This Is A StickUp; Give Me All Your Tax Money!
"Things You Didn't Know About Your Taxes"...Be Prepared!
by Terry Clark
Table of Content
1. Your Filing Status Affects Your Taxes
2. Who are Qualified for the Child Tax Credit?
3. Where Do Your Taxes Go?
4. What You Need to Know About the New First-time Home Buyer Credit Tax
5. What Is Alternative Minimum Tax?
6. What Can You Deduct For Home Business?
7. What Are Tax Relief Checks?
8. What Are Tax Credits?
9. What Are Capital Assets?
10. Understanding Income Tax
11.Tips for Checking Your Tax Refund Status
12. The History of Tax Bracket in United States
13. The Carbon Tax Proposal for Climate Change Solution
14. Taxable Automobile Expenses
15. Tax Shelter: A Legal Means to Lower Your Tax Bill
16. Tax Deductions for Small Businesses
17. Tax Credits for environmentally friendly residential equipments
18. Tax Credits For Education
19. Tax Credits 101
20. Tax Credit Information for First-Time Homebuyers
21. Steps in Selecting the Best Tax Preparation Software
22. Smart Tips to Pay Less Taxes
23. Should You Do Taxes Yourself?
24. Self-Employment Taxes
25. Tax Planning: Reducing Your Taxes
26. Real Estate Property Taxes
27. Paying Estimated Taxes
28. Obsolete Taxes: A Characteristic of Old Civilization
29. Legal Tax Shelters Vs. Abusive Ones
30. Keeping Good Records
31. Income Tax Tips to Help You Save Money
32. How To Write Off Bad Debts
33. How to Prepare Your Income Tax Return
34. The History of Property Tax
35. Fat Tax: the Historic Struggle to be Proved Effective and Efficient
36. Energy Tax Credits
37. Deceased Tax Payer: What To Do?
38. Common Tax Problems
39. Choosing An Accounting Method (Cash vs. Accrual)
40. Good News For Parents: Child Tax Credit
41. Child Custody And Taxes
42. Can You Deduct Alimony?
43. Buy New Hybrid Cars and Avail the Tax Credit
44. Avoiding A Tax Audit
43. About Your IRA And Taxes
44. About Inheritance Taxes
45. About Deducting Moving Expenses
46. A Brief Overview of Inheritance Tax
#1. Your Filing Status Affects Your Taxes
Some people miss out on the fact that the right filing status can result in the lowest possible income tax payment. Officially, you only have one filing status.
This is determined whether you were considered married at the end of the year. An individual's filing status determines which standard deduction amounts apply to a specific tax return.
It means two people with the same amount of income could have different tax calculations resulting from the difference of their individual filing status.
The filing status is established by the persons marital status on the last day of the year. For tax collection purposes, people who are married during the year are considered married for the whole year.
On the other hand, people who become divorced or legally separated will be considered unmarried for the whole year. There are situations where married people can be considered unmarried for tax purposes even if they are not legally divorced or separated.
Single filing status
You are not married. (This includes people who are legally separated or divorced at the end of the year.) If you want to claim a dependent, check out if you qualify for the Head of Household filing status to avail of more tax benefits.
Head of household filing status
You are unmarried. You can claim a dependent and you have cared for a dependent for over half a year. Claimants to head of household (HOH) filing status have a higher standard deduction and lower tax rates. Not all single parents qualify for head of household status.
Qualifying widow/widower with dependent child filing status
Your spouse died within the last two years, you have cared for a dependent all year, and you have not remarried. Qualifying widows and widowers (QW) receive the same standard deduction and tax rates as those married filing jointly.
In the year of your spouse's death, you can file a joint return. Use the QW filing status for the next two years if you have a dependent. Afterwards, your filing status would be single or head of household.
Married filing jointly filing status
You are married, and you are filing a joint return with your spouse. You are considered married if you are legally married on the last day of the year. Married filing jointly (MFJ) provides more tax benefits than filing separate returns.
Married filing separately
You are married, but you and your spouse are filing separate tax returns. Married filing separately (MFS) taxpayers have the least beneficial tax treatment.
