Tax Tips For Your State And Federal Returns
Monday, March 22, 2010
What do you need to know before preparing your state and federal income tax returns? We speak to representatives from the IRS and the California Franchise Tax Board about what's new for this year.
MAUREEN CAVANAUGH (Host): I'm Maureen Cavanaugh. You're listening to These Days on KPBS. As the days dwindle down to April 15, there are always a lot of questions that pop up about taxes. Changes seem to happen on both the state and federal forms each year. But this tax season, new rules are not the only things that might affect your taxes. It was a rough financial year for a lot of people, losing jobs, having trouble keeping up house payments, seeing investments keep tumbling. We'll find out how those changes in financial status can affect your taxes, plus the whole new array of tax credits affecting things like home and auto purchases and education benefits. Joining me now are my guests for the rest of the hour. Raphael Tulino is IRS spokesperson for Southern California and Nevada. Raphael, welcome to These Days.
RAPHAEL TULINO (IRS Spokesperson, Southern California and Nevada): Hi, Maureen. Thanks for having me.
CAVANAUGH: And Brenda Voet is spokesperson for the California Franchise Tax Board. Welcome, Brenda.
BRENDA VOET (Spokesperson, California Franchise Tax Board): It’s a pleasure to be here. Thank you.
CAVANAUGH: Well, we’d like to invite our listeners to join the conversation. What are your tax questions this year? Do you qualify for a tax credit? Did you have a change in status, a loss of income? Give us a call with your questions and your comments. The number is 1-888-895-5727, that’s 1-888-895-KPBS. Now, Raphael, there are some of – what are some of these really big changes you want to update our listeners on for the tax year 2009? It sounds like there are a lot of new things related actually to the economy.
TULINO: Oh, boy, there’s so much. Well, the Recovery Act from last year, I guess is the big bulk of where the big bulk of these changes come from. And that Recovery Act, if you recall, was enacted about February 16th—I’m saying mid-February but it was February 16th of 2009—and in it had two iterations of the first-time homebuyer credit. Actually, the second one was kind of expanded on it in November so just a couple, three, four months ago. And then there’s, as you say, there was a deduction for sales tax for buying a new car, education credit was expanded and brought into play for 2009 and 2010. Energy credits also for ’09 and 2010. Unemployment benefits in 2009, one of the provisions in it, the first $2400 of unemployment on the federal side in 2009 tax year, which we’re filing for here in 2010, of course…
TULINO: …is exempt from taxes. Above it, then you pay tax on it and, normally, it is but this specific provision offered that. And then the other thing that is also in play, so to speak, here for 2010 as well as last year, was the ‘making work pay’ tax credit. And the economic recovery payments that you got, well, that was a one-time shot. But ‘making work pay’ is 2009-2010 and, if you recall that, basically that is the credit that gave you a few extra dollars in each paycheck.
CAVANAUGH: Right. Yes.
TULINO: And the credit’s worth $400 single, $800 married…
TULINO: …filing joint. Also, 2009-2010. I know I’m redundant when I say that but I want to make sure folks know that some of these provisions are still here for 2010. And so, so much there, I – without me going too much further because there’s only so much time…
TULINO: …on the radio to discuss it and maybe if some folks will call, and we’ll answer questions. IRS.gov, IRS-dot-g-o-v, has all this information. Easy to read, easy to understand, if something comes up that you don’t quite get because it’s going so fast. The web site’ll help spell it out for you in detail.
CAVANAUGH: I’m going to be asking you some more specific questions…
CAVANAUGH: …about some of the programs you just mentioned but I want to start with an overall. What if someone has not been employed for the whole year of 2009? Do you still need to file?
TULINO: Yeah, oh, you should always file your tax return. There are thresholds in place on the federal level. If you don’t make a certain amount of income based on your filing status, you don’t necessarily have to file the return but you should because what happens is you probably have a refund coming to you. On the other side, based on the unemployment issue, the unfortunate circumstance that a lot of folks are in, you might find that you qualify for what is known as the Earned Income Tax Credit, which is given to lower income, moderate income individuals and families for having earned income. So even though you don’t file the return, if you do file the return, you might find a whole bunch of money…
CAVANAUGH: I see.
TULINO: …coming back to you in the form of a refund…
TULINO: …because of at least this credit and, in particular, maybe you had a part time job or something like that that you made a few bucks, and had withholdings. And the way to get that back is to file a tax return.
