https://www.facebook.com/https://plus.google.comhttps://www.skype.comhttps://www.youtube.com/


Steps to Claiming an Elderly Parent as a Dependent

posted Jan 15, 2018, 6:27 AM by Nhat Vuong Tran   [ updated Jan 15, 2018, 7:33 AM ]

Updated for Tax Year 2017


OVERVIEW

If you cared for an elderly parent, your parent may qualify as your dependent, resulting in additional tax benefits for you.


 

The first thing that often comes to mind when considering dependents is the parent/child relationship. In many cases, parents claim their children as dependents until they become adults. It also works the other way around. If you cared for an elderly parent, your parent may qualify as your dependent, resulting in additional tax benefits for you. Once you determine that both of you meet IRS criteria, you can claim your parent as a dependent on your tax return.

Income imitation

Your parent must first meet income requirements set by the Internal Revenue Service to be claimed as your dependent. To qualify as a dependent, your parent must not have earned or received more than the exemption amount for the tax year. This amount is determined by the IRS and may change from year to year. Current exemption amounts can be found in IRS Publication 501, Exemptions, Standard Deduction, and Filing Information. Generally, you do not count Social Security income, but there are exceptions. If your parent has other income from interest or dividends, a portion of the Social Security may also be taxable.

Support requirement

You must have provided more than half of your parent's support during the tax year in order to claim them as a dependent. When determining the monetary value of the amount of support you provide, you need to consider several factors.

Calculate the fair market value of the room your parent occupies in your home. Ask yourself how much rent you could charge a tenant for the space.

Next, consider the cost of food that you provide. Don't forget to include utilities, medical bills and general living expenses that you also pay. Compare the value of support you provide with any income, including Social Security, that your parent receives to determine whether you meet the support requirement. The amount of support you provided must exceed your parent's income by at least one dollar.

Deducting medical expenses

If you paid for your parent's medical care, you may be able to deduct the expenses. You can claim medical expenses as an itemized deduction on Schedule A. Itemized deductions are beneficial when they exceed the amount of the standard deduction you are allowed to claim. Total medical expenses, including the cost of prescription drugs, equipment, hospital care and doctor's visits, must exceed 7.5 percent of your adjusted gross income for you to claim these medical expenses for 2017 and 2018. The IRS understands the heavy burden that medical expenses sometimes create and has made an exception for this deduction.

You can deduct your parent's medical expenses even if she does not meet the income requirement to be claimed as your dependent as long as you provide more that half of their support.

Beginning Jan. 1, 2019, all taxpayers may deduct only the amount of the total unreimbursed allowable medical care expenses for the year that exceeds 10% of their adjusted gross income.

Dependent care credit

The child and dependent care credit is a non-refundable tax credit. It can be claimed by taxpayers who pay for the care of a qualifying individual and meet certain other requirements. If your parent is physically or mentally unable to care for himself, he is a qualifying individual.

In order for you to qualify for the credit, you must meet certain requirements. You need to have earned income and work-related expenses to qualify. This means that the care must have been provided while you were either working or looking for work. In addition, you must be able to properly identify your care provider. This includes giving the provider's name, address and identifying number (either Social Security number or employer identification number). If you are married but file a separate return from your spouse, you may not claim this credit.

How to Figure Out Adjusted Gross Income (AGI)

posted Jan 15, 2018, 6:22 AM by Nhat Vuong Tran

Updated for Tax Year 2017


OVERVIEW

The AGI calculation depends on the tax return form you use; some forms allow you to take more adjustments to income, than others.


 When you file a tax return, you will always see a line to figure out your adjusted gross income, or AGI, before arriving at your taxable income number. The AGI calculation depends on the tax return form you use; some forms allow you to take more adjustments to income, than others.

figure out adjusted gross income

Reporting total income

Your AGI will never be more than the total income you report on the first lines of your tax return, and in many cases, it will actually be lower. Total income includes all of your annual earnings that are subject to income tax. This typically includes:

  • Your wages from work reported on a Form W-2
  • Income from self-employment, which is usually calculated on Schedule C
  • Taxable interest and dividends
  • Alimony payments you receive from a former spouse
  • Capital gains
  • Rental income
  • Any other payment you receive that isn’t specifically exempted from the income tax

Deductions for AGI

Throughout your tax return form, there are many opportunities to take deductions, some of which reduce your total income to determine AGI, and some that are taken in later parts of the return.

The deductions you take to calculate AGI are referred to as “adjustments to income.” These are specific expenses that the IRS allows you to use to effectively reduce your total income to arrive at your AGI. You’ll sometimes hear these referred to as “above the line” deductions.

