Q. If I claim my daughter as a dependent because she is a full-time college student, can she claim herself as a dependent when she files her return?
A. No, if you claim your daughter as a dependent on your income tax return, she cannot claim herself on her income tax return.
Q. Who must file a tax return?
A. Whether you have to file a tax return or not depends on your filing status, age, and gross income.
Gross income includes all income from worldwide sources you receive that is not tax exempt. Even though your gross income may be less than the required tax return filing limits, there are several other factors that could require you to file a tax return.
You must file a tax return if any of the following conditions apply:
- You owe any special tax to the IRS such as IRA tax penalties, or FICA tax on tips;
- You received any advance earned income tax credit payments from your employer;
- You had net earnings from self employment of at least $400
Even if you are not required to file a tax return, a tax return should be filed if you are entitled to a tax refund from the IRS of any tax that was withheld during the tax year, or if you are entitled to claim the earned income tax credit on your tax return. The most commonly missed credit is the earned income tax credit for people without a qualifying child who are over 24 years old (and under 65) who make less than $12,120 per year. For married people filing a joint return this amount is $14,120 per year.
Q. I am married, should I file my tax return(s) jointly or separately?
A. A married couple may file separate tax returns, in which case each would report only their own taxable income and claim only their own tax deductions and tax exemptions on their tax return. You should compute tax liabilities both jointly and separately to determine which method will result in less tax. Filing your tax returns separately may decrease the phase out of the personal tax exemptions to which you would otherwise be subject. However, by filing your tax returns separately, the Elderly and Disabled Tax Credit, the Child and Dependent Care Tax Credit, and the Earned Income Tax Credit among others, may not be claimed on your tax returns. Additionally, if one spouse itemizes deductions on their tax return then the other spouse is forced to itemize deductions as well. All of these factors should be taken into consideration in deciding whether to file your tax return(s) jointly or separately.
Q. Can I deduct a Child and Dependent Care Credit on my tax return?
A. If you paid someone to care for your dependent under age 13 or your disabled dependent or spouse so that you could work or look for work, you may be able to claim the Child and Dependent Care Credit on your tax return.
Q. What is the Earned Income Credit and how do I know if I am eligible?
A. The earned income credit is a special credit which lower income workers can deduct on their tax returns. The earned income credit can be claimed on a tax return not only by workers with qualifying children, but also by workers with no children under certain circumstances. The earned income credit reduces the amount of tax you owe (if any) on your tax return and is intended to offset some of the increases in living expenses and social security tax. The earned income credit is not a tax deduction; it is subtracted directly from the amount of tax you owe on your tax return, so you end up paying less tax and you may get some money back from the government. Even if you had no tax withheld or do not owe any tax to the IRS on your tax return, you might still get some money back because the earned income credit is a "refundable credit".
Q. Can I deduct college expenses on my tax return?
A. The Hope Credit may be taken for qualified education expenses (i.e., tuition and fees, but not room and board or books) incurred during the first two years of a taxpayer's, spouse's, or dependent's post secondary undergraduate education.
The Lifetime Learning Credit is available for qualified tuition and related expenses (same as those for the Hope Credit) incurred at any time during the tax year, and equals 20% of up to $10,000 of college expenses. For purposes of the Lifetime Learning Credit, qualified education expense include expenses with respect to any course of instruction at a qualified education institution to acquire or improve an individual's job skills. Thus, the Lifetime Learning Credit is available for both undergraduate and graduate level course work, as well as course work that improve job skills.
Note: You can not take both the Hope Credit and the Lifetime Credit in the same year for the same qualifying expenses.
Q. Can I take a tax write off for itemized deductions on my tax return?
A. You may be eligible to itemize deductions if the total of your itemized deductions exceed your standard deduction. You can itemize deductions for amounts you paid during the tax year for certain items such as medical and dental expenses, state income tax, local income tax, real estate tax, state personal property tax, home mortgage interest, and gifts to charity. Also, a new itemized deduction for tax year 2007 is mortgage insurance.
It is important to remember that even though your itemized deductions may not exceed your standard deduction on your federal tax return, they still might exceed your standard deduction on your state return.
Q. I make a contribution each pay period to my 401(k) plan at work; can I get a tax deduction for that?
A. If you make voluntary contributions to an employer-sponsored retirement plan or to an individual retirement arrangement, you may be able to take a tax credit.
Formally known as "The Retirement Savings Contributions Credit", the Saver's Credit applies to:
- Individuals with incomes up to $25,000 ($26,000 for 2007)
- Married couples, filing jointly, with incomes up to $50,000 ($52,000 for 2007)
- Head of Household with incomes up to $37,500Â ($39,000 for 2007)
- Persons who are at least age 18, not a full-time student and cannot be claimed as a dependent on another person's return
You may be able to take the credit of up to $1,000 (up to $2,000 if filing jointly) if you make eligible contributions to a qualified IRA, 401(k) and certain other retirement plans. The amount of the credit is determined by your filing status, your adjusted gross income (AGI), and your other retirement contributions.
Note: The minimum credit is 10% and goes up to 50%. This is a guaranteed return on your investment if you qualify for the credit.
Q. I got married October 1st, what is my filing status?
A. Generally, your marital status on the last day of the year determines your status for the entire year. In this case your filing status would be married filing joint or married filing separate.
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