Who Can You Claim As A Dependent?
I frequently am asked about the rules for claiming a dependent and who actually qualifies as a taxpayer’s dependent. The IRS put together a list of 6 bullet-points that may answer some or all of your questions:
1. Exemptions reduce your taxable income. There are two types of exemptions: personal exemptions and exemptions for dependents. For each exemption you can deduct $3,700 on your 2011 tax return.
2. Your spouse is never considered your dependent. On a joint return, you may claim one exemption for yourself and one for your spouse. If you’re filing a separate return, you may claim the exemption for your spouse only if they had no gross income, are not filing a joint return, and were not the dependent of another taxpayer.
3. Exemptions for dependents. You generally can take an exemption for each of your dependents. A dependent is your qualifying child or qualifying relative. You must list the Social Security number of any dependent for whom you claim an exemption.
4. If someone else claims you as a dependent, you may still be required to file your own tax return. Whether you must file a return depends on several factors including the amount of your unearned, earned or gross income, your marital status and any special taxes you owe.
5. If you are a dependent, you may not claim an exemption. If someone else – such as your parent – claims you as a dependent, you may not claim your personal exemption on your own tax return.
6. Some people cannot be claimed as your dependent. Generally, you may not claim a married person as a dependent if they file a joint return with their spouse. Also, to claim someone as a dependent, that person must be a U.S. citizen, U.S. resident alien, U.S. national or resident of Canada or Mexico for some part of the year. There is an exception to this rule for certain adopted children. See IRS Publication 501, Exemptions, Standard Deduction, and Filing Information for additional tests to determine who can be claimed as a dependent.
Add a comment January 11, 2012
Do You Need To File A Tax Return This Year?
Each tax season, I receive phone calls from people asking if they need to file a tax return. The answer is, “It depends.” For example, the gross income threshold for single taxpayers under age 65 for 2011 is $9,500; for Married Filing Jointly, it’s $19,000 if they are both under 65. But even if you don’t need to file, it may be advantageous for you to do so. The IRS put together some information that will help answer this question:
1. Federal Income Tax Withheld You should file to get money back if your employer withheld federal income tax from your pay, you made estimated tax payments, or had a prior year overpayment applied to this year’s tax.
2. Earned Income Tax Credit You may qualify for EITC if you worked, but did not earn a lot of money. EITC is a refundable tax credit; which means you could qualify for a tax refund. To get the credit you must file a return and claim it.
3. Additional Child Tax Credit This refundable credit may be available if you have at least one qualifying child and you did not get the full amount of the Child Tax Credit.
4. American Opportunity Credit Students in their first four years of postsecondary education may qualify for as much as $2,500 through this credit. Forty percent of the credit is refundable so even those who owe no tax can get up to $1,000 of the credit as cash back for each eligible student.
5. Adoption Credit You may be able to claim a refundable tax credit for qualified expenses you paid to adopt an eligible child.
6. Health Coverage Tax Credit Certain individuals who are receiving Trade Adjustment Assistance, Reemployment Trade Adjustment Assistance, Alternative Trade Adjustment Assistance or pension benefit payments from the Pension Benefit Guaranty Corporation, may be eligible for a 2011 Health Coverage Tax Credit.
Eligible individuals can claim a significant portion of their payments made for qualified health insurance premiums.
Add a comment January 9, 2012
Residential Energy Credits Still Available for 2011
According to the IRS:
Homeowners still have time this year to make energy-saving and green-energy home improvements and qualify for either of two home energy credits.
The Nonbusiness Energy Property Credit is aimed at homeowners installing energy efficient improvements such as insulation, new windows and furnaces. The credit is more limited than in the past years, but can still provide substantial tax savings.
• The 2011 credit rate is 10 percent of the cost of qualified energy efficiency improvements. Energy efficiency improvements include adding insulation, energy-efficient exterior windows and doors and certain roofs. The cost of installing these items does not count.
• The credit can also be claimed for the cost of residential energy property, including labor costs for installation. Residential energy property includes certain high-efficiency heating and air conditioning systems, water heaters and stoves that burn biomass fuel.
• The credit has a lifetime limit of $500, of which only $200 may be used for windows. If the total of nonbusiness energy property credits taken in prior years since 2005 is more than $500, the credit may not be claimed in 2011.
• Qualifying improvements must be placed into service to the taxpayer’s principal residence located in the United States before January 1, 2012.
