- 1 CHARITABLE DEDUCTIONS - What values do I give for my donated items?
- 2 EDUCATION EXPENSES -When are my education expenses 100% deducible as employee business expenses?
- 3 FILING STATUS - Is there ever an advantage to file as "married, but filing separate?'
- 4 FILING STATUS - My spouse owes the IRS, should I file separate? Will I lose my refund?
- 5 FILING STATUS - We are having marital difficulties, or my spouse does not want to file, how should I file?
- 6 FILING STATUS - What is a "qualifying person" to be a considered a dependent?
- 7 FILING STATUS - What is the difference between Head of Household and Married?
- 8 NEW CLIENT - Why does TravelTax need to see my last year's tax return?
- 9 NEW CLIENT - Why does TravelTax require so much information and ask so many questions?
- 10 MEDICAL & DENTAL DEDUCTIONS - High-deductible Spending Account (HSA)
- 11 MEDICAL & DENTAL DEDUCTIONS - I have expenses every year, but they get zeroed out.
- 12 RETIREMENT - What is the difference between an IRA and ROTH IRA?
- 13 W4 - Can I get in trouble if I claim to be exempt and have no taxes withheld?
- 14 what is the difference between single and head of household
- 15 Head of Household Filing Status Qualifications vs. Single – IRS Tax Filing for Single Parents
CHARITABLE DEDUCTIONS - What values do I give for my donated items?
Many taxpayers have grown up with a type of "old wives’ tale" of entering $500 on the charity deduction line, because it did not need to be substantiated. (wink, wink) Those days are over! Today, receipts are required for every donation, AND depending on what is donated and how much is claimed, the receipt requirements get stricter and stricter.
If you have the remotest possibility of itemizing, get a receipt for everything. It must have the date, organization name, and donated amount/value. For non-cash charitable donations (clothing/household items) the receipt should also have some sort of listing of items. Because many of these donation facilities have only tiny receipt slips, it is acceptable to attach your own itemized list of items to the receipt.
The valuation of you non cash charitable donations can be found in multiple areas of the internet. Below we have lins to the two main donation center valuation guides. Hopefully you can utilize these lists to create your own records.
EDUCATION EXPENSES -When are my education expenses 100% deducible as employee business expenses?
It is deductible when it is a requirement of the job, or improves your skills, and DOES NOT qualify you for a new profession. An associate’s degree to bachelors in many healthcare jobs almost always falls under this qualification. There are several situations that advanced degrees will also qualify for these deductions. Employee education expenses encompass: Tuition, books, equipment, mileage driven to and from school, even partial computer and internet costs. Call the office to talk over your particular situation.
There are many individuals that have put off filing returns for years. Eventually it catches up to you especially if the taxing agencies calculate a tax delinquency based on their own data, or you hold a professional practice license that requires the filing of a return.
The IRS will typically send a letter asking for a filing and if no response is made, will file a return for the taxpayer based on a married filing separate or single filing status. No refunds are issued – that requires a filed return, but any delinquencies that the IRS calculates with be pursued. This is where most back filers find themselves when they come to us.
The attack plan is to file a return. That sounds simple but it can become complex when there are no records or W2’s. The IRS can provide the information that they have, but many states do not keep a record of income and withholding that would be found on your W2. Many individuals who have not filed and have large amounts due ask whether that can make an offer to settle their taxes at an amount less than the amount of the delinquency. The IRS has strict guidelines for this, but you must have all the returns filed before this can be pursued.
FILING STATUS - Is there ever an advantage to file as "married, but filing separate?'
FILING STATUS - My spouse owes the IRS, should I file separate? Will I lose my refund?
There are tax breaks for filing jointly, so it usually best to go that route. File separately only if you are unable to get your spouse's information and signature. The thing to realize is that even with a joint return, the IRS has forms for allocating income tax, liability, and a proportional refund. They can issue refund checks in your name only, and even mail them to a different address if needed. Don't sacrifice your money because of fears. Call us to talk this over and understand your options.
FILING STATUS - We are having marital difficulties, or my spouse does not want to file, how should I file?
What you wind up doing here is balancing financial benefits and the status of your relationship. If you can, you want to avoid filing separately. It rarely benefits either person, due to preset limitations.
If both of you can cooperate enough to file as married, and split the refund appropriately, this is best.
