Filing Requirements

How do I get a copy of last year’s tax return?

Call the IRS at 800­908­9946.

I withdrew $350 from an IRA. Can I use the 1040EZ or do I need to use the 1040?

If you have a filing requirement, you will have to use either Form 1040A or Form

1040 to report the IRA distribution.

I have not yet filed my last year's taxes. How much trouble am I in?

If you owe additional tax you will probably have a failure ­to file and a failure to pay on time penalty plus interest. There are no penalties if you are due a refund. However, you have only three years from the due date of the return to file and claim a refund.

My mother was informed by both the IRS and a tax adviser that she was exempt from filing returns. Could this be true?

Yes, it is possible. You can find more info on IRS website under the heading “Who Must File.”

I am retired and collecting Social Security benefits. I have other income and it is possible that some of my benefits will be taxed. Which form do I need to use?

Forms 1040 and 1040A are the only two forms that have a line where you can report taxable social security.

I am a full­time college student. My parents claim me as an exemption. I work part time for the college. Do I have to file a tax return?

That depends on whether your earned and/or unearned income exceeds certain limits. See the two sections in IRS Pub 501 called “Self­employed Persons” and “Dependents.”

How much does can an unmarried dependent student make before having to file an income tax return?

You can find the income limits for unmarried dependent students in IRS Pub

501 under exemptions, Standard Deduction, and Filing Information.

Exemptions

My former spouse and I share physical custody of our 8­year­old child and we both have custody for the same number of days. Which of us is the custodial parent and entitled to the tax benefits of having a qualifying child?

The custodial parent is the parent with whom the child resides for the greater number of nights in the calendar year. When the child spends an equal number of nights with both parents, the parent with the higher adjusted gross income is considered to be the custodial parent.

How do we claim an exemption for our newly born child when we don't have her Social Security number?

You cannot claim her as a dependent until you have the Social Security number – apply for this at the same time you apply for a birth certificate; you have to April 15th to file your taxes.

I am a single parent with a 10 year old qualifying child. We both live with my mother in her home. The child's other parent did not live with us. My mother and I share the expenses. My AGI is $25,000. My mother's AGI is $32,000. Who can claim my child as a dependent?

If the child is residing in the same household as the mother and grandmother, the child is the qualifying child of two taxpayers. Because the grandmother’s AGI is higher than the parent, they can agree among themselves who will take the exemption. If they can’t agree, the tie­breaking rule states that the exemption goes to the parent.

I am 22. I attend college full time and work and live with my father. Can my father claim me?

You are either your father’s dependent or you are self supporting and not his dependent.

 

Because you are under age 24, you are your father’s qualifying child if you live with him for more than six months and you are not self­supporting. You would be self­supporting if you provided more than half of your own total support. If you are self supporting, then your father may not claim you

My ex­spouse is claiming the dependency exemption for our son, even though our divorce agreement names me as the custodial parent. He claims he is the custodial parent because he had physical custody of our son for the greater part of the year. Is this true?

Your former spouse is correct that the parent who has physical custody of the child for the greater part of the year is the custodial parent, as long as the child is not emancipated under state law.  Under these circumstances, the child in question would be a qualifying child for the custodial parent if the child lived with that parent for more than half the year and the child did not provide more than half of his or her own support.

After July 2, 2008, the noncustodial parent can only claim the exemption for a child if the custodial parent formally releases that exemption via IRS Form 8332 or with a signed, written statement.

My spouse and I are filing as married filing separately. We both contributed to the support of our son. Can we both claim a dependency exemption for him on our separate returns?

No. A dependency exemption for a child may only be claimed on one return in a tax year.

Is there an age limit on claiming my child as a dependent?

To meet the qualifying child test, your child must be younger than you and as of the end of the calendar year, 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.

Are child support payments deductible by the payer or can the payer claim a dependency exemption for the child?

No, child support payments are neither deductible by the payer nor taxable income to the payee.

If I claim my daughter who is a full­time college student as a dependent, can she claim her own personal exemption when she files her return?

If you can claim an exemption for your daughter as a dependent, she cannot claim her own personal exemption. Your daughter should check the box on her return indicating that someone else can claim her as a dependent.

Can a state court determine who may claim a dependency exemption for a child?

