YOUR MONEY: Tax deadline brings in questions

Last Thursday's final deadline for filing 2008 taxes brought a flurry of questions. Here's a recap of recent advice from IRS expert Jesse Weller:

Q: Am I still responsible for my back taxes if the VA (Veterans Affairs) has declared me 100 percent disabled?

A: Yes, you are still responsible. But, be aware that the IRS announced earlier this year that there is special collection relief for any taxpayer suffering a financial hardship.

In January, the IRS began providing additional help to people struggling to meet their tax obligations. With so many people facing financial difficulties, the IRS is taking additional steps to help people who owe back taxes.

Depending on the hardship circumstances, taxpayers may be able to adjust payments for back taxes, avoid defaulting on payment agreements or possibly defer collection action.

Anyone who gets behind on tax payments and needs assistance should contact the phone number(s) listed on their IRS correspondence. If you don't have your IRS notice, call 800-829-1040 weekdays from 7 a.m. to 10 p.m. Good luck with your situation.

Q: Regarding gift taxes: I understand I can gift a person up to $13,000 a year and both of us will not be taxed. Does the amount have to be one lump sum or can a person give several amounts totaling $13,000? Also, how do I report it on my income tax form? Does the IRS need verification, such as copies of the transaction?

A: You are correct that you can usually give up to the annual exclusion amount each year to another person — or to as many individuals as you want — without having to file a gift tax return. In 2009, the annual exclusion is $13,000 and it applies whether the gifts are given in a lump sum or as multiple gifts.

Neither the giver nor the receiver reports the gift(s) on their federal income tax return. That's because gifts to individuals are not deductible by the giver and are generally not taxable to the receiver, regardless of the amount received.

It is a good idea to formalize large gifts so the receiver has evidence, in case it's needed to verify how the gift was acquired. This could include any written statements and other receipts or records of the gift transaction.

For more information, visit www.IRS.gov and type "gift tax" into the search box.

And if you make such a gift, may your generosity be returned.

Q: A child earns $500 from yard work. His parents gift their child another $500 and help him set up a $500 Roth investment account. Does the child need to file a tax return because of the Roth?

A: A person is usually not required to file a tax return simply because they contribute to a Roth IRA. However, a self-employed individual (including a working child) with net earnings of $400 or more must file a federal income tax return.

(Note: That's net earnings after subtracting "ordinary and necessary" allowable expenses, such as the cost of supplies, fuel for a gas-powered mower, maintenance costs, vehicle expenses from going job to job, depreciation deductions for equipment and required business fees.)

For more information, see IRS Publication 501, "Exemptions, Standard Deduction and Filing Information" at www.IRS.gov or order by mail at (800) TAX-FORM or (800) 829-3676.

Please give my best wishes to the enterprising youngster.

Tags: money, business, tax