Reasons for MFS include (1) only one spouse wants to file taxes, (2) one spouse is self-employed, (3) one spouse owes taxes, the other has a refund, (4) and the spouses are separated but not yet divorced.
Have you found out now your tax filing status?
#2. Who are Qualified for the Child Tax Credit?
Here's good news for parent-taxpayers out there: you can decrease your tax bill by claiming a child tax credit.
Essentially, the child tax credit is a non-refundable tax relief that is directly applied against the income tax. This means the tax credit is not just deducted from your taxable income; rather, it is directly deducted from your actual taxes. The child tax credit reduces tax by $1,000 for every qualifying child (until 2010), as mandated by the Working Families Tax Relief Act of 2004.
To be able to claim the child tax credit, you have to meet several criteria. First, you must earn a minimum amount of $3,000 to qualify for the tax credit. The income includes the taxable earned income and the nontaxable combat pay.
Second, your child must be eligible for the tax credit. A qualifying child satisfies the following requirements:
* Under the age of 17 at the end of the tax year
* A citizen, alien, or resident alien of the United States (A legally adopted child from another country who lives with the parent qualifies for the tax credit.)
* Related to you in any of these ways: biological child, legally adopted child, stepchild, foster child, grandchild, sibling, stepsibling, niece, or nephew
* Lives with you for more than half of the taxable year
* Dependent on more than half of your support
Now, if you are sure that you are eligible for a child tax credit, you can claim it by filing the Form 1040 or Form 1040-A. Claiming the child tax credit is not allowed on Form 1040-EZ since it is intended only for single taxpayers or those who have no dependents.
If you have three eligible children, you are qualified for a $3,000 deduction from your taxes. But if your tax is only $2,000, the credit will only apply for the tax owned, which is $2,000. Although you are not allowed to claim a tax credit whose amount is higher than your income tax, you are allowed to ask for a refund of the difference between your child tax credit and your income tax, provided that you meet certain requirements. You may qualify for an additional child tax credit, which is equal to the lost credit (In the above-mentioned example, it's $1,000). To claim the additional child tax credit, you will need to fill out and file Form 8812.
Given the hard financial times, all a family needs is a breather from the burdens of tax. A child tax credit provides a welcome financial relief for parents who are struggling to make both ends meet.
#3. Where Do Your Taxes Go?
"In life, only death and taxes are certain," as the old clich‚ goes. As a citizen and an automatic taxpayer, you might wonder where your taxes actually went.
As a general knowledge, we all know that governments need taxes for the system to function. It pays for the services it is obligated to spend on the people. On a piecemeal basis, just how was the federal tax dollar spent? (Let us take on the 2008 budget.)
In 2008, the federal government spent $3 trillion which is 21% of the country's GDP (gross domestic product). More than $2.5 trillion was financed by the federal tax revenues and the remaining $459 billion was from borrowed money. This amount will ultimately be paid by future taxpayers.
21% of the 2008 budget ($625 billion) was spent for defense and security-related international activities. This includes the cost of supporting operations in Iraq and Afghanistan which was appropriated by Congress for approximately $188 billion. (This was funding, not actual spending.)
Another 21% ($617 billion) was given to Social Security for the retirement benefits of some 35 million retired workers and their dependents.
Social security also gave survivors benefits to 9.1 million disabled workers.
Medicare, Medicaid, and Children's Health Insurance Program
Medicare, Medicaid, and the Children's Health Insurance Program (CHIP) together accounted for 20% of the budget ($599 billion) spent.
$391 billion went to Medicare which provided health coverage to around 45 million over 65 years old or with disabilities. Medicaid and CHIP provided care to 55 million low-income children, elderly people and people with disabilities, funded by the remainder of their appropriations.
Both the Medicaid and CHIP spending required matching payments from the states.
Safety net programs
Another 11% of the budget ($313 billion) was used to support programs that provided aid (different from health insurance or Social Security benefits) to persons and families who were hard up.
These programs included the refundable portion of the earned-income and child tax credits. They had assisted low and moderate-income families through the tax code. There were other programs that provided cash payments to eligible individuals or households including the Supplemental Security Income for the elderly and the disabled poor and unemployment insurance, among the many other assistance and various programs for the underprivileged.