Federal tax law determines who may claim a dependency exemption for a child. Even if a state court order allocates a dependency exemption for a child to a noncustodial parent, the noncustodial parent must comply with the Federal tax law to claim an exemption for the child

Filing Status

What is one's filing status when a spouse dies during the year? Does one need to attach the death certificate to the tax return?

For the year of death, you may still file a joint return if not remarried by year­end. There is no need to attach a copy of the death certificate.

If I'm married, must I file as married?

If you were married on the last day of the year, you must file as either married filing joint or married filing separate. However, if you can meet the following rules, you might be able to file as head of household:

 

  • You do not file a joint return.
  • You paid more than half the cost of keeping up your home for the tax year.
  • Your spouse did not live with you for even one day in your home during the last 6 months of the tax year. The spouse is considered as living in the home even if temporarily absent because of special circumstances, such as illness or

business.

  • Your home was the main home of your child, stepchild, adopted child, or foster child for more than half the year.
  • You must be able to claim an exemption for the child, unless you cannot claim the exemption only because the non­custodial parent is allowed to claim the exemption.

Can I file as single even though my divorce is not final? I did not live with my spouse at all this year.

Whether you are married or unmarried will depend upon state and federal law. Tax law says an individual legally separated from his or her spouse under a decree of divorce or a decree of separate maintenance shall not be considered as married.  If your divorce is not final, you are still married unless your state allows for a decree of separate maintenance.

Am I better off filing as head of household or as a qualified widow?

The tax rates for qualified widows or widowers are the same as for couples filing a joint return. These tax rates are lower than the tax rates for a head of household. In the year of the death of your spouse, you can still file a joint return.

Now that my wife and I live apart, should we file a joint return or separate ones and both claim head of household? We have no children.

One of the requirements for HOH filing status is that you have a qualifying child living with you in your home for which you have paid more than half the living expenses during the year. In your case, you both may only file as married separate or married joint.

If unmarried parents of an infant child are living together with the child for the entire year, and both parents are contributing to the cost of maintaining the household, may they both file as head of household?

Only one parent can file as head of household. A taxpayer filing as head of household must furnish more than half the cost of maintaining the household. The infant is the qualifying child of each parent. The other parent would have to file as single.

To qualify for head of household filing status, do I have to claim my child as a dependent?

In certain circumstances, no. 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.

I am divorced with one child. This year my ex­spouse, who is the noncustodial parent, will claim the exemption for our child. Can I qualify as head of household?

You may qualify to file as head of household even though you do not claim an exemption for your child if you meet all of the following requirements: 1) You are unmarried or considered unmarried on the last day of the year.  2) You paid more than half of the cost of maintaining a household that is your home and the main home of your child for more than one­half of the year.  3) Your child is your qualifying child for purposes other than the dependency exemption and the child tax credit.

 

Itemized and Standard Deductions

If I were to make a gift of money to a friend or family member in financial difficulties, would I be able to declare it as a charitable gift on my tax return?

No. Gifts to individuals are not deductible as charitable contributions.

How are deductions handled when married persons file separate returns? Most of the expenses come out of a joint account; must they be split in half?

Expenses paid out of a joint account are assumed to be equally split unless there is evidence presented that the actual ownership of the funds differs from the title on the account.

I was not able to itemize my mortgage interest last year since I didn't have enough deductions to itemize. Can I add this interest to this year's amount and deduct them both?

No, you cannot deduct last year’s mortgage­interest expense this year. Itemized deductions for any tax year can only reflect payments you made in that year.

 

My husband and I have a mortgage on our home, an RV, and a time­share. Can we claim the interest on all three of these as deductions?

Mortgage interest is deductible on your primary residence and on a second home. The loans must be secured by those properties. You must itemize your deductions on Schedule A.

My university required me to come to school with my own computer. Can I deduct the cost of the computer from my tax liability?

The cost of a PC is generally 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.

May I claim both my job­related education expenses (minus 2% of AGI) and one of the education credits on my tax return?

Yes, but you cannot use the same educational expenses to claim both benefits. You may choose to allocate some of your expenses to the deduction and others to the credit.

I donated a used car to a qualified charity that the charity sold immediately after I donated it. I itemize my deductions and would like to take a charitable contribution deduction for the donation. What records do I need to keep?

