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Back To School 2014: Internships

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(UPDATE: The giveaway is now closed. We have our winner! See the comments for more info.)

In this economy, every advantage in the job market counts. One of the best opportunities that you can have as a student is to participate in an internship. An internship offers on-the-job training in the field of your choice. An internship can be paid or unpaid and can offer educational credits towards graduation (or not).

It's tempting to take the first opportunity that comes across your desk. But be careful. Not all internships are created equal and occasionally, an internship won't lead anywhere: it's just free work. To combat those companies who are bent on exploiting free student labor (!) for nothing in return, the Department of Labor (DOL) has issued guidelines to help determine whether interns must be paid minimum wage and overtime under the Fair Labor Standards Act (FLSA). I know what you're thinking: what? You likely figured that it isn't employment if you don't get paid - and therefore the rules don't apply. But that's not true. In the private sector, for profit companies are generally considered an employer even when it comes to internships. That means that employees (yes, interns) must be paid at least minimum wage per hour and compensated for overtime after a forty hour workweek unless they are otherwise exempt.

Those compensation rules might not apply if, according to the DOL (compliance flyer downloads as a pdf):

1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;

2. The internship experience is for the benefit of the intern;
3. The intern does not displace regular employees, but works under close supervision of existing staff;
4. The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
5. The intern is not necessarily entitled to a job at the conclusion of the internship; and
6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

And yes, that's an "AND" in there. That means that all of the factors have to be met in order to qualify for an exemption under the FLSA. As a rule of thumb, that means that internships which are offered for educational credit and not just as free labor. Additionally, the internship has to have an end point - and it can't just be a trial period for a potential employee.

There are some exceptions for certain government agencies and for non-profit organizations and further restrictions may be imposed from state to state.

The limitations on internships are interesting because they may create an employment relationship without compensation. How does this translate for tax purposes? If there's no income to report, that makes the income piece easy. And likewise, if there is income to report, that's pretty easy since the creation of an employment relationship should result in a form W-2.

But what about deductions? That's where the specifics of the internship matter.

One deduction that could be available is the unreimbursed employee expense on line 21 of Schedule A. There are a couple of things to keep in mind when considering this deduction: the first is that you have to itemize in order to claim expenses on a Schedule A. This could be tough for some students or interns who don't otherwise have itemized deductions available.

Assuming that you do itemize, to be deductible on line 21 as an unreimbursed employee expense for education, the expense must be for (1) education that maintains or improves job performance or (2) serves the purpose of the employer and is required by the employer or by law to keep salary, status or job, and (3) the education is not part of a program that will qualify for a new trade or business (that means that new grads are out of luck). If you meet that criteria, you can deduct tuition, books, supplies, lab fees, and similar items; certain transportation and travel costs; and other education expenses. Tuition and fees might also be deductible as an above the line deduction on your form 1040 (more on that later in the week).

You can also potentially claim unreimbursed employee expenses for other expenses such as dues, subscriptions and even a home office, depending on the circumstances. Remember that a paid internship, for example, could be treated as a "real" job for tax purposes and as such, all of the normal rules for deductibility would apply. Those deductions would still be reportable on a Schedule A.

Depending on the nature of the internship, your stage of employment and the surrounding circumstances, expenses might also be deductible on a Schedule C. Be careful, though: Schedule C is used to report income or loss from a business you operate or a profession you practiced as a sole proprietor - not as an employee. That's where the details surrounding an employment relationship matter.

In almost every circumstance, moving expenses would not be deductible for an internship. Notwithstanding the other restrictions, a seasonal internship (paid or unpaid) wouldn’t qualify for a moving expense deduction because it would not satisfy the "time test" requirement piece of the moving expenses criteria.

No matter what kind of internship you might have, you'll want to savor every minute of it. And that brings us to today's giveaway!

One reader will win the new HTC One (M8). Crafted with the One’s iconic design, the HTC One (M8) for Windows features a wraparound unibody frame, tapered edges, and a curved back that pours into your grip unlike any other Windows phone. Supported by the Qualcomm™ Snapdragon® 801 processor with 2.3 GHz quad-core Krait CPUs and fully integrated 4G LTE and running Android 4.4, Kit Kat, the latest version of the Android OS, the new HTC One (M8) features the all-new HTC Sense™ 6. Completely redesigned with a cleaner, more striking visual style, HTC Sense™ 6 features bold, customizable color themes and delivers a more intuitive, personalized user experience. The new HTC One (M8) brings a totally different dimension to mobile imaging by combining the world’s first smartphone with a Duo Camera that features HTC’s innovative HTC UltraPixel™ module, with a dual flash and full 1080p HD video recording. The new Duo Camera produces incredible images in all lighting conditions and rich, high-quality video. A 5-megapixel wide-angle front-facing camera also captures superior selfies with ease. The HTC One (M8) also has an integrated Slow Motion mode, which enables high-definition video capture in slow motion to produce unique effects in the final version. When editing, action can be slowed at critical points for emphasis – perfect for adding drama or highlighting a special moment.

To enter to win, just post a comment telling me about your dream internship - it doesn't have to be one that you've done, it could be one that's unattainable and you think is cool. I'll go first to get you started: I pretty much have my dream job but I'd love to write for The Daily Show.

Entries must be posted in the comments section for this blog post in the space below by 10:00 p.m. EST on September 26, 2014. It's just that easy. I’ll choose one winner randomly (using a number generator) out of all of the qualifying entries.

Be sure and read the fine print for more rules because, as you know, I’m a lawyer and I like rules:

  • Don’t panic if your comment doesn’t show immediately. If it goes to moderation because, for example, you’re new here, the time stamp on your comment is what counts. If you have difficulty registering, please send an email to blogadmin@forbes.com and copy me (tech@taxgirl.com) so that I can help if I need to/can.
  • I love my Twitter followers and my Facebook fans but for this particular giveaway, tweets and Facebook comments will not be counted. Ditto for emails. You must leave your comment on the blog at this post.
  • You can enter as many times as you like but you must leave a different answer each time you comment.
  • Offensive comments or comments that otherwise violate the comment policy will be deleted and will not be considered valid for purposes of the contest.
  • Similarly, pingbacks and other links will be disregarded for purposes of the contest.
  • I will need your full name and your email address: be sure to use your real information when you register to leave a comment. I won’t publish your email address but I do need contact information for the winning entry. If you win and I can't reach you, it's a forfeit.
  • Due to shipping considerations, you must have a valid United States address. Sorry, Canada, eh?
  • I respect your privacy and I will not send you anything unrelated to your entry in this contest. By entering the contest, you agree that I may post any part or all of your submission including your name as a part of the contest announcements or promotions, with the exception of your email address.
  • Like Judge Judy, my determination is final.
  • Prizes are provided directly by our sponsors and are not exchangeable or redeemable for other prizes. Sponsors do not pay for placement and do not receive any compensation for contributions – neither do I! I have no affiliation, paid or otherwise, with any of our sponsors.
  • If you aren't allowed to participate in giveaways because of the laws in your state or your age or an agreement you've made with your mother, consider this giveaway not applicable to you. In other words: void where prohibited or restricted.
  • Finally, the giveaway is about me, me, me. It’s not affiliated with or endorsed by Forbes. So leave them out of it, okay?

Comment away! And thanks for participating in Back To School 2014!

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