If you are legally separated on the last day of the year, or have not lived together between July 1st-Dec 31st, you may file as single or head of household (if you qualify with a dependent).
FILING STATUS - What are the regulations for registered domestic partners/civil unions/same sex marriages?
This is an ongoing area of change in the tax world. For now, the question is limited to the states that allow for same sex marriages or civil unions. Only a handful of states have a provision for joint filing and unlike common law marriages, this status is not portable, meaning that another state will recognize a union consummated in another state. Call us to discuss your particular situation.
FILING STATUS - What is a "qualifying person" to be a considered a dependent?
This is a topic that can be filled with "IFs9quot; and "ANDs.9quot; The IRS.gov website is really the best place to go to review the requirements and follow the flow sheets.
As always, feel free to give us call or email us with your questions.
FILING STATUS - What is the difference between Head of Household and Married?
If you are of a married on the last day of the year, you are considered married for the whole year, regardless of whether your spouse works outside of the home or not. There is a financial benefit of joint status that should never be ignored. However, if you are having marital problems, see the other tabs.
Head of Household means that you are unmarried (or considered unmarried) on the last day of the year and can claim dependent. = Qualifying person who has lived with you for over 6 months of the year, and you are responsible for maintaining over half the cost of the home. Exceptions exist if that dependent is away from home for temporary absences like school, or if it is a parent (who may be living in a assisted facility).
Let’s clarify what a deduction is first. A deduction represents money spent on something that the government decided you do not have to be taxed on. It is money that you have already spent.
Itemizing is a hassle. Receipts have to be kept and categorized throughout the year. Then they have to be listed on your return, math has to be done with percentages and your AGI. Then all of those records need to be saved in case of an audit.
When tax returns were first implemented, it created a lot of paperwork for a lot of people. As a result, the IRS decided to create a Standard Deduction. It represents the average amount that the average person would deduct if he/she were to itemize. No records required. Just subtract that one number from you AGI and you are done. No receipts or records needed. But what about the non-average person who happens to have more than the standard? They are allowed to itemize every qualifying deduction.
What about the person that has less than average? They luck out with more than their share of deductions when they did not even spend the money. Ergo: 50% of the people that “just take the standard deduction” are actually making out better than they deserve!
The 2016 standard deduction for a single individual is $6,300 ($12,600 for married filing jointly). If you have more than this in deductions you need to be more diligent in saving receipt and records. To be honest, the best thing to do is to print out one of our workbooks. If we ask for a number, you need to keep a record or receipt for it. If it is not in there, throw it away. We constantly update our workbooks to be accurate.
NEW CLIENT - Why does TravelTax need to see my last year's tax return?
NEW CLIENT - Why does TravelTax require so much information and ask so many questions?
We defend any return we prepare free of charge. Any penalties or interest that are due to our mistakes, we pay. Our integrity is our most valued asset. You won't find many tax offices like that!
As a side note, we also keep copies of everything you send us in PDF format. In the event of an audit, we will have most of the information we need. In the event that you have all of your records lost or destroyed, we can give you copies of all of your returns, old W2s, etc., free of charge.
MEDICAL & DENTAL DEDUCTIONS - High-deductible Spending Account (HSA)
HSA are used in conjunction with high deductible health insurance plans. They give the taxpayer the opportunity to put away pretax money into an account AND earn interest/capital gains that grows tax free. Amounts can be withdrawn without penalty or taxes if used for medical purposes. It works on a lifetime accumulation and stays with you until it is used up, regardless of whether you decide at a later date to switch over to a regular insurance plan.
The catch is that the annual deductible for your insurance is high, so it is much better deal for the healthy who are less likely to have regular expenses.
Many use it as a way of adding to their retirement funds if they have already maxed out their retirement contributions for the year. After all, as you age, you are almost guaranteed to have regular medical expenses and you will be able to use your HSA, and save your IRA and retirement money for other fun things. like your winter condo in Arizona!
MEDICAL & DENTAL DEDUCTIONS - I have expenses every year, but they get zeroed out.
Most taxpayers are aware that they can deduct medical and dental expenses, but they do not understand the 10% AGI floor. The AGI for the year (bottom line on the first page of the 1040) gets multiplied by .10 and that sum is subtracted from your total deductible medical expenditures for the year. (A $50,000 AGI reduces your medical deductions by $5000.) For most individuals, it reduces their deduction to zero.