It depends on the amount of your claimed deduction. If you claim a deduction of at least $250 but not more than $500, you will need a written acknowledgment from the charity.  Do not attach this to your return. Instead, retain it with your records to substantiate your donation.  If you claim a deduction of more than $500 but not more than $5000, the written acknowledgment from the charity must be attached to your return. For this acknowledgement to be considered timely, you must generally receive it within 30 days of the sale of the car. In lieu of a written acknowledgment, the charity may provide you a completed Form 1098­C, Contributions of Motor Vehicles, Boats and Airplanes.  You must also complete Section A of Form 8283, Noncash Charitable Contributions, and attach both the written acknowledgment and the form to your return. If you claim a deduction of more than $5,000, you must also complete Section B of Form 8283 and attach both the written acknowledgment and the form to your return.

My father is in a nursing home and I pay for the entire cost. Can I deduct these expenses on my tax return?

Yes. If you, your spouse or your dependent is in a nursing home and the primary reason for being there is 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.

Is the mortgage interest and property tax on a second residence deductible?

The mortgage interest on a second home, which you do not rent out during the taxable year, is generally deductible if the interest satisfies the same requirements as interest deductible on a primary residence. If you rent out the residence, you must use it for more than 14 days or more than 10% of the number of days you rent it out, whichever is longer. The combined limitation for mortgage interest on your primary and secondary residence is $1,000,000 for acquisition indebtedness and $100,000 for home equity indebtedness. Real estate taxes paid on your primary and second residence are generally deductible.

My spouse and I are filing separate returns. How do we split our itemized deductions?

If you and your spouse file separate returns and one of you itemizes deductions, the other spouse will have a standard deduction of zero. In this situation, the other spouse should also itemize his or her deductions.  You may be able to claim itemized deductions on a separate return for certain expenses that you paid separately or jointly with your spouse. Deductible expenses paid out of separate funds are deductible only by the spouse who pays them. If expenses are paid from funds owned

by both spouses such as from a joint checking account or an account that is considered community property under the laws of the state in which the spouses reside, you should generally split the deduction between you and your spouse.

Other Income

Do you pay tax yearly on the interest on CDs or when the CDs are cashed?

You report interest income received on Certificates of Deposit (CDs) in the year the interest is credited to your account. Each January, the financial institution that holds the CD will send to you a Form 1099­INT, which shows the interest income you must report.

What is the difference between "ordinary dividends" and "qualified dividends"? My 1099 dividend statements were marked by the companies as both.

Qualified dividends are a subset of your ordinary dividends. Qualified dividends are ordinary dividends paid out of the profits of the company. Qualified dividends are subject to the same tax rate that applies to net capital gains. Qualified dividends are reported on Line 9b of Form 1040.

Do I pay taxes on child support?

Child support payments are not taxable. Receipt of alimony payments is taxable.

I have mini­storage units that I rent out, and I'm not sure if it is rental or self­employment income. How do I tell?

If you just rent space in the public ­storage facility, your income and expense is reported on Form 1040 Schedule E as rental income. However, if you provide any services with your rentals, you have a business, and all the income and expenses go on Schedule C.

I received an academic scholarship. Is this taxable?

Qualified scholarships and fellowships are treated as tax­free amounts if all of the following conditions are met:

  1. You are a candidate for a degree at an educational institution.
  1. Amounts you receive as a scholarship or fellowship are used for tuition and fees required for enrollment or attendance at the educational institution, or for books, supplies, and equipment required for courses of instruction.
  1. The amounts received are not a payment for your services unless required by the National Health Service Corps Scholarship Program or the Armed Forces Health Professions Scholarship and Financial Assistance Program.

 

 

Adjustments to Income

What is the time test one must meet in order to deduct moving expenses?

Moving expenses are usually deductible because a person changed job locations or started a new job. In most situations, a person has obtained the new job before incurring the moving expenses. The “time test” stipulates that you must complete 39 weeks of work in a year from the date of moving. This is to prevent abuse by people who relocate and do not have a new job or are not actively seeking one.

My spouse is retired and had no earned income. I, however, did have earned income, and I participate in my company's retirement plan. If we file married filing jointly, is she eligible to make a deductible, traditional IRA contribution, based on my earned compensation?

