Ten questions to test your tax knowledge:
1. I took two overnight trips for job interviews last year on my own dime. Unfortunately, neither panned out. Can I deduct the lodging and travel bills?
Yes, as a miscellaneous itemized deduction. Finding a new job isn't required. Being able to demonstrate that a trip was a serious and reasonable job search in your current occupation determines if it's deductible. But note: Miscellaneous deductions are generally only allowed to the extent that their total exceeds 2 percent of adjusted gross income.
2. I earn $20 an hour as a bookkeeper and devote two hours a week to help my church with its accounts. How much can I deduct as a charitable donation?
No matter how worthwhile your efforts, you can't deduct the value of your personal service as a contribution.
3. I know I can exclude $250,000 in profit from the sale of my condo. But if I buy a new one to live in of at least equal value, I can also defer tax on any additional profit, right?
At one time you could defer tax by buying a replacement home. That's no longer the case. Now, within limits, you can get a permanent exclusion of profit instead, with any excess typically a long-term capital gain.
4. Where do I report the profit from a home sale, and how do I indicate there's no tax because of the exemption?
You do not have to report anything on the return. As long as you meet the rules for the tax exclusion, you don't have to report the home sale. But keep all your documentation should the IRS later inquire.
5. I collected unemployment benefits last year. Since that's tax exempt, do I have to list it on my tax return?
Sorry, those benefits are taxable. The tax return has a separate line on which to enter the amount.
6. My husband sometimes tags along on business trips to drum up clients for my consulting service. We stay in rooms with a king or two queen beds. Can I only deduct half of the room cost?
Even the IRS isn't that stingy. You can deduct what a room would cost if you travel alone, usually a lot more than half.
7. I use my car on lengthy drives as an independent salesman. A luxury model makes my trips more comfortable, and doesn't it mean bigger deductions?
Not always. Uncle Sam doesn't want you to be too comfortable and imposes various annual limits on depreciation. People who deduct a flat per mile allowance get the same whether driving a Mercedes or a Ford.
8. We're assisting my uncle whose wife died last year. Although he takes the standard deduction and doesn't itemize, can he deduct the funeral expenses?
Itemizing or standard deduction, funeral expenses are not deductible on a personal return.
9. I heard about someone deducting a child's music lessons as a medical expense because of a mouth deformity his dentist said could be helped by clarinet playing. Can this be true?
This is a classic tax tale, but it's not an urban myth. Such a deduction was allowed.
10. Since gifts aren't taxable, isn't it fair not to pay tax on the waitress tips my customers give me?
Fair or not, tips are considered compensation and thus taxable.