This is why we encourage participation in a FSA or HSA, because it is the only way to avoid the 10% reduction.
Only the after tax expenses are eligible to be claimed as a deduction.
- Most employer provided health insurance is paid for with pre-tax money (taken out of your paycheck) and does into qualify.
- Any medical expenses paid out of a Flexible Spending Account or a HSA are pre-tax and do not qualify.
What needs to be kept and for how long? Because the IRS has up to 3 years to audit a return, and often they notify taxpayers about 2 years into that time period. How well can you remeber what you did 3 years ago? Some travelers have to recreate their assignments with correct dates and expenses or pay thousands to the IRS becuse the records have been lost.
Anything used to obtain the numbers on the tax return needs to be kept 6 years and you shoudl probably extend that to 7 to cover the end of the year. (If the IRS suspects major issues with unreported income, -and travelers have a lot of income tied up in reimbursements, -they can then open the audit up to 6 years.)
What is the point of defining a refund? By explaining first what it is not. It is NOT free cash that a conniving tax preparer embezzles from the government. (ha ha!)
So what is it? It is a result of too much money being withheld from a paycheck. That’s all. That is why the IRS calls it an OVERPAYMENT. Look at the bottom lines of a tax return and you will see that the IRS is refunding the overpayment. At the end of the year “the books are settled” when the tax return is filed. Too much withheld = refund; not enough put in = owe.
Does the person that gets a $4,000 refund realize they overpaid the government by $330 every month? And then they say they need their tax refund to pay off bills!
RETIREMENT - What is the difference between an IRA and ROTH IRA?
ROTH's are unique in that contributions are after tax - there is no tax deduction for contributing to a ROTH. (However there are income limits.) The beauty of this situation is that while you pay taxes on what you put in, you don't pay taxes on the capital gains/interest when you take it out, provided you take it out under the withdraw guidelines. The other IRA's are salary deferral arrangements. Contributions to these programs are tax deductible, but upon retirement, the earnings are taxable.
High income taxpayers generally benefit more in the long run with traditional IRAs. Young, or low income individuals usually benefit with the ROTH, because that money has a long time to grow.
Talk to your investment advisor about what is right for you.
This requires a lengthy list of “what ifs” that space here does not provide, and combinations of plans can be pursued that will increase the amount that can be contributed. Also, the plans that one would pursue as an employee can produce a result very different from that of a self-employed individual. A self-employed individual can contribute roughly 20% of their net profit based on a rather confusing formula. Profit sharing plans can be added to increase this amount.
We work closely with an investment/financial advisor to achieve the maximum benefit for our clients.
W4 - Can I get in trouble if I claim to be exempt and have no taxes withheld?
IRS Tax Topic 306 from the IRS.gov website is very clear on this, so we will just quote: “The United States income tax is a pay-as-you-go tax, which means that tax must be paid as you earn or receive your income during the year. You can either do this through withholding or by making estimated tax payments. If you do not pay enough tax, you may have to pay a penalty for underpayment of estimated tax. Generally, most taxpayers will have paid enough tax to avoid this penalty if they owe less than $1,000 in tax after subtracting their withholding and credits, or if they paid at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, whichever is smaller.”
The point to take away from this is: Do not adjust a W4 so there is waaaay too little money taken out of a paycheck, or there may be penalties to pay!
Many fill these out with fear and trembling, probably due to the phrase just above the signature, stating that the signer of the document is under penalties of perjury, but in reality, that is only so there is a legal recourse for income tax evasion when someone declares themselves exempt. The true purpose of this form is so the employer withholds the correct amount from each paycheck.
As long as the correct amounts are withheld, the IRS could care less if you have withholding at the higher single rate and declare 7 exemptions. But they do want their money, and if these forms are filled out incorrectly, resulting in less than: a) 100% of the previous year’s tax liability or b) 90% of the current year’s liability, there are penalties come filing time.