She may use your earned income to make an IRA contribution as long as she has not reached age 70 1/2. She may make a contribution up to $5,500 ($6,500 if over age

50).  For tax year 2014, you may deduct her contribution as long as your joint adjusted gross income is less than $95,000. Between $95,000 and $115,000 the amount deductible phases out to zero. See the instructions for either Form 1040 or 1040A for a work sheet you can use to compute the amount that is deductible.

My parents took out a student loan, but I'm now an independent taxpayer making the payments. Who can claim the interest deduction, me or my parents?

Neither you nor your parents are eligible for the deduction in this unfortunate “catch­22” situation. Even though you are making the payments, you did not take out the loan and do not have primary responsibility for repaying it. Your parents are not eligible for the deduction because they did not pay the student loan interest. Always remember that it is the taxpayer’s responsibility to figure and claim the Student Loan Interest Deduction correctly.

I make support payments to my ex­spouse for her and our two minor children in her custody. Are these payments deductible as alimony?

Child support payments to a spouse or ex­spouse are never tax deductible. Alimony payments you make to a spouse or ex­spouse are tax deductible. In order to determine whether you are paying alimony or child support, you will need to look at your divorce decree or separation agreement or court order that ordered the payments.  The amount of child support may vary over time. Any other payment may or may not be alimony. You should discuss this issue with your attorney.

Retirement, Pension, Social Security

I received a lump­sum Social Security benefit. It covered several prior years; how can I report that to the IRS?

Generally, you use your current­year income to figure the taxable part of the total benefits received in that year. However, you may be able to figure the taxable part of a lump­sum payment for an earlier year separately, using your income for the earlier year. You can elect this method if it lowers your taxable benefits.  See IRS Publication for worksheets and more information on this method.

I started receiving Social Security this year. My only other income is from my company retirement and some interest. I pay federal taxes on this income. Will I have to pay any taxes on my Social Security benefits?

Some of your Social Security benefits may be taxed. It all depends on your other income and filing status. Social Security only becomes taxable when half of your benefits are added to other gross income and that total exceeds an amount determined by your filing status.

Are my company pension benefits taxable?

Most pensions are fully taxable. Some are partially taxable if you had a cost basis in the pension. In a few unique situations, pensions may be tax­free. This is especially the case when they come from the Veterans Administration and when they involve disability payments for public safety officers and firefighters.  See IRS Publication 575, Pensions and Annuities, for more information.

Can you withdraw funds from a pension before age 59 1/2 and avoid the early withdrawal penalty?

Yes, there are exceptions to the early withdrawal penalty for qualified retirement pension plans.

The 10 percent additional tax does not apply to distributions that are:

  • Made as part of a series of substantially equal periodic payments (made at least annually) for your life (or life expectancy) or the joint lives (or joint life expectancies) of you and your designated beneficiary. If from a qualified retirement plan, the payments must begin after separation from service.
  • Made because you are totally and permanently disabled.
  • Made on or after the death of the plan participant or contract holder.
  • Made from a qualified retirement pension plan after your separation from service in or after the year you reached age 55.

I retired last year, and started receiving Social Security payments. Do I have to pay taxes on these?

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.  To find out whether any of your benefits may be taxable, compare the base amount for your filing status with the total of:

  • One­half of your benefits.
  • All of your other income, including tax­exempt interest.

 

The base amount for your filing status is:

  • $25,000 if you are single, head of household or qualifying widow(er),
  • $25,000 if you are married filing separately and lived apart from your spouse for the entire year,
  • $32,000 if you are married filing jointly,
  • $0 if you are married filing separately and lived with your spouse at any time during the tax year.

Are there any tax consequences if you rollover your 401(k) into an IRA?

The best solution is to arrange for a trustee­to­trustee transfer. In this manner, no amount will be withheld for income taxes and there is no tax liability. Alternatively, you can receive a check for the amount to be rolled over for you to deposit the gross amount of the distribution (the amount before tax withholding) into a traditional IRA. If you only roll over the net amount of the check after withheld taxes, then you will have taxable income for the amount withheld for taxes. You must complete the rollover within 60 days or the total distribution may be taxable.

I retired last year, and started receiving Social Security payments. Do I have to pay taxes on these?

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.  To find out whether any of your benefits may be taxable, compare the base amount for your filing status with the total of:

  • One­half of your benefits.
  • All of your other income, including tax­exempt interest.

