You've Got Tax And Financial Questions, We've Got Answers

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Telling Tips is a series of articles from local experts to help you save money, make better decisions and plan for a better future.

Have you noticed that the leaves are falling, the temperatures are dropping, and it’s getting darker earlier? If it continues, we won’t have to get up at all. Here’s a simple question: What have you done to reduce your 2013 taxes? You have less than two months to do anything — and then it’s Tax Time. It’ll be Too Late.

Another question: What have you done to reduce your 2014 taxes? In many ways, time is short as well. The tax code is 16,000 pages; the code plus the IRS rulings are 72,536 pages.

Your options: 1- Start reading. 2- Call me.

Student Loan Forgiveness

Question: Do I have to pay taxes on my federal student loan, which was forgiven?

Answer: There are three forgiveness programs:

Income-Based Repayment, where your payments are based on your income and family size, your payment is no more than 15 percent of your discretionary income, and after 25 years, the loans are automatically forgiven.
Pay As You Earn, in which your payments are based on your income and family size, your payment is no more than 10 percent of your discretionary income and, after 20 years, the loans are automatically forgiven.
Income-Contingent Plan, if you do not qualify for either of the other two, your payment is no more than 20 percent of your discretionary income, and after 25 years, the loans are automatically forgiven.

Loans forgiven through any of these programs are taxable income. That is, the forgiven amount is added to your income.

Non-taxable forgiven loans are for those who work in certain positions in the public sector, as well as for teachers who work in certain low-income schools.

No Tax On Gambling Winnings

Question: What is a “gambling session?”

Answer: This is a method to save on taxes if you are a non-professional gambler. If you keep meticulous records, the IRS will allow you to net your gains and losses during a particular session. The rules here are that your gambling must be the same type of an uninterrupted session during a specific uninterrupted period of time at a specific location. For example, two separate sessions would be playing slots for an hour and then play craps for the next hour, or playing slots in casino #1 and then going to casino #2 and plays slots.

Of course, you need to prove your session. Supporting evidence might be:

Keno – copies of tickets purchased and validated by the casino.
Slot Machines – a record of the machine and winnings by time.
Table Games – the table number and the casino credit card data showing if the credit was issued in the pit or cashier’s cage.
Bingo – record of the number of games played, cost of tickets, amounts won.
Racing – record of the race, entries, wager amounts, winning and losing tickets and amounts.
Lotteries – record of tickets purchased, dates, winnings, losses.

Year-End Tax Planning

Question: Do you have any 2013 tax savings suggestions?

Answer: Here are a few.

Bunching Deductions: If you are sometimes able to itemize, consider bunching you deductions every other year, meaning pay and pre-pay deductible expenses every other year. For example, medical, contributions, property taxes (13 payments in one year, 11 the next), state and local income tax, mortgage and line of credit payments 913 payments in one year, 11 the next), are all expenses you can work with.
Prepay College Tuition Bills: If you qualify for the American Opportunity college credit of up to $2,500, or the Lifetime Learning credit of up to $2,000, prepay next year’s tuition.
Sell Losing Stocks In Your Taxable Accounts: Offset any gains with losses as you can deduct up to $3,000 in excess losses each year. If your losses exceed $3,000, the excess is carried forward to the next year. (If you are not filing with your spouse, you loss is reduced to $1,500.
Contribute To A 529 College Plan: In New York State, each taxpayer can contribute up to $5,000 and take a deduction against other income. This is true even if you contribute on December 31.

Social Security And My Ex

Question: My ex is 65, and I am 62. Can I collect Social Security under my ex’s account? How can I find out if he is collecting?

Answer: Good news. You don’t need that information. The rules are:

You were married for at least 10 years
You are now not married
Both of you are at least 62
You must have been divorced for at least two years

However, if you have had high earnings over your career, and don’t need the money now, wait until full retirement age of 66, and file a restricted claim only for spousal benefits. You’ll collect the spousal benefits, and your account will increase eight percent per year until age 70 when you will switch to your own account.

Insolvency And Cancelled Debt

Question: My credit card company forgave $5,000 I owed. At the end of the year, they are going to send me a Form 1099-C. Is this income?

Answer: Yes, the $5,000 has to be reported on your tax return, but it may not be taxable income. There are a number of exceptions such as debt cancellation in a foreclosure of your primary residence, bankruptcy or insolvency. The most common one I have seen is insolvency, meaning that your debt is greater than your assets. To show the cancelled debt is not income, a Form 982 has to be included with the tax return. No attachments or other explanations are required at the time of filing. However, within a few months, I have seen that the IRS asks for a worksheet to be completed detailing the assets and liabilities. (IRS Publication 4681, page 8)

The liability portion is easy — as of the date the 1099-C was issued, what is the amount due on your mortgage, credit cards, etc. The asset portion details what you own — cash in bank, house value, stocks, cash value of life insurance, etc. The only caveat is that you must include the value of your retirement accounts — 401(k) s and IRAs.

After submitting the worksheet, I have never had the IRS come back and ask for proof.

Money From Overseas

Question: My parents, who live in Poland, want to give me a gift of $75,000. Is this taxable?

Answer: No. Inheritances and gifts you receive are not taxable, in the U.S., whether from U.S., foreign persons or estates.

However, (and there is always “a however” in tax law), if the amount is $100,000 or more, by April 15, Form 3520, Annual Return To Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts, needs to be completed. (Form, Instructions)

Teacher Supplies Deductable?

Question: If I spend more than $250 books, supplies, materials, computer or other equipment, can I take more of a deduction?

Answer: Yes. These extra costs are deductible as an employee business expense. Remember however, it is not enough for the supplies to simple he helpful to the students as well as appropriate for the classroom, they have to be directly related to your job as a teacher, and a necessary expense.

Question: Can I increase my Social Security benefits by maximizing my earnings just before retirement?

Answer: Your Social Security benefits are computed using your top-earning 35 years, adjusted for inflation. This means that for every year over 35 earnings years you work, the lower-earning year is erased. Therefore, working longer, and waiting to collect benefits, will increase your Social Security.

Quip

Question: With more than 700 fraudulent websites, how does one know they are on the correct government Obamacare site?

Answer: The government website is the only one that doesn’t work.

Joseph Reisman, of Joseph S. Reisman & Associates, has been serving tax prep and business accounting expertise from his Coney Island Avenue office for more than 25 years. Check out the firm’s website.