CAVANAUGH: And if you’ve spent like the majority of last year looking for work, how much of that can you – can you write any of that off? Can you…
TULINO: Yeah, job expenses are deductible.
TULINO: You have to itemize on a schedule A and they’re subject to 2% of gross income. So in other words, taking a step back on that, as a taxpayer, filing status, you get a standard deduction or itemized deductions and you take the greater number to reduce your tax bill. Well, the only place on a tax return for job expense hunting, so to speak, is on a Schedule A and it’s subject to 2% of your gross income so you have to have, generally speaking here, 2% of expenses – or, expenses that exceed 2% of your income…
CAVANAUGH: Your income, right.
TULINO: …in order to find relief on the tax return. But, certainly, there’s a lot of expenses involved that you can deduct if they’re ordinary, necessary, reasonable, that kind of thing. And, certainly, you should do that if you can.
CAVANAUGH: I want to go to you, Brenda Voet, before we start going to the calls. You are the spokesperson for the California Franchise Tax Board. And we’ll talk about some of the assistance that’s available for the unemployed and those who might’ve lost a home but first I want to ask you what’s new in the state of California for the 2009 tax year.
VOET: Well, the biggest thing is that we had a .25% across the board tax increase…
VOET: …for 2009 and 2010, so we’re halfway through with this limited time tax crease (sic). But that was taken care of in your withholding to be applied against your taxes so most of that should’ve been covered. The one thing that may not be covered and may be surprising people when they’re filing their return, is we had a rollback of the dependent credits. In 2008, the dependent credit was $309, and it rolled back to $98. So for each child or dependent you have, you now have $211 less credit, and a credit’s a dollar-for-dollar reduction in the amount of tax that you need to pay.
CAVANAUGH: I see. We’re taking your calls at 1-888-895-5727, if you have a question about taxes this year. And let’s go to the phones right now and take a call from Sue in Carlsbad. Good morning, Sue, and welcome to These Days.
SUE (Caller, Carlsbad): Thank you. I had a question about the – it’s the new – I’ve heard – I’m a military spouse and I heard now military spouses will be able to pay income tax in the state where they’re – the active duty member is domiciled. I’m a little confused. Like does that mean I don’t have to pay California income tax anymore?
CAVANAUGH: Aha. That’s a very good question. Who wants to take that?
VOET: I’ll go ahead and…
VOET: …take care of that because that applies to your state income tax return. It’s a federal law and basically what it says is if you and your military spouse are both domiciled outside of California in the same state, let’s say for example you’re domiciled in Illinois, and you come to California with your military spouse and the only reason you’re here in California is because you had military orders to move here—your spouse’s military orders—all the income that you have earned as a nonmilitary spouse is not taxable by the state of California. So what this means is that you should file a income tax return and get all of that withholding money back because none of that needs to be paid to the state of California. The best way to find more information about this is to go to the military base. They have VITA Centers, which do both federal and state income tax returns, and the volunteers there have been specially trained to be able to ask the questions to make sure that the military spouses qualify for this relief from tax by the state of California.
CAVANAUGH: And Raphael.
TULINO: Well, I wanted to tell Sue, make sure you know that there are many, many special federal laws that exist specifically for military personnel and their families and without going into the many major provisions, for example, if you’re in a combat zone, your income given to you for being in that combat zone, in terms of your military pay, is nontaxable on the federal side. And there’s a whole other slew of expanded, increased in terms of flexibility, laws provided for military personnel and their families and including those VITA sites. VITA is Volunteer Income Tax Assistance, and we are on bases as well as at the State of California, as Brenda said, to provide assistance, provide preparation to military folks and their families and spouses. So just know that there’s a lot more out there for military personnel and their families on the federal side as well as the flexibility offered in the state of California, too.
CAVANAUGH: Now, Raphael, right in the beginning, you listed a whole number of different things that people want to – might want to take note of…
CAVANAUGH: …while they’re making out their taxes. Let me focus on one of them, the ‘making work pay’ tax credit that put a little bit of extra money in most of our paychecks over the year. Do we see a reduction in the amount of federal income tax that’s withheld from our paychecks then?
TULINO: Correct, correct.
CAVANAUGH: And so does that mean we may be liable to pay more?