(These programs have been shown to have lifted approximately 15 million Americans out of poverty in 2005 and reduced the depth of poverty for another 29 million people.)
In 2008, interest payments for past borrowed money had reached $253 billion or equivalent to some 8% of the budget.
That is a bird's eye view on where your taxes went for the year 2008. The story for 2009 was a completely different story caused by the world-wide economic downturn.
#4. What You Need to Know About the New First-time Home Buyer Credit Tax
The first-time homebuyer credit is extended and expanded in the Worker, Homeownership and Business Assistance Act of 2009, signed on November 6.
This newly signed law states that an eligible taxpayer must purchase or enter into a binding contract to buy a principal residence on or before April 30, 2010 and closes the home by June 30, 2010. To qualify for purchases in 2010, they have the option to claim credit on either their 2009 or 2010 return.
In addition, the law also authorizes the credit for long-time homeowners who buy new principal residences. It also raises the limitations on income for homeowners who claim the credit. From $75,000 income limits for single taxpayers and $150,000 for married taxpayers, it is now $125,000 for single and $225 for married couples filing joint returns.
There are new benefits given only to Foreign Service and intelligence community serving outside the United States.
Also, worth noting are factors and aspects that do not qualify for tax credit. For example, the people a taxpayer claims as dependents do not qualify for a tax credit. This includes anyone under the age of 18. A home purchase from relatives of both the taxpayer and his or her spouse is invalid for tax credit. This includes a taxpayers ancestors such as parents and grandparents, lineal descendants such as child or children and grandchildren, and spouses.
If one of the married couple has earlier owned a home, either of the two is not eligible to claim a first-time home buyer tax credit. However, they can still apply for the repeat home buyer tax credit up to $6,500. Repeat home buyers are taxpayers who have owned a home for five consecutive years aside from the prior eight years. It is applied to houses sold after November 6, 2009 and on or before April 30, 2010. If a binding sales contract is signed by April 30, 2010, any home being completely bought by June 30, 2010 will qualify.
Moreover, neither the first-time home buyer tax credit nor the repeat home buyer tax credit have to be repaid unless the home is sold or ceases to be used as the buyers principal residence within three years after the initial purchase.
Another thing to remember is that taxpayers should submit a copy of the HUD-1 statement and IRS Form 5405 in claiming first-time home buyer tax credit or repeat home buyer tax credit.
#5. What Is Alternative Minimum Tax?
A lot of people, especially those that are planning on starting their own business, should start learning about taxes, especially since they will be required to pay Federal income tax, which is basically a system of the United States. One particular tax that you should learn about is called the alternative minimum tax.
What is AMT?
Alternative minimum tax, or AMT, is a tax system that is part of the United States Federal income tax system, and is basically used for those people and corporations who owe personal income tax and corporate income tax respectively. Basically, this tax is considered to be an extra tax since you will still need to pay this tax aside from the regular income tax that you need to pay. As the name suggests, you are actually subject to a different set of rules, thereby giving you an alternative way of calculating your income tax. In theory, you are supposed to be paying a certain minimum amount for your income tax. If you are already paying that same amount through your regular income tax, then paying AMT should no longer be an option. However, if your income tax falls short of the minimum, then you would be required to pay off the difference through AMT.
What Is The Purpose Of AMT?
AMT was actually created for the purpose of preventing people who have very high incomes from abusing special benefits in paying their taxes, thereby greatly reducing the amount of income tax that need to pay. These high-income households use certain types of deductions to bring their tax down to a certain minimum. Unfortunately, AMT has already widened its range, and can now include even those people who do not have a very high income, or even those that do not necessarily claim a lot of deductions and special benefits, which means that almost anybody that fits within criteria set for AMT can be have AMT liability.
What Can Cause AMT Liability?
You can have AMT liability through a number of possible ways. It can be taken from a big item in your tax return, or it could be made up by a combination of small items, whichever one could cause or contribute to your AMT liability. Claiming a lot of personal exemptions can contribute to your AMT liability. The more you claim, the greater the chance of you becoming liable. Standard deductions in your income tax return, state and local taxes, medical expenses, even interests on second mortgages could all lead to AMT liability.
