All of these are actual questions from readers over the last couple of weeks.
Q: What are boxes 18-20 on a W-2 for?
A: Some cities levy an income tax. For example, New York City, many cities that have a professional sports team, and most cities and towns in Ohio. If you earned wages subject to city taxes, Box 18 would report wages subject to tax by a city; Box 19 would report the amount of withholding that was sent to that city; and Box 20 would report the city name.
Q: Why would an in-home daycare be audited by the IRS?
A: For the same reason the IRS audits anyone. Sometimes it’s just luck of the draw. Other times there might be something on your return that causes it to be flagged by the IRS computers. In the case of an in-home daycare, you likely filed Form 8829 to claim a home-office deduction. The home-office deduction is an audit hot spot.
Q: Is summer camp deductible for AMT?
A: You might be able to include the summer camp expenses along with other daycare expenses for the “Child and Dependent Care Credit.” See this Dinesen Tax Times story for more info. This credit is allowed even if you are subject to the dreaded Alternative Minimum Tax.
Q: Is an unlicensed daycare subject to self-employment tax?
A: The short answer: yes. Whether you are licensed or not, you are running a business and are subject to self-employment tax.
Q: Can you deduct auto expenses for 529 plans?
A: No, auto and other travel expenses are not eligible education expenses under a 529 plan. Travel expenses also do not qualify for the American Opportunity Credit, the Lifetime Learning Credit or the tuition and fees deduction.
The answers provided in this segment are intended to be general in nature and do not constitute tax advice. Please pay a tax advisor to advise you about your unique situation before making any financial decisions.
Have a tax question? Click here to submit a question. Please note, I cannot personally provide a specific answer to your question by e-mail. (Ask Jason has been discontinued.)