 

The base amount for your filing status is:

  • $25,000 if you are single, head of household or qualifying widow(er),
  • $25,000 if you are married filing separately and lived apart from your spouse for the entire year,
  • $32,000 if you are married filing jointly,
  • $0 if you are married filing separately and lived with your spouse at any time during the tax year.

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.

  • The taxability of benefits must be determined using the income of the person entitled to receive the benefits.
  • If you and your child both receive benefits, you should calculate the taxability of your benefits separately from the taxability of your child’s benefits.
  • The amount of income tax that your child must pay on that part of the benefits that belongs to your child depends on the child’s total amount of income and benefits for the taxable year.

If the child is single, the base amount for the child’s filing status is $25,000. If the child is married, see Publication 915, Social Security and Equivalent Railroad Retirement Benefits, for the applicable base amount and the other rules that apply to married individuals receiving Social Security benefits

I received Social Security benefits this year that were back benefits for prior years. Do I amend my returns for prior years? Are the back benefits paid in this year for past years taxable for this year?

You cannot amend returns for prior years to reflect Social Security benefits received in a single lump­sum in the current year. You must include the taxable part of a lump­sum payment of benefits received in the current year (reported to you on Form SSA­1099, Social Security Benefit Statement) in your current year’s income, even if the payment includes benefits for an earlier year.

 

However, there are two ways to determine the amount of income to include:

  • You can use your current year’s income to figure the taxable part of the total benefits received in the current year; or
  • You may make an election to figure the taxable part of a lump­sum payment for an earlier year separately, using your income for the earlier year.

Child Care Credits

My son is 4 and he goes to pre­K and a private school. Can I write off the tuition I pay the school for pre­K as a child care expense?

Nursery school and other prekindergarten costs generally qualify for the Child and Dependent Care Credit because the educational benefits are considered incidental to the child care costs. See IRS Form 2441 and its instructions and IRS Pub 503 for more information.

What do I need to do to claim the child and dependent care credit for my daughter in daycare?

If you are paying for child care in order that you can work, you will need the name, address and EIN or SSN of the provider and the address of where the services are provided. Keep track of the checks or payments that you make to the provider and the period of time covered by each payment. This information is used to prepare the tax return, but is not submitted to the IRS.

Can a noncustodial parent claim the child tax credit?

The only parent allowed to claim the child tax credit for a qualifying child is the parent claiming the dependency exemption. If the custodial parent releases a claim to exemption for the child on IRS Form 8332 and the noncustodial parent attaches the release to the noncustodial parent’s return, the noncustodial parent would be entitled to the child tax credit, assuming the child is under age 17.

What is the American Opportunity Tax Credit for higher education expenses?

The American Opportunity Tax Credit is a modification to the Hope Scholarship Credit. The credit is a maximum of $2,500 for qualified higher education expenses incurred for each eligible student including you, your spouse and your dependents. Complete details on who can claim the credit, who is an eligible student, the definition of qu can be found in IRS Pub 970.

My spouse and I both work and are eligible for the child and dependent care credit. Can I include the expense of my 5 year­old son's private kindergarten tuition as a qualified expense on Form 2441, Child and Dependent Care Expenses?

No, the expense of tuition for kindergarten does not qualify for the child and dependent care credit because kindergarten is primarily educational in nature. However, the expense for a before­ or after­school care program may qualify.

My babysitter refused to provide me with her Social Security number. Can I still claim the amount I paid her for childcare while I worked?

Yes, you can still claim the credit by demonstrating due diligence in attempting to secure this information.

Can I claim both the child tax credit and the child and dependent care credit?

Yes, if you qualify for both credits.

Education Credits

What expenses qualify for an education credit?

There are two tax credits available to help you 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

Expenses that qualify for an education credit are qualified tuition and related expenses paid by the taxpayer during the taxable year.

For the permanent Lifetime Learning Credit, student activity fees and expenses for course­related books, supplies and equipment are included in qualified education expenses only if the fees and expenses must be paid to the institution for enrollment or attendance by an eligible student.

If I pay college tuition and fees with a tax­-free scholarship, can I claim an education credit on Form 8863 for those payments?

No.

Who can claim the American opportunity credit?

