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  Dear
Tax Talk,
I am aware that the student loan interest reported by Sallie
Mae of just under $600, which has been reported to the Internal
Revenue Service, can be deducted. But there is also capitalized
interest of $311 on a private loan, which has now been paid
off. The problem is that Sallie Mae has not included this
amount in the figures sent to the IRS. I have been told that
this capitalized interest is deductible, but I am concerned
about it not being sent to the IRS. Sallie Mae is forwarding
a letter, stating that this capitalized interest is deductible
for 2004, but I am not sure that this amount of $311 will
also be reported to the IRS by Sallie Mae. I am concerned
that deducting the $600 plus the $311 will cause an audit.
Also, both of my sons received 1009-MISC
Forms instead of W-2s for work they did giving tennis instruction.
This indicates that they are self-employed and are independent
contractors, which they are not. This is just how these businesses
are getting out of paying their share of the Social Security
and Medicare taxes on people. I have talked to the IRS about
this work and they have said that they cannot deduct any mileage,
cost of the tennis racquets, string, clothing or shoes needed
because they could use these items for their personal use. Do
you have any suggestions of what deductions could be used to
get the taxes reduced, or do they just have to absorb all of
it? One son earned $1,140 and the other son earned just under
$4000. Both boys did hold other jobs, for which they were given
W-2s.
In addition, the IRS wanted me to file an SS-8 Form to let
them decide whether my sons are independent contractors or
employees. I think that they would both lose their jobs if
they did that. They are both told what days and times to report
and what they are to be doing. They do not set their own schedule.
To me this is an employee, not being self-employed as an independent
contractor. Any help that you could possibly give would be
very much appreciated.
-- Jeannie
 Dear
Jeannie,
Although the Sallie Mae reported a lesser amount of student
loan interest to the IRS, you shouldn't hesitate to claim
the correct deduction, especially if you have supporting documentation.
Unless there are significant differences, the mismatch will
generally only result in a letter of inquiry from the IRS
asking you to support the discrepancy. If you file your return
on paper you can attach the supporting letter from Sallie
Mae. Otherwise, save it in case the IRS makes a later inquiry.
Since it's a small difference, it probably falls below the
IRS's tolerance level.
Unfortunately, your tennis aces are stuck paying the taxes
on their 1099 income unless they want to create a racket.
As you point out, their employer is trying to get away without
paying his fair share of employee taxes; your sons probably
knew this when they took the job. There are numerous factors
the IRS reviews in making a determination of employment relationship
as shown on Form SS-8. But if your kids filed the form, they
would be creating a lot of problems for themselves and their
"employer." You're best off trying to discuss the
situation with their boss and see if they would be willing
to kick in something for the taxes and maybe change their
status in the future.
With respect to deductions, although the kids may be able
to adapt some of their apparel and equipment for personal
use, it doesn't mean that all of it is not deductible. Because
of the nature of their work, they probably have to buy additional
clothing and equipment as it wears out faster. Hence, part
of their purchases should be deductible. If they use their
car to travel to clients' homes or other clubs for business,
they can claim mileage expenses. Similarly, if they use their
cell phones they can also claim telephone expenses.
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