Accountants answer tax-related questions

Tax season is here again -- and if you have questions about how to complete your return, you're certainly not alone.

On March 6, 11 certified public accountants from the Nassau and Suffolk chapters of the New York State Society of Certified Public Accountants answered 85 questions during Newsday's three-hour live Tax Help webchat.

Many of those questions reflect a tough economy ("While unemployed, I spent an IRA on health insurance. Do I owe a withdrawal penalty?"). Others are perennial.

Here are some of the highlights from the web chat. Note: The CPAs' answers are not a substitute for individualized advice from a professional who is hired by you and has full knowledge of your financial affairs.

Filing Status

Q I'm in mid-divorce. I own my house and support two children. Their father pays nothing. I tried to contact him, but he refuses to discuss our taxes. Can I file as head of household, which gives me a lower tax rate?

Maybe. You're eligible for head of household status if your spouse didn't live with you for the last six months of 2011 and you maintained a household for a dependent child for more than half the year.

-- Jack Angel, CPA,

Great Neck

Dependents

Q Can I claim a child who's in college and has a part-time job as my dependent?

Yes, if she's a full-time student under age 24 and you provide more than 50 percent of her support. You may choose not to claim her as a dependent if it would be more beneficial for her to claim an education credit on her own return. But she can't claim herself as a dependent if you're eligible to claim her, even if you choose not to.

-- Robert Schaffer, CPA, Castellano Korenberg & Co, Hicksville

Q Who gets to claim our kids as dependents, me or my ex-husband? They spend half the time with him.

Generally, the custodial parent is entitled to claim the kids as dependents unless he or she has waived that right by filing Form 8322 with the IRS. The waiver can be done annually; in other words, you can take turns.

-- Arnold Haskell, CPA,

partner, Holtz Rubenstein Reminick, Melville

My mother lives in my home. May I claim her as a dependent?

Yes, if her taxable income is under $3,700 and you provide more than 50% of her support. -- Angel

Deductions

Q Can I deduct the cost of traveling to job interviews and networking events?

If you're looking for a job in your current line of work, yes. -- Angel

Q My father's house is in my name, but he has a life estate in it. Which of us can claim a deduction for property taxes?

The person who actually paid the property taxes gets the deduction.

-- Gary M. Goldberg, CPA, Bellmore

Q Can I claim a charitable contribution for the cost of a bathroom vanity I bought from a charity?

Only to the extent that you paid more than it's worth. If you paid $1,000 for a vanity that cost $100, you'd have a $900 charitable deduction.

-- George Moffa, CPA, WeiserMazars Llp, Lake Success

Q Can I deduct health expenses not covered by my insurer?

Yes. But you only get a benefit from itemized medical expenses to the extent that they exceed 7.5 percent of your income.

-- Donald Crotty, CPA,

Marcum Llp, Melville

Q I cashed a small IRA to pay for COBRA for 10 months while I was unemployed. I'm under 591/2. How do I avoid an early-withdrawal penalty?

There's no penalty if you were unemployed for 12 consecutive weeks and tapped the IRA to pay for health insurance. Report the IRA withdrawal on Form 5329, which includes a line to claim the exception.

-- Diane Giordano, CPA,

tax partner, Marcum Llp

Q Can I deduct the sales tax on my new car?

You can deduct state and local sales taxes or state and local income taxes. The latter usually add up to a bigger deduction. But if you made a big purchase, you may benefit more from claiming sales taxes.

-- Ruth Sattig Betz, CPA,

Farmingdale

Q I work from home three days a week and commute to my office the other two. Can I take work-from-home deductions?

You can if you work from home for your employer's convenience rather than your own. But there's a downside: Home office deductions are subject to extra IRS scrutiny. Unless they are real, significant and documented, they may be better left off your tax return.

-- Leonard Hoffman, CPA, partner at Bayer and Hoffman, Woodmere

I started my own business. Is there a limit to the start-up costs I can write off?

"Start-up"costs are incurred before you officially start doing business. "Organization" costs are those related to forming the company. In general, you can deduct both in full if each is under $5,000. For example, if your start-up cost was $4,000 and your organization cost was $2,000, you can deduct the entire $6,000. If either cost exceeds $5,000, you may have to deduct the excess over a 15 year period. -- Crotty

Credits

Q My wife and I both work. Can we write off day-care costs?

Depending on your income, you may be eligible for a child and dependent-care credit. The maximum credit is $3,000 for the cost of caring for one dependent, or $6,000 for two or more dependents. For more information see IRS publication 503 and Form 2441.

-- Jill Scher, CPA, Marcum

Investments

Q I rolled an old 401(k) into an IRA. Do I need to show this on my return?

Yes. You should receive Form 1099R from the 401(k) plan showing the amount transferred. Report that amount on line 16A of Form 1040. On line 16B, which asks how much of it was taxable, put "0."

-- Schaffer

Must I report unrealized gains in the stock market?

No. You report gains only when you realize them -- i.e., when you sell your stock. But you must report 2011 dividends from your stock holdings, even if you reinvested them. -- Crotty

Losses

Q We have a large loss from Hurricane Irene. Is there a greater chance of being audited if we claim a large casualty loss?

Maybe. But you shouldn't let that prevent you from claiming a loss you're entitled to. Just have the appropriate backup ready if necessary.

-- Schaffer

Debts

Q I sold my condo for less than the outstanding mortgage, and the bank forgave the balance. Do I have a tax liability?

In general, you must report forgiven debt as taxable income on your return. But there's an exception: Debt on your principal residence forgiven before Jan. 1, 2013, is excluded from income. You should receive a Form 1099 from the bank. Ask your accountant to consult IRS Code Section 108 for the correct way to report the 1099 amount on your return.

-- Giordano

Fixing Mistakes

I didn' file my taxes last year. What should I do?

File your 2010 tax return as soon as possible. If you owe money, you're charged interest on the amount you owe, plus penalties for late filing and late payment. If you're entitled to a refund, you must claim it by filing your return before April 15, 2014. -- Angel