You may claim the American opportunity credit if:

 

  • You pay qualified tuition and related expenses for the first 4 years of postsecondary education.
  • The qualified expenses are for an eligible student
  • You show the name and taxpayer identification number of the eligible student on the return.
  • You show the name and address of the qualifying educational institution and in most cases show the federal employer identification number of the institution.
  • Your modified adjusted gross income is below a certain dollar limitation
  • You are not listed as a dependent in the exemption section of another person’s tax return (such as your parents’).
  • If you are married, your filing status is married filing jointly.
  • You do not claim the lifetime learning credit for the same student in the same year.
  • If you (or your spouse) are a nonresident alien for any part of the tax year, the nonresident alien elects to be treated as a resident alien for tax purposes. For additional information, refer to Publication 519, U.S. Tax Guide for Aliens.

In general, qualified tuition and related expenses means tuition, fees and course materials required for the enrollment or attendance of you, your spouse or your dependent with respect to whom you are allowed a deduction, at an eligible educational institution.

How does the IRS defines an eligible student for purposes related to Education Credits?

Eligible student are as follows:

  • Was enrolled in a program leading to a degree, certificate or other recognized educational credential for at least one academic period beginning in the tax year.
  • Carried at least half the normal full­time workload for the course of study.
  • Did not make an election to claim the Hope or American opportunity credit (or a combination of both) for any 4 earlier tax years.
  • Has not completed the first 4 years of postsecondary education before the beginning of the tax year.
  • Was free of any federal or state felony conviction for possessing or distributing a controlled substance as of the end of the tax year.

Earned Income Credit

What is the earned income tax credit, and how do I know if I qualify?

The earned income tax credit (EITC) is a refundable credit. It is available to certain individuals and families who have low to moderate levels of earned income and are taking care of at least one child and up to three qualified children. In certain cases, a taxpayer with low earned income and no children may also qualify.

Who is eligible for the earned income tax credit when both a child and a grandchild live with the grandparents of the grandchild?

A qualifying child for the earned income tax credit (EITC) must meet three tests: age, relationship and residency. Your son or daughter or lineal descendant of your son or daughter passes the first two tests if he/she is either under age 19 or under age 24 and a full­time student. The qualifying child must also reside with you in your home for more than six months of the year. Temporary absences for illness or school are OK.  It is possible, under the living conditions you describe, that the child is the qualifying child of both the parent and the grandparent.  Once the determination is made as to who may treat the child as a qualifying child, it is that person who can claim the EITC, assuming that all the other rules for the EITC are met.

Do I have to include the child support payments and alimony I receive in income when I compute the earned income tax credit?

Child support payments and alimony are not included as earned income, nor are they considered investment income, for purposes of eligibility for the earned income tax

credit (EITC). Child support payments are also not included in adjusted gross income. However, alimony payments are included in adjusted gross income and will affect the amount of EITC you receive.

Last tax season, someone claimed my dependents, and I did not send in information to prove I should claim them. Would this affect me getting the earned income credit this year?

No. Your eligibility for the earned income tax credit (EITC) for any given year is based on the set of facts for that particular year.

Business Income & Adjustments

Can I report as "Other Income" the $6,000 I made from providing day care services?

No, you are self-­employed and must use either Schedule C or C­EZ to report your income and expenses.

What is the standard mileage deduction for the use of a vehicle in a business?

The rate varies by year and sometimes changes within a year. The rate or rates are available in various IRS documents.

Can I take a business deduction for the small cash donations my business makes to various qualified charities in the neighborhood? I am a sole proprietor.

If you itemize your deductions, you can include these gifts with your other charitable contributions on Schedule A, as long as you have a receipt for each payment.

Will my self­employment income affect the amount of income I receive as Social Security benefits? I am 68 years old.

As you have already reached full retirement age, you may earn as much you want and not have to pay back any Social Security benefits you receive.  If your net earnings from self­employment are high enough such that you are paying self­employment tax, the Social Security Administration is notified of your contributions and income. If the additional credits were enough to entitle you to a higher monthly benefit, the Social Security Administration would make the calculation for you.  Lastly, depending upon your total gross income, social security benefits and filing status, you may have to pay income tax on up to a maximum of 85% of your social security benefits.

Can I deduct as a business expense the entire acquisition cost of a computer that I purchased for my business or do I have to use depreciation?