Tax laws change every year, but adjustments to income typically include expenses you incur as an educator to purchase supplies and materials for the classroom, moving expenses that relate to starting a new job, student loan interest and tuition payments, alimony payments you’re required to make, contributions to your IRA accounts and a number of others. Deducting your eligible adjustments from your total income results in your AGI.

Significance of AGI

The amount of your AGI directly influences your eligibility to claim many of the deductions and credits available on your tax return..

If you itemize deductions and report medical expenses, for example, you must reduce the total expense by 7.5 percent of your AGI for tax years 2017 and 2018. So if you report $10,000 in medical expenses and an AGI of $100,000; you must reduce your deduction by $7,500. But if your AGI is $50,000, the reduction is only $3,250.

Beginning Jan. 1, 2019, all taxpayers may deduct only the amount of the total unreimbursed allowable medical care expenses for the year that exceeds 10% of their adjusted gross income.

Generally speaking, the lower your AGI, the greater the deductions and credits you’ll be eligible to receive.

Modified Adjusted Gross Income (MAGI)

Throughout your return you’ll notice that the IRS also uses modified adjusted gross income, or MAGI. Your MAGI is your AGI increased or decreased by certain amounts that are unique to specific deductions.

For example, you must calculate your MAGI if you want to deduct some of your student loan interest payments. For this deduction, your MAGI will be your AGI plus certain exclusions and deductions you’ve claimed for residency outside of the United States, such as the foreign earned income exclusion.

What Is a Schedule A IRS form?

posted Jan 15, 2018, 6:21 AM by Nhat Vuong Tran   [ updated Jan 15, 2018, 7:47 AM ]

Updated for Tax Year 2017


OVERVIEW

The Internal Revenue Service offers every taxpayer the option to itemize their deductions or to claim the standard deduction. The standard deduction amount varies depending on your filing status. However, if you have significant deductible expenses during the year, the total of which is greater than your standard deduction, you can itemize by reporting the expenses on Schedule A.



Purpose of Schedule A

Schedule A is required in any year you choose to itemize your deductions. The schedule has seven categories of expenses: medical and dental expenses, taxes, interest, gifts to charity, casualty and theft losses, job expenses and certain miscellaneous expenses. Each of these categories has different requirements and limitations on the amount you can deduct.

Preparing the Schedule A

When you prepare the Schedule A, you do not have to complete every line or include expenses in each category; just those that you are eligible to claim. Although many taxpayers have deductions for each category, having just one deductible expense may be sufficient to justify itemizing. For example, the mortgage interest deduction alone can be quite significant and by itself, be greater than the standard deduction. When you are done filling out the schedule and applying the specific limitations, you then transfer your total deduction to Form 1040.

When you use TurboTax, we’ll ask simple questions about your deductions and fill out the Schedule A for you.

Comparison to the standard deduction

Using Schedule A to itemize your deductions allows you to claim a number of personal expenses; however, it may not make financial sense to do so since you give up the standard deduction. In 2017 for example, the standard deduction for a single taxpayer is $6,350. If you have $1,000 in charitable donations and pay $2,000 of mortgage interest during the year, your itemized deductions are only $3,000. In this case, you can save more in income taxes by claiming the standard deduction instead of itemizing.

Schedule A tips

Keeping accurate and detailed financial records of your expenses during the year can reduce the amount of time you spend preparing the Schedule A and may also be helpful when evaluating the deductibility of each expense. Some itemized deductions, such as property and sales taxes, are often overlooked. For example, not only can you deduct property taxes on your home, but also on the boats and mobile homes you own.

In addition, if you don't pay state income taxes, then you have the option of claiming a deduction for all state sales tax you pay. For purposes of calculating your sales tax deduction, retaining receipts for all purchases you make during the year is imperative to maximizing your tax savings.

Can I Claim Medical Expenses on My Taxes?

posted Jan 15, 2018, 6:20 AM by Nhat Vuong Tran   [ updated Jan 15, 2018, 6:31 AM ]

Updated for Tax Year 2017


OVERVIEW

Medical expenses can take a bite out of your budget, especially if you have unforeseen emergencies that are not fully covered by your insurance. The Internal Revenue Service allows taxpayers some relief, making some of these expenses partly tax-deductible. To take advantage of this tax deduction, you need to know what counts as a medical expense and how to claim the deduction.


