- Days left

Tax return questions answered by WalletPop experts

taxesThere's less than one month to go before April 15. In your rush to get in your tax returns, beware of phishing, hiding income, and going all crazy on your charitable deductions. If you're relying on a professional, check his credentials, as shady preparers can ring up huge tax bills for you. These are just some of the top 12 mistakes the Internal Revenue Service is warning about in its list of "Dirty Dozen" Tax Scams.

To help, WalletPop experts are on hand to answer your questions, from taxes on annual leave to what to do you if you suspect IRA fraud.
Question: I have a 21-year-old daughter in prison. I am sending her $100 a month and other supplies, like bras, panties, shoes, deodorant and thermal underwear. Can I claim her on my taxes as a dependent?
--Anthony

Answer from Barbara Weltman of The J.K. Lasser Institute
Probably not. While there's no specific law barring a dependency exemption for someone who is incarcerated, you probably don't meet all of the conditions for claiming a dependency exemption for your daughter as being a "qualifying relative." More specifically, to claim a dependency exemption, you must provide more than half of your daughter's support. This doesn't seem likely in view of the small monthly contributions you make. She is probably receiving more than half of her support from the prison system.

Question:
What taxes are due on annual leave paid after retirement?
--Marcy

Answer from John A. Tracy, CPA and author of "Accounting for Dummies"
Generally speaking, all types of wages paid for labor performed by an individual are includable in his or her 1040 individual income tax return in the year received. From your brief description (annual leave), I think the amount you receive must be included as wages in your 1040. (In some cases, earned wages could fall under the constructive receipt definition in the Internal Revenue Code, but I doubt this in your case.) Sorry, but this is taxable income. Whether it ends up pushing you into having taxable income, or into a higher tax bracket, depends on many factors in the income tax law.

Question:
My former stockbroker & former IRA custodian committed fraud through misrepresentation and stole the funds in my IRA via Auction Rate Securities sales they placed in my account. Since this a theft and not really a long-term capital loss, can I deduct it as a theft for IRS filing purposes? Can money stolen from one's IRA be treated like any other theft?
--Raccoon

Answer from Mark Britton, lawyer and founder of Avvo.com, a free online legal directory
While losses from theft can be deducted from your taxes, was this actually embezzlement, or a difference of opinion on investment strategy? Even in cases of investment fraud, there is a complicated analysis that only a tax professional or lawyer familiar with your situation can undertake to determine whether an IRS theft loss applies. And unfortunately, even if your advisor determines that a theft loss applies, it is unlikely that you will be able to take the deduction for losses in a tax-exempt vehicle like an IRA. There have been some recent changes in IRS policy on this front stemming from the Madoff Ponzi scheme, and there may be an opportunity to take a theft loss if your IRA was funded with after-tax dollars. However, I'll emphasize again -- you need to sit down with an experienced tax professional or tax attorney and walk through the specifics of your case to determine how these complex rules apply to you.

Got a question? Send in a comment.

Increase your money and finance knowledge from home

Intro to different retirement accounts

What does it mean to have a 401(k)? IRA?

View Course »

How much house can I afford

Home buying 101, evaluating one of your most important financial decisions.

View Course »

TurboTax Articles

Will Medicare/Medicaid be Impacted by ACA?

The Affordable Care Act put in place significant tax-related programs that impact Medicare and Medicaid, such as increased Medicare taxes on earned and unearned income for high-wage earners, and Medicaid changes that increase the number of insured individuals. Establishing whether you are affected by the ACA-imposed taxes, or are eligible for certain health programs that fall under the Centers for Medicare and Medicaid Services, is determined by filing your income tax.

8 Things You Think Are Tax Deductible That Aren't

There?s a fine line between looking to save money on your taxes and taking deductions that will raise eyebrows at the Internal Revenue Service. Some taxpayers are tripped up by expenses that they assume are tax deductions, but don?t qualify under IRS guidelines. Here are a dozen items that can lead to unpleasant surprises in case of an audit.

Essential Tax Forms for the Affordable Care Act

The Affordable Care Act (ACA), also referred to as Obamacare, affects how millions of Americans will prepare their taxes in the new year. The law now includes penalties for all who haven?t obtained health insurance -- and those penalties are expected to be paid at tax time. The ACA also provides tax credits to help people pay for insurance, and you can claim those credits when you file your taxes. The Internal Revenue Service (IRS) has introduced a number of tax forms to accommodate the ACA.

How to Determine if You Have Minimum Essential Coverage (MEC)

The Affordable Care Act, also known as Obamacare, requires most Americans to have health insurance that meets a government standard known as "minimum essential coverage," or MEC. Whether your insurance qualifies as MEC depends not on the plan itself, but on how you obtained your coverage.

What are 1095 Tax Forms for Health Care?

In 2014 the Affordable Health Care Act, also known as Obamacare, introduced three new tax forms relevant to individuals, employers and health insurance providers. They are forms 1095-A, 1095-B and 1095-C. These forms help determine if you need to comply with the new shared responsibility payment, the fee you might have to pay if you don't have health insurance. For individuals who bought insurance through the health care marketplace, this information will help to determine whether you are able to receive an additional premium tax credit or have to pay some back.

Add a Comment

*0 / 3000 Character Maximum