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Itemized Deductions Schedule-A


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Old 11-14-2011, 09:07 PM
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Can I claim temporary living expenses as business expenses for a 3 month paid fellowship/internship?

Hi. I hope someone can help me figure this out.

I got a 12 week fellowship/internship with the National Academies (FAQ), which pays $8,240 for the full period. I am now trying to figure out if I have to:
(a) pay taxes on this money? (I would guess yes)
(b) if I can claim the temporary living expenses (second rent in DC (while keeping my normal place in a different state), local public transport to work, travel to DC, and 50% of per diem for DC) on Schedule C or Form 2106? And if yes, Schedule C or 2106, and how would I know?
(c) if I can claim part of the expenses (probably just the trip to DC) as education expenses?

On the website they say that the program is not considered employment, but "a short-term (12-week) fellowship opportunity that offers hands-on training and education in science and technology policy". And the "Fellowship stipend/grant is intended to offset living expenses for the period and not intended as a way to earn money." So I can I claim it as business expense? It would add up to more than the standard deduction (around $8100), so if that money counts as income it would be nice to deduct it again.

I am normally employed as postdoctoral fellow (making ~$45,000 a year), and will take a 3 month unpaid leave of absence from this job to take advantage of the fellowship. I am a resident alien for tax purposes. Not married.

To estimate how much money I can actually spend of the fellowship money I would need to know if I have to pay taxes on the stipend/fellowship (nothing will be withheld at source) and if I can claim deductions for living in a different city for this fellowship?

If anyone can help, please let me know. THANKS a lot!



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Old 11-15-2011, 11:38 AM
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“I got a 12 week fellowship/internship with the National Academies (FAQ), which pays $8,240 for the full period. I am now trying to figure out if I have toa) pay taxes on this money? (I would guess yes)”---->I guess it depends;the taxability of your fellowship generally depends on the type of expenses that are paid with the benefits, and whether you receiving the benefits is a candidate for a degree(you are a candidate for a degree if you attend a primary or secondary school or are pursuing a degree at a college or university, or attend an accredited educational institution that is authorized to provide.).If you are a candidate for a degree, and your fellowship is used to pay qualified education expenses such as tuition and fees, books, supplies, and equipment, your benefits would generally be tax-free. But any part of a scholarship or fellowship that is payment for past, present, or future services could be subject to tax.(In general, because paid internships constitute employment, both interns and employers must take certain steps. Interns must report the income they receive on their state and federal income taxes.)
“(b) if I can claim the temporary living expenses (second rent in DC (while keeping my normal place in a different state), local public transport to work, travel to DC, and 50% of per diem for DC) on Schedule C or Form 2106?”---->It also depends on the situation; as long as you are treated an an EE, you need to report it on Form 2106 and Sch A line 21, unreimbursed EE expenses, as a sort of EE; an intern is not an employee if the employer and the student understand that the student is not entitled to wages for the time spent in training;if the student is not necessarily entitled to a job at the conclusion of the training period or etc. As an non-EE, you need to claim expenses on Sch C of 1040;Sch C is only for self employer,i.e, an Independent contractor/subcontractor. Schedule C is for business expenses. I don't think it would apply at all to this case for you, a paid intern.
“ And if yes, Schedule C or 2106, and how would I know?”---->As said above, you report your job related deductible expenses on Form 2106 as an EE while you need to report them on Sch C of 1040 as a self employer.However, Be very careful if you decide to do this. There are many factors you need to consider. A few are: where is your tax home in relation to this job, were you considered an employee (were you paid) ,how long was the internship, were you reimbursed for any expenses, do you claim yourself or do your parents claim you, etc. There are more facts to consider as well. Also, if you are able to claim any deduction, you will more than likely be claiming 'unreimbursed business expenses.' This means that in order to claim a deduction your expenses are first limited to 2% of your AGI (so in order to deduct you must go above and beyond this amount). Also, this would mean that you would be itemizing your deductions so you would be giving up your standard deduction of $5800 for 2011(if you are filing as single). Are your job expenses and other itemized deductions more than this as a student?
“(c) if I can claim part of the expenses (probably just the trip to DC) as education expenses?”---->No, I do not think so; qualified education expenses for purposes of tax-free scholarships/fellowships are expenses for tuition and fees required to enroll at or attend an eligible educational institution, and Course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. These items must be required of all students in your course of instruction.
“On the website they say that the program is not considered employment, but "a short-term (12-week) fellowship opportunity that offers hands-on training and education in science and technology policy". And the "Fellowship stipend/grant is intended to offset living expenses for the period and not intended as a way to earn money." So I can I claim it as business expense?”--->I guess UNLESSS you are treated as an EE, Form 2106 is NOT for you; then perhaps Sch C is for you to deduct business related living expenses on your return. If the internship income is listed in box 7, Non Employee Compensation, of the 1099 Misc, you should file it as self employment income on Sch SE as long as the amount on line 4 is $400 or exceeds $400. Use IRS form 1040 and attach Schedule C or Schedule C-EZ. Using those forms, you are allowed to deduct any business expenses related to making that income. Then enter your net income from Schedule on your 1040.
“ It would add up to more than the standard deduction (around $8100), so if that money counts as income it would be nice to deduct it again.”---->Correct as long as you file Form 2106; generally, you must decide whether to itemize deductions or to use the standard deduction. The standard deduction is a dollar amount that reduces the amount of income on which you are taxed. You should itemize deductions if your allowable itemized deductions are greater than your standard deduction. REMEMBER; as long as you file Sch C of 1040, you can’t include the amount( I mean your temporary living expenses) on your Sch A of 1040.



