Five Important Facts about Dependents and Exemptions

Posted by Bruce Mc on Jan 7, 2010 in Deductions, Exemptions, Filling Status, Form 1040 Information, Information | 0 comments

          When you prepare to file your 2009 tax return, there are two things that will factor into your tax situation: dependents and exemptions. Here, the IRS gives you five important facts that you should know about dependents and exemptions before you file your 2009 tax return.

1. If someone else claims you as a dependent, you may still be required to file your own tax return. Whether or not you must file a return depends on several factors, including the amount of your unearned, earned or gross income, your marital status, any special taxes you owe and, any advance Earned Income Tax Credit payments you received.
2. Exemptions reduce your taxable income. There are two types of exemptions: personal exemptions and exemptions for dependents. For each exemption you can deduct $3,650 on your 2009 tax return. Exemption amounts are reduced for taxpayers whose adjusted gross income is above certain levels, depending on your filing status.
3. 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.
4. 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.
5. 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.

         For more information on exemptions, dependents and whether or not you or your dependent needs to file a tax return, see IRS Publication 501. The publication is available on IRS.gov or can be ordered by calling 800-TAX-FORM (800-829-3676).

 
Links:

• IRS Publication 501, Exemptions, Standard Deduction, and Filing Information

This information was provided by the IRS via IRS TAX TIP 2010-04 copied and pasted here to reach more people.

Five Filing Facts for Recently Married or Divorced Taxpayers

Posted by Bruce Mc on Jan 5, 2010 in Uncategorized | 1 comment

(Having your name on your SS Card match is a growing issue. This could help.)

           If you were married or divorced recently, there are a couple of things you’ll want to do to ensure the name on your tax return matches the name registered with the Social Security Administration.

           Here are five facts from the IRS for recently married or divorced taxpayers. Following these steps will help avoid problems when you file your tax return.

1. If you took your spouse’s last name or if both spouses hyphenate their last names, you may run into complications if you don’t notify the SSA. When newlyweds file a tax return using their new last names, IRS computers can’t match the new name with their Social Security Number.
2. If you were recently divorced and changed back to your previous last name, you’ll also need to notify the SSA of this name change.
3. Informing the SSA of a name change is a snap; you’ll just need to file a Form SS-5, Application for a Social Security Card at your local SSA office.
4. Form SS-5 is available on SSA’s Web site at www.socialsecurity.gov, by calling 800-772-1213 or at local offices. It usually takes about two weeks to have the change verified.
5. If you adopted your spouse’s children after getting married, you’ll want to make sure the children have an SSN. Taxpayers must provide an SSN for each dependent claimed on a tax return. For adopted children without SSNs, the parents can apply for an Adoption Taxpayer Identification Number – or ATIN – by filing Form W-7A, Application for Taxpayer Identification Number for Pending U.S. Adoptions with the IRS. The ATIN is a temporary number used in place of an SSN on the tax return. The W-7A is available on IRS.gov, or by calling 800-TAX-FORM (800-829-3676).
    

Links:

• Social Security Administration
• Form SS-5, Application for a Social Security Card (PDF)
• Form W-7A, Application for Taxpayer Identification Number for Pending U.S. Adoptions (PDF 42K)

L & R Statistics

Posted by Bruce Mc on May 4, 2009 in | 0 comments

L & R Stats filing 2009 returns in 2010

 This will be the first year that I am doing a prior year comparison publicly. 

This is the first year I have not had a client increase. Sadly for different reasons I actually had a decrease in clients this year. As you can see on the grid above, I removed a good portion of clients from our client list. (Reasons varied from failure to pay to consistently omitting vital information.) The first line shows my client list lost 12%. On average from previous years this is a first, for 11 seasons.

The increase in e-filed returns I contribute to my staff for pushing the concept effectively.

I feel I really have accomplished something by not having any late filers. I do have clients with extensions, but am happy to report, only two.  Great improvement over all previous years.

Client Average information:

A bit of other information:

Take what you will from these numbers. It is my opinion that we held our own. Revenue is zero for the most part but we have new software and new services that have come from our regular profit margin.

Last year I was asked when we were busiest. Below is a grid that shows a percentage of our returns done in those weeks.

As you can see one fourth of our returns came in the first part of the month of February. My staff is to be commended highly as those all were prepared and returned/transmitted to/for our clients by mid February. Our time out was never more than two weeks. Meaning a return came in and no client had to wait long to get their completed return. That includes returns from other states. In my opinion, I have only the best people working for me, and that shows every day, every year. 

The one return on April 16^th? Well, my highest profile client, had a situation that involved a specialty form with new rules from new laws, the IRS and my software provider weren’t communicating everything just so. It was resolved and accepted by the IRS until April 16^th. 

The Truth About Paying Fewer Taxes.

Posted by Bruce Mc on Feb 28, 2009 in Deductions, Form 1040 Information, Opinions, Tax Preparation, Taxes | 4 comments

             I read a lot about the taxing world. Often I am searchingto find books to recommend to my clients to give them a better understanding how a tax return works and what is needed to make it work best and what they can do to minimize their liability. The Truth About Paying Fewer Taxes is by far the best book I have ever come across to accomplish just that.

