Frequently Asked Questions & Answers


Q 1: Is there an age limit on claiming my child as a dependent?

Answer:
Age is a factor in the qualifying child test, but a qualifying relative can be any age.

As long as the following tests are met, you may claim a dependency exemption for your child:

1. Qualifying child or qualifying relative test
2. Dependent taxpayer test
3. Citizenship or resident test
4. Joint return test

Q 2: How do I know if I have to file quarterly individual estimated tax payments?

Answer:

You must make estimated tax payments for the current tax year if both of the following apply:
  • You expect to owe at least $1,000 in tax for the current tax year, after subtracting your withholding and credits.
  • You expect your withholding and credits to be less than the smaller of:
1. 90% of the tax to be shown on your current year’s tax return, or
2. 100% of the tax shown on your prior year’s tax return.  (Your prior year tax return must cover all 12 months.)


Q 3: 
If I claim my daughter as a dependent because she is a full-time college student, can she claim herself as a dependent when she files her return?

Answer:

If you can claim your daughter as a dependent on your income tax return, she cannot claim herself on her income tax return.
  • If an individual is filing his or her own tax return, and the individual can be claimed as a dependent on someone else's return, the individual cannot claim his or her own personal exemption.
  • In this case, your daughter should check the box on her return indicating that someone else can claim her as a dependent.

Q 4: Even though I can't withdraw funds penalty free from my 401(k) plan to purchase my first home, can I roll it over my withdrawal into an IRA and then withdraw that money penalty free from the IRA to use as my down payment?

Answer:

You can roll funds from a 401(k) plan to an IRA to be able to take a penalty free distribution to purchase your first home if:
  • You receive a distribution from a 401(k) plan that is eligible to be rolled over into an IRA
  • You meet all of the qualifications for an IRA distribution for a first-time homebuyer

The plan administrator for your 401(k) plan is required to notify you whether a distribution from the plan will be eligible to be rolled over into an IRA. Note that funds rolled from a 401(k) plan to an IRA are generally subject to federal income tax withholding at a 20% rate unless you do a direct rollover to the IRA.



Q 5: I want to establish a traditional individual retirement account (IRA) for my spouse, and I need additional information. What is the most I can contribute to a spousal IRA during the tax year?

Answer:
  • If both you and your spouse work and both have taxable compensation, each of you can generally contribute to a separate traditional IRA. In addition, subject to certain limitations, if you file a joint return and the amount of your taxable compensation is less than your spouse’s taxable compensation, each of you can contribute to a separate traditional IRA based on your combined compensation, even if one of you has little or no compensation.
  • The amount that you can contribute to each IRA is subject to a limit of $5,000 ($6,000 if you are age 50 or older),
  • Your total contribution to both your IRA and the spousal IRA for this year is limited by certain factors such as your taxable compensation, contributions to a traditional and Roth IRA and your age.


Q 6: 
Can I take an IRA deduction for the amount I contributed to a 401(k) plan last year?

Answer:

In general, an amount contributed to a 401(k) account cannot be used as an IRA deduction.  However, if the 401(k) plan has a deemed IRA feature, contributions to the deemed IRA may be deductible in accordance with the IRA contribution rules.

A pre-tax 401(k) contribution is already excluded from your federal (and most state and local) taxable income, as it is not included in box 1 taxable wages of your W-2 form. Deemed IRA contributions are included in box 1 and you use the normal IRA contributions rules to determine their deductibility.


Q 7: 
How long do I have to roll over a distribution from a retirement plan to an IRA account?

Answer:

You must complete the rollover by the 60th day following the day on which you receive the distribution.


Q 8: What types of work-related educational expenses are deductible?

Answer:

Deductible work-related educational expenses include:
  • Amounts spent for tuition, books, supplies, laboratory fees and similar items.
  • Transportation and travel expenses to attend qualified educational activities may also be deductible.


Q 9: 
Can I deduct separate maintenance paid to my spouse or alimony paid to my former spouse?

Answer:

If you are separated or divorced, you may generally deduct payments of separate maintenance or alimony paid in cash (including check or money order payable on demand) to, or on behalf of, your spouse or former spouse.


Q 10: Is interest on a home equity line of credit deductible as a second mortgage?

Answer:

You may deduct home equity debt interest, as an itemized deduction, if all the following conditions apply:
  • You are legally liable to pay the interest
  • You pay the interest in the tax year
  • The debt is secured with your home
  • The home equity debt is limited to the fair market value of the home reduced by home acquisition debt, up to a total of $100,000.


Q 11: 
Is the mortgage interest and property tax on a second residence deductible?

Answer:

The mortgage interest on a second home which you use as a residence for some portion of the taxable year is generally deductible if the interest satisfies the same requirements for deductibility as interest on a primary residence.
  • The limitation for mortgage interest on your primary and secondary residence is $1,000,000 for acquisition indebtedness and $100,000 for home equity indebtedness.
  • Real estate taxes paid on your primary and second residence are, generally, deductible.
  • Deductible real estate taxes include any state, local, or foreign taxes based on the value of the real property levied for the general public welfare.
  • Deductible real estate taxes do not include taxes charged for local benefits and improvements that increase the value of the property, such as assessments for sidewalks, water mains, sewer lines, parking lots, and similar improvements.

