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Ask The Experts: Tax Prep

Thanks for joining us! AARP Foundation staff and volunteers from the Foundation’s Tax-Aide program are here to answer your questions about this year’s tax season and filing your return.

 

Please note:  If your inquiry is about requesting service by appointment only, please visit the AARP Foundation website: www.aarpfoundation.org/taxaide.

 

Post a reply below for a chance to have your questions answered.

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AARP Foundation Tax-Aide

@calady53 ,

 

The penalty for underpayment of taxes may be assessed by the IRS if you owe $1,000 or more when you file your return.  Most taxpayers will avoid this penalty if they either owe less than $1,000 in tax after subtracting their withholding and refundable credits, or if they paid withholding and estimated tax of at least 90% of the tax for the current year or 100% of the tax shown on the return for the prior year, whichever is smaller. 

 

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Contributor

I never saw this be4 in the tax booklet? But with the varying interest rates every year, how does one compute their taxes be4 hand? So difficult esp for a senior! Even if U pay the whole amount be4 april 15th they will Penalize you? Thanks for answering.

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AARP Foundation Tax-Aide

@calady53 

 

Individual taxes are typically based on your income in a calendar year. You then have until April 15 to file your federal tax return and pay any balance due. You should make estimated tax payments if you will owe more than $1,000 when you file your return AND the amount of tax payments you made during the year was less than 90% of your current year tax OR 100% of your previous year tax. You can use the worksheets in the Form 1040-ES package here: https://www.irs.gov/pub/irs-pdf/f1040es.pdf to estimate your tax liability and determine if you will owe $1,000 or less after taking into consideration all other withholding and estimated tax payments. If you determine you will owe more than $1,000 and the exceptions do not apply, make estimated tax payments on time to avoid a penalty for underpayment. So, keep track of the interest and other income received during the year and if at any time it appears you may owe more than $1,000, make the next quarterly estimated tax payment.

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Contributor

I thought the deadline was changed due to the PANDEMIC. 

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AARP Foundation Tax-Aide

@viametro2645 

 

At this time, the due date for 2020 federal tax returns is still April 15, 2021, unless an extension is requested by filing Form 4868. 

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Contributor

Our sole income for 2020 was Social Security. Normally I would not file taxes, but I understand I must in order to possibly (?) get stimulus checks. We got one in 2020, as we HAD filed 2019 taxes. What Social Security form do I download to show that income?

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Contributor

What should a person do when their W2 wage & tax statement is incorrect and after multiple requests the employer still does not correct the errors ?   

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AARP Foundation Tax-Aide

If attempts to obtain a corrected W-2 from your employer are unsuccessful by the end of February, you should call the IRS at 800-829-1040 for assistance. See the instructions on Form 4852 Substitute for Form W-2... here: Form 4852 for more information.

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Contributor


We installed a geothermal HVAC system in our new home. The federal government offers tax credits for people who install these types of systems. The main cost components were the HVAC system, labor for installation, ducts and drilling wells into the earth. What components of the cost can be included? Can all cost components be declared or only the HVAC equipment? Is any supporting documentation is needed to file for this credit?

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AARP Foundation Tax-Aide

@GiuseppeF265914 

 

Assuming your geothermal heat pump meets Energy Star requirements, you can take a credit of 26% of your costs of the geothermal heat pump system including labor costs allocable to the onsite preparation, assembly, or original installation of it. Add-on components, like ductwork are not covered by the tax credit.

This is a non-refundable credit which means it is a dollar-for-dollar reduction of the income tax you owe up to your tax liability for a given year. However, if your tax burden this year is less than the full amount of your credit, you can carry over the remainder when filing your taxes next year. You can keep doing this as long as the tax credit is active.  

Some states also offer incentives to install such a system.

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Newbie

I have a Donor Advised Fund. My question is .. Can I take money (enough to satisfy my RMD but less than $100K) from my IRA and put it directly into my Donor Advised Fund? Will I earn the same tax deduction as I would if I make a contribution directly from the IRA to the charity? 