The Truth About Paying Fewer Taxes is a book with “52 Truths” about taxes. It plainly answers questions like ”do you have to file?”, to “when?”, to figuring out just what is taxable all the way through to retirement. Also covering Compliance, Audits, and Special Tax Situations The Truth About Paying Fewer Taxes will give you a better understanding of taxes, thus giving you what you need to cut your taxes.

            The Truth About Paying Fewer Taxes, is a book written by Kay Bell. Kay is a fellow tax blogger (Don’t Mess With Taxes, Taxes: Eye on the IRS), She helped create Bankrate.com’s tax channel and continues to be a major contributor to Bankrate’s Tax Guide. I have had occasion to talk with Kay on the phone, and I communicate regularly with her via Twitter.

Kay’s writing is beautiful and gentile, like reading a great novel.

You can see a full list of the 52 truths just by looking at Barnes and Nobel’s Feature tab for The Truth About Paying Fewer Taxes Each one of the truths is explained in detail and in plain language, so you can save money and understand why you’re saving money.

I have been recommending this book to every one of my clients, and will continue to do so from now on.

I have a signed copy (yes, signed by Kay Bell the author) of The Truth About Paying Fewer Taxes and will be giving it away here.

How to enter:

Each of the following will count as one entry for a chance to win.

Please read the Contest Terms below.

ü  Leave a comment on this post stating how you prepared or will prepare your taxe return. (self, fast-food chain, CPA, software, free-file, Other-please describe)

ü  Subscribe to my RSS feed and leave a comment below to let me know you did so, or

ü  Subscribe to my email feed leave a comment here using the same email address with which you subscribed. (this will gain you two entries for the drawing)

ü  Blog about this contest and link back here from your blog. (Leave me a comment and link to your blog post here to let me know.)

ü  Follow me on twitter – @bruce_taxguy. Leave a comment here with your twitter username.

ü  Tweet about this contest and leave a comment to let me know you did so.

Bonus Entries: Leave comments on other posts on this blog. If you’re new to taxguy, visit earlier posts. The comment(s) must show some thought and not just “I agree” or “Great idea.” Come back to this post and let me know which post(s) you commented on. Each approved comment will gain you an additional entry.

Contest Terms

Ø  The contest begins now and ends at 11:59PM EST on March 17^th, 2009. Comments to this post will be closed at that time.

Ø  1 winner will be randomly selected using a random integer generator at random.org.

Ø  I will contact the winner via the email address used to comment here.

Ø  The winner will have 3 days to respond with necessary contact information for mailing prize. (I will send a 2nd notification email after 2 days if we have not heard back.)

Ø  If the winner does not respond after 4 days, a new winner will be selected from remaining entrants.

Prize Terms

While I will do my best to ensure proper delivery of the winners autographed copy of The Truth About Paying Fewer Taxes, I am not liable for non-delivery due to:

v  Incorrect mailing and contact information provided by the winner

v  Loss or error on the part of the postal service or delivery personnel

v  Any other matter beyond my control

Notes From the IRS

Posted by Bruce Mc on Feb 1, 2009 in Choosing a preparer, Deductions, Exemptions, Filling Status, Form 1040 Information, News Flash, Opinions, Preparer, Tax Preparation, Things forgotten | 2 comments

What you'll need

Posted by Bruce Mc on Jan 7, 2009 in Deductions, Filling Status, Form 1040 Information, Opinions, Preparer, Re post, Tax Preparation | 0 comments

(This is an edited repost from September 15^th.)

            Well here we are, January and it is time to start getting your tax information ready. But what do you need? Twelve months have passed. With the economy the way it is many have already been thinking about their taxes, some haven’t.

            Getting things ready to take in to your tax preparer is sometimes a grueling event. Be it for a return filed on time, or for the extension you might still be working on. Now mater when you do this, most everybody is going to need to bring the same things.

ü  Be sure to include any changes in address, dependents, filing status, or any other substantive changes from the prior year which would have impact on this years return.

ü  W-2s from all jobs.

ü  Forms 1099 from all investments and bank accounts (be sure they are all accounted for as the IRS has a complete –sometimes- list).

ü  Brokerage statements, interest, dividends, etc.

ü  Student loan interest, child care expenses, tuition, and any other miscellaneous deductions/income.

ü  Summary of property taxes with copies of all individual items over $1,000.

ü  Summary of All valorem Taxes (property tax on cars) with copies of all individual items over $1,000.

ü  Form 1098 reporting home mortgage interest.

ü  Documentation of mortgage insurance

ü  Form K-1s from any estate(s), partnership(s), or S corporation(s) from which you’ve received an inheritance. Call and check if you are missing any, as these often do not arrive until March or April.

ü  Summary of all medical expenses with copies of all individual items/receipts over $1,000. Along with mileage, and any insurance reimbursements.

ü  Records of gambling profits and losses. To offset reportable profits, you must have an accurate log of expenses and losses including amounts, dates, and locations.

ü  Itemized record of charitable donations, including cash, checks and donated property.  Keep all receipts.  If value of donated property exceeds $500, an itemized list is necessary.

