IRS Tax Information
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A dependent must be either a "qualifying child" or a "qualifying relative." You are allowed one exemption for each person you can claim as a dependent. Properly identifying your dependents can significantly increase your returns.
Single, married filing jointly, married filing separately, head of household: deciding which one applies to you can be confusing. Use your local Liberty Tax as a tax resource center to determine which one applies to you.
Individual Retirement Arrangement (IRA)
Retirement plans such as an IRA can substantially complicate your taxes. No contributions are allowed to a traditional IRA in and after the year you turn age 70 1/2. At that age, there is a required minimum distribution (RMD) that must be withdrawn each year. For more tax information, ask your local Liberty professional.
Life changes have tax consequences, from birth through death
During your lifetime, you may get a job, go to school, get married, start a business, change jobs, have children, send children to college, buy and/or sell a home, get divorced, contribute to a retirement plan, or draw money out of a retirement plan. Some of these lead to deductions, and some of them are actually taxable themselves. If you've had any of these life experiences, contact us for tax information to determine how it impacts you.
- New Marriages - If you are married as of December 31st of a year, you are considered married for the whole year. Your filing status depends on your marital status.
- Births - Your child born on December 31 is assumed, for tax purposes, to have lived with you the entire year. For each qualifying child, you can claim a dependent's exemption of $3,800.
- Deaths - The same filing requirements that apply to individuals determine if a final income tax return must be filed for the decedent.
- Divorce - If you are divorced or legally separated as of December 31, for tax purposes you are considered to be unmarried for the entire year.
- College Attendance - The American Opportunity Credit is available again in 2012 for taxpayers claiming higher education costs including required course materials. The credit will allow the taxpayer to claim up to $2,500 of the cost of college tuition and related expenses. Forty percent of that credit will be refundable. The lifetime learning credit gives a credit of 20% of qualified educational expenses not exceeding $10,000, for a maximum credit of $2,000. Unlike the American Opportunity Credit, the Lifetime Learning Credit is available to graduate students and covers up to 20 percent of out-of-pocket expenses up to $10,000, for a maximum amount of $2,000.
- New Job - If job expenses are incurred and not reimbursed by your employer, you may be able to claim them as employee business expenses.
- Retirement - Pensions and annuities are generally taxable when distributed. You must start withdrawing from a traditional IRA by April 1 of the year following the year you reach age 70 1/2.
- Owning A Home - Points paid when you purchase your home are generally deductible in that year. Mortgage interest and real estate taxes paid on your home are deductible.
Rental Income & Expenses
Owning rental property is often a good way to increase your net worth, but it is subject to regular property taxation as well as taxes on rent paid to you. We recommend spending time reviewing tax rules before deciding to invest so you know what to expect.
Taxable VS Nontaxable Income
Not all of your income is taxable. Many sources that you would expect to be non-taxable must in fact be reported and taxed. Our tax resource center can help you understand which, ensuring your most accurate report and biggest refund.
Earned Income Credit
The Earned Income Credit (EIC) is a tax credit for low and middle income wage earners with and without children. For the most part, if you meet the earning levels listed in this tax information, you qualify. The 2012 qualifying levels are:
*Three or more qualifying children and earn less than $45,060 ($50,270 if MFJ)
*Two qualifying children and earn less than $41,952 ($47,162 if MFJ)
*One qualifying child and earn less than $36,920 ($42,130 if MFJ)
*No qualifying child and earn less than $13,980 ($19,190 if MFJ)
How to Avoid Common Problems
Especially if you prepare your taxes yourself and fill out the forms by hand, errors are quite common. Tax rules are very strict, and having an improperly prepared return is a disaster that can result in legal action. If you are determined to prepare your entire return on your own, make sure to study tax rules and the latest tax changes, make use of our tax resource center, and check your work thoroughly.
If your vehicle is used daily in the course of your business, you could be eligible for mileage and use deductions. Remember that you MUST keep accurate records in order for the deductions to be allowed. Consult our tax information center to get more information about what you can and can't deduct.
What Should You Bring To Your Tax Interview?
Personal information for each family member, income and tax information, deductions and credits.
You want to bring all pertinent tax information about yourself and your family. That way, our specialists can most accurately compare your information to the IRS tax rules and determine what you can and cannot qualify for. Be sure to bring any IRS correspondence or forms that you've received for 2012.
There's nothing as certain as an ever-changing tax code. Besides the usual increases in exemption amounts, standard deductions, and qualifying income levels for the earned income credit, there are several impactful changes for filing Tax Year 2012 returns. Trust our experts to explain the details of this new tax information. We keep up to date on the newest tax rules so you don't have to!