Author Archives: admin

Claim Parent As Dependent

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I received a call today from a woman wanting to know if her son can claim her as an exemption on his tax return. The answer is yes, provided she meet the following requirements:

Qualifying relative test:

  1. Not a qualifying child
  2. Member of household or relationship test
  3. Gross income test
  4. Support test

Being an elderly parent, she met the first two tests. As for the other two tests, there are caveats. Care must be taken in determining the correct numbers. Gross income must be under $3700, and support must be at least 50%.

Gross Income Test

Gross income includes all income in the form of money, property and services that are not exempt from tax.

Tax exempt income such as Social Security and municipal bond interest is NOT included in gross income.

Rental Income – Count the total rents received, but don’t deduct expenses such as property taxes, repairs or interest paid.

Business Income from manufacturing, mining or merchandise – Total net sales less cost of goods sold.

Gross income also includes a partner’s share of gross partnership income and all taxable unemployment compensation and certain scholarships and fellowship grants.

 

Support Test

To figure whether you have provided more than half of their support, compare the amount you contributed to the entire amount the person spent on themselves. Count the income the person received from all sources and include tax-exempt income, savings, and borrowed amounts used to support that person. But don’t the amount they didn’t spend.

Let’s say your mother received $2200 in social security benefits and $400 in interest. She put $200 in a savings account. Even though she received $2600 for the year, she only spent $2400 on herself.  As long as you spend at least $2400 for her support and no other support was received, you have provided more than half of her support.

So what  counts for support?  Total support includes money spent on food, lodging, clothing, education, medical and dental, recreation, transportation and similar necessities.

 

Multiple Support Agreement

So you and your siblings are splitting the cost of paying for a nursing home. Combined it is more than half the parent’s support.  Who gets the exemption?

When this happens, you can agree that anyone of you who provides more than 10% of the person’s support, but only one, can claim the exemption.  Each of the others must sign a statement agreeing not claim the exemption that year.  The person claiming the exemption must keep theses signed statements for his or her records. A multiple support declaration identifying each of the others who agreed not to claim the exemption must be attached to the return of the person claiming the exemption. Form 2120 can be used for this purpose.

Gifts From Foreign Person

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Occasionally I get asked about money received from a foreign trust or from a relative who is a foreign national.

“Do I have to Report it?”

The short answer is maybe. If you receive more than $100,000 from a nonresident alien individual or foreign estate, or more than $14,3 from foreign corporations or partnerships that you treated as gifts then you need to file Form 3520.

Avoid Common Tax Preparation Mistakes

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Pulling out your receipts, calculating interest, and making sure you have your W-2 forms at hand, can be tiring at tax time. You are bound to overlook something or make some little mistake. The only problem is that a little mistake can cost you a lot when it comes down to preparing your tax income tax return. What you need is a checklist of the most common tax preparation mistakes to avoid.

*Avoid math errors. Small math errors can be costly when preparing your income tax return. Review the entire math until you are absolutely positive that it is one hundred percent correct. Just moving a decimal point or inadvertently adding a zero could cause grave consequences.

*List all your employers. If you worked more than one job, be certain that you include all of them on your return. If you forget about an employment source, you could be charged with income tax evasion.

*Avoid miscalculating charitable amounts. Charitable giving is deductible on your income tax, but be certain to list all charities correctly so you will receive the proper credit. The Internal Revenue Service has become very circumspect in recent years in regard to charitable deductions.

*Always list your marital status as it currently stands. If you are in the process of getting a divorce, you are not yet divorced. Technically, your filing status is still married until the divorce is finalized.

*Childcare costs are deductible on your income tax return. Make certain that you qualify for all the deductions and credits you claim for childcare. Don’t forget any for which you are qualified, either. Childcare credits can markedly reduce your tax liability. You do not want to file a claim for credits or deductions to which you are not entitled or miss any you should receive.

*The Internal Revenue Service knows about your unearned income. They can monitor your bank accounts, so be sure to report unearned income and don’t forget any large amounts of it on your tax return.

