Category: Tax and Life Changes | Blog

rt_lifechangesLife changes happen for everyone. If there’s a baby on the way or wedding bells in the air, life changes affect your taxes… for better or for worse. We’ll keep you informed about what to do if you’re anticipating any of the following:

  • marriage
  • having a baby
  • divorce
  • purchasing a new home
  • filing your first tax return
  • moving out of your parents home
  • a new job/career
  • death in the family
  • and more!
Questions? Don’t hesitate to leave a comment on our blog posts. We’ll get back to you with the answers you need!

Archive for the ‘Tax and Life Changes | Blog’ Category

Claiming Parents as Dependents If They Receive Social Security Benefits

Posted by Michelle O'Brien on December 19, 2016
Last modified: January 25, 2017

It’s been said that life comes full circle. Well, so do taxes.

It’s difficult to watch your parents grow old. The ones who supported you while growing up are now the ones you’re taking care of. You may be curious if you can claim your parents as dependents on your tax return like they once did for you.

The answer lies in the following five tests set up by the IRS:

#1. They must be related to you.

#2. They must be a citizen or resident of the United States, Canada, or Mexico.

#3. They must not be filing a joint tax return.

#4. They must have an annual gross income of less than $4,000.

#5. You must provide more than 50% of their financial support for the year.

With these qualifications in mind, let’s take a look at some special circumstances that might apply to you and your parents. (more…)

Tax Filing for Low Income Taxpayers

Posted by Michelle O'Brien on December 10, 2016
Last modified: December 16, 2016

Need a hand preparing your tax return this year?

There’s a good chance that if you are one of many low income taxpayers, you will file a tax return this year. Preparing that return doesn’t have to cost you most of that refund you’ve been looking forward to.

There are credits specifically targeted toward taxpayers earning less than $50,000 per year. Let’s take a look at four credits that should be on your radar this year.

Earned Income Tax Credit

This credit was originally created as an incentive for people to work. Eligibility and the amount you receive from this credit are determined by filing status and income; specifically your adjusted gross income. To qualify for the credit, you must be between 25 and 65 years old. You also must be either single or married filing a joint tax return. If you qualify, you can earn up to $6,242! A few things to keep in mind before blindly claiming this credit are: (more…)

Can You Claim Parents as Dependents?

Posted by Michelle O'Brien on December 6, 2016
Last modified: December 19, 2016

Sometimes we’re so busy growing up that we forget they’re growing old.

Everyone knows that claiming a dependent on your income tax return can get you a significantly larger refund. For every dependent you claim on your taxes you can claim an extra personal exemption. That’s a large chunk of change you can deduct from your income, thus reducing your tax burden.

But who exactly can you claim? Are you eligible to claim your parents as dependents?

When it comes to taxes there are actually two different types of dependents: qualifying children and qualifying relatives.

Obviously, you can’t claim your parents as qualifying children. So the question becomes, do they meet the requirements for qualifying relatives? (more…)

Someone Else Claimed My Dependent

Posted by Michelle O'Brien on October 27, 2016
Last modified: March 21, 2017

Did the IRS reject your tax return because someone else claimed your dependent?

Claiming a dependent is usually pretty simple: you give the IRS their social security number, certifying that your relationship with that person satisfies a few simple rules.

Things can get more complicated, especially if someone else also claims the same person as a dependent. If they file their return first, the IRS will assume it’s legitimate and award them the full tax benefit of the dependent. When you attempt to e-file your return, it will be rejected.

What can you do then?

The process is fairly straightforward. After your e-filed return has been rejected because someone else claimed the same dependent, you need to file a paper return. You can still prepare your return online. Instead of e-filing, you will need to print it out, sign it, and mail it to the IRS.

With your return, include a cover letter explaining your situation to the IRS as well as evidence proving that you have the right to claim the dependent (ie: medical records, school records, etc.).

The IRS will then review both returns claiming that dependent and determine which person should be claiming the dependent based on tax law. (more…)

If You Work Remotely Where Do You Pay Taxes?

Posted by Michelle O'Brien on October 27, 2016
Last modified: October 28, 2016

You work from home…but where do you pay taxes?

In our post “Living in One State, Working in Another“, we explained how to file state taxes if you work in one state but live in another.

However, with all the (exciting) advances in technology, more and more individuals are trading in their commutes to the office to instead work remotely from home.

If you work remotely and the company you work for is in a different state than you live in, then your tax situation will differ from someone who physically travels to another state for work.

We understand that you may have no idea how to file your state taxes. We’re here to help!

File taxes to one or two states?

Depending on your specific tax situation, you may need to file two state tax returns; a resident return and a non-resident return. (more…)

How to File Taxes for a Deceased Person

Posted by Michelle O'Brien on May 31, 2016
Last modified: October 6, 2016

Once the inevitable hits, it’s best to know how to deal with it. Let us help you with the tax side.

Death and taxes are two topics that no one wants to have a conversation about. However, they are two hurdles in life that every person is eventually faced with. Unfortunately, they can arrive together – when a taxpayer dies, there needs to be a final tax return filed on their behalf. We’ll tell you who needs to do this, what needs to be reported and how to get it done.   

Who is responsible for filing a final tax return?

A final tax return will always need to be filed after a taxpayer’s death, but who needs to do this will depend on the filing status of the deceased taxpayer on the day they passed away.

Were they married?

