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Live Chat: Tax Day Tips

Thanks to a fluke of the calendar, the deadline to file taxes was extended until April 17th this year. While the procrastinators scramble to get their 1099s and schedule Ds in order, those who’ve already filed may be wondering when they’ll get their refund check.

Our live chat on April 16 featured Andrea Coombes, the personal finance editor at MarketWatch, and Arden Dale, a Dow Jones columnist who writes about taxes and estate planning. CPA Melissa Labant of the AICPA also joined in. The chat was moderated by Janet Paskin, Digital Editor, Markets for the Wall Street Journal, formerly the editor of SmartMoney.com. Replay the event.

Related:  Some last-minute ways to lower your taxes.

Full transcript follows:

  • Hello everyone, and welcome.

    by Janet Paskin 1:59 PM

  • Hello – thank you for joining us!
    by Melissa Labant 1:59 PM
  • Hi everyone. Ready to hear your tax questions!
    by Arden Dale 1:59 PM
  • Hello! Welcome to our Tax Tip chat!
    by Andrea Coombes 1:59 PM
  • Great! Let’s get started with this question on student loans:
    by Janet Paskin 2:00 PM
  • I paid over $8,000 in student loan interest – why can I only deduct $2,000?
    I am a pilot and cannot find a job
    I work in a warehouse – 90% of my income goes to student loans – help!
    by anonymous 2:00 PM
  • Yes, sorry, there is a limit to how much student-loan interest taxpayers can deduct. Generally speaking, the limit in 2011 is $2,500 in interest. Here’s a link directly to the IRS page on this: www.irs.gov
    by Andrea Coombes 2:01 PM
  • Keep in mind, it’s unusual to be able to deduct any personal interest payments — mortgage interest and student-loan interest are the only two, according to that IRS page. And there’s one major benefit to the student-loan interest deduction: You don’t have to itemize to take it. Given the increasing attention on the nation’s massive student-loan burden, maybe one day lawmakers will look at increasing that deduction. But that doesn’t help taxpayers filing their 2011 taxes, of course.
    by Andrea Coombes 2:01 PM
  • Great. And here’s a question a lot of people might want the answer to
    by Janet Paskin 2:02 PM
  • It’s about filing an extension.
    by Janet Paskin 2:02 PM
  • I have question regarding extension of federal return. Extension form is 4868, correct? What should I fill in in lines 4-7 . If I would have answer I will not be filing for extension in first place. I will not owe any taxes.
    by Anon 2:02 PM
  • Good question. It’s a bit of a Catch-22; to guess, you kind of have to know. In other words, you figure out your tax to report your estimated tax. Use a recent pay stub, your W-2, investment documents and whatever other information you would use to figure out your taxes. Think about dependents, mortgage interest and anything else you might deduct. Did you sell off some stocks with a big capital gain? …
    by Arden Dale 2:04 PM
  • Come up with a ballpark figure. That is what you put in lines 4- 7 on Form 4868. A lot of financial advisers will sit down with a client in September and October to get a good idea of what the person will owe. From there, they figure out how to get the person liquid enough to pay the bill when the time comes. This kind of exercise is essentially estimating tax.
    by Arden Dale 2:04 PM
  • That sounds fair to me. Our next question is from RL Andrews, who wants to know what to do when you lose a W2.
    by Janet Paskin 2:05 PM
  • My 25 year-old, dependent, living at home daughter has been unable to obtain a W2 from her brief fast-food employment last year. She will probably be due a small refund. What must she do to avoid a late filing penalty?
    by RLAndrews 2:05 PM
  • Yes, if your daughter is unable to file her taxes by April 17 (and the absence of a W-2 would make that difficult!), she should file for an extension to avoid the failure-to-file penalty. Here’s the how-to from IRS: www.irs.gov
    by Andrea Coombes 2:06 PM
  • An extension will give her until Oct. 15 to file. If she’s eager for her refund, she can always file sooner than that (as soon as she can get that W-2). But if for some reason she’s not due refund and instead *owes* taxes, she may be charged a failure-to-pay penalty of 0.005% a month up to 25% until she pays her bill. But that’s a lot less steep than the failure-to-file penalty of 5% per month up to 25%. So by all means, file an extension if you can’t file on time!
