Dependent summer intern - moving expenses

[NotSoFair]

Hello all,

I guess I have too many tax questions. This is about DS's returns. He's a dependent on my return and I intend to claim the Education and American Opportunity credits on my return. DS did summer internship for 12 weeks in TX (neither our home state not his school state) and has close to $20K in earnings (including a portion of his scholarship which is taxable). The employer paid housing allowances, we don't know if that will be reported on his W-2 yet. Assuming they do, is he eligible to claim any of the expenses (travel/housing/food) associated to the internship? If so, which form / schedule does he use? Can he claim any of these expenses as moving/education related?

Thank you all in advance for the reply.

ETA: DS is a full time college student.

[mwcpa]

take a look at IRS pub 463... www.irs.gov/publications/p463/index.html

"You are a railroad conductor. You leave your home terminal on a regularly scheduled round-trip run between two cities and return home 16 hours later. During the run, you have 6 hours off at your turnaround point where you eat two meals and rent a hotel room to get necessary sleep before starting the return trip. You are considered to be away from home. "

"Factors used to determine tax home. If you do not have a regular or main place of business or work, use the following three factors to determine where your tax home is.
1.You perform part of your business in the area of your main home and use that home for lodging while doing business in the area.

2.You have living expenses at your main home that you duplicate because your business requires you to be away from that home.

3.You have not abandoned the area in which both your historical place of lodging and your claimed main home are located; you have a member or members of your family living at your main home; or you often use that home for lodging."

[NotSoFair]

I am still reading the publication, but I got the idea.

If he takes this route, he has to itemize his deductions, correct? Is there anything he can do to bring his AGI down? If he could bring it down to $17K, he could claim max of his saver's credit. I guess we have to see what gets reported on his W-2.

Thanks.

[mwcpa]

"If he could bring it down to $17K, he could claim max of his saver's credit"

he does not qualify for this credit, sorry....

"Who is eligible for the credit?.... The individual claiming the credit must be....Not a full-time student....Not claimed as a dependent on another person’s return"

www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics-Retirement-Savings-Contributions-Credit-(Saver%E2%80%99s-Credit)

"If he takes this route, he has to itemize his deductions, correct"

Correct

"Is there anything he can do to bring his AGI down"

Fund a deductible IRA.. but he must part with the money....money he may need to pay for school costs....

"I guess we have to see what gets reported on his W-2"

Ask the employer, or look at his last paystub, it may indicate... if it was taxable generally there would have been taxes withheld on that payment....

[NotSoFair]

Thank you for the info about saver's credit. I was not aware of that.
He already funded Roth IRA to the max, I guess we will leave it there for now.

I looked at his paystub. No tax was withheld by the employer. They didn't put the salary and allowances under two different heads either.

Thanks

[NotSoFair]

DS got a 1099-MISC instead of W-2, I should have known when they didn't deduct even payroll taxes. Now he is to pay employer and employee portions.

Does the railroad worker concept talked about earlier still hold good, now that he will be considered self-employed?

[TheOtherMe]

I don't know the answer to your question, but the same thing happened to my nephew.  Mom and dad were very upset.

[mwcpa]

"DS got a 1099-MISC instead of W-2, I should have known when they didn't deduct even payroll taxes. Now he is to pay employer and employee portions"

But, he can deduct any "ordinary and nessessary" expenses. 

OtherMe, I believe reference is being made to "temporary living expenses" which is not exclusive to railroad employees...

If you are on a temporary assignment away from home costs to be there may be deductible, including actual lodging costs.... since he is self employed they are deducted from the income collected directly....

So, if he collected 20K for his summer job and paid rent of 3K, his net profit from business is 17K.  SE tax is based on the 17K.

Please review the link I provided earlier for pub 463.

[NotSoFair]

Thank you mwcpa. I read publication 463. This is what I get from my reading:

1. He can deduct travel & lodging expenses (he has receipts for these, so will be claiming actuals).
2. He can deduct M&IE at per diem rate. For the city he was in, the rate is $71/day. He was there for 92 days + 2 days travel @75%

Did I get it right? Is he allowed to claim M&IE at $71 per day for the whole time he was there, or is there a limit? He has no receipts for meal expenses.