If the taxpayer was married when they passed away, then the IRS considers the couple to be married for the entire year for tax purposes. The surviving spouse is responsible for filing the tax return. In this case, the surviving spouse would file as married filing jointly, or qualifying widow(er) with dependent child.

If the surviving spouse plans to file a joint tax return, they are only able to do so for the current tax year in which their spouse has passed. In following tax years, they must file as qualifying widow(er) with dependent child, head of household, or single.

In order for the surviving spouse to file as a qualifying widow(er) with dependent child, specific requirements must be met. The surviving spouse must have: (more…)

Who Determines Which Parent Claims a Dependent Child?

Posted by Michelle O'Brien on April 1, 2016
Last modified: October 6, 2016

Claiming a dependent on your taxes can shave off a good amount of your tax liability.

Sometimes, the real issue lies in the rule that only one exemption can be claimed per dependent. This is an IRS rule, and one situation where absolutely no exceptions apply. So if there are two parents who are not filing jointly, and one child, you can see how this has all the makings of an impromptu game of tug-o-war.

So who wins? This question is asked to countless accountants, lawyers and tax professionals each day. The answer is simple. Accepting the answer is the tough part.

The custodial parent can claim the child as a dependent. The non-custodial parent cannot.

Who determines which parent can claim the child dependent exemption?

Contrary to popular belief, a court order will not determine which parent can claim a dependent child. You can wait on hold with the IRS as long as you want. The answer will always come down to federal law; not a state or county court order.

Custodial Parent VS. Non-Custodial Parent

Assuming your child probably refers to you as mom or dad, ‘custodial parent’ is typically not a term thrown around in most households. Generally speaking, the parent with whom the child lives for the majority of nights during the tax year is the custodial parent. The non-custodial parent is the other parent. If the child lived with each parent for the same amount of nights per year, then the custodial parent is the one with the higher Adjusted Gross Income. (more…)

My Ex Claimed My Child as a Dependent; Now What?

Posted by Michelle O'Brien on March 30, 2016
Last modified: October 6, 2016

You can’t divide a dependent exemption in half.

So, your ex claimed your child as a dependent on their tax return, when you were the only parent eligible to do this. Was it out of revenge? Maybe it was just miscommunication? Perhaps they believed they were actually allowed to? It happens. Regardless of the reason they did it, now you need to fix it and prevent this from happening in the future. RapidTax is here to help.

What will happen if I e-file my tax return?

You are the custodial parent of your child. Are you sure? To avoid confusion with the tax jargon I just threw your way, a custodial parent (for tax purposes, anyways) is the parent who the child lives with for the majority of nights per year. If both parents spent an equal amount of time with the child, then the parent with the highest adjusted gross income is the custodial parent (by default), according to the IRS. Keep in mind that determining who the custodial parent is does not depend on a state or county court ruling. For tax purposes, the IRS only considers federal law.

If both you and your ex e-file your tax returns and claim your child as a dependent, the one of you who filed second will be rejected by the IRS. This is inevitable. Even if you are the custodial parent, the IRS e-file system is a machine and you will still need to prove this.

What steps do I need to take to prove that I am the eligible parent?

The first thing to understand is that each tax situation is unique, and the best thing to do is contact the IRS directly for specific instructions on how to proceed. However, if you want a general idea of the steps you’ll need to take, keep reading.

Step #1: Double check that you meet all of the eligibility requirements set up by the IRS. This is important because if you do not meet even one of the following and your ex does, it could work against you. These requirements are: (more…)

How Many Kids Can You Claim on Taxes?

Posted by Michelle O'Brien on January 20, 2016
Last modified: December 16, 2016

Kids are great! But they can be taxing…in more ways than one.

Growing up, my parents would always give me an increase on my allowance around April. They would say it was to teach me how to budget my money. Not to sell out my parents or anything but now I know that they were able to give me a little extra once a year because they were getting more back from the IRS after filing and claiming me as a dependent.

Let’s just say, those little bonuses stopped once I began filing my own taxes.

Is there a limit to how many dependents I can claim on my tax return?

No, there is no maximum amount of dependents you’re allowed to claim on your tax return. You can claim all dependents who are qualified child dependents according to IRS rules. Consider it a token of appreciation for supporting the ever-increasing costs of diapers, astronomical college tuition fees and for simply putting food on the table each night.

What qualifies a child as my dependent?

You may see this question to have a simple answer if you are married parents filing a joint return. However, for single parents, married parents who file separately or other relatives, the answer is not as clear.

A qualifying child dependent has slightly different requirements than a qualifying relative dependent does. In order to be considered a qualifying child dependent, they must meet all of the following requirements:

(more…)

Earned Income Tax Credit Tips for Single & Head of Household Filers

Posted by Michelle O'Brien on March 26, 2015
Last modified: October 6, 2016

The Earned Income Tax Credit can add a total of up to $6,044 to your tax refund!

Being a single parent is no picnic. Parenthood is a tough gig, especially when you’re on your own.

Raising a family on one source of income is enough of a headache. On top of that, you have dinner to cook, homework to help with, and sports games to attend. It’s clear, you have a lot on your plate and could use more money in your pocket.

Here’s something you must know: to lessen the financial burden of being a single parent, the IRS offers the Earned Income Tax Credit to qualifying tax filers.

Why Your Income Matters

The EITC or EIC is a refundable tax credit that is only offered to taxpayers who earn low-to-moderate income from their job or from being self-employed. That means if you don’t work, you cannot claim the credit.

In addition, once your income goes over a certain threshold, you won’t qualify to receive the tax credit. (more…)