FAQs_Frequently Asked Questions
Q : Why even pay taxes?
A : Taxes are what we pay in order to purchase a civilized society. So, for this reason and many more, pay your taxes, too; because, government workers need to be paid as well to keep the engine of civilization running smoothly. They are serving God in what they do too.
Q : Is there an age limit on claiming my child as a dependent?
A : To claim your child as your dependent, your child must meet the qualifying child test or the qualifying relative test as set by the IRS.
Q : How much does an unmarried dependent student have to make before he or she has to file an income tax return?
A : If you are an unmarried dependent student, you must file a tax return if your earned and/or unearned income exceeds certain limits. To find these limits, contact us for more info. Even if you do not have to file, you should file a federal income tax return if you can get money back (e.g. you had federal income tax withheld from your pay or you qualify for the earned income tax credit).
Q : To qualify for head of household filing status, do I have to claim my child as a dependent?
A : In certain circumstances, you do not have to claim your child as a dependent to qualify for head of household filing status; for example, a custodial parent may be able to claim head of household filing status even if he or she released a claim to exemption for the child.
Q : My university required each incoming freshman to come to school with their own computer. Is there any way to deduct the cost of the computer from my tax liability?
A : The cost of a personal computer is generally a personal expense that is not deductible. However, you may be able to claim an American opportunity tax credit if you need to have a computer to enroll or attend your university.
Q : I donated a used car to a qualified charity that the charity sold immediately after I donated it. I itemize my deductions and would like to take a charitable contribution deduction for the donation. Do I need to attach any special forms to my return? What records do I need to keep?
A : If you claim a deduction of at least $250 but not more than $500 for the car donation, you will need a written acknowledgment from the charity. If more than $500 but not more than $5000 for the car donation, the written acknowledgment from the charity must be timely and specific in meeting certain IRS guidelines.
Q : May I claim both my job-related education expenses (minus 2% of AGI) and one of the education credits on my tax return?
A : Yes, but you cannot use the same educational expenses to claim both benefits (no double benefit).
Q : My father is in a nursing home and I pay for the entire cost. Can I deduct these expenses on my tax return?
A : Nursing home expenses are allowable as medical expenses in certain instances.
Q : How does Obamacare (ACA) reform impact my taxes?
A : With effect from 2014, if you don’t carry any health insurance, even though you can afford one, shared responsibility payment will be assessed (as penalty).
- For 2014, it is 1% of yearly household income OR $95 per person plus $47.50 per child under age 18, whichever is higher but not more than a total of $285;
- For 2015, it is 2% of yearly household income, OR, $325 per person plus $162.50 per child under age 18;
- For 2016, it is 2.5% of the yearly household income, OR, $695 per person plus $347.50 per child under age 18.
Shared responsibility is prorated based on the number of months the taxpayer failed to comply with the ACA mandate.
Additional Helpful Resources
Vital IRS Information:
A dependent must be either a “qualifying child” or a “qualifying relative.” You are allowed one exemption for each person you can claim as a dependent.
Single, married filing jointly, married filing separately, head of household…all these and more explained.
Head of Household Test
DON”T just claim ‘HH’, avoid IRS troubles; for any Taxpayer to file as Head of Household, the Taxpayer MUST MEET ALL of the following requirements:
1. You are unmarried on the last day of the year.
2. You are paid more than half the cost of keeping up home for the year.
3. A qualifying person must live with you in the home for more than half of the year (except for temporary absences, such as school). However, your dependent does not have to live with you.
Individual Retirement Arrangement (IRA)
No contributions are allowed to a traditional IRA in and after the year you turn age 70 1/2. At that age, there is a required minimum distribution (RMD) that must be withdrawn each year.
Simplified Employee Pension Plan (SEP)
Simplified Employee Pension (SEP) Plan is a type of tax-deferred retirement savings plan for the self-employed and small business owners. SEP IRA are funded using pre-tax dollars, hence, helping to reduce federal taxes due.
Rental Income & Expenses
Owning rental property is often a good way to increase your net worth. Click here to read IRS 7-Tips on this issue.
Married Filing Jointly (MFJ) vs. Married Filing Separately (MFS)
Wondering which filing is best for you? Well, it typically depends on some factors. However, we don’t usually encourage the filing as MFS for the following reasons: First, Taxpayers will not be eligible to claim the following tax benefits:
- Tuition and fees deduction
- Student loan interest deduction
- Tax-free exclusion of US bond interest
- Tax-free exclusion of Social Security Benefits
- Credit for the Elderly and Disabled
- Child and Dependent Care Credit
- Earned Income Credit
- Education Credits
Secondly, there are a few other drawbacks of MFS, namely:
- Taxpayers have a much lower income phase-out range for IRA deductions.
- Both spouses must claim the standard deduction, or both must itemize their deductions. One spouse cannot claim the standard deduction if the other is itemizing.
- MFS filing status generally pays the most tax of ALL the filing statuses.
The PATH Act of 2015
The much talked about “Protecting Americans from Tax Hikes” (PATH) Act of 2015 has now been signed into law on December 18, 2015 by President Barack Obama. Here is a list of key provisions in “PATH” Act:
A. Credits Made Permanent:
Enhanced Child Tax Credit; Enhanced American Opportunity Tax Credit; Enhanced Earned Income Tax Credit; Above-The-Line Educator Deduction; Sales Tax Deduction; Enhanced Mass Transit And Parking Pass Benefits; IRA-To-Charity; R&D Credit; IRC §179 — Enhanced; Enhanced exclusion of Gain on sale of Small Business Stocks; as well as Built-In Gains Holding Period.
B. Extended through 2016:
Qualified Tuition Deduction; Non-business Energy Property Credit; COD Principal Residence Exclusion; Mortgage Insurance Premium now Deductible as interest.
C. Extended through 2019:
Bonus Depreciation — Phased Out!
First Year Bonus Depreciation on Automobiles — Enhanced!
Work Opportunity Tax Credit – now EXTENDED!