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CNN Sunday Morning

Interview with Evan Snapper

Aired March 10, 2002 - 11:39   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
BEATRICE GOLDEN-HAYS: Hi, my name is Beatrice Golden-Hays and I'm from Atlanta, Georgia and my question is, how can the tax people, the people who prepare taxes stay abreast of all of the new tax laws that are constantly changing from year to year?

FREDRICKA WHITIFIELD, CNN ANCHOR: Good question. We're going to be answering Beatrice's question in a just a minute or so. But of course, the April 15th tax deadline is just over a month away and across the country Americans are doing the number crunching and the paper shuffling, and doing just that, trying to figure out how to do these forms.

This morning, we're going to help you out with some free tax advice. So joining us is Evan Snapper, Senior Manager with Ernst & Young, and he's in New York, and you're also one of the editors of this book here, "Ernst & Young's Tax Guide 2002" right?

EVAN SNAPPER, ERNST & YOUNG: Yes.

WHITFIELD: All right, thanks Evan for joining us. When you look at just this book alone, boy this is pretty heavy stuff. When you see something like this, I don't want to do my taxes alone. I certainly want to try and get somebody else to do it. But a lot of folks do want to tackle it all on their own.

So let's try and answer that first question that we just rolled a minute ago, and I'll kind of read it to you again just in case you didn't catch all of it, and perhaps we can help out Beatrice. She asks how can the tax people stay abreast of all the tax laws constantly changing from year to year?

SNAPPER: It takes a lot of reading. At my firm, we get e-mail advice every day, saying this happened, that happened. You just got to really read a lot and try to keep abreast. You talk to people you work with, see what they've heard, and you read the regulations. It's all written somewhere. It's just a matter of sitting down with it.

WHITFIELD: OK, and we've also been taking in an awful lost of e- mail questions from people throughout the morning, and this is the first one. This one is: "My position was eliminated and I was laid off in September of 2001. I spent money on attorney's fees negotiating a separation agreement. Are these legal fees deductible on my federal tax return in anyway and, if so, which schedule or form should I use?" SNAPPER: They actually are deductible. They would be deducted on Schedule A as a Miscellaneous Itemized Deduction, and the only thing you got to watch for that, that deduction is only in excess of two percent of your adjusted gross income. So if you're income is $100,000, everything over $2,000 would be deductible. So there's a special calculation to make.

WHITFIELD: OK. Here's another question for you, and this is from Robert Smith.

SNAPPER: Sure.

ROBERT SMITH: My name is Robert Smith. I'm from Sandy Springs, Georgia and I would like to know which would give the greatest tax deduction, a day care expense credit for head of household or for full-time student?

SNAPPER: It depends on what you spend. That's an interesting question. It's limited to $2,400 per child is allowed to calculate your credit, and then that's further reduced by the amount of your income. So for most people they get 20 percent of that number of $480, whether they're a full-time student or working. So that shouldn't determine the amount of the credit.

WHITFIELD: All right. I hope Robert is watching. We've got another e-mail question for you. "Why don't we go to a national retail sales tax and get rid of all this paperwork?" Is that something you can answer?

SNAPPER: I could try. While it sounds simple, what happens with a flat tax is lower income people end up paying a greater portion of their total income in tax, and it's what's called regressive, meaning the lower income people pay a greater percentage than wealthy. So the sales tax really won't work because people with a lot of money don't spend it all, so they would never be taxed.

WHITFIELD: All right, here's another question. This one from Maria Bag (ph).

MARIA BAG: Hi. My name is Maria Bag and I live in Atlanta, Georgia, and my question is that I am getting back so much less on my tax returns this year than I was last year, and I'm wondering if it has anything to do with the fact that I went from a law firm to a non- profit agency. So I wonder if that is why I'm getting so much less money back, but that does concern me.

SNAPPER: I would say probably the reason this woman is getting less back is her withholding has changed. They don't tax a law firm income any different than they would from a tax-exempt entity. So probably what happened is when she filled out the W-4 Form when she started working there, she may have put an extra exemption there, so they're actually withholding less. So she's getting more every week and will get less of a refund. That could be adjusted by filing a new W-4 Form.

WHITFIELD: OK, and there are some other changes that are taking place this year, right, that make it a little bit confusing? The lower tax brackets being one of them. Might that have applied to her situation in any way?

SNAPPER: Actually the opposite effect. I would expect her to say I'm getting such a big refund this year, why is that? And that would be due to the lower brackets now in reduction of tax top rates. But she actually said she was getting less, so I would have to say they're probably withholding extra on her, or actually withholding less, causing her a lower refund.

WHITFIELD: OK, I think we have another e-mail for you.

SNAPPER: OK.

WHITFIELD: Actually, I'm sorry. We're going to go to another question that we've got and this one is coming from Heather.

SNAPPER: OK.

KEVIN CURLIN (ph): My name is Kevin Curlin from (inaudible) Nebraska. We're here for the National Principals Convention in Atlanta, but one of the questions we have for our income tax was, how do we report the $600 that we received from President Bush? Do we record that as a gift? Is that an income, or is that just an advance on this year's income tax?

WHITFIELD: All right, I'm sorry. That was Kevin not Heather.

SNAPPER: That's what I thought.

WHITFIELD: I guess you figured that one out. All right. What's the answer?

SNAPPER: Well, the answer is if you received either the $300 as a single person or a $600 check, you don't report it anywhere. It is not on your tax return and that's making a lot of problems, because people are trying to figure out where to report it. It doesn't get reported. If you haven't received that check, then you look to line 47 of the 1040 and there's a worksheet you'd complete to see if you should have gotten a check or not.

