Here are the answers to some of the most Frequently Asked Questions our practice receives.
1. Question : What is the American Recovery and Reinvestment Act (ARRA) of 2009?
Answer : The American Recovery and Reinvestment Act (ARRA) of 2009 was signed into law by President Obama on February 17, 2009. The bill is intended to provide a stimulus to the U.S. economy in the wake of the economic downturn. The bill includes federal tax cuts, expansion of unemployment benefits and other social provisions, including domestic spending in education, health care, and infrastructure, including the energy sector.
2. Question : Can a person receive a tax refund if they are currently in a payment plan for prior year's federal taxes?
Answer : 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 of your refund if 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.
3. Question : How much does a student have to make before he or she has to file an income tax return?
Answer : If you are an unmarried dependent, you must file a tax return if your earned and/or unearned income exceeds certain limits.
To find these limits refer to Filing Requirements for Dependents in Publication 501, Exemptions, Standard Deduction and Filing Information.
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:
- 1. You had income tax withheld from your pay.
- 2. You qualify for the earned income credit.
- 3. You qualify for the additional child tax credit.
4. Question : For head of household filing status, do you have to claim a child as a dependent to qualify?
Answer : In certain circumstances, you do not need to claim the child as a dependent to qualify for head of household filing status, such as when the qualifying child is unmarried and is your child, grandchild, stepchild, or adopted child.
5. Question : What is a split refund?
Answer : A split refund lets you divide your refund, in any proportion you want, and direct deposit the funds in up to three different accounts with U.S. financial institutions.
Additional Information : Form 8888 (PDF), Direct Deposit of Refund to More Than One Account
6. Question : 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?
Answer :If you claim your daughter as a dependent on your income tax return, she cannot claim herself on her income tax return.
- If an individual is filing his or her own tax return, and the individual can be claimed as a dependent on someone else's return, the individual cannot claim his or her own personal exemption.
- In this case, your daughter should check the box on her return indicating that someone else can claim her as a dependent.
7. Question : What should I do if I made a mistake on my federal return that I have already filed?
Answer : It depends on the type of mistake that you made:
- Many mathematical errors are caught in the processing of the tax return itself.
- If you did not attach a required schedule the service will contact you and ask for the missing Information.
- If you did not report all your income or did not claim a credit, you are entitled to file an amended or corrected return using Form 1040X (PDF), Amended U.S. Individual Income Tax Return.
8. Question : Is there an age limit on claiming my children as dependents?
Answer : Age is a factor in the qualifying child test, but a qualifying relative can be any age.
- As long as the following dependency exemption tests are met, you may claim him or her:
- Qualifying child or qualifying relative test
- Dependent taxpayer test
- Citizenship or resident test
- Joint return test
9. Question : What are the tax changes for this year?
Answer : For highlights of any tax changes for the current tax year please refer to the "What's New" section of the following :
10. Question : How do I know if I have to file quarterly individual estimated tax payments?
Answer : If you owed additional tax for the prior tax year, you may have to make estimated tax payments for the current tax year. You must make estimated tax payments for the current tax year if both of the following apply:
- You expect to owe at least $1,000 in tax for the current tax year, after subtracting your withholding and credits.
- You expect your withholding and credits to be less than the smaller of:
- 1. 90% of the tax to be shown on your current year’s tax return, or
- 2. 100% of the tax shown on your prior year’s tax returns. (Your prior year tax return must cover all 12 months.)
- 3. You qualify for the additional child tax credit.
There are special rules for:
- Certain taxpayers with higher adjusted gross income
- Farmers and commercial fishermen
- Estates and Trusts
11. Question : Should I buy or lease a car?
Answer : Look at the underlying economics of the situation, in most cases the taxes will follow. The actual payments made on a purchase are far greater than on a lease, but at the end of the term, you own a car. If you put a lot of miles on a car and plan to trade it in frequently, generally, leasing is better. If you do not drive a lot and put on a lot of miles, generally, buying is more advantageous.
12. Question : Can I deduct entertainment expenses on my tax return?
Answer : If the entertainment expenses are for a valid business purpose, as an employee, you may deduct 50% of business entertainment expenses. These deductions are limited to the excess of 2% over your adjusted gross income (along with other 2% expenses). The required documentation is a receipt, along with the name of the individual entertained and the topic(s) of discussion.
13. Question : How long do I need to keep records for?
Answer : The statute of limitations on income tax returns is 3 years from the due date (including extensions); however, the IRS may go back up to 5 years in the case of fraud. We recommend keeping records for 6 years from the tax year end (December 31 for individuals) to be on the safe side.
If you have questions about any tax issues please feel free to email us. Remember, the only “dumb” question is the one you don’t ask. If you are wondering about something, someone else and probably many others are also wondering, so simply put just ask.