Bennie is a nose-to-the-grindstone CPA who has one simple goal – helping our clients and visitors. He posts answers to frequently asked tax questions keeping you informed of any new and updated information. Bennie regularly updates his page, so be sure to check back often.
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Is an S corporation required to pay quarterly estimated tax?
An S corporation must make installment payments of estimated tax if the total of the following taxes is $500 or more:
• The tax on built-in gains,
• The excess net passive-income tax, and
• The investment credit recapture tax.
Do I have to claim my child as a dependent to qualify for head of household filing status?
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.
Do tuition and related expenses paid to attend a private high school qualify for an education credit?
No, because a high school is not an eligible educational institution. An eligible educational institution is an accredited college, university, vocational school, or other postsecondary educational institution.
If I sell my home and use the money I receive to pay off the mortgage, do I have to pay taxes on that money?
The amount of the proceeds from the sale of your home that you use to pay off the mortgage is not a factor in figuring your taxable amount for the sale. Instead, the amount you realize on the sale of your home and the adjusted basis of your home are important in determining whether you are subject to tax on the sale. Consult your tax professional for further details.
What is a split refund?
A split refund lets you divide your refund, in any proportion you want, and direct deposit the funds into up to three different accounts with U.S. financial institutions.
What is the lifetime learning credit?
The lifetime learning credit is a nonrefundable tax credit with a per family dollar limit that is available for qualified tuition and related expenses of higher education, whether the student is at the undergraduate or graduate level. The lifetime learning credit is calculated by taking 20% of the first $10,000 of the qualified educational expenses paid for all eligible students.
I lost my refund check. How do I have one reissued?
You can initiate a trace for your refund by calling the IRS toll free at 800-829-1954.
Are Social Security survivor benefits for children considered taxable income?
Yes, under certain circumstances, although a child generally will not receive enough additional income to make the child's Social Security benefits taxable. Check with your tax professional for more specifics.
Are my long-term disability payments considered taxable income?
You must report as income any amount you receive for your disability through an accident or health insurance plan paid for by your employer:
• If both you and your employer have paid the premiums for the plan, only the amount you receive for your disability that is due to your employer’s payments is reported as income.
• If you pay the entire cost of a health or accident insurance plan, do not include any amounts you receive for your disability as income on your tax return.
Do I have to pay taxes on my Social Security benefits?
Social Security benefits include monthly retirement, survivor and disability benefits. They do not include supplemental security income (SSI) payments, which are not taxable. The amount of Social Security benefits that must be included on your income tax return and used to calculate your income tax liability depends on the total amount of your income and benefits for the taxable year. Check with your tax professional for more specifics.
I am a full-time student. Am I exempt from federal taxes?
No. Whether you owe federal income taxes or must file a federal income tax return depends upon the following:
• The amount of your earned and unearned income
• Whether you can be claimed as a dependent on someone else’s tax return
• Your filing status
• Your age
If your income is below the amount of these filing requirements and no other filing requirement applies, you don’t owe federal taxes and don’t have to file a federal income tax return. However, you may still want to file a federal return if you’re due a refund. For example - you had federal income tax withheld from your paycheck or you qualify for the earned income tax credit
Is interest on a home equity line of credit deductible as a second mortgage?
You may deduct the interest as an itemized deduction if all the following conditions apply:
• The interest is paid in the tax year
• The debt is secured with your home
• The home equity debt is limited to the fair market value of the home reduced by home acquisition debt, up to a total of $100,000 ($50,000 if filing as married filing separately).
Will I be charged interest and penalties for filing and paying my taxes late?
Yes. You will be charged interest on any unpaid balance and may also be subject to penalties, such as the failure-to-file and failure-to-pay penalties.
I pay for the entire cost of my father’s nursing home. Can I deduct these expenses on my tax return?
Nursing home expenses are allowable as medical expenses in certain instances:
• If you, your spouse or your dependent is in a nursing home primarily for medical care, the entire cost including meals and lodging is a deductible medical expense.
• If the individual is in the home mainly for personal reasons, then only the cost of the actual medical care is a deductible medical expense. The cost of the meals and lodging is not deductible.
What 2015 tax records should I keep once I’ve filed my return?
You should keep all of your 2015 records for now. Here are some general rules for determining when to dispose of tax records.
The 3 year rule
At minimum, keep tax records for as long as the IRS has the ability to audit your return or assess additional taxes, generally three years after you file your return. This means you likely can shred and toss most records related to tax returns for 2012 and earlier.
What to keep longer
1) Keep tax returns forever, so you can prove to the IRS that you actually filed. (There’s no statute of limitations for an audit if you didn’t file a return.)
2) For W-2 forms, consider holding them until you begin receiving Social Security benefits. Why? In case a question arises regarding your work record or earnings for a particular year.
3) For records related to real estate or investments, keep documents as long as you own the asset, plus three years after you sell it and report the sale on your tax return.
This is only a sampling of retention guidelines for tax-related documents.
- The mileage rate for 2016 has been reduced to 54.0 cents/mile.
- The threshold for deductible medical expenses remains at 10% of your AGI.
- The annual gift tax exemption remains at $14,000.
- Bonus depreciation is also available on new equipment purchases made in 2016.
- 401(k) contribution limit remains at $18,000; $24,000 for 50+.
Is there an age limit on claiming my child as a dependent?
A: Your child must meet the qualifying child test or the qualifying relative test to be claimed as a dependent:
• Qualifying child test: Your child must be younger than you, either be younger than 19 years old or be a student and younger than 24 years old.
• There is no age limit on claiming your child as a dependent if the child meets the qualifying relative test. There are income limitations so please consult your tax professional for clarification.
Are child support payments considered taxable income?
A: No, child support payments are neither deductible by the payer nor taxable to the payee. When you calculate your gross income to see if you are required to file a tax return, do not include child support payments received.
What’s the difference between exemptions, deductions and credits?
Exemptions reduce your taxable income which lowers your tax bill. Exemptions are what you take for the people in your family – you get one for yourself, one for your spouse and one for each of your children and any other dependents.
Deductions also reduce your taxable income lowering your tax bill. You can take deductions for things like student loan interest, charitable donations, medical expenses, etc.
Credits, on the other hand, are actual discounts on your tax bill. If you get a $1000 credit, then you pay $1000 less in taxes. Credits are given for low income, buying a fuel efficient car, contributions to 529 plans, for example.
I am unable to pay my delinquent taxes. Can I negotiate with the IRS?
You may qualify for an offer in compromise (OIC) if you are unable to pay your taxes, have an economic hardship or other special circumstances. Contact your tax professional to discuss your options.
What expenses qualify for an education credit?
There are two tax credits available to offset the costs of higher education by reducing the amount of your income tax. They are:
• The American Opportunity Tax Credit and
• The Lifetime Learning Credit
Qualified tuition and related expenses qualify for education credits. These include tuition and fees required for the enrollment or attendance of the taxpayer, the taxpayer's spouse, or any dependent at an eligible educational institution.
My university required each incoming freshman to bring his own computer. Can I deduct the cost of the computer on my tax return?
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.
My daughter is a full-time college student. If I claim her as a dependent, can she also claim her own personal exemption when she files her taxes?
If you can claim an exemption for your daughter as a dependent on your income tax return, she can’t claim herself. She should check the box on her return indicating that someone else can claim her as a dependent.
Is the loss on the sale of my home deductible?
No. Only losses associated with property used in a trade or business and investment property (such as stocks) are deductible.