How Do You Calculate Your AMT?
In order for you to better understand AMT liability, you need to understand first how that particular type of tax is calculated. What you do is basically calculate first the alternate tax by taking note of all the various tax benefits that can be taken under the regular tax so that you can reduce it in your calculation. Also factor in the AMT exemption, which is a special deduction that applies to people who have low to modest income. Then, you calculate the tax by adding the 26% to 28% AMT rates, especially to those who have higher income levels. Once you have done this, you then calculate the difference between this tax with your regular tax. If your regular tax is lower than the AMT tax, then it will be added to your regular income tax, and you will be required to pay the difference between the two. If, however, your regular income tax is higher, then you don't have to pay any AMT tax.
Why Do People Want To Repeal AMT?
A lot of people want AMT tax to be repealed because AMT tax is not just targeting people with very high incomes anymore, but can also include those who have modest incomes as well. This means that almost anyone can become a potential target for AMT tax.
Can You Get AMT Credit?
There is a possibility that you can actually claim special AMT credit, but only through certain terms and conditions. One condition is that paying AMT for specific timing items, like incentive stock options, will let you get credit for those specific items only in the future.
#6. What Can You Deduct For Home Business?
If you have your own home business, or if you are working in a home business company, then you are in luck. If you do not already know, owning or working for a home business can subject you to certain tax deductions, just as long as the deductions are within the specified terms and requirements for it to be considered. A percentage of the space in your home, more specifically the area used for the purpose of business in your house, including some of the expenses related to your home business, can be deducted from your total tax income.
What Are The Requirements?
In order for you to become eligible for this particular tax deduction, you need to do certain checks to make sure that you are indeed qualified for the deduction. The IRS has certain requirements that need to be satisfied. One of the first requirements is that the home business space that you have at home should be the only work space that you have, or is provided by your employer. If you are simply choosing to work at home for your convenience, even if you have a regular office space provided for by your employer, then you actually do not qualify for the tax deduction.
The office or work space that you have at home should also be used primarily for your business only. It can be a place for you to meet up with your clients, or your main office work space. If you use it for another purpose other than for business, then it may not qualify for the tax deduction. The office space, including all of the business-related expenses that you might have incurred, can all be tax deductible.
One of the kinds of business-related expenses that you can include in your list of tax deductible items is what you call direct expenses. As the name implies, these direct expenses that you might incur would include all expenses that are directly caused by running your home business. It could be any equipment that you might have bought or used for the benefit of your business, such as a phone line, fax line, office supplies, and could even include maintenance and repairs.
Indirect expenses are another business-related expense that you can deduct from your total tax income. It may not necessarily be caused by running the business, but this type of expense can actually influence the cost of running and operating your business. These expenses are those that are crucial in running and operating your business, but cannot be completely deducted from your total tax income. Examples of this type of expense are your electric bills, water bills, heat, home mortgages, real estate taxes, and even waste removal costs. Although all these cannot be completely deducted since all of these are included in your living expenses, you can, deduct portions of it.
Can A Home-Based Employee Also Get Deductions?
Employees of home-based businesses can benefit from certain tax deductions that can be gained from working in a home office. As long as the employee also meet the same standards for a home office as those who actually owns the business. However, unlike the standard set for self-employed taxpayers, you can actually use the home office work space simply for the convenience of your employer and still benefit from tax deductions.
Where Can You Claim Home Business Deductions?
As soon as you are finished calculating how much space in your home you actually use for your home business, and what other expenses you have incurred in running and operating your home business, then you simply need to fill up Form 8829 to help you make a calculation as to how much deduction you would get and report this to Schedule C. If you are an employee, however, you need to use the IRS Publication 587 work sheet, to help you make a calculation as to how much allowable expenses can you deduct. This should be reported on Schedule A.
One of the more important things that you need to do when operating your own home business is that you must have a system of keeping all of your records and necessary and important documents that could help you prove your claim, that you are indeed eligible, and are working and operating in a home-based office space. Just make sure that you keep at least three years worth of records and documents from the date of filing.