TULINO: No. Well, see, what happens is you’re getting a – instead – in lieu of getting a – You know, the stimulus checks of 2008?
CAVANAUGH: Right, uh-huh.
TULINO: Where you got one big check and…
TULINO: …here it is, that kind of thing, it’s not taxable. It’s the same for ‘making work pay.’ The thing is, is your employer is using – or is using, for these two years, a different withholding table created by Treasury that those adjustments made based on the information provided by the employer to the employee and to an employer reduces just by a few bucks in each paycheck the amount. The credit is maxed out at $400 single, $800 married, filing joint. So what happens is it falls a little bit to the taxpayer and the family to take a look at withholdings to make sure you are paying what you’re supposed to pay so the tax you pay is closer to what’s owed. What’s going to happen this year to a few folks who have a little more withheld, your refund’s going to be reduced a little bit, it’s going to be smaller, about 80% or so. Four out of five tax returns in general are refund returns. So you might find your refund is a little smaller this year.
CAVANAUGH: I see.
TULINO: That’s because the intent of the law, arguably, was to give you that money in your hands last year to put it in your pocket at that time so you had it in your hands as opposed to the government giving it back to you and having a bigger refund, so to speak, which happens a lot in the springtime because most folks are over-withheld. The average refund is hovering about $3000. It’s a lot of money goes back to taxpayers in the tens and tens of billions of dollars because a lot of folks were over-withheld. But the bottom line is this, you don’t have to pay ‘making work pay’ back. There’s some adjustments you might have to make based on your situation as a family. For example, if the two of you work and you have three jobs and you’re using different paychecks and the such, you want to take a look, the IRS has like a withholding calculator if you go to irs.gov, keyword search: withholding calculator. You can spend a few minutes with this calculator. It’ll help you bring the tax you pay closer to what you owe based on all the legislation, based on the fact that you might be eligible for a first-time home buyer credit, you might’ve taken the car deal, which was last year, of course, but in planning for this year, other things that are there in legislation for you that helped benefit you, you can take that immediate relief and have that money in your pocket, so to speak, if that makes sense so…
CAVANAUGH: It certainly does. We are taking your calls on – we’re giving out tax tips and taking your tax questions at 1-888-895-5727. Raphael, another thing we should update our listeners on is the fact that the first-time homebuyer tax credit has been extended. Tell – What can you tell us about that?
TULINO: Okay, the first thing is on that, yeah, the November law that came along and it was signed in the first week of November and I won’t name it but it’s got a acronym of course, extended the first-time homebuyer credit through April 30th. You must close on your home by April 30th in order to qualify for up to $8000 for being a first-time homebuyer. It also brought in what is known as the longtime resident credit, and that’s up to $6500 and you also must close by April 30th in order to get up to $6500 unless, let me throw this out there, you enter into a binding contract by April 30th to buy a new home, then you have until June 30th to close. So the bottom line is this, of course April 30th’s coming up in about, what is it, five weeks? A little more than five weeks. So if you haven’t got into place your situation for buying a new home, as we all know it does take some time…
TULINO: …so you’re up against the wall for it. But anyway, you get the idea there. What’s a first-time homebuyer? Generally, it’s somebody who has not owned a home three years prior to the purchase of this home as a main home that’s going to qualify for the credit. The longtime resident credit came along and it says this, what’s a longtime resident? For this law, to get this credit, you must have owned and lived in your main home for five consecutive years out of the last eight in order to qualify for this credit, longtime resident. And what does that mean? If you move up or move down, maybe you are downsizing in your home because your kids are in college, that kind of thing, and moved out or moving out, whatever the case is, you can qualify for this credit. So two iterations of it, and there’s more than just what I said in terms of what qualifies. There’s income limits and the such, which were increased so a lot of folks are going to find they’re going to qualify but I guess I will be redundant and refer you to irs.gov because there’s lots of information there you’re going to want to know about and that will flush out the details for you to see if you qualify based on it, so…
CAVANAUGH: I think you’re going to be doing that a lot during this conversation. We are…
CAVANAUGH: …taking your calls at 1-888-895-5727. A lot of people want to join the conversation so let’s take a call now. David is calling from San Diego. Good morning, David. Welcome to These Days.
DAVID (Caller, San Diego): Hi, how are you?
CAVANAUGH: Just fine, thank you.