§  Example list: “12 shirts, 3 suits, and2 jackets” with fair market values, as opposed to a “bag of clothes,” will allow a true value for the items. (You can find my researched FMV guide at Fair Market Value Guide for Used Items (2008). Updated for this year –filing for 2008 returns)

§  Charitable gifts over $500 must include a receipt from the charity.

ü  A copy of last year’s tax return. (last three years if you  are a new client to your preparer)

ü  A list of financial goals and the last three years of returns, if seeking counsel.

Some additional items you may need to give:

ü  Alimony paid or received, including Social Security Number of recipient (save cancelled checks)

ü  Records of purchase and sale of a personal residence, including the settlement statement from closing (Keep records of all home improvements.)

ü  Schedule of estimated federal, state and local taxes paid during the year

ü  Child care expenses and provider information.  The tax identification number of the provider is required.

ü  Information on IRA contributions made or to be made for the tax year

ü  Summary of moving expenses, if eligible for the moving expense deduction

ü  Summary of casualty losses from fire, theft or natural disaster

ü  Receipts and records for all business-related income and expenses

ü  Job-related expenses, such as union or professional association dues, work clothing, tools, supplies, job-hunting and job-related education.

ü  Log book for business use of a vehicle.

ü  Other records relating to vehicles purchased or leased during the year for which you are claiming business expense deductions

ü  Records of all income from and expenses paid for rental real estate you own

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If You Can Answer Yes to the Following Questions, You Should Give All Related Documents to Your Tax Preparer.

ü  Did you pay interest on higher education loans?

ü  Were there any births, deaths, adoptions, divorces or marriages in your household?

ü  Did you convert a traditional IRA to a Roth, or re-characterize a Roth back to a traditional IRA?

ü  Did you receive tip income?

ü  Did you receive a notice from the IRS, state or local taxing agency regarding a prior year tax return?

ü  Did you receive installment payments on property sales?

ü  Did your children under 14 years of age receive investment income?

ü  Did you support anyone other an your own children?

ü  Did you make gifts to any individual other than your spouse of more than $12,000?

ü  Do you have a foreign bank account?

ü  Did you refinance your mortgage during the year?

ü  Did you pay points to purchase a home or refinance a mortgage during the year?

ü  Did you receive non-taxable sick pay?

ü  Did you have household employees?

ü  If you did not receive a W-2 from a former employer, do you have the final pay stub from that employer?

ü  Did you receive money from a lawsuit?

ü  Did you receive money from any other source not previously mentioned in this checklist?

As you can tell by the last question, this is not all inclusive. It is for this reason I regularly encourage taxpayers to have enough trust in their prepares to be able to tell them everything.

I mention in my post Choosing a tax preparer. . ., “If the tax professional you are talking to (or the tax practitioner you currently use) can’t do what you want honestly, don’t give him/her your business.”

In to all the above also make sure to have Notice CP 1378. This is the IRS notice that informed you of the Economic Stimulus Payment you may have gotten.

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      For more, check out Bankrate.coms peace by Kay Bell. Getting organized for the tax year.

TurboTax Giveaway

Filing Status

Posted by Bruce Mc on Nov 26, 2008 in Divorce, Filling Status, Form 1040 Information, Re post | 0 comments

This is of course could be the greatest misunderstood of filing statuses. Or at least one would think considering how many misuse the claim. Let’s examine so you don’t make this mistake.

            The IRS defines this as:

                        Head of Household

1.      You are unmarried or “considered unmarried” on the last day of the year.

2.      You paid more than half the cost of keeping up a home for the year.

3.      A “qualifying person” lived with you in the home for more than half the year (except for temporary absences, such as school). However, if the “qualifying person” is your dependent parent, he or she does not have to live with you.

Head of household is a status held by the person in a household who is running the household and looking after a qualified dependent. In order to qualify as head of household, the designated household must be located at the person’s home and the person must pay more than 50% of the costs involved in running the household. The benefit of having the head-of-household status is that it can result in lower tax rates.

Typically, the head of a household must also be unmarried. However, in certain situations, a married person can be the head of household. In addition to the requirements listed above, the married person must also file an individual tax return and the spouse of the married person must not have lived with the person for the last six months of the calendar year.

1.      Considered unmarried means on the last day of the year if you are divorced under a final decree, you are considered unmarried for the whole year. So on December 31^st of whatever year, if your divorce is finial, you are considered unmarried in the eyes if the IRS.

2.      More than half the cost means just that. If you paid 50.1% to maintain the home then, you paid more. If you were divorced in October, the divorce finalized December 30^th, make sure that for the year your spouse who is no longer in the home (?) paid more than one half of the cost for the total year. This is a case often misused.

An example: A husband, wife, two children home, and only one spouse worked. In mid July the working spouse filed for divorce and left the home to the other spouse and the children. The spouse with the children would not be able to claim Head of Household because they did not pay for more than half the cost of keeping up the home. 

3.      A qualifying person living in the home is another highly misused aspect of this status. A qualifying person as described by the IRS is:

If you still have questions about whether or not you can claim Head of Household, please contact me or your personal tax preparer.

            This is a re-post from 08/25/08