    by Andrea Coombes 2:06 PM
  • That’s smart: Buy time.
    by Janet Paskin 2:07 PM
  • Also, I’d like to point all of our procrastinators out there to MarketWatch’s 2012 tax guide. If you still need it, here it is: www.marketwatch.com
    by Janet Paskin 2:07 PM
  • OK, back to questions. Audrey has a question about estimated taxes, and I’ll introduce Melissa Labant, the tax director for the AICPA.
    by Janet Paskin 2:08 PM
  • What do you advise people about estimated taxes, especially if one’s income fluctuates or income for the rest of the year is uncertain? Can you estimate conservatively?
    by Audrey 2:08 PM
  • Hi Audrey – keep in mind that you can protect yourself from underpayment penalties based on paying in at least 100% (110% for high income earners) of your prior year tax. However, if your income will be less this year than last year…. you will want to annualize your income. You will pay each quarter based on your estimated income – so yes, you can estimate conservatively. See Form 2210 and instructions on IRS.gov. for more information.
    by Melissa Labant 2:08 PM
  • Great. Let’s go to Perry’s question about tax-loss carry forwards.
    by Janet Paskin 2:09 PM
  • if you have a tax loss carry forward that you want to use next year, what forms do you have to fill out?
    by perry 2:09 PM
  • Hi there. Thanks for asking this question. You can carry over $3,000 each year in capital losses; you report these on Schedule D of Form 1040. You’ll see a Capital Loss Carryover Worksheet in the IRS instructions.
    by Arden Dale 2:10 PM
  • Wait — Melissa adds …
    by Janet Paskin 2:10 PM
  • We’ll come back to this in a second.
    by Janet Paskin 2:11 PM
  • In the meanwhile, Melissa has an answer for Dave.
    by Janet Paskin 2:11 PM
  • Where in the turbo tax do you enter my 1099k…. It has no where for it.?
    by Dave 2:11 PM
  • Hi Dave – great question! In short, you do not enter it anywhere! This information is optional on the 2011 return and the IRS recently announced it will not require businesses to even reconcile these amounts. Good news for taxpayers!
    by Melissa Labant 2:12 PM
  • Jerry Miller has a question about installment plans.
    by Janet Paskin 2:13 PM
  • If I have to set up installment plans on either Federal or state taxes, and the sums are roughly equal, which one makes more sense?
    by Jerry Miller 2:13 PM
  • On capital losses – I just wanted to clarify that you can offset up to $3,000 of capital losses against your ordinary income each year. Whatever you have left over (capital loss carryovers) – can be carried forward to future years. There is no $3,000 limit on carryovers.
    by Melissa Labant 2:13 PM
  • Thanks for your time…you have a great day…
    by Dave 2:13 PM
  • To answer Jerry Miller’s Q: It probably depends on how much your state charges for an installment plan, plus any interest charges. The good news is the federal rules on installment plans have eased for people in certain situations (unemployed for 30 days or more, or small-biz owner with more than 25% drop in income in 2011)…
    by Andrea Coombes 2:14 PM
  • If you’re in one of those two situations, you can get a federal extension of time to pay, without facing the failure-to-pay penalty. I wrote about it here: www.marketwatch.com If you’re NOT in one of those situations, and can pay in 120 days, you can get a free installment agreement. Check out my story for other payment-plan options at federal level. So, time to pull out the calculator and figure costs, I guess.
    by Andrea Coombes 2:15 PM
  • Another question on tax-loss carry forwards. At least a loss has a silver lining …
    by Janet Paskin 2:16 PM
  • I know I have a loss to be carried forward from previous tax years – but where do I find that on my previous year’s tax return? If it isn’t on there, and I don’t know the exact amount, what should I do?
    by Procrastinating Filer 2:16 PM
  • by Janet Paskin 2:18 PM
  • Hi there. On carrying losses forward, you can see what you carried over in the past by looking at Schedule D on your prior returns. You can carry forward an unlimited amount, as we mentioned previously, and use $3,000 a year to offset ordinary income.