If you have more than one job and file the W4s out correctly for your status, there will be an overcalulation of your deductions and the witholding on your paychecks will be too low, causing a painful amount due come tx time. This is because each payroll department knows nothing about the other job. They each calculate your standard deduction and personal exemptions before they take out the taxes. For a single person that means their income was underestimated by about 10K! SInce each exemption is worth about 4k, you can drop 2 exemptions and it shoudl work out a little better, or at least less painful. - - A single person would then put Single and zero deductions for both jobs.
what is the difference between single and head of household
Registration and Vital Statistics
A. Relationship to head or other reference member of household (paras. 2.67.- 2.76.)
A household is classified as either:
The persons in the group may pool their incomes and have a common budget to a greater or lesser extent; they may be related or unrelated persons or a combination of persons both related and unre l ated. This arrangement exemplifies the housekeeping concept. In an alternative definition used in many countries exemplifying the so-called household-dwelling concept, a household consists of all persons living together in a housing unit.
The family within the household, a concept of particular interest, is defined as those members of the household who are related, to a specified degree, through blood, adoption or marriage. The degree of relationship used in determining the limits of the family in this sense is dependent upon the uses to which the data are to be put and so cannot be established for worldwide use.
A.3 Difference between the concept of household and family
From the definitions of "household9quot; and "family9quot;, it is clear that household and family are different concepts that cannot be used interchangeably in the same census. The difference between the household and the family is
that a household may consist of only one person but a family must contain at least two members and
that the members of a multi-person household need not be related to each other, while the members of a family must be related.
Moreover, a family cannot comprise more than one household; a household, however, can contain more than one family, or one or more families together with one or more non-related persons, or it can consist entirely of non-related persons.
B. Household and family composition (paras. 2.77.- 2.83.)
A family nucleus is of one of the following types (each of which must consist of persons living in the same household):
Couples living in consensual unions should be rega r ded as married couples.
Households should be classified by type according to the number of family nuclei they contain and the relationship, if any, between the family nuclei and the other members of the household. The relationship should be through blood, adoption or marriage, to whatever degree is considered pertinent by the country. Given the complexity of this item, it is important that information on relationship to the household head or reference person be properly processed.
The types of household to be distinguished could be:
Nuclear household, defined as a hou s ehold consisting entirely of a single family nucleus. It may be classified into:
Extended household, defined as a household consisting of any one of the following:
Two or more family nuclei related to each other without any other persons, for example, two or more married couples with child(ren) only;
Composite household, defined as a household consisting of any of the following:
C. Household and family status (para. 2.84.)
For purposes of determining household and family status and identifying how a person relates to other household or family members, persons may be classified according to their position in the household or family nucleus. Classifying persons according to household and family status has uses in social and demographic research and policy formulation.
Census data could be presented according to both household and family status for a variety of purposes. Although status itself is based on information derived from responses to the item on relationship to the head or other reference member of the household and other items, the classification of persons by their household and family status is a relatively new approach: it is a different approach from the traditional one of classifying household members solely according to their relationship to the head or reference person. The following household and family status classifications illustrate how such an approach may be used.
Persons are classified by household status as:
Head of Household Filing Status Qualifications vs. Single – IRS Tax Filing for Single Parents
Restarting life after divorce as a newly single parent can really take its toll on you emotionally, mentally, and financially. Similarly, having a child with someone you never married, and are no longer in a relationship with, can be equally difficult. If you’re in one of these situations, your tax filing status is probably one of the last things on your mind.
However, you can’t ignore this important issue: filing your taxes with the most beneficial status for you can lead to a significantly larger tax return. As someone who recently divorced and is now a single parent, I can tell you that every penny counts! Take the time to research your tax filing status thoroughly and you will be able to ease at least a small portion of your financial worries.
Once you’ve decided to evaluate your tax filing status, the next logical question is whether it is better to file as single or head of household. The answer is simple – you either qualify for one status or the other. There is no decision-making process.
Since I recently got divorced, I had to determine which filing status applied to me. As it turns out, for last year, I qualified for head of household. Had I not done my research and realized that I qualified, I would have left a lot of money on the table by filing as single (most likely, the IRS would not have notified me since the error would have been in their favor).
To help ensure you don’t make that mistake, I have outlined the qualifications and benefits for each status below:
Before we get into the hows and whys of single and head of household status, I want to mention three key points:
- Keep Your W-4 Up to Date. If you are a newly single parent, according to the IRS, you must submit an updated W-4 form with your employer within ten days of your divorce being finalized. This will help keep your federal income tax withholding accurate.