 

Claim Medical Expenses on Taxes

Deduction value for medical expenses

The IRS allows you to deduct qualified medical expenses that exceed 7.5% of your adjusted gross income for 2017 and 2018. Beginning Jan. 1, 2019, all taxpayers may deduct only the amount of the total unreimbursed allowable medical care expenses for the year that exceeds 10% of their adjusted gross income.

Your adjusted gross income (AGI) is your taxable income minus any adjustments to income such as deductions, contributions to a traditional IRA and student loan interest.

For example, if you have a modified adjusted gross income of $45,000 and $5,475 of medical expenses, you would multiply $45,000 by 0.075 (7.5 percent) to find that only expenses exceeding $3,375 can be deducted. This leaves you with a medical expense deduction of $2,100 (5,475 - 3,375).

Which medical expenses are deductible?

The IRS allows you to deduct preventative care, treatment, surgeries and dental and vision care as qualifying medical expenses. You can also deduct visits to psychologists and psychiatrists. Prescription medications and appliances such as glasses, contacts, false teeth and hearing aids are also deductible.

The IRS also lets you deduct the expenses that you pay to travel for medical care such as mileage on your car, bus fare and parking fees.

What's not deductible?

Any medical expenses for which you are reimbursed, such as by your insurance or employer, cannot be deducted. In addition, the IRS generally disallows expenses for cosmetic procedures. You cannot deduct the cost of non-prescription drugs (except insulin) or other purchases for general health such as toothpaste, health club dues, vitamins or diet food, non-prescription nicotine products or medical expenses paid in a different year.

Claiming the medical expenses deduction

To claim the medical expenses deduction, you must itemize your deductions. Itemizing requires that you not take the standard deduction, so you should only claim the medical expenses deduction if your itemized deductions are greater than your standard deduction (TurboTax will do this calculation for you).

If you elect to itemize, you must use IRS Form 1040 to file your taxes and attach Schedule A.

  • On Schedule A, report the total medical expenses you paid during the year on line 1 and your adjusted gross income (from line 38 of your Form 1040) on line 2.
  • Enter 7.5% of your adjusted gross income on line 3.
  • Enter the difference between your expenses and 7.5% of your adjusted gross income on line 4.
  • The resulting amount on line 4 will be subtracted from your adjusted gross income to reduce your taxable income for the year.
  • If this amount, plus any other standard deductions you claim, is less than your standard deduction, you should not itemize.

What Are Itemized Tax Deductions?

posted Jan 15, 2018, 6:19 AM by Nhat Vuong Tran   [ updated Jan 15, 2018, 7:49 AM ]

Updated for Tax Year 2017


OVERVIEW

When it comes to reducing your taxable income, itemizing your deductions can really maximize your tax savings.


 

When searching for ways to reduce your taxable income, itemizing your deductions can really maximize your tax savings. The benefit of itemizing is that it allows you to claim a larger deduction that the standard deduction. However, it requires you to complete a Schedule A attachment to your return and to maintain records of all your expenses.

Types of itemized deductions

Itemized deductions include a range of expenses that are not otherwise deductible. Common expenses include the mortgage interest you pay on up to two homes, your state and local income or sales taxes, property taxes, medical and dental expenses that exceed 7.5 percent of your adjusted gross income, and the charitable donations you make. Itemized deductions also include miscellaneous deductions such as work-related travel and union dues. Once you decide to itemize, you are eligible to claim all of them.

Itemizing requirements

In order to claim itemized deductions, you must file your income taxes using Form 1040 and list your itemized deductions on Schedule A. You cannot file your taxes using Forms 1040A or 1040EZ if you want to itemize your deductions; only the standard deduction can be taken on these shorter forms.

Once you have entered your expenses on the appropriate lines of Schedule A, add them up and copy the total to the second page of your Form 1040. This amount is then subtracted from your income to arrive at the final taxable income number.

Deciding whether to itemize

When deciding whether to itemize, you need to remember that you will be giving up the standard deduction. Therefore, after adding up your itemized deductions, you need to make sure the total is greater than the standard deduction for your filing status. If it’s not, then you will actually pay more in tax if you itemize.

Form 1040A allows you to claim certain common deductions and credits (like education credits), while still claiming the standard deduction. The instructions for Form 1040A explain which deductions and credits you can claim on the form.

When you use TurboTax to prepare your taxes, we’ll ask simple questions about your tax situation and we’ll recommend whether itemizing or claiming the standard deduction will get you a bigger tax refund (or lower tax due).

Alternative minimum tax implications

If you are subject to the alternative minimum tax, some or all of the itemized deductions that you claim may be reduced or eliminated. For example, your medical and dental expenses deduction is reduced and you cannot deduct the interest on home equity loans. Additionally, you cannot deduct any of your state and local income or sales taxes, tax preparation fees and unreimbursed employee expenses.