    by Arden Dale 2:19 PM
  • Very good. I think we’re going to come back to Anon, who had a question about an extension on lines 4-7.
    by Janet Paskin 2:20 PM
  • My question is regarding extension form line 4 -7. I will NOT owe any taxes. I have capital loss carry over so no gains. My income will less than taxable threshold. No estimated tax as no tax will be due, any suggestions what to write on those lines
    by Anon 2:20 PM
  • Hi Anon – On Form 4868 for extensions, I would write $0 on those lines if you do not expect to owe any taxes.
    by Melissa Labant 2:21 PM
  • Thanks but I will have income as it is NOT 0 but it is less than threshold of income
    by Anon 2:22 PM
  • Do you mean that you will not have any taxable income?
    by Melissa Labant 2:22 PM
  • While we wait for Anon to dial back in, we’ll offer some career advice to Danny.
    by Janet Paskin 2:23 PM
  • I’m going for my CPA and I don’t plan on working mainly as a tax professional but I would love to provide a service on the side, should I become an EA to gain more knowledge in tax laws and regulations?
  • by Danny 2:23 PM
  • I can’t speak as a tax pro, but from my experience as a reporter who has interviewed many (!) enrolled agents over the years: They have an in-depth knowledge of tax code and are required to complete continuing-ed requirements, so it’s certainly one way to gain in-depth knowledge of tax rules. That said, if you’re already going for CPA, not sure why you would do both.
    by Andrea Coombes 2:24 PM
  • Our next question regards the foreign estate tax.
    by Janet Paskin 2:26 PM
  • Foreign Estate tax issue. I am beneficiary for year 2011 in a foreign estate of a diseased. I have NOT received any thing yet but I think I will get soon. I have heard a lot about foreign accounts. Do One need to report interest in a foreign estate and if yes then how?
    by Anon 2:26 PM
  • Hi there. It depends on what you mean by “estate.” The Foreign Account Tax Compliance Act, known as Fatca, will require both U.S. citizens and foreigners living in the U.S. to make extensive disclosures about overseas holdings on their tax returns or risk harsh penalties…
    by Arden Dale 2:28 PM
  • A taxpayer with more than $10,000 in an offshore account, for example, already must file a Report of Foreign Bank and Financial Accounts with the IRS. Now, anyone with at least $50,000 in a foreign account will have to file a separate tax-compliance form, along with his or her annual return.
    The new reporting requirements also apply to certain foreign financial assets, including stock of foreign companies and business partnerships, which didn’t have to be reported before.
    Beneficiaries will have to report, too.
    by Arden Dale 2:28 PM
  • We have a question from Facebook:
    by Janet Paskin 2:30 PM
  • Liz Lagerson asks: Is there any way for younger people to submit catch up contributions to their retirement accounts for past years when they were working, but perhaps didn’t max out their 401k or Roth IRA?
    by Janet Paskin 2:30 PM
  • If only. That’d be very cool, but I’m afraid catch-up contributions are limited to people 50 and older. Here’s more about catch-up contributions on IRS page: www.irs.gov Your best bet is to do all you can to max out your retirement plans going forward. You *can* contribute to an IRA for 2011 all the way up through filing deadline!
    by Andrea Coombes 2:31 PM
  • Next: Kim wants to know if she should pay less in estimated taxes.
    by Janet Paskin 2:32 PM
  • re: estimated taxes. I am paid by 1099, my husband W2. I make est tax payments each quarter. When I file our taxes, we get a refund each year. Should I stop paying so much in extimated taxes?
    by KimL 2:32 PM
  • Hi Kim – I would not automatically stop paying less in estimated taxes. You should prepare some type of a rough calculation to determine how much you should pay. The IRS has a good withholding calculator on its website – www.irs.gov Generally, you are right though … that you may need to pay less in estimated taxes (assuming your income will remain the same as last year) and you always get a large refund.
    by Melissa Labant 2:32 PM
