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|11. If a relative gives me cash or any other type of property, do I need to report this as income, and how much can they gift to me?|
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|Answers to FAQ|
1. If you ask this question to the Internal Revenue Service you will receive a very elaborate answer that includes some tables and a worksheet; our answer is based on common sense. If you worked and got wages withheld from your pay we suggest you file a return so you can claim your withholding back. Furthermore, If you earn less than your filing status standard deduction (see relevant information for tax year 1998) you will not have any tax liability due. and if your earned wages are larger than this amount you should file a return.
2. For a child that can be claimed as a dependent, the income filing threshold is generally $650.00. If your dependent child has gross income of $650.00 or less, he/she is not subject to tax and does not have to file a tax return. If your child was under age 14 as of the end of the tax year, and had investment income of $1,300.00 or less, follow the regular filing rules and use either Form 1040EZ or 1040A. The "Kiddie tax" computation does not apply, so all of the child's income will be taxed at his or her own tax rate. If your child's investment income exceeded $1,300.00, the kiddie tax computation applies and you should report your child's income on Form 8615 and the income will be taxed at your tax rate.
3. Prior year tax returns can be amended by filing form 1040X. However, the statue of limitations limits the amount of time that you have in order to amend a return. The statue of limitations is of 3 years after the return was filed including extensions.
4. You can take almost anybody as your dependant as long as you contribute 50% or more for their support. Keep in mind that the person does not have to live with you nor the support has to be given for certain time; the rule has to do with 50% or more of their general support. In addition,if more than one person contributes for the individual's support, the one that claims the exemption must attach Form 2120 (Multiple Support Agreement) to his/her return.
5. You can get a four month extension by filing Form 4668 (Automatic Extension) by April 15. By filing an extension you avoid the late filing penalty. However, the extension does not extend the time to pay your income tax. If there is any tax due you should pay the tax with the extension.
6. Medical expenses are tax deductible, including travel and lodging to go seek medical treatment. Expenses related to health problems, if prescribed and supported by a doctor, are also tax deductible, such as massage treatment, spa treatment, etc. However, medical expenses are subject to 7.5% of Adjusted Gross Income (AGI). All medical expenses are reported on Schedule A.
7. Technically there is no limit on how much you can donate to a charitable organization. However, keep in mind that if your gift or contribution is in cash and exceeds $250.00, you must have a receipt from the charitable organization with their name, tax ID number and amount of your donation included on the receipt. In addition, if the donation is not in cash, and does exceed $500.00, the charitable organization must sign Form 8283 which must be included with your tax return.
8. The portion of interest paid is tax deductible. These payments are usually reported by a mortgage company on Form 1098, which should be included in your return on schedule A. If you do not receive a form 1098 or make the payments to an individual, you can still deduct the interest portion of the payments.
expenses not reimbursed by your employer are tax
deductible. These expenses are reported under Schedule A.
However, keep in mind that these expenses are subject to
2% of your Adjusted Gross Income (AGI). These expenses
can include job travel, union dues, job education,
general supplies, etc.
10. We are fairly sure you have heard at least 10 years. Well, the truth is you should keep your records for as long as the statue of limitations covers the return for that year. The statue of limitations is 3 years after the return has been filed, including extensions.
11. You do not include money that relatives or other people give you as a gift in you return. However, the income derived from this money is taxable after you received it.
12. You should report the sale of your home on Form 2119, however, tax or capital gains are not paid from the sale if the house is replaced within two years for another one of greater or equal value, if the house is not replaced within the two year limit tax is due on the gain of the sale. Furthermore, no loses can be taken for the sale of your primary residence.
13. Any gambling winnings must be included in your tax return under other income. In addition, gambling loses are limited to the extent of gambling winnings
14. A second home is very much treated as your primary residence, provided that the second home is not used as rental property. You can deduct the interest paid on the second home on Schedule A the same way you report interest paid for your primary home.
15. Tuition paid to a private school is not tax deductible (yet). However, childcare payments are deductible on form 2114. Keep in mind that if your child goes to school from 8AM to 3PM but you pick him/her up at 5;30PM the amount attributable to the time spent from 3PM to 5:30PM is tax deductible.
16. Congress has made it very costly if you take money out of a retirement account. If you take money out, you have 90 days to repay any money taken from a retirement account. If you do not replace the money, you will incur a 10% penalty plus you will pay the tax on the amount taken out at your tax rate.
17. You should get an official audit letter from the Treasury Department. It should specifically delineate the year in question and the reason why you are being audited. First, do not talk to the Internal Revenue Service (IRS) yourself. You should contact your CPA, sign and file Form 2848 (Power of Attorney) to the IRS and let your CPA communicate with the IRS. Do not panic, in most cases the audits are just random audits that will end with no change for the tax payer.
18. If you can not pay the full amount of your taxes you can request the IRS for an installment agreement. An installment agreement is requested on Form 9465. You will be charged interest and possibly a penalty on the amount not paid by April 15.
19.Usually you get more benefits by filing jointly. However, if you have a complicated return you should check your return both ways to see if you benefit by filing separate.
20. You do not incur any penalties by filing an extension, however, if you owe any tax, you will have interest and penalties for any amount not paid along with the extension.
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