5 Facts About the Earned Income Tax Credit

posted Jan 15, 2018, 6:16 AM by Nhat Vuong Tran

Updated for Tax Year 2017


OVERVIEW

Many qualified taxpayers overlook the Earned Income Tax Credit (EITC), potentially missing out on thousands of dollars at tax time.


earned income tax credit

Tax credits mystify many Americans, if only because it's hard to know which ones they qualify for and why. They're worth having because they provide meaningful savings on a filer’s overall tax contribution and in some cases lead to a tax refund.

One of the most beneficial credits for families with low or moderate incomes is the Earned Income Tax Credit (EITC). It was established to offset the burden of Social Security taxes and provide an incentive to work. Experts of financial planning and taxes recommend all filers explore their eligibility for receiving the EITC.

"It is an overlooked credit all too often," says Sandy Zinman, committee chairman for the National Conference of CPA Practitioners. "If you're not earning a whole lot of money but are working, you can end up getting back more money than you pay in."

Here are five facts about the Earned Income Credit that should clarify some of the simpler mysteries of the credit.


“Just because you didn’t get it last year doesn’t mean you won’t get it this year. This economy has been rough on a lot of people. A lot of people’s tax situations can change in a year. Tax laws change. … You should check every year.”

—Louis Barajas, financial planner and author, Santa Fe Springs, California


1. Eligibility is limited to low-to-moderate income earners

The general eligibility rule for the EITC is fairly straightforward. Taxpayers must file as individuals or married filing jointly. If married, you, your spouse and your qualifying children must have valid Social Security numbers. You must also be 25 or older but younger than 65. For the 2017 tax year, the maximum credit is $6,318. According to the Internal Revenue Service, the average amount credited in 2016 was $2,455.

Louis Barajas, a financial planner based in Santa Fe Springs, California, strongly touts the benefit of the Earned Income Credit to qualifying taxpayers, emphasizing that a credit, unlike a deduction, is "like additional income."

"It’s basically additional support from the federal government," Barajas said.

In 2017, a married couple with three children and adjusted gross income of $53,930 or less could receive up to $6,318. An individual who earns $15,010 and has no children may receive up to $510. There are many variations in between that affect eligibility, Barajas said, and it behooves you to file electronically: Those taking the traditional paper and pencil route might miss opportunities.

Although the EITC typically is considered a "low income" credit, Barajas says, a spouse working as the sole income earner of the family, perhaps on an hourly or contract basis, may also qualify.

“If they work 2,080 hours in a year, they could be making over $25 an hour—what most people would not consider to be necessarily low income—(but) they would qualify for the tax credit,” Barajas said.

2. Self-employed still counts

Many filers—especially self-employed individuals—fail to take advantage of credits because they think they are ineligible, Barajas said.

"I have had a lot of people who I have seen need to amend their returns, who were self-employed, who missed out because they didn’t think they were eligible," said Barajas. "I don’t think they ever think that they qualify for it, but they do."

The IRS considers all income that is earned eligible for the credit. That includes wages, salaries, tips and other taxable employee pay, as well as union strike benefits and long-term disability benefits received prior to minimum retirement age. It also covers net earnings from self-employment if you own or operate a business, and gross income received as a statutory employee—an independent contractor under common law rules.

Other types of income that do not qualify as earned income for the credit include child support, retirement income, Social Security benefits, unemployment benefits and alimony. Pay received for work while in prison also does not count for the credit.

3. Investment income can disqualify you

In 2017, income derived from investments, whether it is stock dividends, rental properties or inheritance, disqualifies you if it is greater than $3,450 in one year.

"Let’s say your dad died and left you $500,000, and you’re saving it for retirement but the bank sent a (Form) 1099 for the interest," Barajas said. "You would not be able to qualify for the Earned Income Credit even though you didn’t touch that money."

4. Eligibility fluctuates

Taxpayers should pay attention to their EITC eligibility every filing year, Barajas said.

"Just because you didn’t get it last year doesn’t mean you won’t get it this year," he said. "This economy has been rough on a lot of people. A lot of people’s tax situations can change in a year. Tax laws change. … You should check every year.”

Status changes can include a new job, unemployment, loss of an annual bonus because of the recession, a change in marital status, or a change in a spouse's employment situation.

Zinman agrees, and reminds all filers to go slowly and provide all of their information correctly.

