Tax season is now fully underway, and with it comes a wide range of tax questions from filers. These questions range from those asked perennially (“can I claim my boyfriend as a dependent?”) to those specific to the events of 2012 (Hurricane Sandy, healthcare reform and the fiscal cliff). To help make the tax filing process as easy as possible, QB-Xpert has answered the most commonly asked tax questions for this tax season.
Who can I claim as a dependent?
Your significant other is probably many things to you—but is he or she also a tax deduction? The question of who you can claim as a dependent has confused taxpayers for years. The short answer: You can claim a “qualifying child” or “qualifying relative” if they meet specific requirements related to residence, relationship to you, age, financial support provided and income. And yes, you may be able to claim a girlfriend, boyfriend, domestic partner or friend as a qualifying relative in some cases. Claiming dependents can give you a tax deduction worth up to $3,800 per dependent and also make you eligible for many other tax deductions like the Earned Income Tax Credit.
What is the Earned Income Tax Credit and How Do I Claim it?
The Earned Income Tax Credit is a tax credit for low to middle income wage earners that has lifted nearly 7 million people out of poverty, however many people still miss it. Why do so many people miss it? Many think they don’t make enough to file their taxes so they don’t claim it. You have to file your taxes to get this valuable tax credit, which may help a family with three dependents receive a credit worth up to $5,891.
Does healthcare reform impact my 2012 taxes?
There’s been a lot of confusion about healthcare reform and taxes
. Rest assured, the requirement to purchase healthcare does not impact your 2012 or 2013 taxes. You do not have to purchase health insurance until January 2014 and there may be a few exceptions based on income, religious beliefs, and citizenship. You will not see changes to your taxes related to the purchase of health insurance until your 2014 taxes are filed in 2015 if you buy healthcare coverage at a health insurance exchange.
Are unemployment benefits taxable?
The unemployment rate has dipped to 7.9 percent vs. 8.3 percent in January 2013. But that’s little comfort to the jobless who find out their unemployment income is taxable income. The good news is that job search and moving expenses may be tax-deductible. See the next question for more details.
Can I deduct the cost of searching for a job? Are moving expenses for my new job tax deductible?
Job seekers may be able to deduct many expenses related to their search: printing resumes, fees for employment and outplacement agencies, career seminar costs and business-related travel. Moving expenses relevant to your job search may be deductible if you meet the distance and time test.
What are the tax implications of withdrawing money early from a retirement account to pay bills or debt?
In difficult economic times, many people start eyeing their retirement accounts to pay off bills or debt. While it is your money, you may be unaware of the impacts of withdrawing from your nest egg. Withdrawing money early from a retirement account
comes with a 10 percent tax penalty in addition to the regular income tax on the amount withdrawn. There can be other consequences, too. The retirement money may bump you into a higher tax bracket, which can result in the taxation of other income, such as social security, that you wouldn’t have been taxed on otherwise.
What are qualified education expenses? And when can I file?
College tuition skyrockets every year, but the U.S. government provides incentives with education credits and deductions
. For example, the American Opportunity Credit, which was extended through 2012, benefits full-time and part-time college students with a maximum $2,500 credit per student, provided you meet modified adjusted gross income requirements.
My house foreclosed, how does that impact my taxes?
The Mortgage Forgiveness Debt Relief Act survived the recent ‘fiscal cliff,’ receiving a one-year extension through 2013. This means you don’t have to pay taxes on the loss of your home through foreclosure or short sale, up to $2 million (or $1 million if married filing separately).
I started my own business; can I deduct my home office expenses?
Many entrepreneurs are reluctant to write off the business use of their home for fear of being audited. But home office expenses
are a legitimate tax deduction you shouldn’t miss out on. Keep in mind the space you claim as a home office should be used exclusively and regularly for that purpose.
Will January tax law changes impact my taxes?
On Jan. 1, 2013, Congress kept the U.S. from going over the ‘fiscal cliff’ by passing The American Tax Relief Act of 2012. The act includes a permanent extension of the Alternative Minimum Tax (AMT) patch, the permanent reduction of tax rates and the reinstatement of several tax deductions, including the Educator Expense Deduction, the Tuition and Fees Deduction, and state sales taxes in lieu of state income taxes.
I was impacted by a natural disaster in 2012. What tax breaks are available to me?
Hurricane Sandy and other natural disasters last year left many picking up the pieces, filing insurance claims, and wondering how it will affect their taxes. It’s possible to take a tax deduction for property loss claims not compensated by insurance, or in some special cases, when you’re still waiting for compensation. These are known as casualty losses and include hurricanes, floods, earthquakes, tornadoes, fire—even vandalism and shipwrecks.