*Do not miss the April 15 deadline without filing an extension. You can get a six-month extension with no penalty, but you have to file for it. It is not automatic, supposing you simply do not send in a return.

*Do not forget to sign your return. It’s a legal document requiring your signature. It might be surprising, how many people forget to sign. I don’t know the number, but it is reportedly high.

Income Tax?

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Question: Income Tax?
I heard that if you are old enough to work that you will get income tax is that true

Best answer:
Anytime you have a job and they pay you and take taxes out, you will normally have to file a tax return, if for nothing else but to get the taxes they took out refunded back to you. Depends on what you put on your W-4 form and how much you make if they take Fed Taxes out. You will always get SS and Medicare taken out.

Add your own answer in the comments!

Mileage Deduction

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For someone who works 1099, independent contractor, business miles can be one of your biggest expenses when you complete your Denver Tax Preperation. Every time you drive to a client’s office or to a job, you have business miles. Every time you drive to the bank, or the office supply store you have business miles. That is if your self-employed or work as an independent consultant. There are two mileage rates for 2011. From January through June, the rate was 51 cents per mile. From July through December, the rate was 55.5 cents for every business mile. For 2012 the mileage rate is 55.5 cents per mile. Now in order to take the mileage deduction, the IRS requires you to have a mileage log. They ask if you have written proof as part of the income tax preparation. The IRS wants to know how many miles you put on your truck or car, and how many of those miles are for business. It’s a good idea for you to write down your odometer reading at the first and last day of the year. If you forgot to write it down, look back through old receipts for car repairs and oil changes.

Business Mileage

Now I suppose you forget to write down your business miles for last year. Well pull out a calendar and your pay stubs. Figure where you went. Google map the distance of the round-trip. Now figure out what days you went to that location. Write those miles down on the calendar for each day you went there. Don’t go crazy. If you try to claim you drove 30,000 miles you better be able to back that up. Only take the days you can recollect, such as when a jobsite started and ended and what days of the week you were there. Once you have figured out as much as you can, add up all the miles you wrote in the calendar up through June. Then add up the miles for the second half of the year. Remember, the mileage rate changed in the middle of 2011, and when we prepare your tax return, the IRS wants us to report how many miles you drove for work in each half of the year.

You cannot guess on your Mileage Deduction

And Remember this, you can’t just guess at your mileage. Nobody drove exactly 10,000 miles last year, and nobody believes you drove exactly 1,500 business miles. Really, it wasn’t 1522 miles? Round numbers are a red flag for the IRS. Do yourself a favor. Buy a pocket calendar and keep it in the door of your car. Everytime you drive for business write down the miles. The last thing you want is a five thousand dollar tax bill when the IRS denies your mileage claim. Because if they audit you, they will want to see your documentation. If the IRS disallows your mileage claim, not only will you lose the deduction, but the amount of the deduction will be considered income. At a minimum, you will owe taxes on that income, plus interest and penalties. Worse, the IRS might decide to look at other years you took mileage and deny the deduction for those years, too. That’s why Tax Preparation Denver tells all of our clients to buy a pocket calendar and use it. Get in the habit of writing in the calendar every day. Enter the odometer ever morning. Write down where you went if you drove for business.

The mileage deduction can be one of your biggest expenses when it comes to lowering your tax bill. But the IRS also knows this is an area where people like to fudge numbers. That’s why it is so important to keep a mileage log. The mileage log is the proof you need if the IRS ever questions you. It’s such a vital part of preparing business taxes that you must get in the habit of recording your mileage. Protect yourself and make sure your tax preparation is unimpeachable.

Q&A: How to report donated services on a tax return?

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Question by helper: How to report donated services on a tax return?
Can I claim the value of services, performed as donation to a school. If not, what is the best way to report something like this on a tax return.

Best answer:

Answer by kim s
Services are not deductible as charity donations. Anything you had to buy related to the services is. But not if you use the same item, tool, at your job. You can deduct mileage to the place to do the service.