DAVID: Good. I had a question. I lost my vision last year and I worked for like nine months before that happened. And I heard there’s like a $1500 federal tax credit, and I was wondering because my taxwriter doesn’t seem to know what form to fill out or where that information is placed on, you know, on the tax return.
TULINO: I am not aware, David, of a credit because, and I’m sorry to hear, but I’m not aware. There are advantages for increased exemptions for those who are blind and older in terms of the amount of money that you can deduct on your tax form in general that’s given to you per the law but I’m not aware off the top of what you refer to. I’m sorry.
CAVANAUGH: Anything in the – in California state taxes, Brenda?
VOET: Well, the only thing that I can share with him is that the unemployment and disability is not taxable by the state of California. So if he had any withholding, would need to file a California state income tax return to get that back. And, like the federal, we offer a credit for your exemption credits and one of those is a bit more is added if you’re blind or elderly.
VOET: So similar to what the IRS is doing.
TULINO: And these are exemption deductions. These aren’t credits provided.
TULINO: I’m not aware of an actual credit. I’m sorry. I mean, David, you have more detail on it…
CAVANAUGH: It could…
TULINO: …I’d be glad to research it for you but, off the top, based on the information he’s provided, it just draws a blank.
CAVANAUGH: It could be a little glitch in terminology here but what you’re talking about is you do get a tax break.
CAVANAUGH: Umm-hmm. Yeah.
TULINO: Yeah, generally speaking, yes…
TULINO: …being, as I say, being blind or being a senior citizen, there is a greater deduction for you.
CAVANAUGH: Yes. Let’s take another call. Paula is calling from North Park. Good morning, Paula. Welcome to These Days.
PAULA (Caller, North Park): Oh, hi. Thanks for taking my call. I have a question about my state tax return. I’ve never had to pay additional taxes before and this year I did. I had to actually pay money and I’m claiming zero-single. My husband I file jointly. And I’m just wondering why I would have to pay additional taxes.
CAVANAUGH: Gotcha. Thank you. And Brenda.
VOET: Well, one of the major reasons would be the .25% across the board tax increase that was there, and if you were single and no dependents then we didn’t have the dependent exemption. But the best thing to do is look at your last year’s tax return and this year’s current tax return and see what happened. Did you have more income come in? Did you have fewer deductions? Because you may have itemized your deductions, and your interest on your home may have been less. There could be quite a few different reasons as to why you ended up paying more this year, or maybe you had less withheld this year or did not make as many estimated payments. So I would encourage you to look at your returns, side by side, to see if there was significant changes that may have led to this above and beyond the .25% tax increase.
CAVANAUGH: But, Brenda, actually the most likely suspect in this is the fact that the taxes went up, right?
VOET: That very well could be. If they were paying quarterly estimated payments…
VOET: …and did not take that into consideration. Most of us who are earning wages, the withholding tables that we’ve been talking about earlier were adjusted to reflect this…
CAVANAUGH: I see.
VOET: …this .25% tax, so a little bit more has been taken out each month to, hopefully, make the amount payable on April 15th equal the amount that was withheld.
CAVANAUGH: And Raphael.
TULINO: I was just going to say, I don’t know if Paula has kids but Brenda mentioned off the top the reduction in the child credit on the California side, which basically is $200 less per child that you’re going to get on your tax return because unless you made adjustments during the year, it’s going to be a surprise, I think, for a lot of folks. So maybe if Paula has children that qualify for that credit, that might be the case as well. I certainly have some friends who have mentioned that to me. Hey, all of a sudden, I owe the state this year.
TULINO: And they have three kids. So it’s just part of the – what’s happening. So…
CAVANAUGH: Gotcha. Let’s take another call. Nicole is calling us from La Mesa. Good morning, Nicole. Welcome to These Days.
NICOLE (Caller, La Mesa): Hi. I have a question regarding a short sale that I had to do on my condo in ’09. When my husband went to do our taxes last year, the person he went to said let’s just go ahead and pretend like this didn’t happen this year and look at it next year because there are new laws that are going to come into effect that will make it so you don’t have to pay taxes on that negative equity that’s lost due to the market. We didn’t take any equity out and spend it, it was just completely lost due to the market.
CAVANAUGH: Sure, umm-hmm.
NICOLE: And I’m just wondering where do we find that information. And we’ve looked on the irs.gov and we can’t seem to find how to handle it.