- Your Status Carries Over. Your legal, marital status on the last day of any tax year will basically determine your filing status for that entire year. If you were divorced on December 31 of last year, then you are considered divorced for the entire year in the eyes of the IRS.
- You Don’t Want to Screw This Up. Believe me, even though you may consider yourself to be the “head of the household,” you may not be under the rules of the IRS. Make sure you do your research and get it right the first time. It’s not like you can file your taxes with an incorrect status and wonder if the IRS will ever figure it out. By filing under an incorrect status, you risk having your entire return rejected by the IRS, or being subject to additional taxes, interest, and penalties.
Basically, while filing incorrectly could help you out in the immediate future, if it’s done wrong, it could become costly over the long run. Keep these points in mind as you read on.
As far as figuring out if you qualify as a “single9rdquo; person, the guidelines are pretty straightforward. According to the IRS, your filing status is single if, on the last day of the year, you are unmarried or legally separated from your spouse under a divorce or separate maintenance decree, and you do not qualify for another filing status.
I’ll be honest with you – you would be hard-pressed to find any significant financial benefits to filing as single, especially if you were divorced and will now lose out on your ex-spouse’s tax deduction. This is one of the reasons why you need to make sure that you don’t qualify for the head of household status discussed below. If you don’t, then you have no other choice than to file as single.
But, if you do have to file as single, there is a silver lining:
- Simplified Returns. Your return should be much easier to compile. You might even be able to use the 1040-EZ form rather than the standard 1040 tax form. This means you could utilize free online tax preparation software and services.
- Less Paperwork to Dig For. Additionally, you can look forward to a less complex return as you are only filing your taxes based upon your own personal tax documents. This means less research and less document gathering. Trust me, this could be a big benefit if you are recently divorced and are not on the greatest terms with your ex-spouse.
The rules for being eligible for head of household are complicated, extensive, and very specific. In fact, they are so specific that I am not able to outline every single qualifier in this article. I strongly encourage you to talk to your accountant or visit the IRS website before determining your filing status.
In a nutshell, here are the qualifications:
You must have a qualifying dependent who is related to you and also meets the requirements to be either a “qualifying child” or “qualifying relative.”
- Qualifying Relative. In order to be considered a qualifying relative, that person must not meet the requirements as a qualifying child or relative of anyone else. Their gross income must be less than your federal exemption amount for that year, and you must have had provided more than half the support of that person during the calendar year.
- Qualifying Child. The person must be under 19 years of age, or a full-time student under the age of 24. They must have lived with you for more than half the year and not have provided for more than half of his or her own support.
You must also pay more than half the costs for the maintenance of the home in which you and your qualifying dependent lived for more than half the year.
To illustrate a little more clearly, I found that I qualfied for the head of household status because I was divorced late last year and therefore paid for more than half the support of my son (my qualifying child) for the calendar year. He did not meet the requirements as a qualifying child for anyone else, and also lived with me for more than half the year. Unfortunately, I will not be able to qualify for head of household next year, as my son won’t be living with me for more than half the year.
In very limited instances, you may qualify to file as head of household even if you are still legally married.
In short, although it may be much more difficult to decipher whether or not you qualify for head of household, if you do, the tax breaks are significant. Here are a couple of ways you’ll benefit:
- Higher Standard Deduction. The standard deduction for head of household is much higher ($8,500 for head of household vs. $5,800 for single filers).
- More Favorable Tax Rates. You get more favorable tax rates because, as a head of household filer, you qualify for lower tax brackets (depending on your income) than you would if you filed single.
Ultimately, with these benefits, it is clear that filing as head of household is a much better option than filing as single.
I am recently divorced as I mentioned, and the dramatic effect it has had on virtually every area of my life has been tremendous. Regardless of this, now is the time that I need to keep my “eye on the ball” when it comes to my finances.
The cost of my monthly child support check is significantly higher than what my actual costs were to raise my child. There’s nothing I can do about that, however. What I can do is take charge of saving some dough in every other area of my life – whether it be groceries, car insurance, utility bills, or taxes.
Be sure to investigate the matter thoroughly. If you do qualify for head of household status, then file that way! Your benefits are sure to be worth the effort.
What are your thoughts on filing single vs. filing head of household?