You may be able to deduct the acquisition cost of a computer purchased for business use in several ways:

  • You can expense it under Internal Revenue Code section 179 if qualified, by electing to recover all or part of the cost up to a dollar limit, by deducting the cost in the year you place the computer in service, and if there is any remaining cost, by depreciating it over a 5­year recovery period. If there is any remaining cost and if the computer is eligible for the 50% special depreciation allowance in the year you place the computer in service, you can depreciate 50% of the remaining cost in the year you place the computer in service and depreciate the other 50% of the remaining cost over a 5­year recovery period.
  • You can depreciate the acquisition cost over a 5­year recovery period in the year you place the computer in service, if you do not elect to expense any of the cost under section 179 and if the computer is not eligible for the 50% special depreciation allowance in the year you place the computer in service.
  • The acquisition cost may be eligible for the 50% special depreciation allowance in the year you place the computer in service if the computer meets certain conditions and you do not elect to expense any of the cost under section 179. If eligible, then you can depreciate 50% of the cost in the year you place the computer in service and depreciate the remaining cost over a 5­year recovery period.

I have a home office. Can I deduct expenses like mortgage, utilities, etc., but not deduct depreciation so that when I sell this house the basis won't be affected?

You can generally figure depreciation on the business use portion of your home up to the gross income limitation, over a 39 year recovery period and using the mid­month convention. As long as you determine actual expenses and qualify to claim depreciation, the allowable depreciation reduces the basis of your home accordingly, whether or not you actually claim it on your tax return.  However, in 2013 and later tax years, there is a simpler option. Qualifying taxpayers may use a prescribed rate ($5 per square foot limited to 300 square feet) to compute their business use of home deduction. This option used in lieu of determining actual expenses has the advantage of reducing taxpayers’ recordkeeping burden.

Property

What forms do we file to report a loss on the sale of a rental property?

Report the loss on the sale of rental property on Form 4797, Sales of Business Property.

I purchased a rental property last year. What closing costs can I deduct?

Generally, deductible closing costs are those for interest, certain mortgage points and deductible real estate taxes.  Many other settlement fees and closing costs for buying the property become additions to your basis in the property and part of your depreciation deduction, including: Abstract fees, Charges for installing utility services, Legal fees, Recording fees, Surveys, Transfer taxes, Title insurance & any amounts the seller owes that you agree to pay (such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions).

I am renting a house to my son and daughter­in­law. Can I claim rental expenses?

In general, if you receive income from the rental of a dwelling unit, such as a house, apartment, or duplex, you can deduct certain expenses.

We have incurred substantial repairs to our residential rental property. What are the IRS rules concerning depreciation?

Replacements of windows and furnace on a residential rental property:

  • Are capital improvements to the property because they are for betterments and/or restorations to the property.
  • Are in the same class of property as the residential rental property to which they are attached.
  • Are generally depreciated over a recovery period of 27.5 years using the straight line method of depreciation and a mid­month convention as residential rental property.

Repairs, such as repainting, replacing roof shingles, and replacing a rain gutter on a residential rental property:

  • Are generally currently deductible expenses.
  • Do not improve the property but keep your property in an ordinarily efficient operating condition.

We sold a rental property last year and used the like­kind exchange rules under section 1031 of the Internal Revenue Code to purchase a replacement property and defer the gain of the rental property sold. How do I report this transaction on my tax return?

Report the exchange of like­-kind property on Form 8824, Like­Kind Exchanges. The Instructions for Form 8824 explain how to report the details of the exchange.

Affordable Care Act

How will the Affordable Care Act affect me when I file my taxes?

The ACA requires a taxpayer and each member of his/her family to have qualifying health insurance known as Minimum Essential Coverage (MEC), OR have an exemption at the time a return is filed OR make a Shared Responsibility Payment (SRP) when the taxpayer files his/her federal income tax return.

What ACA information is needed to complete my return?

You will need to bring these documents:

  1. Health insurance coverage information for taxpayer, spouse and all dependents;
  2. Information showing what months you didn’t have health insurance coverage if they didn’t have it for the full year;
  3. If health insurance was purchased through the Marketplace/Exchange then you should bring Form 1095­A, which should be received by January 31;
  4. Documentation, if any, of a Health Care Exemption received from the IRS  or the Marketplace/Exchange;
  1. All information needed to complete the returns for the taxpayer/spouse and for each dependent that has a filing requirement

What happens if I don’t know where to find these documents?

The IRS has provided a lot of information to assist you at www.irs.gov. Information about the Marketplace/Exchange can be found at www.HealthCare.gov. For more information on the Affordable Care Act, go to www.irs.gov/aca.