TULINO: Okay, so let me tell you the federal side first because maybe Brenda wants to explain the California side. But on the federal side, the law that came along in 2007’s called the Mortgage Forgiveness Debt Relief Act and it is now in play through 2012 – that’s 2012 for those who didn’t understand what I just said. And so basically what it says is if you have cancellation of debt income through a short sale or a foreclosure and you are forgiven the debt that you owe on your condo, home, main residence, of course—it has to be a main residence per this law—from the lender, for example, and all of a sudden you have it at value-x and you sell it at value-y and that debt that you had was forgiven, you used to get a 1099(c) on the federal side and that cancellation of debt was taxable. This law comes along and says generally it’s not. So on the federal side, you enter into that short sale, you had that forgiveness or that cancellation of debt income, in general because of this law you want to find out details on irs.gov.
TULINO: See, I told you I’d go back to a lot of – as you said, of course…
TULINO: But, no, seriously, that in general, on the federal side, you might pretty much find that is not going to be taxable income based on that cancellation of debt. And I hope I explained that.
CAVANAUGH: And what about for California taxes, Brenda?
VOET: Well, unfortunately, for California, we are still waiting to conform to that federal law so we’ve got pending legislation now that would allow that cancellation of debt to also be excluded from income. But you caller mentioned that it was the original debt on the home, and that could make it so that it’s not taxable for California also because there are two different kinds of debt that are normally securing the purchase of the mortgage. One is a recourse debt and the other is a non-recourse debt. When most of us bought our home, we bought into a note that was a non-recourse note and basically that said that all the financial institution can do is come after your home as security.
VOET: But if you refinanced to get a better interest rate or refinanced to take any money out, odds are that became a recourse debt and the recourse debt means that they can come after not only the house but other assets you have. When that debt is relieved, then you have a cancellation of indebtedness that could be taxable currently with California. For federal purposes, that would be relieved because of the legislation that they have enact that says if it’s your personal home and you have been relieved of this debt, we’re going to go ahead and not tax at this time. But we’re still awaiting for the legislation to be passed, so what we’re letting people know is if it doesn’t pass before April 15th, what you’ll need to do is you’ll need to compute your tax including that in income, pay what you can. If you can pay all of it, great. If you can’t, contact us, get into an installment agreement, and start making payments on that. If the legislation is then passed before our October 15th filing deadline for paper and e-filed returns, then you can go ahead and file your return under that new law and get all that money back.
CAVANAUGH: Nothing like simple, is there, Brenda?
TULINO: And, Brenda, that was good. Thank you for mentioning the difference between recourse and non-recourse debt. That’s a good explanation, either whether it’s federal or state, that there’s two different kinds of debt and certainly as a taxpayer you want to know about them, how they fit, if you’re in the situation such as the lady who called with the short sale.
CAVANAUGH: We have to take a short break. When we return, we will continue with our tax tips and your phone calls here at 1-888-895-5727. You’re listening to These Days on KPBS.
CAVANAUGH: I'm Maureen Cavanaugh, and you're listening to These Days on KPBS. My guests are Raphael Tulino. He is IRS spokesperson for Southern California and Nevada. And Brenda Voet is spokesperson for the California Franchise Tax Board. We’re talking tax tips. We’re inviting our listeners to join the conversation. How can you be sure you’re taking the deductions you’re entitled to? That or any other question or comment, give us a call. The number is 1-888-895-5727, that’s 1-888-895-KPBS.
TULINO: And I guess the answer to that, thinking about what you just said, is to get to a computer and let the software hold your hand or your CPA or tax professional do that for you based on the situation you provide him or her. But you should take every tax credit and deduction you’re eligible for based on your situation, legally of course, to lower your bill.
TULINO: So how can you be sure? Definitely have all your paperwork in front of you. Being organized is good. Knowing what you did last year, for example, where you are, where your income is, what benefits there are for you. The software, we’ll bring that to you so it’ll lead you down those roads that might alert you to some deductions and credits you’re eligible for. So, in general, you definitely should do that.
CAVANAUGH: We’re going to be taking a lot of calls from listeners during this particular segment up to the top of the hour but first of all, I want to ask you, Raphael and Brenda, just sort of if there is an answer to a sort of overall, straightforward question: If you have lost your job or you’ve suffered a foreclosure during the year, are there any things that you should keep in mind that are different about making out your taxes? And I’m going to start with you, Raphael.
