuition will be more than that, it’s best to have them pay the tuition directly to the school, to avoid the return filing and possible gift taxes.
CPA Cindy Mitchell took a call asking whether worker’s compensation was taxable. She told the caller that it is not, but unemployment would be.
During the online chat, a question via Facebook asked why the IRS was putting refunds on hold for higher education credits. The woman said she really could use her refund now.
According to a news release last Friday, the IRS would begin processing returns with Form 8863 Education Credits on Thursday. The IRS also said it began accepting returns containing Form 4562, Depreciation and Amortization, on Sunday. The remaining credits will be accepted the first week of March and the IRS will announce the exact date later. The delays are a result of upgrades to the system following the late-breaking government budget negotiations.
A reader e-mailed to ask why the state of Ohio was delaying the electronic filing of his return using his H&R Block software and wanted to know when it would be ready.
According to the Ohio Department of Taxation, most taxpayers could begin e-filing their taxes Jan, 30, as long as their software is approved. Each year, software needs to be approved and tested by the state.
The state said that most tax software programs are approved, but a few are not and are in the process of being tested, including one of the products by H& R Block.
To check whether the tax software you are using has been approved, go to http://www.tax.ohio.gov/ohio_individual/individual/electronic_filing/ApprovedSoftwareDev2012.aspx.
Another question about a home office concerned work done from the kitchen or living room. The reader wondered if rent, or a percentage of it, could be written off.
The reader was told that to be entitled to the home office deduction, the portion of the home claimed must be used exclusively as a home office. The deduction is then based on square footage of home office vs. total home. IRS Publication 587 has more information.