Thank you for helping us.

[NotSoFair]

One more question, he can deduct the above expenses directly from his 1099-Misc AND take the standard deduction on top of that, right? Or is it, one or the other?

[TheOtherMe]

1099-MISC goes on Schedule C and that is where expenses go.  The net profit from the Schedule C will determine the amount of SE tax.

Yes, he can take standard deduction.

I do believe my nephew took his living expenses while in Washington DC working for the World Bank.  I gave him miles to get there, so he didn't have to buy a flight.  He only had about 3 days notice to get there and you know what air fare at that late date is like.  He was going to turn it down because of air fare.  

[mwcpa]

"One more question, he can deduct the above expenses directly from his 1099-Misc AND take the standard deduction on top of that, right? Or is it, one or the other?"

yes.... the two are unrelared.

[NotSoFair]

Thank you again.

2. He can deduct M&IE at per diem rate. For the city he was in, the rate is $71/day. He was there for 92 days + 2 days travel @75%

Can he deduct M&IE at 100%? Or is it at 50%? I am kind of confused after reading.

[TheOtherMe]

Unless it's under the DOT rules, meals are deductible at 50%.  See Instructions for Schedule C, page C-9.  

[mwcpa]

The per diem for M & IE is generally "limited" to 50% and disclosed as part of the "meals and entertainment" line on schedule C.  You need to maintain a good log of time and you cannot deduct actual food and incidental costs on those days where the per diem is claimed.  If the employer provided meals as a condition of employment you cannot also claim the per diem (double dip) allowance.

If the job qualifies as a "temporary assignment" do not forget his "rent" at the job site (you must have rent receipts and proof of payment for this and if the employer reimbursed or covered the cost you cannot claim the break)

[NotSoFair]

Thank you TheOtherMe and mwcpa.

If the job qualifies as a "temporary assignment" do not forget his "rent" at the job site (you must have rent receipts and proof of payment for this and if the employer reimbursed or covered the cost you cannot claim the break)

He has the receipts and proof of payment and the employer hasn't reimbursed it. This goes under 'lodging and transportation'  under 24(a) on Schedule C, correct? Or should it go under 'Rent' ?

Thanks a lot.

[mwcpa]

'lodging and transportation' is the better line.... this shows it is travel related to a temporary assignment better than calling is rent (just my personal preference)

[NotSoFair]

Thank you very much.

Last year he used the free efile facility at IRS website. I hope his SE status doesn't change his eligibility this year. I'll ask him to go ahead and file.

Thanks again.

[TheOtherMe]

The Free File is not available until January 30.  Just an FYI.

[mwcpa]

Free IRS efile... www.irs.gov/Filing/Filing-Options

also, many states have similar programs..... he will need to file in the state he worked and the state he lives (any tax to the state worked will lead to a possible credit against the tax for the state he lives)

[NotSoFair]

The Free File is not available until January 30.  Just an FYI.

Thank you. Since he owes, I don't think he is in a hurry anyway.

Jan 26, 2013 22:48:00 GMT -5 mwcpa said:

Free IRS efile... www.irs.gov/Filing/Filing-Options

also, many states have similar programs..... he will need to file in the state he worked and the state he lives (any tax to the state worked will lead to a possible credit against the tax for the state he lives)

That brings up a question. I live in State A, he goes to school (lives on campus and worked a little while in school) in State B and did internship in State C (this state has no income tax). So, I was assuming State A will be his tax home. Now, although he has no income in State A, his income in State C will still be taxable in State A, right? So, he has to file State taxes for State A and State B?

Thanks.

[mwcpa]

he would file in state C for his paid internship but it has no tax so no filing, he will file in state B for the income he earned there, and he will file in state A, his deemed home state.  On his state A filing all income will be reported in accordance with that state's rules and he will be afforded a credit for the tax he paid to State B (he must file a return to claim the credit as tax is not the same as the withholding, which is merely a payment against the tax).  This will probably no qualify for any state "free" e-file program given the number of issues....