"A taxpayer’s status—dependent versus not—marital status, income changes (to) higher or lower and number of dependents will all potentially affect the EITC eligibility," Zinman said.

5. Tax software can help

Barajas suggests filers consider using a qualified tax software system to maximize all of the available credits, especially the earned income credit. Because the EITC is one of the most lucrative credits available to struggling Americans, it is also an area most rife with fraud from "unscrupulous tax preparers," he said.

"There’s a lot of abuse with this," Barajas says. "In low-income areas some preparers will scam the system by not filing or declaring income to get (a customer) the EITC, or they will hide certain income or claim a lot of deductions."

In some cases, an individual will pay exorbitant fees because a preparer promises a big payday.

"Someone who is making $20,000 a year will pay $500 for an accountant who says, 'I’m smart. I can get you a lot of money.' But $4,000 or $5,000 in taxes and penalties because of errors or fraud isn’t worth it," Barajas said.

He said electronic tax programs offer an advantage because—assuming you place checks in all the right boxes—they ensure that you receive the credits to which you are entitled.

Losing EITC

Like everything else associated with the Internal Revenue Service, it doesn't pay to be dishonest. The IRS may reduce or even revoke a filer's access to the Earned Income Tax Credit for a number of years if the agency determines the filer committed fraud or flouted the rules to obtain the credit.

If the IRS finds that someone recklessly disregarded the rules to increase the credit, it may prohibit the filer from receiving the credit for two years, after which the filer would have to file a special request form to apply for the right to claim the credit.

In the event the IRS determines a filer has supplied fraudulent financial information to claim the EITC, it may penalize the filer by disallowing the credit for 10 years.

These penalties do not apply to math or clerical errors.

What Is the Difference Between AGI and MAGI on Your Taxes?

posted Jan 15, 2018, 6:11 AM by Nhat Vuong Tran   [ updated Jan 15, 2018, 6:39 PM ]

Updated for Tax Year 2017


OVERVIEW

Your adjusted gross income, or AGI, is an important line item on your taxes, as it affects your eligibility for certain other tax credits or exemptions. The same is true of your modified adjusted gross income, or MAGI.



Typically, your MAGI (modified adjusted gross income) and AGI (adjusted gross income) are close in value to one another. However, the small adjustments that tweak your AGI into your MAGI could have an important bearing on your overall tax return.

Keep in mind that when you use TurboTax to prepare your taxes, we calculate these figures for you based on your answers to some simple questions.

AGI calculation

Your adjusted gross income is all of the income you bring in, less certain adjustments. You can find the allowable reductions to your income on the front page of your Form 1040. Commonly used adjustments include the following:

  • IRA and self-employed retirement plan contributions
  • Alimony payments
  • Self-employed health insurance payments
  • One-half of any self-employment taxes paid

Other adjustments used in calculating AGI include the following:

  • Health savings account deductions
  • Penalties on the early withdrawal of savings
  • Educator expenses
  • Student loan interest
  • Moving expenses
  • Tuition and fees
  • Deductions for domestic production activities
  • Certain business expenses of performing artists, reservists, and fee-basis government officials

AGI effects on your taxes

The amount of your AGI affects how you can use numerous credits and exemptions. Your AGI affects the amount you can claim for the dependent care credit, credits for the elderly or permanently disabled, the adoption credit, the child tax credit, the Hope & Lifetime Learning credits, and the earned income credit. Many deductions phase out or disappear altogether if you have an AGI above certain limits. Deductions affected by your AGI include the following:

  • Total itemized deductions
  • Miscellaneous itemized deductions
  • Mortgage insurance premiums
  • Qualified motor vehicle taxes
  • Charitable contributions
  • Medical deduction allowance

MAGI calculation

To calculate your modified adjusted gross income, take your AGI and add back certain deductions. Many of these deductions are rare, so it's possible your AGI and MAGI can be identical. According to the IRS, your MAGI is your AGI with the addition of the following deductions, if applicable:

  • Student loan interest
  • One-half of self-employment tax
  • Qualified tuition expenses
  • Tuition and fees deduction
  • Passive loss or passive income
  • IRA contributions, taxable social security payments
  • The exclusion for income from U.S. savings bonds
  • The exclusion under 137 for adoption expenses
  • Rental losses
  • Any overall loss from a publicly traded partnership

MAGI effects on your taxes

Your MAGI is used as a basis for determining whether you qualify for certain tax deductions. One of the most notable is in determining whether or not your contributions to an individual retirement plan are deductible.

