Kathryn, Texas: My husband and I reside in Texas, I have a daughter that attended a university in Virginia after graduating from high school in 2006 and resided in the dorm. She worked a [part-time] job (two, to be exact) for a short while in Virginia during the year 2006. My question is, my husband and I are just preparing to file our tax documents and are unsure if we can claim her as a dependent since she lived in the university dorm in Virginia.
Another issue has arisen, also. My daughter's grandmother, who resides in a rental home in Virginia, wants to claim my daughter -- who is 18 now -- under her tax prep, using my daughter as a dependent when she didn't fund any of her college finances, health care coverage, college fees, etc. What do you advise, as we are trying to handle this without creating a family feud and would like to know what happens if she files my daughter on her tax prep documents contrary to our request not to do so. Thanks for your advice.
SC&H Group: In order for a taxpayer to claim another as a dependent, that person must be:
- a) Unmarried, or if married, does not file a joint return
- b) A U.S. citizen, resident or national or a resident of Canada or Mexico
- c) Either a qualifying child or a qualifying relative
- a) They are the taxpayer's child, sibling or any descendant of them
- b) They are under the age of 19, a full-time student under age 24 or any age if totally and permanently disabled
- c) They have lived with the taxpayer more than one-half of the year
- d) They have provided no more than one-half of their own support
- e) They cannot be claimed as a qualifying child by another taxpayer with higher priority under the tie-breaker rules.
Rosie, Dundalk: Mine and my husband's Social Security totals $25,156.50. We have $48 in interest, and a federal tax refund from last year of $1,204.00, with a $25 donation to the cancer society. I am told that we do not have to file this year. Is that correct? And if so, is the same true for Maryland state taxes? Thank you.
SC&H Group: Upon reviewing the income items that you have listed above, it appears that you probably will not need to file a Federal or a Maryland income tax return for 2006 due to the following:
For a married couple filing jointly and who are under the age of 65, a Federal Form 1040 is required to be filed if gross income exceeds $16,900. (If you are over age 65, this filing threshold increases.) It appears that you have gross income of $48 which is the interest income that you listed. Federal income tax refunds are not considered income, so the $1,204 would not be included. With regard to your Social Security income, the amount of your benefits falls below the income threshold amount and therefore would not be taxable. The same gross income threshold amount of $16,900 must be met or exceeded in order for a taxpayer to be required to file a Maryland income tax return; therefore, a Maryland return would not be necessary.
However, you will want to file a return if you have made any type of estimated tax payments or had any Federal or State income tax withheld as you will probably be due a refund, and for 2006 you are entitled to a federal telephone excise tax refund of $40.
Ruffin, Cockeysville: Our home was settled on Oct. 25, 2005. However, the title company didn't record it until July 14, 2006. What effect does this have on our qualification for the Homestead Tax Credit, and what recourse do we have at this time?
SC&H Group: This depends on when you actually occupied the home. For the credit to be available, the homeowner must actually occupy or expect to occupy the dwelling for more than six months of a 12-month period beginning with the date of finality and including July 1 for the taxable year for which this credit is sought. Therefore, if you began occupancy of the home on the settlement date of Oct. 25, 2005, you would be eligible to take the credit for the tax year beginning July 1, 2007 (because you occupied the house as your principal residence on July 1, 2006, and lived there for more than six months). If you did not occupy the residence until July 14, 2006, you will not be eligible to take the credit until the tax year beginning July 1, 2008.
You must prove occupancy through several means, including the presentation of the initial recording of the deed, the triennial physical inspection, and the principal residence designation shown on the assessment notice and property tax bill. Fortunately, there is a letter that can be used when the mailing and premise addresses do not match, or there is any other cause to verify the owner occupancy status of the property. By law (§2-218(C) Tax-Property Article), the failure of the property owner to provide the requested information within 30 days from the date of the request will result in the dwelling being designated as not a principal residence.
If you have been denied a Homestead Tax Credit and you believe that you are eligible, contact your local assessment office. A final denial of a Homestead Tax Credit by the assessment office may be appealed within 30 days to the Property Tax Assessment Appeal Board in the jurisdiction where the property is located.
Bert, Baltimore: I travel overnight for business to numerous cities across the country. All of my meals with clients are reimbursed by my employer. However, there are times when I do not submit non-client meals for reimbursement. Am I eligible to deduct the per-diem rate established for the particular city, or do I need to deduct these meals as "un-reimbursed business expenses"?
SC&H Group: We need to address a few issues relevant to un-reimbursed employee expenses in order to address this question.
The first issue to determine is whether you were eligible to be reimbursed by your employer for "non-client" meals. If your employer's policy makes reimbursement available to you for the "non-client" meals, you should seek such reimbursement. In the IRS's view, failure to seek available reimbursement results in a "per se" disallowance of the relevant deduction. (This view has been upheld by a number of recent court decisions.)
Assuming reimbursement for "non-client" meals was not available to employees, there are two courses of action an employee may take with respect to such un-reimbursed meal (and incidental) expenses ("M&IE"):
a. Employees may use the M&IE-only per diem rate to substantiate M&IE while traveling away from home. Employees still must substantiate the time, place and business reason for the travel. The per diem rates would only apply to those days for which M&IE are not reimbursed.
b. Employees may substantiate their actual M&IE and include such amounts as un-reimbursed business expenses on their individual tax returns.
Once a course of action is chosen, there are a few additional details to consider:
c. All meal expenses are subject to a 50% limitation under section 274(n) of the Internal Revenue Code. Accordingly, only 50% of un-reimbursed meal expenses may be deducted on your individual tax return (regardless of whether you use the per diem option or actual cost incurred option).
d. Because the per diem rate is equivalent to a daily allowance, all meal expenses incurred during a particular day must be taken into account in determining the amount claimed as a deduction on your tax return. In other words, each reimbursed client meal reduces the per diem amount "leftover" for other meals taken during a particular day. Accordingly, if you use the per diem method to claim a meal expense deduction on your tax return for an un-reimbursed cost, be sure to reduce that per diem amount for the reimbursed meals taken on the same day. Because of this limitation (and because the IRS may not allow use of the per diem method when other costs are reimbursed), it may be advisable to deduct actual costs incurred (assuming the deduction is not disallowed as discussed in "a" above). In either case, the deductible amount is subject to the 50% limitation.
e. In order for meal expenses to be deductible, they must be incurred while "away from home." Revenue Ruling 75-432 provides the IRS's position with respect to "away from home:"
It is the IRS's long-established position that the taxpayer's "home" from which he travels is, as a general rule, the place at which the taxpayer conducts the trade or business. If the taxpayer is engaged in business at two or more separate locations, the "tax home" is located at the principal place of business during the taxable year. An employee is "away from home" only when the trip lasts substantially longer than an ordinary day's work, the employee cannot reasonably be expected to make the trip without being released from duty for sufficient time to obtain substantial sleep or rest while away from the principal post of duty, and the release from duty is with the employer's tacit or express acquiescence, or is required by regulations of a governmental agency regulating the activity involved.