Below are miscellaneous questions and answers that individuals have asked about taxes. We can help you answer questions. Complete the form below with your tax question. We know taxes!.

1My client informed me that she has a buyer for some assets, and she is willing to finance the sale herself. What tax ramifications will result from this sale?
The transaction in question is regarding installment sales, so you will first need to verify that the assets sold meet all the qualifications for installment reporting. You will also need to remind your client that any depreciation recapture must be recognized as ordinary income in the year of the sale, thus the recapture portion of the gain cannot be deferred. If the sale qualifies, report the sale on Form 4797. Part III of Form 4797 will compute any depreciation recapture required to be recognized as ordinary income with any remaining gain being transferred to Form 6252 for recognition as principle payments received. Please refer to: IRS Publication 537 - Installment Sales for more information.
2My client is a church that has just gone from having a lay employee to just having the minister as an employee only. He meets all the rules to be considered a minister and an employee for income tax purposes and self-employed for Social Security and Medicare purposes. He has not asked us to withhold any federal income taxes. Do they still have to file 941 forms, even though they have no taxes withheld or to deposit?
If the church has no other employees, except the minister, and they are not withholding any federal income taxes, there is no filing requirement for the 941. IRS Publication 15 states, “Each quarter, all employers who pay wages subject to income tax withholding (including withholding on sick pay and supplemental unemployment benefits) or social security and Medicare taxes must file Form 941 unless the employer is required to file Form 944 or the following exceptions apply.” The minister’s wages are not subject to any type of withholding as they are considered self-employed and pay quarterly estimates for their taxes. A W-2 must still be issued by January 31 reporting all wages paid, in box 1 and in box 16 (if in a state with income tax). There will not be any entry for boxes 2, 3, 4, 5 or 6. The amount of non-taxable Housing Allowance can be reported in Box 14, but it is not required. For more information on Clergy and Church Employees, please refer to IRS Publication 15 or IRS Publication 517.
3My son started college this past fall. The university that he attends required my son, as a new student, to bring his own laptop to school. Apparently, this is a requirement of all new students or freshman. Can I take a deduction for it?
Generally, you cannot take a deduction for the computer as it is a personal computer and is considered a personal expense. However, if your son is eligible for the American Opportunity Credit and the university required him to have the laptop as a condition of enrollment or to attend the classes offered there, you might be able to claim the amount as part of the eligible expenses for the credit. Please see Chapter 35 – Education Credits in IRS Publication 17 for more information.
4My client received a W-2 from working as a church Secretary, but it has no Social Security or Medicare withholding (FICA). She states that the church told her they were exempt. Does that mean she is, too?
It depends. A qualified church organization can claim an exemption, as an employer, from the FICA tax on all employees due to opposing the FICA coverage for religious purposes. They make this election on Form 8274. However, all church employees that would be subject to FICA withholding, if it weren’t for the exemption of their employer (the exempt church organization), are still subject to Self-Employment (SE) tax on all wages earned in excess of $108.28 from that organization. Unless, of course, they themselves are also exempt. Employees of FICA exempt churches or controlled organizations through an exempted church can also apply for the exclusion if they too, for religious purposes like their church, oppose the FICA coverage. This is done on Form 4029. Please refer to: Pub 517 – Social Security and Other Information for Members of the Clergy and Religious Workers for more information on FICA coverage through Religious Organizations.
5I recently got a raise at my job and have also received an advanced health care premium. Do I need to report my raise to the Health Insurance Marketplace?
You should contact the Marketplace with any changes that happen in your life if you are receiving an advanced health care premium. Any changes that take place may have an effect on the amount of the premium you are receiving. Changes in circumstances that you should report to the Marketplace include, but are not limited to:

• an increase or decrease in your income
• marriage or divorce
• the birth or adoption of a child
• starting a job with health insurance
• gaining or losing your eligibility for other health care coverage

