Quiz | January 2013

Is It Tax Deductible?

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Now that all the drama surrounding the "fiscal cliff" seems to be behind us and Congress has extended the Bush tax cuts for all but the wealthiest Americans, it's time to get to work on your 2012 tax return. And that means it's time to keep more money in your pocket by finding every legitimate tax deduction you can.

To help, we want to share 10 frequently asked tax questions from visitors to kiplinger.com seeking to pay as little as possible -- legally -- to Uncle Sam. See if you can separate the legitimate deductions from the ones that would trigger a "not so fast, buddy" response from the IRS.

We hope this quiz gives you some ideas for lowering your taxes throughout the year. Good luck!

Quiz

Is It Tax Deductible?

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Question 1 of 10

You are volunteering your services as a carpenter to a non-profit community home-builder. Nice tax deduction, right?

A. True
B. False

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Quiz

Is It Tax Deductible?

istockphoto

Question 1 of 10

You are volunteering your services as a carpenter to a non-profit community home-builder. Nice tax deduction, right?

You're right! B. False is correct.

Sorry, wrong! is incorrect.

The right answer is B. False.

Alas, there are no federal tax deductions for the value of your time or labor donated to a charity. (Think about it: if you were paid for your labor, that would be taxable income that you could offset by giving the money to charity -- and deducting the gift. The no pay/no deduction state of affairs leaves you in the same position.) But you can deduct the cost of any materials you donate and 14 cents per mile driven in connection with your charitable work.

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Quiz

Is It Tax Deductible?

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Question 2 of 10

You accept a new job that requires you to move. You can write off your moving costs even though you don't itemize.

A. True
B. False

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Quiz

Is It Tax Deductible?

istockphoto

Question 2 of 10

You accept a new job that requires you to move. You can write off your moving costs even though you don't itemize.

You're right! A. True is correct.

Sorry, wrong! is incorrect.

The right answer is A. True.

Job-related moving expenses are an "above-line deduction"; you can deduct them even if you take the standard deduction on your tax return. If you do itemize, you can add your job-hunting costs, such as career counseling, resume printing and travel expenses to job interviews, to your miscellaneous deductions. Such expenses are deductible to the extent they exceed 2% of your AGI. While moving expenses are deductible for getting to your first or any subsequent job, job-hunting costs don't count when getting your first job. After that you can write off costs of looking for a job in the same line of work.

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Quiz

Is It Tax Deductible?

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Question 3 of 10

Alimony is tax deductible.

A. True
B. False

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Quiz

Is It Tax Deductible?

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Question 3 of 10

Alimony is tax deductible.

You're right! A. True is correct.

Sorry, wrong! is incorrect.

The right answer is A. True.

You can take a tax deduction alimony you pay an ex-spouse, even if you don't itemize your deductions. To qualify as alimony, the cash-only payments must be spelled out in your divorce agreement. If you're the one receiving alimony, it's taxable income to you – and your ex is required to report your Social Security number so the IRS can be sure you report the money.

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Quiz

Is It Tax Deductible?

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Question 4 of 10

Court-ordered child care support payments are deductible, too.

A. True
B. False

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Quiz

Is It Tax Deductible?

istockphoto

Question 4 of 10

Court-ordered child care support payments are deductible, too.

You're right! B. False is correct.

Sorry, wrong! is incorrect.

The right answer is B. False.

Unlike alimony, the payer doesn't get a deduction; nor does the recipient pay income tax on the money.

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Quiz

Is It Tax Deductible?

istockphoto

Question 5 of 10

Your children attend private elementary schools and private high schools. Is their tuition tax-deductible?

A. Yes
B. No

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Quiz

Is It Tax Deductible?

istockphoto

Question 5 of 10

Your children attend private elementary schools and private high schools. Is their tuition tax-deductible?

You're right! B. No is correct.

Sorry, wrong! is incorrect.

The right answer is B. No.

You can't deduct the cost of elementary or secondary school tuition. But on the bright side, one tax break that helps cover those bills was saved from serious downsizing by the fiscal cliff deal. Coverdell Educational Savings Accounts permit taxpayers can contribute up to $2,000 a year to an account from which withdrawals (including earnings) can be used tax free to pay for qualified education expenses including tuition, books, supplies, uniforms. In recent years, even the cost of elementary and high schools could qualify. But the contribution limit was scheduled to drop to $500 a year in 2013 and tax-free withdrawals were to be permitted only for college expenses. Thanks to a last minute deal, however, Coverdells maintain the $2,000 annual limit and the right to tap the accounts tax-free for elementary and high school expenses.