For example, as of 2017, if you were a single filer and covered by a retirement plan at work, you couldn't take an IRA deduction if you had an MAGI of $71,000 or higher. You also couldn't take a deduction for student loan interst if you had a MAGI of $80,000 or higher as a single, or $165,000 if married and filing jointly.

What are the IRS 1040 & 1040A Forms?

posted Jan 15, 2018, 6:09 AM by Nhat Vuong Tran

What Is an IRS 1040 Form?

Updated for Tax Year 2017


OVERVIEW

One of the official documents that U.S. taxpayers can use to file their annual income tax return is the IRS 1040 form.


 The IRS Form 1040 is one of the official documents that U.S. taxpayers can use to file their annual income tax return. The form is divided into sections where you can report your income and deductions to determine the amount of tax you owe or the refund you can expect to receive. Depending on the type of income you report, it may be necessary to attach other forms or schedules to it.

Reporting your income

The first page of Form 1040 is where you calculate your Adjusted Gross Income (AGI). The first section requires you to enter information on all sources of income such as your wages and salary, tips, interest, dividends, taxable state and local tax refunds, alimony, business income, capital gains, IRA and pension distributions, farm income, unemployment income and Social Security benefits.

You will always find a box on the form to list “other income” you receive that doesn’t fit into one of the other categories. You must report all income you receive, regardless of where it comes from, unless it’s tax-exempt. The sum of all of these income items is known as your total income.

Deductions for AGI

From your total income, the IRS allows you to claim specific deductions or adjustments to arrive at your AGI. Allowable adjustments include one-half of your self-employment tax payments, alimony payments you make, IRA contributions, payments of student loan interest and health savings plan contributions, to name just a few. Your AGI is an important number since many deduction limitations are affected by it.

Deductions and exemptions

The second page of Form 1040 begins with your AGI and allows you to reduce it further with either the standard deduction or the total of your itemized deductions. Itemized deductions include expenses such as mortgage interest, unreimbursed business expenses and excess medical expenses as well as many others.

If the total of your itemized deductions does not exceed the standard deduction for your filing status, then your taxable income will be lower if you claim the standard deduction. After choosing the best deduction, you can then reduce your taxable income even more by one exemption for yourself, and one for each of the dependents you claim. After subtracting your exemptions, you are left with your taxable income, which is the amount subject to income tax.

When you use TurboTax, we’ll do this for you and recommend whether choosing the standard deduction or itemizing will give you the best results.

Calculating the tax and claiming credits

You must now figure out the amount of tax you owe on your taxable income by referencing the tax tables in your instructions. However, if you use software, such as TurboTax, to prepare your return, the tax will be automatically calculated for you. Comparing your total tax withholding to your tax bill at the bottom of Form 1040 will tell you whether you must make an additional payment or if you should expect a refund. If you are eligible for any of the tax credits listed on the form, make sure you reduce the amount of tax you owe by each credit before completing your Form 1040.


What Is the IRS 1040A Form?

Updated for Tax Year 2017


OVERVIEW

One of the three forms you can use to file your federal income tax return is IRS Form 1040A.


The IRS Form 1040A is one of three forms you can use to file your federal income tax return. Form 1040A is a shorter version of the more detailed Form 1040, but is more complex than the simple 1040EZ form. All taxpayers can use Form 1040; however, to use Form 1040A you must satisfy a number of requirements, such as having taxable income of $100,000 or less and claiming the standard deduction rather than itemizing.

Filing status and exemptions

When preparing Form 1040A, you must list your exemptions and choose your filing status and exemptions before you begin to report any income. Each filing status, such as “single” or “married filing jointly,” uses different tax brackets for calculating your income tax.

However, your filing status doesn’t affect the exemption amount you claim for yourself and each of your dependents. Each exemption works just like a deduction; the amount reduces your taxable income, so the more exemptions you have, the lower your tax liability will be. The top portion of the form includes a section where you must list the name and Social Security number of each dependent and provide their relationship to you.

Types of income allowed on the 1040A

The income section of the 1040A form only allows you to report limited types of income. Specific items include wages, salaries and tips, interest and dividend income, capital gains, IRA, pension and annuity distributions, unemployment compensation, Alaska permanent fund dividends and Social Security benefits. If you have other types of income, such as from a business you operate as a sole proprietorship, you still must report the income since it is taxable, but you must file the full-length Form 1040.

After reporting your income, the 1040A form allows you to claim certain adjustments to arrive at your adjusted gross income. These include deductions for educator expenses, IRA contributions, student loan interest and tuition payments.