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AARP Foundation Tax-Aide

@SteveP729421 

 

Donating all or part of the RMD directly to a charity as a Qualified Charitable Distribution satisfies the RMD on the amount donated while reducing taxable income, saving donors both federal and state tax. However, Qualified Charitable Distributions cannot be made to donor-advised funds. That said, your donation to your donor-advised fund can be included as a charitable deduction if you itemize (or up to $300 as an adjustment if you do not itemize). As noted, the RMD and the donation are two separate transactions.

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Silver Conversationalist

@SteveP729421 

 

I am not a lawyer. Nor a tax accountant.

In my view, your transactions represent two separate transactions. One does not affect the other (directly). You could have the RMD withdrawal sent directly to your Donor Advised Fund and it should be good, no problem.

But to be totally safe, and perhaps to provide some better tracking of funds, etc, and more defined bookkeeping, you might actually treat these as two separate transactions: have the RMD sent to you or your account, then transfer from your account (checking, etc) to the DAF.

Certainly, in either case you should get the same IRS tax forms, etc.

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Contributor

We did not have to pay federal or state taxes for 2020 but we will be cashing EE bonds in December 2021 which will make our tax liability for 2021 approximately $6,000.00. Do we have to pay estimated tax payments for each quarter of 2021 or can we simply pay the tax due in April 2022?

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AARP Foundation Tax-Aide

@pawright46 

 

The IRS expects you to pay income tax as you earn or receive your income during the year. Since this is coming all in the fourth quarter, one approach is to make one payment in December once you have cashed the bonds. There is more information here: https://www.irs.gov/taxtopics/tc306

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Contributor

As part of my job as a school social worker I have to do home visits. My school does not reimburse me. Where do I claim these miles on my taxes, how much is the rate and what do I need as proof I drove those miles?

 

Thank you. 

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Regular Contributor

Lawrence I would check with IRS.gov website things have changed with taxes so much lately I would no longer be able to tell you in the simplest format anymore.

The rate was a few years ago: 51 cents per mile.

You keep your own records for your mileage in a book should there ever be an audit.

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AARP Foundation Tax-Aide

The vast majority of W-2 workers, i.e., employees, can’t deduct unreimbursed employee expenses in 2020 as the 2017 Tax Cut and Jobs Act (TCJA) eliminated unreimbursed employee expense deductions. 

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Regular Contributor

Dear TaxAide Expert:

Does that also include those expenses I.E. W-2 employee can no longer deduct the wear & tear on one's automobile? I'm aware there should still be some sort of "deduction" other than "standard" where driving to several other locations for "work" were at one time "deducted"?

Thank you.

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AARP Foundation Tax-Aide

Only a very small subset of employees are eligible for the mileage deduction or other expenses for the unreimbursed expenses of you vehicle. 

  •  Specifically, qualified performing artists, reservists in the armed forces, and fee-based government officials are eligible to claim mileage

As noted above, the ability to deduct unreimbursed expense of an employee was curtailed in 2017.

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AARP Foundation Tax-Aide

@LaurajW510385 ,

 

The expenses you mentioned are all unreimbursed employee expenses, which, as stated earlier, can not be deducted as miscellaneous itemized deductions for tax year 2020 due to the Tax Cuts and Jobs Act of 2017.  These deductions WERE allowed prior to 2018.  The following statement can be found on page 2 of IRS Publication 529, Miscellaneous Deductions:

https://www.irs.gov/pub/irs-pdf/p529.pdf

 

"You can no longer claim a deduction for unreimbursed employee expenses unless you fall into one of the following categories of employment, or have certain qualified educator expenses.
  • Armed Forces reservists.
  • Qualified performing artists.
  • Fee-basis state or local government officials.
  • Employees with impairment-related work expenses."

 

If you are in one of these categories, see Pub 529 at the link above to determine how to claim your unreimbursed expenses.

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AARP Foundation Tax-Aide

@JennieS303616 ,

 

You don't download any Social Security form.  You should have received Form SSA-1099 that shows your Social Security benefits.