Homeowners going green should also check out the Residential Energy Efficient Property Credit, designed to spur investment in alternative energy equipment.
• The credit equals 30 percent of what a homeowner spends on qualifying property such as solar electric systems, solar hot water heaters, geothermal heat pumps, wind turbines, and fuel cell property.
• No cap exists on the amount of credit available except for fuel cell property.
• Generally, labor costs are included when figuring this credit.
Not all energy-efficient improvements qualify for these tax credits, so homeowners should check the manufacturer’s tax credit certification statement before they purchase. Taxpayers can normally rely on this certification statement which can usually be found on the manufacturer’s website or with the product packaging. Eligible homeowners can claim both of these credits on Form 5695, Residential Energy Credits when they file their 2011 federal income tax return. Because these are credits and not deductions, they reduce the amount of tax owed dollar for dollar. An eligible taxpayer can claim these credits regardless of whether he or she itemizes deductions on Schedule A.
Add a comment November 22, 2011
Time To Start Tax Planning for 2011
There are only 2 months left in 2011– can you believe it? Before you know it, you’ll be receiving your tax letter from your tax preparer; tax documents will be coming in the mail (W-2′s, 1099′s, etc.), and you’ll be organizing your papers for your 2011 tax return. Before year-end is a great time to review your financials, so that your 2011 tax return won’t have you in shock or regret:
1. Check your Federal and State withholdings or estimated tax payments to make sure you’re having enough withheld, depending on your income.
2. If you’re a business owner, review your year-to-date financial statements to determine your estimated net profit; then review the tax implications with your tax preparer. If you’re a cash-basis business and wish to reduce taxable income, consider purchasing supplies and equipment (where you can take advantage of the Sec. 179 deduction or bonus depreciation), or prepaying next year’s insurance premiums.
3. If you’re thinking of starting a retirement plan, now is the time to set one up for 2011.
4. If you have a Health Savings Account, did you pay into it yet? For an individual plan, you can contribute up to $3,050 to the plan, and get an above-line deduction for the amount.
5. If you wish to donate cash or noncash items to your favorite charity, make sure you do it by the end of the year. Also, if you contribute $250 or more to a single charity, make sure you get a receipt.
6. If you need additional Itemized Deductions for 2011, consider paying the 2012 property tax installment in 2011.
7. If you have a dependent child in college, consider paying for the upcoming semester now, as well as for fees and course materials.
If you have any questions on tax-planning, please contact me!
Add a comment October 27, 2011
Recordkeeping Tips and Strategies
I am often asked “how long should I keep my records?” As our closets and storage areas fill up with boxes and files, I can totally understand the desire to haul some of those records over to the shredder. Below are tips from the IRS, which is a good starting point, but, keep in mind that if you’re going to be audited, it may be 3 years from when you filed your tax return that you receive the notice. For example, 2008 tax returns are currently being examined. That being said, I would add another 3 years to the recommendations:
Here are a few things the IRS wants you to know about recordkeeping.
1. In most cases, the IRS does not require you to keep records in any special
manner. Generally, you should keep any and all documents that may have an impact
on your federal tax return. It’s a good idea to have a designated place for tax
documents and receipts.
2. Individual taxpayers should usually keep the following records supporting
items on their tax returns for at least three years:
- Bills
- Credit card and other receipts
- Invoices
- Mileage logs
- Canceled, imaged or substitute checks or any other proof of payment
- Any other records to support deductions or credits you claim on your return
You should normally keep records relating to property until at least three
years after you sell or otherwise dispose of the property. Examples include:
- A home purchase or improvement
- Stocks and other investments
- Individual Retirement Arrangement transactions
- Rental property records
3. If you are a small business owner, you must keep all your employment tax
records for at least four years after the tax becomes due or is paid, whichever
is later. Examples of important documents business owners should keep
Include:
- Gross receipts: Cash register tapes, bank deposit slips, receipt books,
invoices, credit card charge slips and Forms 1099-MISC - Proof of purchases: Canceled checks, cash register tape receipts, credit
card sales slips and invoices - Expense documents: Canceled checks, cash register tapes, account statements,
credit card sales slips, invoices and petty cash slips for small cash payments - Documents to verify your assets: Purchase and sales invoices, real estate
closing statements and canceled checks
For more information about recordkeeping, check out IRS Publication 552,
Recordkeeping for Individuals, Publication 583, Starting a Business and Keeping
Records, and Publication 463, Travel, Entertainment, Gift, and Car Expenses.