TULINO: I think you should go ladies first. No, I’m kidding. Well, no, you should know that there might be some benefits for you. Let me give you an example that I mentioned at the top of the show or at least when we started. If you’re – Let’s say your income was up here and now it’s down here, you might squeeze into what’s known as the Earned Income Tax Credit and that was part of the Recovery Act. It was expanded, the income level was increased a little bit so a lot of folks are going to find they might squeeze into a piece of that, especially if you have children. So there’s a new iteration of it where three or more children have a value, and that value’s up to above $5600. So there’s a lot of money, it’s lucrative, that can come back to you based on EITC. So you might find you qualify for this credit that you didn’t qualify before. The other thing I was saying, if you took unemployment last year, it’s not taxable. It’s excludable for income up to $2400, the first $2400 on the federal side. And Brenda, I believe, it’s not taxable at all on the state side, correct? Unemployment?
VOET: No. That’s correct, yeah.
TULINO: No. So those are…
TULINO: And the other thing I might mention real quick, there’s a lot of information on the IRS website but if you go to irs.gov and click in ‘what if,’ we’ve created and we’ve got a – I think there’s another page on there as well, but based on the situation folks are in where we can help, what can we provide? And if you click in ‘what if’ there’s a ‘what if’ and there’s a couple dozen of your questions…
CAVANAUGH: What if I lost my job?
TULINO: Yeah, what if I – Yeah.
CAVANAUGH: What if I lost my house? What – All those scenarios.
TULINO: Exactly, and it’ll link you to a certain publication or a Q&A that provides you with more on that type of thing, so I wanted to offer that as well.
CAVANAUGH: And, Brenda, for anybody who lost a job or had a foreclosure or something like that, any sort of a general idea on how their tax filing might change for the state?
VOET: Well, the first thing is, is that unemployment is not taxable by the State of California.
VOET: So odds are they will not have a filing requirement. But if they did have any income up to about $14,000, if you were single, then they would need to file a return to get the refund back. The foreclosures and short sales, I would really encourage people to talk with a tax professional or talk with a real estate profession because there are instances where it would not be taxable by the State of California. And we’re still waiting for that legislation, so…
VOET: …in that situation, it’s really, really important that they get really good advice and make sure that they’re taking advantage of the laws that are in place for the State of California.
CAVANAUGH: Let’s take some calls. Deanna is calling us from Poway. Good morning, Deanna. Welcome to These Days.
DEANNA (Caller, Poway): Good morning. Thank you for taking my call.
CAVANAUGH: You’re welcome.
DEANNA: Well, I have two questions actually, and I’ll take my answer off the air. The first question is what happens when two people get married as far as, you know, owing taxes and getting a refund. My second question is what is this Obama credit that I’m hearing about? I’ve heard people talk about it and that wasn’t mentioned to me when I did my taxes this year and if you could answer those for me, please, I’d be truly grateful. Thank you.
CAVANAUGH: Thank you.
TULINO: Hi, Deanna. Well, I don’t know what the Obama credit is, off the top. I don’t know if she’s referring to the ‘making work pay’ tax credit that I discussed earlier. I really don’t know. Based on how she named it, it doesn’t ring a bell to me as to actually what that might refer to.
TULINO: If I had more information, I would be glad to expound on it so that’s my first thought there. If you’re married, you must file in one of two filing statuses: married filing joint or married filing separate. Now married filing joint is much more beneficial in terms of the amount of taxes you’ll pay because there’s a lot more – all the deductions and credits are geared to give you more benefit in married filing joint than separate. If you choose married filing separate, dare I say it’s more penal in terms of describing it versus married filing joint. And there are instances where filing separate might be good. If you just got married and you got married to a spouse that’s carrying a lot of tax debt, you might find it’s beneficial to file married filing separate, for example, because maybe you get a refund. If you file joint combined, your refund’s going to offset that tax debt generally speaking. So there might be instances where you find filing separate is more beneficial, I should say, to married filing joint. But, certainly, it’s rare that those cases come up. That example I provide may be one where filing separate is a choice, but you have those choices of married filing joint and married filing separate. And based on the fact of circumstances in your situation as a taxpayer, one of them’s going to benefit you.
CAVANAUGH: And, Brenda, whichever you decide for the federal, you stick to for the state, right?