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Old 11-15-2011, 05:28 PM
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Thanks for your answer. But what does "REMEMBER; as long as you file Sch C of 1040, you can’t include the amount( I mean your temporary living expenses) on your Sch A of 1040." mean? Could you explain that to me?

And let's assume I will not be considered an employee and will want to file schedule C. Can I reduce the income by my temporary living expenses? And do you pay self-employment tax on the net income (which would be close to 0) or on the actual self-employment income?

Thanks a lot!



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Old 11-15-2011, 06:09 PM
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“But what does "REMEMBER; as long as you file Sch C of 1040, you can’t include the amount( I mean your temporary living expenses) on your Sch A of 1040." mean? Could you explain that to me?”--->OK, as said previously, you, as an individual person, conducting business as an independent contractor or as a sole proprietor, report the income and expenses of the business activity on a Schedule C. Any type of business activity can be reported on a Schedule except for farming (Schedule F) and rental activities (Schedule E). On your Schedule C, you report total business income from all sources, report various types of business expenses, and calculate the net profit or loss for your business. Then the net profit or loss is carried to Form 1040, line 12.However, if you are an EE, then you need to report unreimbursed business related expenses on for 2106 and on Sch A line 21( ASLONG AS you itemize your deductions as your itemized deductions> your std. deductions,OK??) of 1040 to deduct it on 1040.
“And let's assume I will not be considered an employee and will want to file schedule C. Can I reduce the income by my temporary living expenses?”--->Aslong as they are business related expenses, yes; you can deduct them on Sch C to reduce taxable business income in Sch C and Sch SE.
“And do you pay self-employment tax on the net income (which would be close to 0) or on the actual self-employment income?”--->It depends onyour situation; as a self-employed person, the individual must also calculate the Self-Employment Tax using Schedule SE as long as the amount on Sch SE line 4 is $400 or EXCEEDS $400, you need to pay your SE tax on 1040ES. The 2010 Tax Relief Act reduced the self-employment tax by 2% for self-employment income earned in calendar year 2011. The self-employment tax rate for self-employment income earned in calendar year 2011 is 13.3%, NOT 15.3%, (10.4% for Social Security and 2.9% for Medicare). As long as you are filing as a sole proprietor and/or a self-employed individual, you generally have to make estimated tax payments if you expect to owe tax of $1,000 or more when you file your return.However, you do not have to pay estimated tax for the current year if you had no tax liability for the prior year:you were a U.S. citizen or resident for the whole year :your prior tax year covered a 12 month period.



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Old 11-15-2011, 11:23 PM
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Thanks again. I now found out that stipend will be in box 3 on form 1099, which means "other income", not box 7, which would be "non-employment inclome". Would that allow me to deduct business expenses using schedule C, as you explained? Or would that just be the case if it was in box 7?

Thanks a lot!



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Old 11-15-2011, 11:53 PM
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“ I now found out that stipend will be in box 3 on form 1099, which means "other income", not box 7, which would be "non-employment inclome". Would that allow me to deduct business expenses using schedule C, as you explained? “--->Not really; I can only think that the payer, by reporting the income on Line 3, thinks it less likely IRS would attempt to reclassify you as an employee. IRS can not issue guidelines to employers on issue "employee or independent contractor". If you do not agree with your classification then you can file Form SS-8 Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding. Firms and workers file Form SS-8 to request a determination of the status of a worker for purposes of federal employment taxes and income tax withholding.So, I guess you received a 1099-Misc, with an amount on line #3,then you report your taxable income on line #21, Form 1040 as Other Income(Usually amounts in Box 3 of 1099Misc is reported as "other income), and you can deduct your expenses(as long as you itemize expenses) on Sch A,miscellaneous, subject to 2% on line #21.
“Or would that just be the case if it was in box 7?”---->Right.As long as it was a payment for services and you received a 1099-Misc, amount on line #7 use schedule C or C-EZ and SE with a 1040. As you have business expenses to offset it, it should go on Sch C as income along with the expenses to offset, coming down to a net income.



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