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FAQ's
1. How much does an unmarried dependent student
have to make before he or she has to file an income tax return?
If you are an unmarried dependent, you must a tax
return if your earned and/or unearned income exceeds certain limits.
You must file a return if any of the following apply.
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Your unearned income was more than $950
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Your earned income was more than $5,700.
Even if you do not have to file, you should file
a federal income tax return to get money back if any of the
following apply:
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You had income tax withheld from your pay
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You qualify for the earned income credit
2. How much of my unemployment compensation is taxable
this year?
You do not have to pay tax on unemployment
compensation of up to $2,400 per recipient. Amounts of over $2,400
are still taxable. Wisconsin does not follow the federal exclusion
for the first $2, 400 of unemployment exclusion.
3. Can a person receive a tax refund if they are
currently in a payment plan for prior year’s federal taxes?
As a condition of your agreement, any refund due
you in a future year will be applied against the amount you owe.
Continue making your installment agreement
payments as scheduled because your refund is not considered as a
substitute for your regular payment due.
You may not get all your refund in you owe
certain past-due amounts, such as federal tax, state tax, a student
loan, or child support.
IRS will automatically apply the refund to the
taxes owed.
4. If you pay child support, are you allowed to deduct
anything on your taxes or claim the child as an exemption?
Nothing can be deducted for the child support
payment. Child support payments are neither deductible by the payer
nor taxable income to the payee.
You may be able to claim the child as a dependent.
The parent whom the child lived with for the greater part of the
year is the custodial parent.
Generally the custodial parent is allowed to claim the exemption for
the child if the other exemption tests are met.
The noncustodial parent may be allowed to claim the exemption for
the child if the custodial parent signed a Form 8332,
Release/Revocation of Release of Claim to Exemption for Child by
custodial Parent of Divorced or Separated Parents, or a
substantially similar statement.
5. I am divorced with one dependent child. This year my
ex-spouse will claim the child as an exemption. Does this mean I cannot qualify
as a head of household?
You can file as head of household even though you
do not claim your unmarried dependent child as an exemption if you
meet all of the following requirements:
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You are unmarried or considered unmarried on the last day of the
year.
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You paid more than half the cost of keeping up a home for the year.
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A qualifying person must live with you in the home for more than
half the year (except for temporary absences such as school).
6. Is the loss on the sale of your home deductible?
The loss on the sale of a personal residence is a
nondeductible personal loss.
7. Must a partnership or corporation file a tax form even
it though it had no income for the year?
A domestic partnership must file an income tax
form unless it neither received gross income nor pays or incurs any
amount treated as a deduction or credit for federal tax purposed.
A domestic corporation must file an income tax form whether in has
taxable income or not.
8. Does a small company need a tax ID number?
A sole proprietor who does not have any employees
and who does not file any excise in pension plan tax returns does
not need an employer identification number. In this instance, the
sole proprietor used his or her social security number as the
taxpayer identification number.
If you are the sole owner of an unincorporated LLC (Limited
Liability Corporation) that has employees you now need to get a
separate EIN to file employment taxes for tax years starting on or
after January 1, 2009.
9. What are the changes to Flexible Spending Arrangements?
Effective Jan. 1, 2011, the cost of an over-the-counter
medicine or drug cannot be reimbursed from Flexible Spending Arrangements
or health reimbursement arrangements unless a prescription is obtained.
The change does not affect insulin, even if purchased without a prescription,
or other health care expenses such as medical devices, eye glasses, contact
lenses, co-pays and deductibles. The new standard applies only to purchases
made on or after Jan. 1, 2011, so claims for medicines or drugs purchased
without a prescription in 2010 can still be reimbursed in 2011, if allowed
by the employer’s plan. Employers and employees should take these changes
into account as they make health benefit decisions for 2011.
10. Will I be able to provide Health Coverage for my Older Children?
Health coverage for an employee's children under 27
years of age is now generally tax-free to the employee. This expanded health care
tax benefit applies to various work place and retiree health plans. These changes
immediately allow employers with cafeteria plans –– plans that allow employees to
choose from a menu of tax-free benefit options and cash or taxable benefits –– to
permit employees to begin making pre-tax contributions to pay for this expanded
benefit. This also applies to self-employed individuals who qualify for the self-
employed health insurance deduction on their federal income tax return.
The “What Ifs” of an Economic Downturn
11. What if I lose my home through foreclosure?
Under the Mortgage Forgiveness Debt Relief Act of 2007, taxpayers
generally can exclude income from the discharge of debt on their principal residence
or mortgage restructuring. This exception does not apply to second homes or vacation
homes. In some cases, you may be able to file an amended tax return for previous tax
years.
12. What if my debt is forgiven?
The tax impact of debt forgiveness or cancellation depends on your
individual facts and circumstances. Generally, if you borrow money from a commercial
lender and the lender later cancels or forgives the debt, you may have to include the
cancelled amount in income for tax purposes. The lender is usually required to report
the amount of the canceled debt to you and the IRS on a Form 1099-C, Cancellation of
Debt. There are several exceptions to the taxability of cancelled debt, such as
insolvency or bankruptcy.
13. What if I can’t pay my taxes?
Don’t panic. If you cannot pay the full amount of taxes you owe,
you should still file your return by the deadline and pay as much as you can to avoid
penalties and interest. You also should contact the IRS to discuss your payment options
at 1-800-829-1040. The agency may be able to provide some relief such as a short-term
extension to pay, an installment agreement or an offer in compromise. In some cases,
the agency may be able to waive penalties. However, the agency is unable to waive
interest charges which accrue on unpaid tax bills.
14. Will JAK & Associates be offering RAL’s (Refund Anticipation Loans)
this tax season?
No, we will no longer be offering RAL’s. The Internal Revenue
Service announced that starting with next year’s tax filing season it will no longer
provide tax preparers and associated financial institutions with the “debt indicator,”
which is used to facilitate refund anticipation loans (RALs). RALs are loans secured
by a taxpayer’s anticipated tax refund. Currently, tax preparers who electronically
submit a client’s tax return receive in the acknowledgment file an indication of whether
an individual taxpayer will have any portion of the refund offset for delinquent tax or
other debts, such as unpaid child support or delinquent federally funded student loans.
This acknowledgment is known as the debt indicator, and is used as an underwriting tool
for RALs.
15. Would I be able to pay for my tax preparation from my refund?
Yes, beginning this year, having your fees paid to us from your refund
will be an option. Tax preparation fees are subtracted directly from the refund, and the
taxpayer does not make any “out-of-pocket” payments.
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