Reporting tax, credits and payments on Form 1040A

The second page of Form 1040A allows you to subtract a standard deduction and your exemption allowances from your adjusted gross income to arrive at your taxable income. You then need to determine the amount of tax you owe by finding the appropriate range for your taxable income and filing status in the tax tables in the instructions.

Once you calculate your tax, Form 1040A allows you to claim a limited number of tax credits such as for child and dependent care expenses, the credit for the elderly or disabled and education tax credits. Your total credits reduce your tax bill on a dollar-for-dollar basis. After reducing your tax by the credits, you reduce it again by the amount of your tax payments and withholding.

Differences between Form 1040A and Form 1040

The filing status and exemptions section of Form 1040A is similar to the corresponding section on Form 1040. Due to the limited types of income you can receive and the limited adjustments to income you can make on Form 1040A, the income and adjusted gross income sections of Form 1040A are much shorter. One of the most significant differences between the two forms is that you can itemize deductions on Form 1040 but not on Form 1040A.

Steps to Claiming an Elderly Parent as a Dependent

posted Jan 15, 2018, 5:41 AM by Nhat Vuong Tran   [ updated Jan 15, 2018, 6:42 PM ]

Updated for Tax Year 2017


OVERVIEW

If you cared for an elderly parent, your parent may qualify as your dependent, resulting in additional tax benefits for you.



The first thing that often comes to mind when considering dependents is the parent/child relationship. In many cases, parents claim their children as dependents until they become adults. It also works the other way around. If you cared for an elderly parent, your parent may qualify as your dependent, resulting in additional tax benefits for you. Once you determine that both of you meet IRS criteria, you can claim your parent as a dependent on your tax return.

Income imitation

Your parent must first meet income requirements set by the Internal Revenue Service to be claimed as your dependent. To qualify as a dependent, your parent must not have earned or received more than the exemption amount for the tax year. This amount is determined by the IRS and may change from year to year. Current exemption amounts can be found in IRS Publication 501, Exemptions, Standard Deduction, and Filing Information. Generally, you do not count Social Security income, but there are exceptions. If your parent has other income from interest or dividends, a portion of the Social Security may also be taxable.

Support requirement

You must have provided more than half of your parent's support during the tax year in order to claim them as a dependent. When determining the monetary value of the amount of support you provide, you need to consider several factors.

Calculate the fair market value of the room your parent occupies in your home. Ask yourself how much rent you could charge a tenant for the space.

Next, consider the cost of food that you provide. Don't forget to include utilities, medical bills and general living expenses that you also pay. Compare the value of support you provide with any income, including Social Security, that your parent receives to determine whether you meet the support requirement. The amount of support you provided must exceed your parent's income by at least one dollar.

Deducting medical expenses

If you paid for your parent's medical care, you may be able to deduct the expenses. You can claim medical expenses as an itemized deduction on Schedule A. Itemized deductions are beneficial when they exceed the amount of the standard deduction you are allowed to claim. Total medical expenses, including the cost of prescription drugs, equipment, hospital care and doctor's visits, must exceed 7.5 percent of your adjusted gross income for you to claim these medical expenses for 2017 and 2018. The IRS understands the heavy burden that medical expenses sometimes create and has made an exception for this deduction.

You can deduct your parent's medical expenses even if she does not meet the income requirement to be claimed as your dependent as long as you provide more that half of their support.

Beginning Jan. 1, 2019, all taxpayers may deduct only the amount of the total unreimbursed allowable medical care expenses for the year that exceeds 10% of their adjusted gross income.

Dependent care credit

The child and dependent care credit is a non-refundable tax credit. It can be claimed by taxpayers who pay for the care of a qualifying individual and meet certain other requirements. If your parent is physically or mentally unable to care for himself, he is a qualifying individual.

In order for you to qualify for the credit, you must meet certain requirements. You need to have earned income and work-related expenses to qualify. This means that the care must have been provided while you were either working or looking for work. In addition, you must be able to properly identify your care provider. This includes giving the provider's name, address and identifying number (either Social Security number or employer identification number). If you are married but file a separate return from your spouse, you may not claim this credit.

Rules for Claiming a Dependent on Your Tax Return

posted Jan 15, 2018, 5:40 AM by Nhat Vuong Tran   [ updated Jan 15, 2018, 6:28 AM ]

Updated for Tax Year 2017

OVERVIEW

Rules on dependents can help you save thousands of dollars on your taxes. Yet many of us are not aware of who in our family may qualify as our dependent. Review the rules for claiming dependents here for a qualifying child or relative.


