Reader tax queries fielded by IRS expert

I am so proud of my husband. He assembled all of our tax documents, and we’ve already dropped them off at our accountant’s office.

This, my friends, is a first. This tax season we (OK, mostly he) won’t be scrambling at the last minute to get our return done.

If you’re doing the same – getting your tax returns ready now – I thought you might benefit from seeing the answers to some questions recently sent in during an online discussion I had with James Dupree, media relations specialist in the Baltimore field office for the Internal Revenue Service.

For the last several years, Dupree has answered questions from readers either in the regular online chats I host or via an electronic newsletter that I produce each week.

The first question comes from a mother in Mount Pleasant, S.C. She asked: “My son is a college student with unsubsidized Stafford loans. He pays the interest on the loans quarterly so it is not added to the loan now. We claim him as a dependent. He has some income from wages, interest and dividends. Can he deduct the interest on the Stafford loans from his 1040A?”

Dupree answers that the son cannot claim a student loan interest deduction for any year in which someone claims him as a dependent. The maximum deductible interest on a qualified student loan is $2,500 per return. Depending on your income, the deduction may be reduced or not allowed.

A reader from Arlington, Va., asked: “My husband has made some money this year doing handy-man-type work. He always receives cash. How do we include these earnings on our taxes?”

Dupree didn’t say this, but I will. Bravo to this couple for claiming the cash as income. Many people wouldn’t.

Anyway, use Schedule C or Schedule C-EZ to report the business earnings from this self-employment, Dupree says. The C-EZ can be used if this man’s business expenses are less than $5,000, if he uses the cash method of accounting, does not have an inventory, does not have a net loss from his earnings, had no employees, does not use depreciation and is not taking any deduction for business use of your home.

In addition, if his net earnings are more than $433.13, he must file Schedule SE to pay Social Security and Medicare tax.

During the chats, there have increasingly been more questions about the Alternative Minimum Tax. The tax is a separately figured tax that eliminates many deductions and credits. It was created to make sure the insanely rich don’t get off without paying some taxes. But many middle- and upper-income people are being hit with the tax.

Here’s one worried taxpayer. “Are there any general guidelines for who is covered by the Alternative Minimum Tax? I’m single, no dependents, and made around $65,000 last year. I also have heavy deductions, including over $15,000 in medical expenses.”

You may owe the tax if, among other things, you claimed itemized deductions such as state and local income and property taxes, interest on home equity loans used for nonresidential purposes, medical expenses and miscellaneous job and investment expenses.

The IRS has created a simple online tool with a list of questions to help you determine if you have to pay the tax. You can find the “AMT Assistant” by going to www.irs.gov.

Now, what if you’ve already filed and you’re waiting for a refund? One Arlington, Va., reader is wondering what’s taking so long.

“I have e-filed for years and got my refund very quickly, so almost three weeks is driving me batty!”

Here’s the official IRS word on refunds. If you file a complete and accurate paper return and you are due a refund, it will be issued within six weeks from the date the agency receives it. If you filed electronically, refund checks are generally issued within three weeks from the date you get electronic notice the return has been received (the IRS sends electronic proof of receipt within 48 hours).

To check the progress of your current year refund, go to www.irs.gov and search for “Where’s My Refund,” or call the refund hotline at 800-829-1954.

There are several reasons for delayed refunds, Dupree said.

They include a name listed on the tax return that does not match the name on file with the Social Security Administration, or a failure to either sign the return or include attachments such as your Form W-2 or schedules.

Before sending off your return, you may want to read IRS Tax Topic 303 for a checklist of common errors people make when preparing their tax returns.

And remember, tax time is a great time to reassess your financial state of affairs.

Washington Post Writers Group