Ask Tax Dad: Disabled Veterans, Commuting Actors, And Depreciating Dishwashers

TAXDADSEZHistorically, our staff Certified Tax Cat has handled readers’ questions about taxes, but he took feline early retirement and hung up his oversized eyeglasses. Filling in for him is Laura’s dad, a retired accountant and real live independent tax preparer. Exclusively on Consumerist, Tax Dad answers your questions.

My husband receives money every month from the VA for his service-related disabilities. This is my first year doing our taxes with the addition of this income. The money is tax-free- do we still claim it?

- Shanna

Thank your husband for his service, Shanna. You need not claim the disability pension, according to IRS Publication 17, if he served in the Armed Services of any country, and the disability was the result of a combat-related injury, resulting directly from armed conflict, or under conditions simulating war, while he was engaged in extra hazardous service, or was caused by any instrumentality of war.

Other exclusions may apply: seek guidance from your local VA if you have more questions.

I have a question about depreciation for an appliance on a rental property. The dishwasher in my rental died at the end of the year. I bought and paid for a replacement in December, but the installation was a separate charge which I will pay in 2014. How do I handle depreciation for that?

- Becky

Yes, Becky, installation costs, delivery fees, and sales tax, if any, would also be legitimate costs of the basis of the new washer. These should be capitalized and depreciated over the life of the appliance.

Up until now, my tax life has been uncomplicated — no dependents, no house, no retirement plans, and income in the $40K range — so I have always used the 1040EZ.

This year I made over $50K so I started a 401K and IRA but have no other major deductions. Which tax form should I use?

- SWB

Hi SWB: If your life is really this uncomplicated, IRS says that you are still eligible to use Tax Form 1040A so long as your taxable income is less than $100,000, and you only have these adjustments for IRA and 401K, so you may be good for a couple more years.

Or, if you are expecting a tax refund, you may wish to visit the IRS.gov website and file electronically for free. Your refund will come much faster, and filing is uncomplicated also.

I am an actor and I drive to gigs. Acting is my only source of income.

Is my mileage deductible or do I have to meet a certain minimum income threshold?

Thanks.

Art Vandelay

Hi Art:

I thought you were in a different line of work.

This is one of those questions that requires a lot more information. Are you paid a salary? Are you self-employed? Are you paid via cash or check? Are you incorporated? Do you have an agent?

Generally speaking, I would think you would be considered self-employed, in which case you would file a Schedule C, Self-Employment Income, with your return. Assuming you have earned income, you would be able to deduct most expenses of earning this income, such as clothing, makeup, hotels and entertainment, travel expenses (mileage or actual costs), and others.

If your income is less than your expenses in 3 of 5 years, IRS might consider your acting a hobby. You should probably consult your agent, other actors with similar circumstances, or an accountant who is familiar with your trade. See you on Broadway.

Disclaimer: The nature of free advice is that you often pretty much get what you pay for. Questions answered in the “Ask Tax Dad” column should not serve as a substitute for consulting a tax preparer, accountant, tax attorney, or certified tax cat of your very own. Tax Dad regrets that he cannot offer advice privately over e-mail.

Have a question for Tax Dad about your federal or state tax returns? Send it to us at tips@consumerist.com with “ASK TAX DAD” in the subject line. We’ll run the answers as soon as we can get him to stop Photoshopping pictures of wild grouse.