#7. What Are Tax Relief Checks?
When the Economic Growth and Tax Relief Reconciliation Act of 2001 was passed, tax relief became a way of reducing the taxes weight on the taxpayers. The government started sending $300 checks for singles, while couples receive $600 checks in 2001. This was a major tax relief effort by the United States government for the last two decades.
What are these checks?
* Tax relief checks could be a form of refund. Since Americans would be paying their taxes in advance, taxpayers may overpay. In other places, this could be called a refund check. To reiterate, this is not a refund from a previous rebate. This is an advance refund for the future taxes that are yet to be filed.
* When the government change the tax rates, they would be sending out relief checks to help taxpayers adjust with the old and new rate.
* The government could also send tax relief checks to help consumers boost the market.
The amount sent by the government varies, just like in the case of summer 2001, when singles and couples received different amounts. It could be based on the income of the taxpayer. These checks could be standard with everybody receiving the same amount.
Those who would receive the taxes are chosen randomly. It could be based on their Social Security number or government identity. Aside from easing the tax burden, it signaled the changing of the tax rate. It brought down the 15% tax rate to 10%. Those who belong in low and moderate income families are the top priority.
If you want to know if you are qualified or you will be getting a relief check, then you could check the IRS site for you status. Before you can get a relief check, you would need to file your taxes. The IRS would provide information on when the check would be available and how to apply or find it.
To get a relief check, you should have a valid Social Security number and have an individual or combine qualifying income. Aside from that, you or your family should not be dependent or eligible to be dependent on others federal tax return.
To track your relief check, you could call the IRS or state taxation department. The IRS or the taxation department would inform you what type of check, is available. You could even trace it online, in the IRS website or in some cases, some websites of federal states.
#8. What Are Tax Credits?
Tax credits actually relate to two concepts, the first one involves the amount of partial payments made to the taxes that you have due, and the other defines it as a benefit paid by the state through the tax system. They can be considered as payments from the government back to the tax payer. This can greatly reduce your tax liability to the government. Not a lot of people understand tax credits and how they work. Hopefully, after you read this article, you would have a much better understanding as to what it is, and how you can benefit from it.
Tax Credits Definition
Basically, tax credits are a way that you can reduce the level and amount of your tax liability dollar-for-dollar, but it will not reduce it beyond zero. This reduction will be made on your gross tax liability, which is actually the amount of tax that you need to pay before any reduction is made. If your tax liability already reaches zero, then any tax credit that will be imposed on your tax liability will no longer be useful. Most tax credits are actually non-refundable, but there are some that are still refundable, and can still be refunded to you even after the excess tax credits have already expired. The only times that you can get the refundable tax credits are through the additional child tax credit and earned income tax credit.
Who Can Get Tax Credits?
One of the very first things that people ask themselves when it comes to tax credits is if whether everybody can avail of this type of state benefit or not. Tax credit can be given to a number of different people, depending on which category they would belong. But the most basic way that you can determine if you are eligible for tax credit would all depend on your age, if you have children under your care, and if you have invested some money on a retirement savings account.
There are some other forms of tax credit that can be given to you depending on your current situation, like a working tax credit for example, wherein you and your partner can avail of it when both of you are working for a certain number of hours within a week but are still earning low incomes. You don't necessarily need to have children in order for you to qualify for this type of tax credit. You can either be self-employed, or if you are working for someone else.
How Much Tax Credit Do You Get?
Depending on which type of tax credit, you get different computations for each type of tax credit. Majority of these tax credits will depend a lot on whether you are qualified to get them or not, and will depend on your total gross tax liability, which is the actual total of your tax liability without the credits and deductions. To find out how much you actually owe in your tax liability, you simply need to check your net tax liability, which will show how much your total tax liability really is, including all of the deductions and credits that have already been applied. You can this information on your tax form.
Is Tax Credit Better Than Tax Deduction?
Contrary to how they sound, tax credits can actually be a whole lot better than tax deductions mainly because tax credits can decrease or lower your tax directly, as compared to tax deductions which only reduces the amount of taxable income, which means that the amount of tax reduced from your total ta