CPA tax tips on filing '12 returns

A Roth IRA conversion increases your taxable income

A Roth IRA conversion increases your taxable income for a year and, as a result, may temporarily disqualify you for some tax breaks. (Credit: iStock)

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Tax season is here -- and if you need information to help you complete your return, you're certainly not alone.

Newsday's live Tax Help webchats on Feb. 25 and 26 drew a broad range of reader questions: topical ("Can we deduct Hurricane Sandy losses?"), perennial ("What's my filing status?") and refreshingly offbeat ("Can I deduct the cost of fostering pets?").

A volunteer panel of 12 tax professionals from the Nassau and Suffolk chapters of the New York State Society of CPAs provided the answers.


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Here are some of the highlights. (Note: The CPAs' answers aren't a substitute for advice from a professional who has full knowledge of your individual situation.)


Q. Can I get a tax break for my losses?

A. Maybe. You can claim an itemized casualty loss deduction for unreimbursed expenses, but only to the extent that they exceed 10 percent of your 2012 gross income. (For earlier Newsday articles explaining how to determine your deductible loss, see http://bit.ly/15s7uhY, http:// bit.ly/V1unWm, and http://bit .ly/X6xhcz).

Q. I lost my house and had to spend a lot of money to move and to buy new things. I'm still waiting for reimbursement from FEMA, but I'm sure it won't cover everything. Should I wait until I get my FEMA check to file my taxes?

A. File Form 4868 to extend your 2012 tax filing deadline. You'll have until Oct. 15, 2013, to file. By then, you should have received your FEMA check.

-- Lisa Haynie, Katz, Bernstein & Katz

Q. I got married in June. Can we file married jointly for the entire year?

A. Yes. Your marital status on Dec. 31 applies for the whole tax year.

-- Elizabeth A. Vuozzo, Fuoco Group

Q. My divorce isn't yet final, but we no longer live together. If I can file as a head of household, can I itemize my deductions even if my husband takes the standard deduction?

A. Yes. But you can only file as a head of household if you and your spouse lived apart for the last six months of 2012, you paid more than half the cost of maintaining your home, and your child or another qualifying dependent lived with you for more than half of the year.

-- Jill S. Scher, Marcum Llp

Q: I've sold items that I make myself on eBay and Craigslist. Do I need to file taxes as a business?

A: If you have self-employed income greater than $400, you're required to file Schedule C ('Profit or Loss from Business') with your return. You'll owe FICA tax on self-employed income, but you get a deduction for 50 percent of that tax even if you don't itemize.

-- Simon Hector, Wiser Mazars

Q. My daughter is 33, lives with me and earned $17,000 in 2012. I pay all her expenses, including medical insurance. Can I deduct the insurance payments on my tax return even though she earned too much for me to claim her as a dependent?

A. There's a special rule for medical expenses. You can deduct them, notwithstanding your daughter's income, if you meet all the other tests to claim her as a dependent: She's a relative, a U.S. citizen or resident, she lived with you all year, and you paid more than half of her 2012 living expenses.

-- Jack Angel, Adelphi University

Q. Can I deduct $22,000 of COBRA health insurance premiums, co-payments, deductibles and coinsurance for my family?

A. Yes. They're medical expenses you can claim as an itemized deduction to the extent that they exceed 7.5 percent of your adjusted gross income.

-- Elizabeth A. Vuozzo, Fuoco Group

Q. Sometimes I get my employees lunch or snacks. It's something nice to do for them. Is it tax deductible?

A. Only if you have a business reason for being nice. For example, you might be able to deduct the cost of meals purchased so your employees won't leave the office and can continue working.

-- Elliott Lavietes, Sanders Thaler

Q. Can I deduct the cost of providing foster pet care?

A. Yes. These expenses qualify as a charitable deduction if you itemize. (Keep your receipts!)

-- Ruth A. Sattig Betz

Q. I purchased a new home in late 2012. Which expenses can I deduct?

A. Interest expense, points paid to the lender, mortgage insurance required by the lender and real estate taxes. They're listed on Form 1098, which the lender should send you.

-- Jack Angel, Adelphi University

Q. What common deductions do people miss?

A. Taxpayers who itemize sometimes forget to deduct state income taxes they paid the previous year. Other missed deductions: transportation to and from medical appointments (23 cents per mile, plus parking and tolls); brokerage fees and IRA fees; and charitable travel (14 cents per mile). -- Gary Goldberg

Q. My tuition is reduced by a $2,500 scholarship from my college. Must I report that?

A. No. Your scholarship isn't taxable.

-- Pamela Diamond

Q. I paid all my outstanding bills two years ago. Now I've received a Form 1099-C for cancellation of debt. Must I include it on my return?

A. Forgiven debt is generally taxable income. But if you've paid the debt, this 1099-C may have been issued by mistake. Contact the issuer and ask them to issue a corrected form. If they refuse, report it, but if you believe it's a mistake, subtract the amount on the next line of the return, write "see attached" and include an explanatory note and backup with your return. 

-- Robert Schaffer, Castellano, Korenberg & Co.

Q. Please explain the amount in box 12A of Form W-2, coded DD, ''the cost of employer-sponsored health coverage.'' Why isn't it broken down into employer share and employee share? How can I determine my deductible cost?

A. Ignore the amount in Box 12A coded DD. It has no tax consequences for you. To see if you have a potential deduction for your share of health premiums, look at your pay stubs. If your employer has a Section 125 cafeteria plan, your share should appear as a pretax withholding. That means it was subtracted from your taxable income and you can't deduct it. If your share appears as an after-tax withholding, you can claim that expense as an itemized deduction on Schedule A.

-- Robert Schaffer, Castellano, Korenberg & Co.

Q. My 13-year-old son earned $1,300 as a referee and received a Form 1099 Misc. Must he file a return?

A. Filing requirements depend on filing status and type of income. A single person under age 65 who is claimed as a dependent on someone else's return doesn't have to file a 2012 return unless he earned more than $5,950 or had more than $950 of investment income.

-- Don Crotty, Marcum Llp

Q. Can I contribute required distributions from my traditional IRA and 401(k) plan into a Roth IRA?

A. You must have 2012 earned income to contribute to a Roth IRA. Retirement account distributions aren't earned income. -- Jack Angel, Adelphi University

Q. We sold an investment property after 15 years. Our gain was $150,000 above the original purchase price. How long do we have to buy another property before the gain is taxed?

A. If this was a rental property, you probably deducted depreciation over the years. If so, your true gain may be more than $150,000. If you sold the property in 2012, report the gain on your 2012 tax return. To defer the tax, you must follow specific rules in purchasing another rental or investment property, generally within 180 days. That usually takes advance planning.

-- Don Crotty, Marcum Llp

Q. Is it true you stand a higher chance of being audited if you file early than if you file by the April 15 deadline?

A. The IRS hires additional staff between Feb. 1 and April 15. It has a smaller staff after April 15, so there may be less chance of an audit if you get an extension and file later.

-- Scott Sanders, Sanders Thaler

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