THE COLOR OF MONEY
IRS representative answers readers' questions about tax regulations
By Michelle Singletary
Recently I invited Sam Serio, a spokesman for the IRS, to be my guest for an online chat to answer tax questions from readers.
And this year, as always, Serio couldn't get to all the questions. So he agreed to answer additional ones in print. Here are some of those questions.
Q. Is there such a thing as an IRS payment schedule? I owe about $6,000 in taxes, which I don't have.
A. Yes. Serio says attach IRS Form 9465, "Installment Agreement Request," to your tax return and create your own agreement, or call the Internal Revenue Service at (800) 829-1040 and ask for an installment agreement.
Q. My wife and I have a tax installment agreement we are paying on. We are still going to owe an amount we can't pay on April 15. Can we start another installment agreement, or combine our current one with a new one?
A. Serio advised this couple to call the IRS right away at the toll-free number. "Because part of their original agreement was to not fall behind again," he said, "the IRS will have to re-evaluate folding this year's taxes into your existing one."
Q. I just bought a house and am worried that the deduction I'll get next year for mortgage interest will leave me with a large refund. I'd rather have that money now. Can I change something to get my employer to withhold less from my check?
A. Serio suggested the reader update his or her W-4 form. The W-4 has a work sheet to help you figure out how many personal allowances to take based on projected deductions and tax credits. If you have access to a computer, the IRS has a withholding calculator at www.irs.gov. In the search box, type "withholding calculator."
About 77 percent of the 130 million taxpayers get refunds, according to the IRS. Every taxpayer's goal should be to get as little back in a refund as possible. However, the average refund last year was more than $2,000 because, Serio said, most employees had too much money withheld from their paychecks.
If you can help it, don't allow the government to hold on to one extra penny of your money. In fact, many taxpayers getting a large refund should take Serio's advice and withhold less. I know why they don't. They consider getting a big tax refund a forced savings plan. But they should force themselves to save by setting up an automatic deduction that will go into their savings account.
I bet many people could use the money during the year. For example, think of how much in interest expense people might save if they increased their take-home pay and paid down credit-card debt.
Q. I mailed several checks to charities on Dec. 10 and some weren't cashed until January. Do I deduct them from 2003 income or do I have to wait until next year?
A. According to Serio, this person can deduct the contribution the year the checks were mailed.
Q. I received a recent gift of $100,000 from a relative. How do I report that on my tax return? Is there a way to reduce the tax paid on a gift of this magnitude?
A. Boy, will this person be happy. "There is no tax due by the beneficiary of a gift," Serio said. "The gift tax only applies to the donor."
Q. Do I have to take pictures of all the miscellaneous donations — i.e., clothing, books, household stuff — that I donate?
A. No. Serio said to just keep good records. Call thrift shops to find out the fair market value of your donated items. Be sure to get receipts from the exempt organizations or repair receipts to establish ownership and mileage if you donated a car. Also pick up a copy of IRS Pub. 561, "Determining the Value of Donated Property."
Q. My husband is a police officer. What deductions can we use on our taxes? For example, can he claim gas mileage for court or dry cleaning bills for uniforms?
A. All ordinary, necessary and unreimbursed business expenses are deductible as miscellaneous itemized deductions, Serio said. This would include court mileage, dry cleaning of uniforms, etc. For more information see IRS Publication 529, "Miscellaneous Deductions."
Q. I electronically filed my 2003 tax return, but discovered that I needed to declare a household employee. Can I amend the return? If so, how long do I have to wait to amend it?
A. Serio suggested this reader wait to file an amendment until the original tax return is processed (about four weeks) or until a refund is received. However, if after recalculations you realize that taxes are due, definitely amend the return and pay the taxes by April 15, Serio said. Use Form 1040X to correct a previously filed return.
To see an archive of the one-hour online discussion with Sam Serio at the IRS, go to www.washingtonpost.com/wp-dyn/liveonline/business/colorofmoney/
