Last-Minute Tax Filing Tips for 2011
Mellody Hobson answers your questions!
April 6, 2011 — -- The April 18 tax filing deadline is fast approaching, and last-minute filers have questions.
Mellody Hobson, president of Ariel Investments and "Good Morning America's" personal finance contributor, appeared on "GMA" today with tips for viewers who wrote in to ask about their last-minute returns.
Q: I moved from Washington State to Chicago to start graduate school and I was working at the school collecting income for some jobs I was doing there. Do I pay tax on the work I was doing there to Washington or to Illinois?
A: Hobson said she believed many people misunderstand this specific issue. The answer is that people pay state income taxes to the state from which their income is paid, not to the state where they live. That means that people who work in more than one state must pay state income taxes in more than one state. And don't try to hide. If you received a W-2 form from your job, the state won't have any difficulty determining that you owe taxes, she said.
If the graduate student is paid by a school in Chicago, she would pay state income taxes to the state of Illinois, Hobson added.
Read Mellody's extra tax tips!
Q: Each year I give away items to Goodwill or to another charity -- places that will come to my house and pick things up then leave a receipt. It may be $100 here or there. Is it even worth it to submit them on my taxes?
A: First, remember that you can only deduct charitable contributions if you use itemized deductions, Hobson said. Whenever you donate clothing or household items you no longer use, it's worth it to get and keep the receipts, Hobson said. If you're ever audited, those receipts are evidence of the value of your donation, she said, adding that you must get a receipt if the item you donate is worth more than $250.
There is a limit on how much you can donate, she said. Charitable deductions may not exceed more than half your income. She cautioned people to make sure they donate to a qualified organization that is registered with the IRS. Such organizations include the Salvation Army, Goodwill, your church or your child's school. If you aren't sure about an organization's status, check on the IRS website.
Tax Tips: More From Mellody Hobson
Q: Is stuff sold on eBay considered taxable income?
A: Any money made on eBay -- whether it's $10 from the sale of your grandmother's lamp or $200 for a painting -- is taxable income, Hobson said. The online auction company has reported having 94 million active users, and the IRS is well aware that lots of money changes hands there, she added. If you sell one or two items a year on eBay, that activity may not attract any interest, but if you sell lots of items and never declare the income, you could end up being audited, she said.
Q: Is remodeling my kitchen deductible?
A: There aren't any tax credits that would qualify directly for kitchen remodeling; home remodeling tax credits apply to projects such as replacing insulation or the installation of roofing or a new water heater, Hobson said. But viewers may be eligible for an appliance rebate if they purchase Energy Star-qualified appliances -- including dishwashers and refrigerators -- when they remodel. Seventeen states, including California, New Jersey and Pennsylvania still have these programs available. Last year, 1.4 million consumer rebates valued at $207 million were paid out, she added.
Web Extra Tips
Don't wait until the last day to file your tax return. This could lead to more errors and missed deductions. If you do not think you can file your tax return by April 18 then consider an extension or an installment plan. You can find more information about these two options on the IRS website.
If you haven't already, contribute to your Individual Retirement Account (IRA) by April 18 and you may be able to deduct your contribution from your taxes.
Do not forget to sign your tax return, and if you are filing jointly with your spouse, then both of you must sign your return. Not signing your return makes it invalid, which will delay your refund.
The viewers' questions were edited for clarity.