Many of these changes in circumstances – including moving out of the area served by your current Marketplace plan – qualify you for a special enrollment period to change or get insurance through the Marketplace. In most cases, if you qualify for the special enrollment period, you will have sixty days to enroll following the change in circumstances. For more information on changes in circumstances that should be reported and to find out more about special enrollment periods, please visit:
6My client is a retired minister. He tells me that his small pension is a housing allowance. He is no longer practicing. Is this true?
Per Publication 517, retired ministers who have been furnished a home by the church after retirement (or their pension or part of their pension has been designated as a rental allowance when set up) can exclude the rental value of the home (plus utilities) or that part of the pension that was designated as rental allowance, from their gross income as part of the pay they earned from past services. However, their surviving spouse cannot exclude the rental value unless it is for ministerial services he or she performed or performs now. Please refer to Publication 517 for more information.
7This year, my clients sent their 9 year old son to a soccer summer camp. It was a day camp which replaced the need for child care. Can they deduct the costs of sending their son to the camp?
Inform your clients that the payments they made towards the camp may potentially qualify for a child and dependent care credit. The IRS asserts that an overnight camp is not considered work related, therefore expenses associated are not eligible for the credit. However, the cost of sending your child to a day camp may be a work-related expense, even if the camp specializes in a particular activity, such as soccer or computers. In order to claim the credit, one must meet all other tests including:
(1) care must be for a qualify person;
(2) the taxpayer and their spouse must have earned income during the year (a full-time student or taxpayer who is physically or mentally unable to care for themselves is considered to have earned income);
(3) child and dependent care expenses must be paid so the taxpayer (and their spouse if filing jointly) can work or look for work;
(4) payments for child and dependent care must be made to someone the taxpayer (and spouse) cannot claim as a dependent;
(5) filing status must be single, head of household, or qualifying widow(er) with dependent child (If the couple seeking the credit are married, they must file a joint return, unless there is an exception.);
(6) the care provider must be identified on the return.

Additionally, if the taxpayer receives dependent care benefits, the total amount excluded or deducted must be less than the dollar limit for qualifying expenses.

Please refer to Chapter 32 - Child and Dependent Care Credit of IRS Publication 17 for additional information.
8My girlfriend and I own a home and pay on the mortgage jointly. However, since we are not married, we file separate returns. The mortgage interest statement comes in my girlfriend’s name and social security number. How do I get credit to take the deduction on my tax return?
If you are both liable for and pay a mortgage payment on a qualified mortgage loan, you are entitled to a deduction for mortgage interest on the amount of interest you paid towards the home during the tax year. Since the 1098 did not come in your name, you must attach a statement explaining this, the other person’s name and address and the amount of the total interest you paid. When deducting, put on line 11 of Schedule A and label, “See Attached” next to the line. Do the same for line 13, if there are any qualified deductible mortgage insurance premiums.

For more information on how to treat shared deductible mortgage interest and mortgage premiums, see Chapter 23 – Interest Expense of IRS Publication17.
9My client asked me about the costs he incurred for a company picnic he provided to his employees and their spouses. Are any of these costs deductible as a business expense?
You should inform your client that, usually, business entertainment and meals offer limited deductions (usually only 50%). But in the instance of a company picnic, the costs associated with providing the entertainment and food can be fully deductible as entertainment costs as long as 1) there is a business purpose for the gathering and 2) the costs are not extravagant.

So, a gathering where you provide a simple meal and some entertainment as a form of team building and socialization for your employees should make the grade. Make certain to inform your client to keep proper records which should include a list of attendees (including non-employee guests) and some notation of the business purpose along with receipts for all costs.

Please refer to IRS Publication 535 - Business Expenses for more information.
10My Client receives dependent care benefits under a qualified plan. Can she exclude these benefits from her income if she is self-employed?
Normally, taxpayers may be able to exclude dependent care benefits from their income, if an employer provides dependent care benefits under a qualified plan. However, as in your client’s case, a self-employed taxpayer is treated as both employer and employee and does not qualify for the exclusion.

Instead, the self-employed taxpayer can take a deduction on Form 1040, Schedule C, line 14; Schedule E, line 19 or 28; or Schedule F, line 15. Form 2441 must also be filed in order to claim the deduction.

Further, the amount deductible or excludible from wages is limited to the smallest of:

• The total amount of dependent care benefits received during the year,
• The total amount of qualified expenses you incurred during the year,
• Your earned income,
• Your spouse’s earned income, or
• $5,000 ($2,500 if married filing separately).

Inform your client that she will not be able to exclude the amount of the dependent care benefits paid from her wages, but she may deduct the smallest of the five amounts listed above.

Please refer to IRS Publication 907 - Tax Highlights for Persons With Disabilities for additional information on this topic.

11Per my client’s divorce decree, he is required to pay all of the mortgage payments for his ex-wife to live in the jointly-owned home they once shared. Can he deduct these payments as alimony?
Yes, but he will only be able to deduct a portion of the mortgage payments. If your client is required to make all the mortgage payments, and the payments would otherwise qualify as alimony, he can deduct one-half of the total payments. This amount will be reported as alimony paid on line 31 of Form 1040.