WHITFIELD: All right, Evan. Well stick around. We're going to take a short break and then when we come back, we're going to answer more of your questions out there.

(COMMERCIAL BREAK)

WHITFIELD: I hate to remind you of this, but it's important. April 15th, tax deadline, just around the corner so we're talking taxes this morning and we'll be answering some of your e-mail questions. Coming up, joining us once again is Evan Snapper, Senior Manager with Ernst & Young and he is in New York.

All right, Evan, we've got another e-mail for you to just kind of keep the ball rolling here. You're answering these oh so quickly, but this is good. All right, here we go. "I have a bit of a problem in that my company shut down and as of December 31st, a check was issued to me for severance and stay bonus and vacation. This check was for a substantial amount, thus putting me way out of line for taxes. Is there a way to temper this extreme?"

SNAPPER: That's a tough one. He was lucky he got the check before the company vanished.

WHITFIELD: Yes, no kidding.

SNAPPER: I would say now that's going to be income, even though it came in the last day of the year. He's going to have to pay taxes on it this April. Hopefully there was sufficient withholding there to take away some of the sting, but it is taxable income for the year 2001.

WHITFIELD: OK. All right, well we've got another question. This one coming from Fannie.

FANNIE HILLS (ph): My name is Fannie Hills. I'm from Belgium but I live in Atlanta. Last year, I worked three months in Belgium for a Belgium organization, then nine months in the U.S. for an American organization, and I was wondering how I must file, whether I must declare my Belgium income, which I probably do have to do, but whether it will be taxed as well since it has already been taxed in Belgium?

SNAPPER: Oh, what an interesting question.

WHITFIELD: Yes.

SNAPPER: OK, there's a couple of different issues here. It depends on her tax status, this woman. If she's a tax resident for the U.S. for the whole year, a U.S. resident or a tax resident is taxed on worldwide income. So she would be taxed on the Belgium income.

WHITFIELD: Oh, boy.

SNPAPPER: If the three months she was in Belgium, she was not yet a U.S. tax resident, then that income is not taxed in the U.S. However, she did mention she paid Belgium taxes, so even if we taxed it in the U.S., she would get a credit for the taxes she paid in Belgium, so she wouldn't be subject twice for the same income. But she should go to a professional preparer because there's a lot of issues floating around in that little question.

WHITFIELD: Yes. Even though that's a very interesting question, it seems like a unique one. I bet you there are an awful lot of people in this country who are in that situation.

SNAPPER: Oh, there sure are.

WHITFIELD: All right. We've got another e-mail question for you, it being: "What was the logic when this tax was created? Was it necessary?" I don't know if you can really answer that one, can you? That sounds like more of a complaint than it does a question.

SNAPPER: Yes, I think the government needs money. It's a way to get cash.

WHITFIELD: OK. Well let's talk about some of the changes that folks are encountering this year. Some of the tax changes that may not be affecting them immediately this year but they have to at least know about and then there are some that do. The IRA limits, that is a change, but that's actually good news for most of us, right?

SNAPPER: It's very good news. Starting for the 2002 contribution, which you can make now, you don't have to wait until you do next year's return. It's up to $3,000 for most people. If you're over 50, it's actually up to $3,500, kind of a catch-up if you haven't been saving in the past.

WHITFIELD: Now estate tax rules have changed, and this is a pretty significant change isn't it this year?

SNAPPER: Yes.

WHITFIELD: And the next couple of years after?

SNAPPER: Yes, there's a lot going on in the estate tax arena. Well the biggest one right now is your gifts. Most people know you can give $10,000 per person without paying a gift tax. That's $11,000 starting in 2002, which is very nice.

Also, there's a unified credit. That's the amount of property that you can pass without paying a tax. That's gone up to a million dollars. Last year it was 675. It's going to go way up to three million dollars when everything is said and done.

And then they say in 2010, the estate tax is gone. We won't pay estate taxes for that one year, because 2011 the estate tax comes back. So there's a lot of flux going on in the estate tax arena right now.

WHITFIELD: There are some other changes that may not necessarily affect us directly this year, but it's good to be conscious of these things, the rate reduction credit for one of them.

SNAPPER: That's great. I mean basically the top tax rates have gone down a percentage point. They've included a new tax rate, the 10 percent rate, which has dropped the 15 percent tax. They've carved out part of it and say that's only subject to a 10 percent tax.

So most people should be getting more money back this year, paying less taxes overall, which I think is something we'd all like.

WHITFIELD: Capital gains rate changes, what are the changes?

SNAPPER: That's a confusing one. There's no simplification here.

WHITFIELD: Yes. SNAPPER: They've passed a law starting in 2002. If you own a security or a capital asset for more than five years, when you sell that asset five years from now, you'll only pay 18 percent tax instead of 20 percent tax, and there are some elections that can be made during 2002 and 2001. Again, you'll probably want to use a professional accountant if you have significant assets that you'll hold for a long time.

WHITFIELD: OK, deductible IRAs is another one we need to be somewhat aware of for this year.

SNAPPER: Yes, the income limitations have increased so more people may get the benefit of a deductible IRA. Also if you're out of work for the year and weren't covered by a pension, you should have a deductible IRA no matter what you make, so.

WHITFIELD: OK.

SNAPPER: Look at the instruction booklet.

WHITFIELD: All right, thanks very much, Evan Snapper, Ernst & Young. Thanks very much for joining us from New York this morning. Hopefully we answered an awful lot of questions out there, appreciate it.

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