Tax Q&A

Your Money

March 19, 2006

Baltimoresun.com's tax advice column features three experts from the Hunt Valley accounting firm SC&H Group answering questions about preparing your return. Here is an edited excerpt of this week's column:

We bought a Volkswagen Jetta diesel in July of 2005. The car averages 50 miles per gallon on the highway. Does this purchase qualify for a tax credit/deduction per last year's federal energy act?

- Scott, Glen Arm

Sorry, but your Jetta is not one of the four types of automobiles that qualify for the alternative motor vehicle credit. Those are: qualified fuel-cell motor vehicles; advanced lean-burn-technology motor vehicles; qualified hybrid motor vehicles; and qualified alternative-fuel motor vehicles.

In short, a qualified automobile must operate solely or partially on a nonpetroleum energy source - electricity or converted chemical energy - to qualify for the energy policy of 2005 tax credit.

In addition, the act's benefits are for expenditures made beginning in 2006. For tax years prior to 2006, certain clean-fuel vehicles and electric vehicles created tax benefits for their owners. However, diesel cars were not among them.

My son is a full-time college student. Last summer, he was in a federal summer internship program. He received a stipend of just under $6,000 for the 12 weeks. He was not asked to fill out a W-4, [and] no taxes or [Federal Insurance Contributions Act] contributions were withheld. He received a [Form] 1099 with the amount listed as "taxable grants." This was the only income he had in 2005. Does he owe taxes? Does he even have to file a return?

- Bettye, Parkville

The minimum federal and Maryland filing requirement for a single taxpayer (not claimed as a dependent) is $8,200. The minimum filing requirement for a dependent taxpayer for a federal return is $5,000 of earned income or $800 of unearned income. Assuming that you claim your son as a dependent since he is a full-time student, your son would be required to file a federal return for 2005 since his earned income exceeds the $5,000 filing requirement.

He will have a small federal tax liability for 2005. He will not, however, have to file a Maryland return since his income is below the $8,200 filing requirement. This income should be reported on Line 7 of Form 1040.

My husband and I are recently separated and we will be filing separately. I was told by H&R Block that I could not submit all of my day-care expenses (camp, after care, day care). Is this true? It did not seem right.

- Teresa, Lothian

If you file married filing separately, you cannot take the credit for dependent care expenses. But if you are considered unmarried at the end of 2005, you may be able to file as head of household and claim the credit.

In order to be considered unmarried at the end of the tax year, you and your spouse must have lived apart for the last six months of the tax year, you must have provided over half the cost of keeping up your home and your child must have lived in your home for more than half of the year.

If you meet all of the requirements listed above, you will need to submit Form 2441 along with your Form 1040 in order to take the credit for dependent care expenses.

To submit a question or read the columns online, go to www.baltimoresun.com/taxtalk.

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