Q 12: Is the interest amount that we paid to the IRS deductible?

Answer:

Interest and penalties paid to the IRS on Federal taxes are not deductible.

Q 13: My spouse and I are filing separate returns. How can we split our itemized deductions?

Answer:

If you and your spouse file separate returns and one of you itemizes deductions, the other spouse will have a standard deduction of zero. In this situation, the other spouse should also itemize their deductions.

  • You may be able to claim itemized deductions on a separate return for certain expenses that you paid separately or jointly with your spouse.
  • Deductible expenses that are paid out of separate funds, such as medical expenses, are deductible by the spouse who pays them.
  • If these expenses are paid from community funds, the deduction may depend on whether or not you live in a community property state.
  • In a community property state, the deduction is, generally, divided equally between you and your spouse.

Q 14: Can I claim both the child tax credit and the child and dependent care credit?

Answer:

You can claim both the child tax credit and the child and dependent care credit on the same return if you qualify for both credits.

Q 15: Do tuition and related expenses paid to attend a private high school qualify for an education credit?

Answer:

No. Expenses paid to attend a private high school do not qualify for an education credit because a high school is not an eligible educational institution. 

In general, an eligible educational institution is an accredited college, university, vocational school, or other post-secondary educational institution.  In addition, in order to be an eligible educational institution, the school must be eligible to participate in a student aid program administered by the Department of Education.


Q 16: My wife and I have two children and we are going to file separate returns this year. Can we each claim one child for the earned income credit?

Answer:

No. In order to qualify for the earned income credit, your filing status cannot be married filing separately.

  • If you are married, you usually must file a joint return to claim the earned income credit.
  • However, if you are married and your spouse did not live in your home at any time during the last 6 months of the year, you may be able to file as head of household.
  • In that case, you may be able to claim the earned income credit.

For 2011, if you have two qualifying children your adjusted gross income must less than $40,964 ($46,044 if married filing jointly) to qualify for the earned income credit.


Q 17: If both parents want to claim the earned income credit but were never married, who is entitled to claim the credit?

Answer:
  • If the child is a qualifying child of both parents, they may choose which one will claim the credit.
  • If there are two qualifying children, each parent may claim the credit on the basis of one of the children.
  • One parent may claim the credit on the basis of both children.
  • If both parents claim the child as a qualifying child, the IRS will treat the child as the qualifying child of the parent with whom the child lives for the longer period of time in the tax year. If the child lives with each parent for the same amount of time, the IRS will treat the child as the qualifying child of the parent who has the higher adjusted gross income (AGI) for the tax year. 
  • If no parent can claim the child as a qualifying child, the child is treated as the qualifying child of the person who has the highest AGI for the tax year.
  • If a parent can claim the child as a qualifying child but no parent does so claim the child, the child is treated as the qualifying child of the person who has the highest AGI, but only if that person's AGI is higher than the AGI of any of the child's parents.


Q 18:  What are the updated procedures to the ITIN application requirements?

Answer:
The IRS is revising its procedures for issuing new Individual Taxpayer Identification Numbers (ITINs) based on an extensive review of the ITIN process and feedback from Certifying Acceptance Agents (CAAs) and Acceptance Agents (AAs), stakeholders and others.  
Form W-7, Application for IRS Individual Taxpayer Identification Number, must include original documentation such as passports and birth certificates, or certified copies of these documents by the issuing agency. Notarized or Apostilled copies of documentation will not be accepted.



Q 19: What is the difference between a "certified" and a "notarized" document? Answer:
A certified document is one that the original issuing agency provides and certifies as an exact copy of the original document and contains an official stamped seal from the Agency. These documents will be accepted. A notarized document is one that the taxpayer provides to a public notary who bears witness to the signing of the official document and affixes a seal assuring that the document is legitimate. These documents will not be accepted for ITIN applications. Note there are some applicants who are exempt from this change. This exemption is described in a previous question.

Q 20: Will taxpayers be able to submit Form W-7 applications (with original documents) at IRS Taxpayer Assistance Centers? Answer: Designated Taxpayer Assistance Centers will certify original and copies certified by the issuing agency passports and National ID cards for primary, secondary and dependents in person.

Q 21: Can my foreign consulate or embassy certify my documents? Answer: You may be able to request a certified copy of documents at an embassy or consulate. However,services may vary between countries, so its better to contact the appropriate consulate or embassy for specific information.

Q 22: If a consulate or embassy wants to know why I need a certified copy of my passport. What should I provide them as proof of requirement? Answer: Refer the consulate or embassy to the information on www.IRS.gov or that you download and copy of that information and provide it to them.

Q 23: Will the IRS accept an apostille document?

Answer: The IRS is only accepting original documentation or copies of documents certified by the issuing country or agency. An apostille does not meet these requirements since it is similar to the U.S. Notary, which we are currently not accepting. You may be able to request certified copy of identification documents at the applicant's embassy or consulate. However, services may vary between countries so you can contact the appropriate consulate or embassy for that information.   




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