I’m over age 65 and receive Medicare. My spouse is only 59, but she works full­time and has medical insurance from her employer. How does this new Act affect us?

Taxpayers who are covered by an employee health plan for a full year will meet all MEC requirements. If a taxpayer is enrolled in Medicare or Medicare Advantage for the full year, all MEC requirements have been met and no further information is required.

I didn’t have medical insurance last year, but I think that I might be entitled to an exemption from payment of the Shared Responsibility Payment. What type of situations might entitle me to an exemption?

Exemptions are available from the Marketplace, including :

  1. Exemptions that can be granted by the Marketplace before you file a return;
  2. Exemptions that can be claimed by the taxpayer on the return when it is filed;
  3. Hardship exemptions for which you can file an Exemption.

You can read more about Exemptions, including when and how to apply, at www.HealthCare.gov

What counts as minimum essential coverage?

Minimum essential coverage includes the following:

  • Employer­sponsored coverage, including self­insured plans, COBRA coverage and retiree coverage
  • Coverage purchased in the individual market, including a qualified health plan offered by the Health Insurance Marketplace
  • Medicare Part A coverage and Medicare Advantage plans
  • Most Medicaid coverage
  • Children’s Health Insurance Program (CHIP) coverage
  • Certain types of veterans health coverage administered by the Veterans

Administration

  • Most types of TRICARE coverage under chapter 55 of title 10 of the United States

Code

  • Coverage provided to Peace Corps volunteers
  • Coverage under the Nonappropriated Fund Health Benefit Program
  • Refugee Medical Assistance supported by the Administration for Children and

Families

  • Self­funded health coverage offered to students by universities for plan or policy years that begin on or before Dec. 31, 2014 (for later plan or policy years, sponsors of these programs may apply to HHS to be recognized as minimum essential coverage)
  • State high risk pools for plan or policy years that begin on or before Dec. 31, 2014 (for later plan or policy years, sponsors of these program may apply to HHS to be recognized as minimum essential coverage)
  • Other coverage recognized by the Secretary of HHS as minimum essential coverage

What is the individual shared responsibility provision?

Under the Affordable Care Act, the federal government, state governments, insurers, employers and individuals are given shared responsibility to reform and improve the availability, quality and affordability of health insurance coverage in the United States. Starting in 2014, the individual shared responsibility provisions calls for each individual to have qualifying health care coverage (known as minimum essential coverage) for each month, qualify for an exemption, or make a payment when filing his or her federal income tax return.

Who is subject to the individual shared responsibility provision?

The provision applies to individuals of all ages, including children. The adult or married couple who can claim a child or another individual as a dependent for federal income tax purposes is responsible for making the payment if the dependent does not have coverage or an exemption.

If I receive my coverage from my spouse’s employer, will I have minimum essential coverage?

Yes. Employer­sponsored coverage is generally minimum essential coverage.

If I change health coverage during the year and end up with a gap when I am not covered, will I owe a payment?

Individuals are treated as having minimum essential coverage for a calendar month if they have coverage for at least one day during that month. Additionally, as long as the gap in coverage is less than three months, you may qualify for an exemption and not owe a payment.

If I am exempt from the shared responsibility payment, can I still be eligible for the premium tax credit?

In many cases, yes, but it depends upon the exemption. If you are exempt because you are incarcerated or because you are not lawfully present in the United States, you are not eligible to enroll in a qualified health plan through the Marketplace and therefore cannot claim a premium tax credit for your own coverage. However, individuals with other types of exemptions may obtain coverage through the Marketplace and claim a premium tax credit if they otherwise qualify for the credit.

How do I report that I had coverage for each month of the year?

If you and all of your dependents had coverage for each month of the tax year, you will indicate this on your 2014 tax return simply by checking a box on your Form 1040, 1040A or 1040EZ.

What do I need to do if I am required to make a payment with my tax return?

If you have to make an individual shared responsibility payment, you will use the worksheets located in the instructions to Form 8965, Health Coverage Exemptions, to figure the shared responsibility payment amount due.

What happens if I owe an individual shared responsibility payment, but I cannot afford to make the payment when filing my tax return?

If you owe a shared responsibility payment, the IRS may offset that liability against any tax refund that may be due to you.