Questions?

Who must file a tax return?

The following is from “IRS Tax Tip 2009-27″:

You must file a tax return if your income is above a certain level. The amount varies depending on filing status, age and the type of income you receive.

For example, a married couple both under age 65 generally is not required to file until their joint income reaches $17,900. However, self-employed individuals generally must file a tax return if their net income from self employment was at least $400…

Even if you don’t have to file, here are six reasons why you may want to file:

1. Federal Income Tax Withheld. If you are not required to file, you should file to get money back if Federal Income Tax was withheld from your pay, if you made estimated tax payments, or had a prior year overpayment applied to this year’s tax.
2. Recovery Rebate Credit. If you did not qualify or did not receive the maximum amount for the 2008 Economic Stimulus Payment, you may be entitled to a Recovery Rebate Credit when you file your 2008 tax return.
3. Earned Income Tax Credit. You may qualify for the Earned Income Tax Credit, or EITC, if you worked, but did not earn a lot of money. EITC is a refundable tax credit meaning you could qualify for a tax refund.
4. Additional Child Tax Credit. This credit may be available to you if you have at least one qualifying child and you did not get the full amount of the Child Tax Credit.
5. First Time Home Buyer Credit. If you bought a main home after April 8, 2008, and before July 1, 2009 and did not own a main home during the prior 3 years, you may be able to take this refundable credit.
6. Health Coverage Tax Credit. Certain individuals, who are receiving certain Trade Adjustment Assistance, Alternative Trade Adjustment Assistance, or pension benefit payments from the Pension Benefit Guaranty Corporation, may be eligible for a Health Coverage Tax Credit when you file your 2008 tax return.

Is there a penalty for filing late?

If you are owed a refund or do not owe any tax, there is no penalty for filing late.  You will only be assessed interest and penalties based on unpaid tax that you owe.

I didn’t know about certain credits and/or deductions available to me.  Can I still get them?

If you’ve already filed the return and discover errors you want to correct, you can file an ‘amended return’ anytime up until 3 years after you filed the original or 2 years after the tax was paid, whichever is later.

If you haven’t filed the return yet, it can be filed up to 3 years after the original filing deadline.  In other words, a 2006 tax return can be filed until April 14, 2010, a 2007 return can be filed up until April 14, 2011, etc.

What is a Refund Anticipation Loan (RAL)?

Beware of tax preparation services that encourage you to participate in so-called ‘programs’ with names like “Rapid Refund”, “Instant Refund”, Quick Refund”, etc., for which there is a fee.  Normally they are trying to sell you a Refund Anticipation Loan (RAL).  RALs are very high interest, very short-term loans against an anticipated tax refund.  Unless you find yourself in the most extraordinary of circumstances, they’re not worth it! The fees are normally exorbitant and the interest charged is generally the highest allowed by law.

We could make more money by recommending RALs to our clients, but we understand how hard you work for your money and would never encourage you to waste so much of it unnecessarily.  However, we will begin offering them in the near future as we are here to provide services and we realize that some of our clients will want an RAL in spite of our advice…

I got paid in cash “under the table”.  Should I file a tax return?

Most often, the answer is yes.  Income is income, regardless of how payment is made and whether or not it was properly reported at the time.  Remember, not filing a tax return when you are required to do so is a federal crime punishable by fine, imprisonment, or both. Owing the IRS money is not a crime.  You might be subject to interest and penalties, but generally, if you are willing to work with them they will work with you.  The good news is that all income is also treated the same as far as qualifying for deductions and credits.

To verify your income when you have your taxes prepared you should bring any records that apply, such as invoices, receipts, time sheets, bank deposit records, personal notes or journals, etc.  Keep in mind, your living and other expenses (plus any money you saved) less money borrowed or spent on credit is generally your approximate total income.

No taxes were withheld from my pay.  Will I have to pay the Social Security/Medicare Tax?

It is very important to remember that how you are paid is not the deciding factor as to whether or not you are considered ’self-employed’.  The relationship between you and whoever paid you is what determines this status.  Your tax preparer can ask you a series of questions to help you determine how any income in question should be reported on your tax return.

Employers are responsible for withholding one-half of the Social Security and Medicare Taxes (FICA) from their employees’ pay and for paying the other half.  If they fail to to do so, they (the employer) are responsible for all of the unpaid tax.

Those who are self-employed are responsible for paying these taxes on their net self-employment income, in other words, after deducting business related expenses.

What should I bring with me when I have my taxes prepared?

Please see our Be Prepared page.

What is earned income?

