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Tax ~ Bookkeeping ~ Notary |
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Here are the answers to some frequently asked tax questions. If you have questions that are not answered here, call us at (310) 827-4TAX. Can I deduct alimony paid to my former spouse? If you are divorced or separated, you may be able to deduct the alimony or separate maintenance payments that you are required to make to your spouse or former spouse, or on behalf of that spouse I moved to a different state to accept a new job. Will I be able to deduct all of my moving expenses? If you moved because of a change in your job location or because you started a new job, you may be able to deduct your moving expenses. To qualify for the moving expense deduction, you must meet two tests. The first test is distance. The second test concerns time. You can only deduct certain moving expenses that were not reimbursed by you employer. What moving expenses are deductible? If you incur moving expenses in connection with a change in work location, some of your expenses may be deductible, whether or not you can itemize deductions. In order to qualify for any deduction , your new prinicipal work place must have increased your potential commute by 50 or more miles. That is the distance from your one work place to your old home is at least 50 miles more than the distance from your old workplace to your old home. Also, you must be employed at your new location for at least 39 weeks during the 12 months following your move. If you are self-employed, you must work full time in that general area for at least 39 of the 12 months following the move, and 78 weeks during the first two years. (these rules do not apply if you retire due to disability, or you are laid off or terminated for a reason other than misconduct.) Form 3903 lists the deductible expenses, which are:
You may NOT deduct: pre-move house hunting trips, temporary living expenses, cost of selling/renting/buying your old or new home. If you are reimbursed by your employer for deductible moving expenses, the total of those reimbursements will be listed as a “memo entry” on Form W-2, but will NOT be included in your taxable wages. No deduction is allowed or necessary. However, if your employer paid other expenses for your relocation that are not allowed as deductible moving expenses, these are taxed to you as additional wages. Can I take a deduction for the interest I paid on my student loan? Beginning January 1, 1998, taxpayers who have taken loans to pay the cost of attending an eligible educational institution for themselves, their spouse, or their dependent generally may subtract from income the interest they pay on these student loans. What income is tax free? Interest on municipal obligations is generally tax free, though it has to be listed on Form 1040. Some municipal interest may be subject to the Alternative Minimum Tax. Other tax-free income generally includes life insurance payments received on death of the insured, compensatory settlements for physical injuries (such as a car accident), gifts, health or accident insurance proceeds (unless you deducted the expenses on a previous return and received a tax benefit), child support, scholarships and grants used for educational expenses (not room and board) veteran’s benefits, welfare benefits, food stamps, workmen’s compensation benefits, rebates on purchases of personal property, most inheritances. Are lawsuit or accident settlements Taxable? Settlements to compensate you for physical injuries or sickness suffered in an accident are tax-free. So is the amount paid to compensate your for loss of your car, or medical expenses, unless previously claimed. Punitive damages awarded in a lawsuit, and any damages awarded for non-physical injuries, are generally taxable. Your legal expenses
in obtaining a judgment in your favor can be deducted only in the same
proportion, as the resulting damages are taxable to you. For example,
if your attorney won damages for your physical injury that were 80%
compensatory(not taxable) and 20% punitive (taxable), only 205 of the
fee paid to him can be claimed as a miscellaneous itemized deduction,
subject to the 2% of AGI. Your mother is your dependent if she meets all five of the dependency test. What are the dependency test: relationship, no joint tax return, citizenship or resident, income or support. If she meets all five-dependency test but she files her own tax return anyway, you can still take an exemption for your mother, but she can’t claim her own personal exemption on her return. Even if she doesn’t quite qualify as your dependent, you might be able to deduct her medical expenses that you pay for Can we still claim our 21 year old daughter as a dependent? The rule is that you can claim your daughter as a dependent as long as she is either under 19 or a full time student age 24 or under, and you provide at least half of her support. My child is a student attending college and working part time. Does he have to file a tax return? Whether he has to file a tax return depends on his filing status, age, and gross income. Assuming he is a US citizen or resident alien, and he is not blind, he must file a return if he can be claimed as a dependent on another person’s return, he had any unearned income, and his total income was more than $1,700.00. Examples of unearned income are taxable interest, dividends, capital gains, and trust distributions. A dependent with earned income must file a return only if his or her gross income is more than his or her standard deduction amount. My daughter is my dependent and receives dividend income. Does she need to file a federal income tax return? A federal income tax return usually must be filed for a child whose income included investment income, such as interest and dividends, and totals more than $1,700.00. There are special rules that affect the tax on certain investment income of a child under age 14. I own stock, which became worthless last year. Can I take a bad debt deduction on my tax return? If you own securities and they become totally worthless, you can take a deduction for a loss, but not for a bad debt. What is the advantage of electronic filing? The advantage is that you receive your refund in about two weeks. Another advantage is there are less errors because it goes directly to the IRS and no human is doing the data entry. What is considered rental income? Some examples are:
What is not included as rental income? Security deposits you are holding with the intent of returning it to the tenant at the end of the lease I have a home office. Should I take the deduction? Home office deductions
can save you money on your taxes, but you can take these deductions
only if you have a legitimate business at home and you use a space in
your home strictly for business purposes. You may be able to deduct 20% to 30% of your daycare expenses directly from your tax bill, as long as your expenses are to enable you to work or look for work. The best part of this is that you don’t have to itemize your deductions to claim this credit. What types of itemized deductions can I take? There are six main categories of itemized expenses that you can deduct on your taxes:
Are child support payments considered taxable income? No. Some types of income taxpayers receive are not taxable and child support is one of them.. When you total your gross income to see if you are required to file a tax return, do no include your non taxable income Are gifts, bequests or inheritances taxable? Generally, property you receive as a gift, bequest, or inheritance is not included in your income. However, if property you receive this way later produces income such as interest, dividends or rentals, that income is taxable to you. Can I deduct alimony paid to my former spouse? If you are divorced
or separated, you may be able to deduct the alimony or separate maintenance
payments that you are required to make to your spouse or former spouse,
or on behalf of that spouse.
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