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Quiz

Is It Tax Deductible?

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Question 6 of 10

Your father made a payment on your college loan. Who gets to claim the student-loan interest tax deduction?

A. Dad
B. Child

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Quiz

Is It Tax Deductible?

istockphoto

Question 6 of 10

Your father made a payment on your college loan. Who gets to claim the student-loan interest tax deduction?

You're right! B. Child is correct.

Sorry, wrong! is incorrect.

The right answer is B. Child.

No need to fight over this. The IRS says that if Mom or Dad makes a payment on your student loan debt, it's a gift that gives twice. You, the child, can qualify to deduct up to $2,500 of student loan interest paid, as long as your parents don't claim you as a dependent.

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Quiz

Is It Tax Deductible?

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Question 7 of 10

You can deduct the taxes you pay to your state on your federal income tax return even if you don't itemize your deductions.

A. True
B. False

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Quiz

Is It Tax Deductible?

istockphoto

Question 7 of 10

You can deduct the taxes you pay to your state on your federal income tax return even if you don't itemize your deductions.

You're right! B. False is correct.

Sorry, wrong! is incorrect.

The right answer is B. False.

You must itemize to deduct the state income taxes you pay. And, thanks to the fiscal cliff deal, taxpayers still have the choice of deducting either their state income taxes or their state and local sales taxes. Needless to say, that's an easy choice for those who live in a state with no income tax. The right to write off sales taxes expired at the end of 2011 but Congress revived it retroactively to cover 2012 and 2013. But, still, you'll have to itemize to capture the break.

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Quiz

Is It Tax Deductible?

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Question 8 of 10

You spent a few weekends in Vegas last year. One weekend, you won money. The other, your wallet came back a little worse for wear. Luckily gambling losses are tax deductible.

A. True
B. False

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Quiz

Is It Tax Deductible?

istockphoto

Question 8 of 10

You spent a few weekends in Vegas last year. One weekend, you won money. The other, your wallet came back a little worse for wear. Luckily gambling losses are tax deductible.

You're right! A. True is correct.

Sorry, wrong! is incorrect.

The right answer is A. True.

You can deduct losses . . . but only to the extent of the gambling winnings you report as taxable income. And, while the law calls for all gamblers to report 100% of their winnings, only the 25% or so taxpayers who itemize can deduct their losses. Those who use the standard deduction can't deduct gambling losses (but they're still expected to pay tax on their winnings).

One bright spot: Although gambling losses are considered miscellaneous expenses to be deducted on Schedule A of the Form 1040, this write off is not restricted by the rule that allows miscellaneous expenses only to the extent that they total more than 2% of your adjusted gross income. Gambling losses are deductible dollar for dollar, up to the amount of winnings reported.

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Quiz

Is It Tax Deductible?

istockphoto

Question 9 of 10

You have made a large number of charitable donations in one year. Sky's the limit on doing good -- and cutting down taxable income, right?.

A. True
B. False

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Quiz

Is It Tax Deductible?

istockphoto

Question 9 of 10

You have made a large number of charitable donations in one year. Sky's the limit on doing good -- and cutting down taxable income, right?.

You're right! B. False is correct.

Sorry, wrong! is incorrect.

The right answer is B. False.

As far as Congress is concerned, it is possible to be too generous. Generally, your deduction for donations to charity in one year cannot exceed 50% of your adjusted gross income for that year (30% in the case of donations of appreciated assets and contributions to private foundations). But any excess can be carried over for up to five tax years to deliver the tax break you're due.

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Is It Tax Deductible?

Question 10 of 10

When you donate your old car to charity, what's the write-off?

A. Kelly Blue Book value
B. Price at which the donated car is sold by the charity

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Quiz

Is It Tax Deductible?

Question 10 of 10

When you donate your old car to charity, what's the write-off?

You're right! B. Price at which the donated car is sold by the charity is correct.

Sorry, wrong! is incorrect.

The right answer is B. Price at which the donated car is sold by the charity.

In most cases, your deduction is limited to the price paid for the vehicle when it is sold by the charity to raise cash. But, there's a notable exception:

If the charity uses the vehicle in its mission (to deliver meals to the needy, for example) or fixes it up and gives it to a needy family, you are allowed to claim a deduction equal to the vehicle's fair market value (check used car guidebooks or Web sites). That could produce a bigger write-off since the value a charity gets at auction is likely to be a lower wholesale or even fire-sale price.

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Is It Tax Deductible?

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Quiz | January 2013

Is It Tax Deductible?

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