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CNN Live Sunday

Interview With Donna LeValley

Aired February 24, 2002 - 11:12   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.
FREDRICKA WHITFIELD, CNN ANCHOR: Like it or not, it's that time of year again, tax time, and right now it's time for you to get all of your tax questions answered. But first you've got to call. The number is 404-221-1855, and we can answer your questions and help you get your returns out the door on time. Donna LeValley is the co-editor of JK Lasser's "Your Income Tax 2002." She joins us from New York. Thanks a lot for joining us.

DONNA LEVALLEY, JK LASSER: Thank you for having me.

WHITFIELD: Well, we already have a couple e-mails that have come in, and let's begin right off the bat with our first question, which is: "Are you generally sacrificing anything when you use telefile if you aren't itemizing or making any deductions or getting credits? I am 24, single, and made about $13,000 last year. I'm not in school either. Telefile is very convenient, but I want to maximize my return."

What kind of advice do you have for her?

LEVALLEY: A telefile is a terrific option for her.

WHITFIELD: Him.

LEVALLEY: Oh, for him, because this way it will happen in about 15 minutes total for someone to telefile. You need to make sure you have together your last year's gross income figure and your last year's taxes that you paid. But you don't lose anything, and it just makes it a lot quicker. There's no paper involved, and if you're getting a refund, you'll get your refund within two weeks.

WHITFIELD: Oh.

LEVALLEY: It's a great option for someone, specifically those that are single, no dependents, and don't itemize, so but absolutely.

WHITFIELD: OK, all right. E-mail #2, and this is: "My position was eliminated and I was laid of September of 2001. I spent over $5,000 on attorney's fees negotiating a separation agreement, which ultimately was valued at over $150,000. Are these legal fees deductible on my federal tax return in any way? If so, what schedule or form should be used?"

LEVALLEY: Yes, they are deductible, but you're going to be limited. The basic schedule fee deduction, so you're going to be limited to -- you're limited to over two percent of income. So it's going to have to exceed whatever two percent of your adjusted gross income is, and $5,000, you may be able to deduct some of it but not all of it. But certainly, you should look into it.

WHITFIELD: OK, here's another e-mail for you. "I have been unemployed for about four months. Is unemployment compensation taxable?"

LEVALLEY: Absolutely. Anything that replaces income is considered income. So whether it's unemployment compensation or some type of compensation from an insurance policy, it will be taxed just as income will be taxed.

And it's important to remember that, because not having withholdings withheld from your unemployment, which it is possible to do, that is going to be due at the end of the year. So you want to make sure you withhold some of that to have the money to pay the tax bill due.

WHITFIELD: OK, we've also got a caller on the line. Joe in Georgia has a question for you, Donna.

CALLER: Yes, thank you very much. I want to ask you, Donna, what is the maximum death tax rate, and is it not true that in 2010 it's phased out and may be coming back in 2011? What is the story on that?

LEVALLEY: Well, that's true. Currently, the maximum estate tax rate is 55 percent, which is the same it was last year. However, the maximum exclusion or the credit has gone up to $675,000. And that's going to fade as the maximum deduction goes up or the maximum credit goes up, the estate tax is going to -- the estate tax rate is going to go down. And it's true that it's going to be completely phased out in 2010, but it could reappear in 2011.

However there was a bill introduced in the Senate, I believe last week or the week before, to make the estate repeal permanent, and that's one of the first pieces of legislation that's been advanced to make the new tax law permanent.

WHITFIELD: All right, thanks Joe for calling. Now we've got another e-mail for you and this is a home improvement question. "Are home improvement expenses tax deductible?"

LEVALLEY: Well there really is no tax deduction for home improvement. If it's a lasting substantial improvement to the property or to the house, what you want to do is add it to the basis of the house, so when you sell it you don't pay taxes. You increase the basis and reduce how much payment you'll have.

If it's just a regular repair, no that's just maintaining your home. So unless it's a substantial improvement, a new roof, a new kitchen, a new bathroom, or even putting in a swimming pool, those things are never going to be deductible, and those things will only result in less taxable gain. WHITFIELD: Or perhaps, it it's a rental property?

LEVALLEY: If it's a rental property, that's something different because the improvement is to a piece of business property. But also, one way to make it tax deductible is to use a home equity loan. The interest on the home equity loan is tax deductible, so you don't want to remove any investment that you have an investment stream or just some savings, that's a way to sort of maximize the income stream and create a deduction for yourself.

WHITFIELD: OK, I got another e-mail for you, this from a veteran. "The Department of Defense recently sent me a Retiree Account Statement, and along with other information, included a statement 'You have been exempted from taxes due to your disability status.' Am I required to include the actual amount of money I receive from the Veteran's Administration?"

LEVALLEY: Well normally, all income is reported and then there's an exclusion for income that isn't taxable. So what I would do is check with the Veteran's Administration and the IRS has a specific publication for people who receive disability benefits and also military benefits, if that's coming through the Veteran's Administration, because you want to make sure in combination with the other income that you may have, Social Security benefits, pensions and other income, that all of that income is entirely tax-free.

Maybe just looking at you in terms of what you receive from them and your disability status, and that whole money might be protected. But you want to look at how it plays into your total income.

WHITFIELD: OK, Donna, we've got another caller on the line, and this is Steve from Illinois. Hi, Steve.

CALLER: Hi there.

WHITFIELD: What's your question?

CALLER: I was just wondering if you could give me some information about the alternative minimum tax. Basically when does it become applicable to you or how or, you know, the criterion, the criteria I should say?

LEVALLEY: Well, the alternative minimum tax starts to apply to people, particularly single people who make a suggested gross income of about $130,000 or just a gross income of $130,000. And it basically was an implemented tax to make sure high income individuals don't escape any income tax.

And it basically requires you to add back in certain preference items, allows you to take certain credits against the tax bill, but sort of compares how much you have with your liability under the regular income tax, what it would be under the alternative minimum tax, which are different rates, 26 and 28 percent rate, and then you would make up the difference. You would be required to pay the difference if there was one. Most of the alternative minimum taxes we're seeing for last year wouldn't have any additional tax. Unfortunately, in particular people who exercise and play stock options, ISOs, are running into a lot of alternative minimum tax trouble, because of the spike in income and the lack of offset.

WHITFIELD: OK, all right good. Donna LeValley, thanks very much for joining, and you coming from New York, and taking all our e-mail questions as well as our telephone questions. We really appreciate it. Thanks very much of JK Lasser's "Your Income Tax 2002."

LEVALLEY: It was lovely being here. Thank you.

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