Earned Income is income you get from employment or self-employment. Here are some examples:

Earned income includes:

• taxable wages, salaries and tips
• net earnings from self-employment
• gross income received as a statutory employee

Earned income does not include:

• nontaxable employee benefits such as education assistance
• pensions
• alimony
• child support
• Temporary Assistance for Needy Families (TANF)

Special earned income rules apply for members of the U.S. Armed Forces in combat zones, members of the clergy, and those with disability retirement income.

What is the Earned Income Tax Credit (EITC)?

The EITC is a federal income tax credit for people who work, but don’t earn a lot of money. If you qualify, it could be worth up to $5,657 this year. So you could pay less federal tax or even get a refund.

Am I eligible for the EITC?

You may be if you meet the rules to claim the credit:

• You must have earned income from employment or self-employment.
• Your earned income and adjusted gross income (AGI) for 2009 must be less than:
  • $13,440 ($18,440 married filing jointly) with no qualifying children
  • $35,463 ($40,463 married filing jointly) with one qualifying child
  • $40,295 ($45,295 married filing jointly) with two qualifying children
  • $43,279 ($48,279 married filing jointly) with three or more qualifying children
• Your investment income (such as interest) must be $3,100 or less.
• Your filing status cannot be married filing separately. (Certain exceptions may apply for a parent who is separated from their spouse.  Ask your tax preparer if you qualify.)
• You must be a U.S. citizen or resident alien all year, or a nonresident alien married to a U.S. citizen or resident alien and filing a joint return.
• You must have a valid Social Security number (SSN).
• Nobody can claim you as a qualifying dependent.
• If you do not have a qualifying child, you must have:
  • been age 25-64 at the end of the tax year.
  • lived in the United States for more than half the year.
  • not qualify as a dependent of another person.

(U.S. military personnel on extended active duty outside the United States are considered to live in the United States while on active duty.)

Who is a Qualifying Child?

[We know this gets complicated -- that's what we're here for... If you're not sure whether someone qualifies as your child for the purpose of this credit, your tax preparer will assist you in making the proper determination.]

A Qualifying Child is a child (and in some cases another family member) who meets the relationship, age and residency tests. Your credit amount may be larger if you have a dependent who:

• Is your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, or a descendant of any of them.
• At the end of the year was:
  • under age 19, or
  • under age 24 and a full-time student, or
  • any age if permanently and totally disabled at any time during the year.
• Lived with you in the United States for more than half the year.

An adopted child, including a child placed with you for adoption, is treated as your biological child.  A foster child is any child placed with you by an authorized placement agency or a court.

New for this Year: The Fostering Connections to Success and Increasing Adoptions Act of 2008 changed the uniform definition of a child. Now, a “qualifying child” must:

• Be younger than the taxpayer claiming that child unless the child is disabled and
• Not have filed a joint return except to claim a refund

What if I have the same qualifying child as someone else?

If two or more persons have the same qualifying child for the EITC, dependency exemption, child tax credit, head of household filing status, or credit for child and dependent care expenses, only one person can claim the child as a qualifying child for all those benefits. You must decide who will claim the benefits, including the EITC, using that qualifying child. If you cannot agree, and more than one person actually uses the same child, the tie-breaker rules apply.

What are the tie-breaker rules?

These rules state that the child is treated as a qualifying child only of:

• The parent, if only one of the persons is the child’s parent, or
• The parent the child lived with the longest during the year, if two of the persons are the parents and they do not file a joint return together, or
• The parent with the highest AGI, if the child lived with each parent for the same amount of time during the year and they do not file a joint return together, or
• The person with the highest AGI if no one is the child’s parent.

What is a valid social security number (SSN)?

You (and your spouse if filing jointly) must have a valid SSN to claim the EITC. Any qualifying child listed on Schedule EIC must also have a valid SSN. SSNs are issued only by the Social Security Administration. To get one, you must prove your U.S. citizenship or immigration status, age and identity.

• If you are an alien who is not a permanent resident and have a Social Security card that says “VALID FOR EMPLOYMENT ONLY WITH INS/DHS AUTHORIZATION”, you have a valid SSN for the EITC.
• If you obtained your SSN solely to receive a federally funded benefit, such as Medicaid, it is not valid for claiming the EITC. The Social Security card usually says NOT VALID FOR EMPLOYMENT.
• If you (or your spouse if filing jointly) have an individual taxpayer identification number (ITIN), it is not valid for claiming the EITC.
• If a child has an ITIN or an adoption taxpayer identification number (ATIN), it is not valid for claiming that child for the EITC.

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