Having trouble deciding if your Uncle Jack, Grandma Betty or daughter Joan qualifies as a dependent? Help is on the way. Here's a cheat sheet to quickly assess which of your family members you can claim on your tax return.

claiming dependent on tax return

Why claim someone as a dependent?

If you have a family, you need to know how the IRS defines “dependents” for income tax purposes. Why? Because it could save you thousands of dollars on your taxes. For every qualified dependent you claim, you reduce your 2017 taxable income by $4,050. This can add up to substantial savings on your tax bill.

Dependent rules also apply to other benefits, such as tax credits. Many of these credits are available only if you have qualified dependents. For example, both the child tax credit and the earned-income tax credit rely on these rules.

In addition, the rules help you determine if you can write off dependent daycare expenses, medical expenses, various itemized deductions and most tax credits that involve children or family issues. Qualifying for these benefits can spell the difference between owing money and receiving a refund.

The basic rules aren’t complicated. But it can be difficult to apply those rules to certain family situations. That’s especially true if you have a son off at college, a cousin who stays with you during the summer, or a daughter with a part-time job. The checklist below will help you decide which relatives you can claim as dependents.

Who qualifies as a dependent?

The IRS rules for qualifying dependents cover just about every conceivable situation, from housekeepers to emancipated offspring.

Fortunately, most of us live simpler lives. The basic rules will cover almost everyone. Here’s how it all breaks down.

There are two types of dependents, each subject to different rules:

  • A qualifying child
  • A qualifying relative

For both types of dependents, you’ll need to answer the following questions to determine if you can claim them.

  • Are they a citizen or resident? The person must be a U.S. citizen, a U.S. national, a U.S. resident, or a resident of Canada or Mexico. Many people wonder if they can claim a foreign-exchange student who temporarily lives with them. The answer is maybe, but only if they meet this requirement.
  • Are you the only person claiming them as a dependent? You can’t claim someone who takes a personal exemption for himself or claims another dependent on his own tax form.
  • Are they filing a joint return? You cannot claim someone who is married and files a joint tax return. Say you support your married teenaged son: If he files a joint return with his spouse, you can’t claim him as a dependent.

Qualifying child

In addition to the qualifications above, to claim an exemption for your child, you must be able to answer "yes" to all of the following questions.

  • Are they related to you? The child can be your son, daughter, stepchild, eligible foster child, brother, sister, half brother, half sister, stepbrother, stepsister, adopted child or an offspring of any of them.
  • Do they meet the age requirement? Your child must be under age 19 or, if a full-time student, under age 24. There is no age limit if your child is permanently and totally disabled.
  • Do they live with you? Your child must live with you for more than half the year, but several exceptions apply.
  • Do you financially support them? Your child may have a job, but that job cannot provide more than half of her support.
  • Are you the only person claiming them? This requirement commonly applies to children of divorced parents. Here you must use the “tie breaker rules,” which are found in IRS Publication 501. These rules establish income, parentage and residency requirements for claiming a child.

Qualifying relative

Many people provide support to their aging parents. But just because you mail your 78-year-old mother a check every once in a while doesn’t mean you can claim her as a dependent. Here is a checklist for determining whether your mom (or other relative) qualifies.

  • Do they live with you? Your relative must live at your residence all year or be on the list of “relatives who do not live with you” in Publication 501. About 30 types of relatives are on this list.
  • Do they make less than $4,050 in 2017? Your relative cannot have a gross income of more than $4,050 in 2017 and be claimed by you as a dependent.
  • Do you financially support them? You must provide more than half of your relative’s total support each year.
  • Are you the only person claiming them? This means you can’t claim the same person twice, once as a qualifying relative and again as a qualifying child. It also means you can’t claim a relative—say a cousin—if someone else, such as his parents, also claim him.

We figure it out for you

The deduction for qualified dependents is one of the best tax benefits available. It can open the door to a large number of tax credits and deductions that can lower your tax bill. TurboTax will ask you simple, plain-English questions about your family and will determine for you who qualifies as a dependent on your tax return, so you can be sure you’re getting the biggest refund you deserve.

Frequently asked questions

  • Can I claim my child as a dependent if she has a part-time job?
    Yes, if you provide more than half of the child’s support and meet other criteria.
  • My son will be filing a tax return for his summer job. Can he take the personal exemption if I claim him as a dependent?
    No. If you claim an exemption for him on your return, he will not be able to take a personal exemption.
  • I support my 67-year-old sister-in-law. Is she qualified to be counted as a dependent on my tax return?
    Yes, because sisters-in-law meet the relationship requirement and there is no age limit for qualifying relatives.

1-10 of 19