These publications are available at www.IRS.gov or by calling 800-TAX-FORM
(800-829-3676).
Links:
- Publications 552, Recordkeeping for Individuals (PDF)
- Publications 583, Starting a Business and Keeping Records (PDF)
- Publication 463, Travel, Entertainment, Gift, and Car Expenses (PDF)
Add a comment August 26, 2011
Back To School Tax Tips for Parents and Students
If you or your dependent is going to college this Fall, you may be eligible for some significant tax credits or deductions. Here are the IRS Rules for Education Expenses, that would apply to you, your spouse or your tax dependent:
- American Opportunity Credit This credit, originally
created under the American Recovery and Reinvestment Act, has been extended for
an additional two years – 2011 and 2012. The credit can be up to $2,500 per
eligible student and is available for the first four years of post secondary
education. Forty percent of this credit is refundable, which means that you may
be able to receive up to $1,000, even if you owe no taxes. Qualified expenses
include tuition and fees, course related books, supplies and equipment. The full
credit is generally available to eligible taxpayers whose modified adjusted
gross income is below $80,000 ($160,000 for married couples filing a joint
return). - Lifetime Learning Credit In 2011, you may be able to claim
a Lifetime Learning Credit of up to $2,000 for qualified education expenses paid
for a student enrolled in eligible educational institutions. There is no limit
on the number of years you can claim the Lifetime Learning Credit for an
eligible student, but to claim the credit, your modified adjusted gross income
must be below $60,000 ($120,000 if married filing jointly). - Tuition and Fees Deduction This deduction can reduce the
amount of your income subject to tax by up to $4,000 for 2011 even if you do not
itemize your deductions. Generally, you can claim the tuition and fees deduction
for qualified higher education expenses for an eligible student if your modified
adjusted gross income is below $80,000 ($160,000 if married filing jointly). - Student loan interest deduction Generally, personal
interest you pay, other than certain mortgage interest, is not deductible.
However, if your modified adjusted gross income is less than $75,000 ($150,000
if filing a joint return), you may be able to deduct interest paid on a student
loan used for higher education during the year. It can reduce the amount of your
income subject to tax by up to $2,500, even if you don’t itemize deductions.
For each student, you can choose to claim only one of the credits in a single
tax year. However, if you pay college expenses for two or more students in the
same year, you can choose to take credits on a per-student, per-year basis. You
can claim the American Opportunity Credit for your sophomore daughter and the
Lifetime Learning Credit for your senior son.
You cannot claim the tuition and fees deduction for the same student in the
same year that you claim the American Opportunity Credit or the Lifetime
Learning Credit. You must choose to either take the credit or the deduction and
should consider which is more beneficial for you.
Add a comment August 16, 2011
Upcoming Income Tax Return Filing Deadlines
August 15, 2011 – Deadline for filing IRS Form 990 for Tax-Exempt Organizations (you can request an extension to Nov. 15, 2011)
September 15, 2011 – Final deadline for filing Corporate Income Tax Returns
October 17, 2011 – Final deadline for Individual Tax Returns
Add a comment August 12, 2011
Job-Related Moving Expenses Can Be Tax-Deductible
If you’re moving due to a job transfer or change, your moving expenses can be deductible as an above-line tax deduction. Here are the IRS Rules:
- Move must be closely related to start of work Generally,
you can consider moving expenses incurred within one year from the date you
first reported to a new location, as closely related in time to the start of
work. - Distance Test Your move meets the distance test if your new
main job location is at least 50 miles farther from your former home than your
previous job location was. - Time Test You must work full time for at least 39 weeks
during the first 12 months after you arrive in the general area of your new job
location, or at least 78 weeks during the first 24 months if you are
self-employed. If your income tax return is due before you’ve satisfied this
requirement, you can still deduct your allowable moving expenses if you expect
to meet the time test in the following years. - Travel You can deduct lodging expenses for yourself and
household members while moving from your former home to your new home. You can
also deduct transportation expenses, including airfare, vehicle mileage, parking
fees and tolls you pay to move, but you can only deduct one trip per person. - Household goods You can deduct the cost of packing, crating
and transporting your household goods and personal property. You may be able to
include the cost of storing and insuring these items while in transit. - Utilities You can deduct the costs of connecting or
disconnecting utilities. - Nondeductible expenses You cannot deduct as moving
expenses: any part of the purchase price of your new home, car tags, drivers
license, costs of buying or selling a home, expenses of entering into or
breaking a lease, security deposits and storage charges except those incurred in
transit. - Form You can deduct only those expenses that are reasonable
for the circumstances of your move. To figure the amount of your moving expense
deduction use Form 3903, Moving Expenses. - Reimbursed expenses If your employer reimburses you for the
cost of the move, the reimbursement may have to be included on your income tax
return. - Update your address When you move, be sure to update your
address with the IRS and the U.S. Postal Service to ensure you receive refunds
or correspondence from the IRS. Use Form 8822, Change of Address, to notify the
IRS.