 

We don't yet know how the IRS will be distributing future stimulus payments.  The IRS was supposed to distribute the first two rounds of stimulus payments automatically to recipients of Social Security, Supplemental Security Income, and Veterans Administration benefits, and they may still do so for the next round.

 

If you did not receive the second round of stimulus payments ($600 each for you and your spouse), you should file a 2020 tax return to claim the Recovery Rebate Credit in the amount of your missing payments.  The Recovery Rebate Credit is claimed on line 30 of Form 1040 or 1040-SR if you qualify to use that form.  Use the worksheet on page 58 of the 1040/1040-SR instructions to calculate the amount of your credit.

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Contributor

Can you recommend software to complete a form 1041 and the associated form K?  I currently use H&R Block software for individuals and it doesn't address this issue.

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AARP Foundation Tax-Aide

@Dennisbarbara ,

 

Unfortunately, we cannot.  Form 1041 is outside the scope of our volunteer training.

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Contributor

My daughter goes to a college that gives her almost a full scholarship. She has received some sort of tax form from the school after her first 2 years. The school works hard so that every student can graduate without debt. We are low income so she is lucky enough to receive this full scholarship. Am I supposed to include this tax form somehow with my taxes or should she be including this somehow with her taxes? It's a lot of money and I can't imagine that she gets the scholarship and then has to pay a ton of taxes on it, but I want to do the right thing as well.

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AARP Foundation Tax-Aide

@KarenL868296 ,

 

We assume that the tax form you are referring to is Form 1098-T, which reports payments of tuition and fees to an educational institution along with scholarships and grants received by the student.

 

As long as the total of scholarships and grants reported in box 5 of the 1098-T does not exceed the amount of tuition and fees shown in box 1 of the 1098-T, nothing is taxable to the student.  However, if the amount in box 5 does exceed the amount in box 1, then this difference is considered taxable scholarship income to the student.

 

The information on Form 1098-T can also be used to claim one of the education credits - the American Opportunity Credit or the Lifetime Learning Credit.  Qualified education expenses that were not paid for by nontaxable scholarships or grants can be used as the basis for one of these credits (you can only claim one credit per eligible student on your tax return).  See this page for more information about these credits.

 

The American Opportunity Credit, which is available for up to 4 tax years for students who have not yet completed the first four years of college, is particularly valuable since part of the credit is refundable even if you have no other tax liability.

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Contributor

My husband and I just got married in September 2020. He is expected to owe a lot and I am expecting a refund. Is there any benefit to filing separately?  Or can we still file as single?

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AARP Foundation Tax-Aide

@DebraK63 ,

 

No, you cannot each file as Single.  Since you were both married on the last day of December 2020, your only choices are to file as Married Filing Jointly or Married Filing Separately.

 

Before you make your decision on what filing status to use, you should know that there are disadvantages to filing separately that can have a considerable impact on the amount of tax owed including:
1. the tax rate for MFS is higher than it is for MFJ;
2. certain credits, including the EITC, and education benefits (credits and deductions) and the student loan interest deduction are not available;
3. if one spouse itemizes deductions the other must also itemize – even if it is to his/her disadvantage;
4. traditional IRA deduction and Roth IRA contributions are phased out at $10,000 of modified AGI; and
5. spousal IRA rules do not apply.

 

To help make the decision, we suggest you prepare tax returns both ways to determine which filing status results in the lowest overall tax liability. Also be aware that rules regarding what income must be reported on separate returns may differ in community property states.

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Periodic Contributor

Can you advise or at least talk about the additional requirement by NYS for residents (especially those of us who don't have income considered tax liable) besides filing the form IT201, every year, this tax year 2021 filing, requires proof of residence, in forms of utility bills, bank statement, ID, etc?  Especially when you haven't moved from your residence, what gives.  

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AARP Foundation Tax-Aide

@radfox59 ,

 

Unfortunately, we do not know why New York imposes the requirements you mentioned.

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