CAVANAUGH: Okay. Let’s take another call. Peter is calling us from San Diego. Good morning, Peter. Welcome to These Days.
PETER (Caller, San Diego): Good morning. Thank you for taking my call. This is a question about what form do I use if I had three different kinds of income. I had regular income, unemployment income, and I cashed in a retirement plan from my last job.
CAVANAUGH: Thank you. Thank you for that, Peter.
TULINO: Well, on the federal side, you’re going to use a 1040 and, Peter, if you get to a computer and e-file, there are no forms for you to worry about in general because the paperwork you have for your regular income, your unemployment that’s provided to you, and your retirement plan information is going to be put in front of you and the computer will lead you to what you have to fill out in general. But for regular income, it goes on a 1040, unemployment, that’s going to come to you on some sort of 1099 form, off the top, I believe. The first $2400, remember, on the federal side is not taxable, above it it is, for 2009 tax year. Retirement plan information, same thing. That’s going to come to you on your – reported on – given to you as a 1099 type third party reporting and you’re going to put it on a return. So – But allow me to offer e-file one more time. It makes it so much easier. And if you’re not e-filing yourself in front of your computer, doing it in many ways that you can in terms of buying software off the shelf or just going online to somebody’s site and doing it there, chances are your tax professional’s doing it for you. So it just makes the convenience so much bet – and we’re talking about more than two-thirds, 70% last year in general e-filed and this year I’m sure we’ll see an increase.
CAVANAUGH: Right. Right.
TULINO: So it’ll be three-quarters so…
CAVANAUGH: Brenda, is there anything you’d like to add?
VOET: Well, for state tax purposes, we start with the federal adjusted gross income.
VOET: So on the 540, you’d start with the federal adjusted gross income. And then there’s a form called a Schedule CA, a 540-CA and what that does is it allows you to make adjustments to that federal adjusted gross income. And one of those adjustments is going to be to subject out the unemployment that was – the $2400 or above…
VOET: …that was taxable by federal. But, again, e-filing is definitely the way to go and California provides something called CalFile, which is direct to government. It’s available online. It walks you through a series of questions. And odds are this caller would be able to qualify to go online to FTB.ca.gov and select the CalFile option and be able to file direct to State of California. And if they use direct deposit, they can get their refund back within a week.
CAVANAUGH: Okay, let’s take another call. Marta is calling us from San Diego. Good morning, Marta. Welcome to These Days.
MARTA (Caller, San Diego): Hi. Thanks for taking my call.
MARTA: Yes, I have a question regarding – Sorry, I was working out so…
MARTA: I had a question regarding my son. He works for a U.S. company and is living in Honduras, has been there for the last two years supporting military in the Honduran area.
CAVANAUGH: Is he a part of the U.S. military?
MARTA: No, he is not.
MARTA: He works for a subcontracting company. So question is, does he have to pay federal and state taxes if he’s a resident of the city that he lives in in Honduras?
CAVANAUGH: Thank you for that.
TULINO: Generally speaking if he – Is he a U.S. citizen?
MARTA: Yes, he is.
TULINO: Then he’s going to have to pay tax on it. But we have tax treaties with many countries around the world so the income that he gets in Honduras, if it’s taxed in Honduras, you can get a tax credit on the federal side, so you don’t get taxed twice, so to speak. But when you’re talking about foreign tax law and working over – working abroad and that kind of thing, you definitely want to make sure you know all the rules and laws. But certainly the income is taxable as a U.S. citizen but then there are benefits because of tax treaties with countries from around the world, and I don’t know offhand if we have one with Honduras. I’m assuming we do but I’m not so sure. There are dozens of them and so you might find – you’re going to find some benefits from that side of it as well. But certainly you want to look into that to be sure that everything is being followed because there’s some nuances there about, you know, when you get into a foreign and working abroad and that kind of thing. So…
CAVANAUGH: And, Brenda, if he’s been living in Honduras for two years, does he need to file a California return?
VOET: No, he would not need to file California. We have residents who work outside of California. If they work for a long period of time and they’re under contract, they become non-residents of California and they aren’t receiving benefits and protections of California so they don’t have a tax responsibility with the state. But if people move, just, you know, take temporary jobs or they’re gone for a short period of time, they’d really need to talk with a tax professional because they may not have severed their ties or been under a contract long enough and they still may have a filing requirement. But two years in a foreign country would most likely meet all the criteria to not have to file a state return.