For
Add a comment August 11, 2011
Thinking of Selling Your Home? Speak with Your Tax Prepaper First.
Per the IRS:
Ten Tax Tips for Individuals Selling Their Home
The Internal Revenue Service has some important
information to share with individuals who have sold or are about to sell their
home. If you have a gain from the sale of your main home, you may qualify to
exclude all or part of that gain from your income. Here are ten tips from the
IRS to keep in mind when selling your home.
- In general, you are eligible to exclude the gain from income if you have
owned and used your home as your main home for two years out of the five years
prior to the date of its sale. - If you have a gain from the sale of your main home, you may be able to
exclude up to $250,000 of the gain from your income ($500,000 on a joint return
in most cases). - You are not eligible for the exclusion if you excluded the gain from the
sale of another home during the two-year period prior to the sale of your home. - If you can exclude all of the gain, you do not need to report the sale on
your tax return. - If you have a gain that cannot be excluded, it is taxable. You must report
it on Form 1040, Schedule D, Capital Gains and Losses. - You cannot deduct a loss from the sale of your main home.
- Worksheets are included in Publication 523, Selling Your Home, to help you
figure the adjusted basis of the home you sold, the gain (or loss) on the sale,
and the gain that you can exclude. - If you have more than one home, you can exclude a gain only from the sale of
your main home. You must pay tax on the gain from selling any other home. If you
have two homes and live in both of them, your main home is ordinarily the one
you live in most of the time. - If you received the first-time homebuyer credit and within 36 months of the
date of purchase, the property is no longer used as your principal residence,
you are required to repay the credit. Repayment of the full credit is due with
the income tax return for the year the home ceased to be your principal
residence, using Form 5405, First-Time Homebuyer Credit and Repayment of the
Credit. The full amount of the credit is reflected as additional tax on that
year’s tax return. - When you move, be sure to update your address with the IRS and the U.S.
Postal Service to ensure you receive refunds or correspondence from the IRS. Use
Form 8822, Change of Address, to notify the IRS of your address change.
Add a comment August 8, 2011
Job Search Expenses Are Tax-Deductible
If you’re looking for a job, make sure you track your expenses and mileage. Job search expenses are tax-deductible on your Itemized Deductions Schedule A. Here are the IRS Rules for deducting job search expenses:
- To qualify for a deduction, the expenses must be spent on a job search in
your current occupation. You may not deduct expenses you incur while looking for
a job in a new occupation. - You can deduct employment and outplacement agency fees you pay while looking
for a job in your present occupation. If your employer pays you back in a later
year for employment agency fees, you must include the amount you receive in your
gross income, up to the amount of your tax benefit in the earlier year. - You can deduct amounts you spend for preparing and mailing copies of your
résumé to prospective employers as long as you are looking for a new job in your
present occupation. - If you travel to an area to look for a new job in your present occupation,
you may be able to deduct travel expenses to and from the area. You can only
deduct the travel expenses if the trip is primarily to look for a new job. The
amount of time you spend on personal activity compared to the amount of time you
spend looking for work is important in determining whether the trip is primarily
personal or is primarily to look for a new job. - You cannot deduct job search expenses if there was a substantial break
between the end of your last job and the time you begin looking for a new one. - You cannot deduct job search expenses if you are looking for a job for the
first time. - The amount of job search expenses that you can claim on your tax return is
limited. You can claim the amount that is more than 2 percent of your adjusted
gross income. You figure your deduction on Schedule A.
Add a comment August 3, 2011