Further, if he itemizes deductions, he would be entitled to deduct one-half of the interest paid. This amount will be reported on Form 1040 – Schedule A on line 10.

The former spouse would be required to report one-half of the payments received as alimony received. She would also be entitled to one-half of the interest paid if itemizing deductions.

For more information related to alimony, please refer to IRS Publication 504 - Divorced or Separated Individuals
12My client is eligible for the Premium Tax Credit. Are they required to file a federal income tax return in order to receive this credit?
Yes, a taxpayer must file a federal income tax return if they want to receive the Premium Tax Credit, even if otherwise they are not required to file a return. This goes for any advance credit payments received for any tax year.

The actual amount of the credit that may be claimed may differ from the advance credit payments being made on your client’s behalf. Their return is used to reconcile this.

It is extremely important that a tax return is filed if advance credit payments are made on your client’s behalf or someone in their family. Failure to file a tax return will cause them to be ineligible for future premium assistance.

Please refer to The Premium Tax Credit on the IRS website for more information related to the provisions of the Premium Tax Credit.
13My client informed me that he has recently taken some classes for work. Are there any deductions that are allowed for the costs associated with this education?
Yes, under certain circumstances, the costs are deductible. First, the education must be a qualifying work related education. This means that the education is required by law or your employer to maintain your current position, status or salary; or the education maintains or improves skills necessary in your present work. One of these criteria must be met before any deduction can be allowed.

Even if the education meets one of the above criteria, the education must not qualify you to meet the minimum education required for your position. It also cannot qualify you for a new trade or business. If it does qualify you for either of these, the deduction is not allowable.

If the education costs are for an employee and meet all of the deductibility criteria, the costs are allowed as a miscellaneous itemized deduction subject to the 2% of AGI floor. If the costs are for a self-employed individual, then the deduction would be taken on Schedule C as a business expense.

Please refer to Chapter 12: Business Deduction for Work-Related Education of IRS Pub 970 - Tax Benefits for Education for more information.
14My client is an employer who is not sure how to classify a worker. How can he determine if his worker is an employee or an independent contractor?
There are many factors to consider when determining whether a worker should be classified as an employee or as an independent contractor. The IRS has developed some guidelines to be followed when trying to make this determination as detailed in IRS Publication 1779.

The 3 main factors, known as the Common Law Rules, that need to be considered are:

Behavioral Control – Who has control of when, where and how the work is completed?

Financial Control – Does the worker have unreimbursed expenses? Does the worker have an investment in the company? How is the worker being paid, a guaranteed amount or by the job? Is the worker available to work within the market? Will the worker realize a profit or loss?

Type of Relationship – Is there a signed contract describing the relationship? Are you offering benefits such as insurance, pension plan or vacation and sick pay? Is the relationship expected to be permanent? Are the services being performed by the worker a key aspect of the regular business?

Each individual situation should be considered separately based on the individual set of circumstances.

For more information related to employee or independent contractor classification, please refer to the following IRS Publications:

IRS Publication 1779 - Independent Contractor or Employee?
IRS Publication 15-A - Employer's Supplemental Tax Guide
15My client lost a lot of investment money as a victim of an investment fraud scheme. Is there anything I can do to help them recover the money?
The Internal Revenue Service has a procedure under Revenue Procedure 2009-20 which allows you to claim the theft loss deduction for a Ponzi-type investment scheme.

You will need to file Form 4684 Casualties and Thefts to recover some of your client’s investment losses. You will need to make sure to complete Section C on Form 4684 (Theft Loss Deduction for Ponzi-Type Investment Scheme).

In order to use Section C, you must qualify to use Revenue Procedure 2009-20 (as modified by Revenue Procedure 2011-58) and you must choose to follow the procedures in the guidance. If you fail to meet either of the two preceding qualifications, then you will not be able to utilize Section C of Form 4684 and you will need to refer to the instructions for Section B.

For full details on how to complete the form, please refer to Instructions for Form 4684 - Casualties and Thefts along with the related full Revenue Procedures and Rulings:

Revenue Ruling 2009-09, 2009-14 I.R.B. 735
Revenue Procedure 2009-20, 2009-14 I.R.B. 749
Revenue Procedure 2011-58, 2011-50 I.R.B 849