TULINO: That’s – I was going to piggy back on that. That’s not a bad idea, Marta. You might consider talking to a CPA or tax specialist just to be sure you get all the rules and benefits that are due you because that’s not the most simplest deal – situation to deal with, make sure you know everything that’s about it, you know, that’s there.
CAVANAUGH: Let’s get another call in. Tim is calling from San Diego. Good morning, Tim. Welcome to These Days.
TIM (Caller, San Diego): Hi. So I – in 2009, I was a college student and I graduated in May and while I was a student, I was a dependent under my father. And then I – in about June, I got a job which I still have now. And I’ve paid about $1000 in taxes in 2009 with this job, and I’m wondering in order to get like a maximal amount of money back should I stay filed under the dependent under my father or should I file it on my own?
TULINO: Can’t tell you unless you tell me more about your situation but I think you may find, based on what you’re telling me, if you file your own return, you might get a benefit. It depends on your age. If you graduated in ’09, you could choose to be a dependent or you could file your own return. I can’t tell you unless I knew your income and I don’t want to know it. Please don’t tell me on the air.
CAVANAUGH: Right, right.
TULINO: But there’s a whole bunch of other situations or stipulations in your situation that would make it beneficial. Whatever works best for you, whichever one you choose, make sure you choose the one that has you paying less tax or getting the bigger refund.
CAVANAUGH: Well, this brings me actually–Tim, thank you for that—exactly where I want to go because I want to know some of the free services the IRS offers for people who have questions about this stuff, who might need help on their tax returns.
TULINO: Volunteer Income Tax Assistance in its 40th year, and there are dozens of sites all over San Diego County, generally for lower to moderate income individuals and students, and I believe we have help here right here on the campus of San Diego State in terms to get help for students. And basically what you find there is free tax preparation. You find folks around the county at different senior centers and the such, different coalition partners because we partner with folks around the county here to provide free tax assistance. Generally, $49,000 or less, simple returns, you can also find free help at an IRS office. For example, we’re going to be open this Saturday from 9:00a to 2:00p (sic). You might get free tax preparation there. Anything like that here in San Diego or San Marcos. And then you can also go online to irs.gov and use the IRS FreeFile program where you can file a federal income tax return for free using our partnership with software companies and the such, it’s called FreeFile. The key is generally income $57,000 or less to qualify to FreeFile on IRS.gov. And obviously students in this time where we are are probably a lot more technologically savvy, let’s say, than senior citizens because they’ve grown up with it. So it just makes sense to get to the computer and continue to use it to e-file and maybe Tim will do that when he finds that he – if he files himself.
CAVANAUGH: And, Brenda, what are some of the free services the State Franchise Tax Board offers?
VOET: Well, one of the things I wanted to piggyback on was the VITA centers. If you go to FTB.ca.gov, you can search by city or by zip code and we will let you know where the local VITA Center is for you and if they offer special services such as a different language. For people who may not have English as a first language, that service is provided. But one of the best things that we offer is something called Ready Return and what we do is, we merely take the information that we already receive from employers and we fill it into a return. So if someone is single or head of household, they had one employer last year, they could go online, select Ready Return, and using their name and social security number, we’d let them know if they qualified and if they did we’re going to ask a little bit more information to make sure that they are who they say they are, and we will have a return and it’s just filled in for them already.
VOET: They can look at it, compare to their documents. If they agree with it, they click submit and it goes directly to us. But there’s also the advantage that if there are changes that need to be made, they can be made right there on the return, so it makes it very fast, simple, and an easy way to file your return.
CAVANAUGH: We are going to have to end it there. One last word, Raphael?
TULINO: Real quick. To find the VITA site on the federal side, it’s 1-800-906-9887, and that’s how you can find one of these sites here around the county.
CAVANAUGH: Okay, we have to end it there but I want to tell everyone, Brenda and Raphael will be back on this show Monday, April 12th, the 9:00 a.m. hour to give us some last minute tax tips. I want to thank you both, Raphael Tulino and Brenda Voet. Thank you both so much for your information.
TULINO: Thank you.
VOET: Thank you.
CAVANAUGH: You’ve been listening to These Days. If you’d like to comment on what you’ve heard here, go online, KPBS.org/thesedays. Stay with us for hour two of These Days right here on KPBS.
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