  • We have a question from Liz, who is asking a common tax-day question: Why do I owe?!
    by Janet Paskin 2:35 PM
  • Why do I owe every year? Single, no kids, claiming one for myself. I owe $2010 in federal taxes this year. Last year, $1700, year before $1500. Should I just claim zero? I have one of the simplest tax returns possible. No mortgage interest, no major stock exchanges. I cannot figure out what’s going on. Next year things are looking better because I am tithing 10%, will this make the difference I need to not owe so much?
    by lizg95 2:35 PM
  • Hi Liz – In order to avoid a large balance due at tax time, I would recommend that you increase your withholding on your paycheck. In order to determine how much you should increase your withholding, check out the free IRS withholding calculator at www.irs.gov
    by Melissa Labant 2:36 PM
  • And, at least the taxes are lower here than they are in Canada.
    by Janet Paskin 2:37 PM
  • We’ve had a couple of questions about fraudulent returns, which is scary.
    by Janet Paskin 2:38 PM
  • I discovered that I am the victim of a fradulent tax return. I understand it might take up to one year before I receive my refund. Any idea why it might take so long?
    by eric_g_jackson 2:38 PM
  • (Confidential to Mike: We will get to as many of the questions as we have time for. So go ahead and ask again — we’ll do our best.)
    by Janet Paskin 2:39 PM
  • (I guess that wasn’t very confidential.)
    by Janet Paskin 2:39 PM
  • It’s terrible to think of a fraudulent return – sorry to hear that! We recently wrote on this topic. Here’s a link that might help. Good luck.
    online.wsj.com
    by Arden Dale 2:42 PM
  • OK, next: Tony wants to know what constitutes a dependent.
    by Janet Paskin 2:42 PM
  • If someone lives at home with their parents and pays absolutely no bills can they claim both children even though they are not paying 50% of their living or well being expenses
    by tony 2:42 PM
  • We have just a couple more minutes.
    by Janet Paskin 2:43 PM
  • We’ll answer Tony’s question, and one more from Robert.
    by Janet Paskin 2:44 PM
  • Hi Tony, there are a lot of rules when it comes to claiming dependents, and one of them, generally speaking, is that you pay 50% or more of their living costs. But read up more on this — it’s complicated. Here’s IRS page: www.irs.gov
    by Andrea Coombes 2:44 PM
  • And Robert:
    by Janet Paskin 2:44 PM
  • Why did the IRS require wash sale reporting on the new form 8949? Isn’t this really only an issue when a wash sale and new position are over a new tax year?
    by robert 2:44 PM
  • Hi Robert – Wash sales occur during the year not just when transactions cross over two tax years. Taxpayers have always needed to take into consideration wash sales even though it may not have been designated as such on your Form 1099-B from your broker. It is not new because of the Form 8949.
    by Melissa Labant 2:45 PM
  • Thanks to Arden Dale, from the Dow Jones Newswires, and Andrea Coombes, from MarketWatch.
    by Janet Paskin 2:46 PM
  • And also to Melissa Labant, from the AICPA, who, we should note, is the only licensed tax professional in our chat today.
    by Janet Paskin 2:47 PM
  • Thank you everyone, and we’ll do this again next year.
    by Janet Paskin 2:47 PM

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About The Tax Blog

  • The Tax Blog brings together a team of award-winning tax journalists from the Dow Jones network and around the web to examine the tax issues, changes and legislation that affect families, investors and small business owners. Our contributors include Tax Report columnist Laura Saunders (WSJ), Tax Guy columnist Bill Bischoff and senior reporter Jilian Mincer (SmartMoney.com), retirement-focused reporter Anne Tergesen (WSJ), wealth management writer Arden Dale (Dow Jones Newswires), TaxWatch columnist Eva Rosenberg and personal finance reporter Andrea Coombes (MarketWatch), and reporter Alyssa Abkowitz (SmartMoney). They’ll provide the latest news and insight, mine the tax code for tips and loopholes, and answer your questions about tricky tax situations. Contact the The Tax Blog with ideas, suggestions or tax questions at thetaxblog@dowjones.com.

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