March 31st, 2011
Your Tax Questions, Answered!
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** It’s Credit Karma Tax Week! Every day we’ll have tax-related posts to keep you in-the-know as you file your taxes. **
What About My Kids & Taxes?
Question: My 14-year-old daughter received a $495 stipend for participating in an afterschool painting program. Is she required to file an income tax return? (Tina, Facebook)
Answer: According to Publication 501, dependents don’t have to file unless they had an unearned income of more than $950 or an earned income of more than $5,700. Since you are likely claiming your daughter as a dependent, don’t worry about having her file. The only exception to this would be if there were taxes withheld from the stipend she received. She still wouldn’t be required to file, but it would benefit her because she would be entitled to a refund. Read more here for details.
I’m in College; Can I Catch a Tax Break?
Question: Do college students get a tax credit for tuition? (Sherelle, Facebook)
Answer: It’s true! There are several tax benefits for higher education. You can get either a tax credit or a deduction based on your tuition expenses and fees. However, if your parents still claim you as a dependent, you can’t qualify for either. So check with them first. If you’re not a dependent, you can fill out Form 8863 to claim the American Opportunity credit or the Lifetime Learning credit. If you plan to take a tuition and fees deduction instead, use Form 8917. To decide whether to take the credit or the deduction, calculate both and see which one reduces your taxes more.
I’m Filing… Now What?
Question: Do you add reinvested Qualified Dividend to the Basis? (Ira, Facebook)
Answer: Dividends are defined as earnings a corporation pays to its shareholders. A dividend is “qualified” if it is taxable. Publication 564 explains that you can use the “single-category method” to “find the average basis of all shares owned at the time of each disposition, regardless of how long you owned them. Include shares acquired with reinvested dividends or capital gain distributions.” Under the heading “Identifying the Shares Sold” you’ll find instructions and an example of how to figure a basis of shares sold (Table 3).
Question: Do you have to put a 1099-C in your taxes? (Henry, Facebook)
Answer: In short, yes. A 1099-C is the form you receive when you are relieved of all or part of a debt you owe. The IRS has already received a copy of your 1099-C, so you’ll be reporting something to them that that they already know. Whether or not you’ll be required to pay taxes on the amount will depend on your situation. Check out this publication from the IRS’s website under “Specific Instructions for Form 1099-C” to see how to report it.
Big Life Change! How Will It Affect My Taxes?
Question: I was recently married. Do I need to contact my employer’s accountant and change my filing status on my W-4? (Kristen, Facebook)
Answer: Congratulations! Yes, you’re considered married for the whole tax year, whether you were married on January 1 or December 31. You can adjust withholdings on your W-4 with your employer’s accountant, following the instructions in Publication 919.
Question: I’m starting an auto recovery business. How will I go about filing my taxes? And can I write off my business expenses? (Kevin, Facebook)
Answer: For starters, you’ll want to check out the resources in the “Small Business/Self-Employed” section on the IRS’s website. If you’re starting up your business this year but won’t be filing taxes on it till next year, make sure you’re keeping good records. Keep all receipts for expenses and invoices. To find out what you can deduct as a business expense, read Publication 535, all about these expenses. It’s a lot of information, but it will be invaluable when it comes to starting your business and filing your taxes smoothly. Good luck on your new business!
Question: Do I have to claim my $8,000 first time homebuyer tax credit on my tax form this year? (Erin, Facebook)
Answer: If you mean to say that you received the tax credit after filing taxes last year, then no, you don’t have to report it as taxable income. After all, it wasn’t income, it was a dollar-for-dollar reduction in the amount of taxes you owed due to the fact that you purchased a home for the first time.
If you mean that you’re expecting to receive it this year, you can claim the tax credit if you purchased a home for the first time and that purchase fell into a certain timeframe. Check out the IRS’s questions and answers on the topic to find out if you qualify and see this page for details on how to claim the credit.
When Do I Have To Pay Taxes By Again??
Question: Should I wait to pay my tax bill until I return from a trip? (@troadio, Twitter)
Answer: First of all, make sure you’ve filed your taxes on time. Remember, this year Tax Day is April 18th. There’s a penalty for not filing on time, and it’s larger than the penalty for paying late. Second, if it’s the lump sum that’s too much to bear, why not set up an installment plan? You can set the payments up to withdraw automatically from your checking account, if you like. Check out “Tax Payment Options” on the IRS website for more details. Whatever you do, you should pay what you can before your trip.
Question: If I’m dead, will my heirs have to pay my tax bill? (@troadio, Twitter)
Answer: Here’s what happens to your taxes after you pass away: a personal representative, as designated in your will, (usually a spouse or close relative) will be the one to file taxes for the individual. If taxes are owed, they will be paid by the estate before any assets are distributed to heirs. If a refund is due to the deceased taxpayer, the representative may need to file Form 1310. The refund will be considered part of the deceased’s estate. Read all about the process for filing for a deceased taxpayer in Publication 559.
Don’t Forget! This year Tax Day falls on April 18, so get filing!
Did you know? Last year, lots of places offered “Tax Day Freebies” to ease the stress of the dreaded due date. We suspect more will crop up this year, so keep your eyes peeled!
Disclaimer: The answers given here should not be construed as tax or legal advice. They should be taken as tips only to be acted upon at further investigation and research on the reader’s part.
Disclaimer: All information posted to this site was accurate at the time of its initial publication. Efforts have been made to keep the content up to date and accurate. However, Credit Karma does not make any guarantees about the accuracy or completeness of the information provided. For complete details of any products mentioned, visit bank or issuer website.