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Can a person claim a girlfriend as a wife if they have a child or do they have to be married? 

You are considered married if you are living together in a common law marriage that is recognized in the state where you now live or in the state where the common law marriage began. If you are considered married, then you may file as married filing jointly and claim two personal exemptions on a joint return (assuming that neither of you are qualifying dependents on another individual's return).  

If you are not considered married, then you would have to file as single unless you qualify as head of household. You may not claim your girlfriend as your dependent if your relationship violates local law.

Is there an age limit on claiming children as dependents?

Age will not prevent you from claiming your children as dependents. As long as the following five dependency exemption tests are met, you may claim him or her:

Member of household or relationship test.

Citizenship test.

Joint return test.

*Gross income test.

Support test.

Refer to Publication 501, Exemptions, Standard Deduction and Filing Information, for more information.

How do you claim a child if you agree with your ex-spouse to claim him 6 months and he claims him the other 6 months of the year?

The dependency exemption can not be split. Generally , the custodial parent is treated as the parent who provided more than half of the child's support. This parent is usually allowed to claim the exemption for the child if the other exemption tests are met. However, the noncustodial parent may be treated as the parent who provided more than half of the child's support if certain conditions are met.

The custodial parent signs a Form 8332 (PDF), Release of Claim to Exemption for Child of Divorced or Separated Parents, or a substantially similar statement, and provides it to the noncustodial parent who attaches it to has or her return. Please beware that if the custodial parent releases the exception, the custodial parent may not claim the Child Tax Credit.

Refer to Publication 501, Exemption, Standard Deduction, and Filing Information or Publication 504, Divorced or Separated Individuals, for more information on the special rule for children of divorced or separated parents.

What is the tax form number for the custodial parent to sign that allows the noncustodial parent to use the child as a dependent?

The custodial parent should use Form 8332 (PDF), Release of Claim to Exemption for Child of Divorced or Separated Parents, or a substantially similar statement, to release the exemption to the noncustodial parent. The noncustodial parent must attach the form or statement to his or her tax return. Please be aware that if the custodial parent releases the exemption, for a child the custodial parent may not claim a child tax credit for that child.

If you pay child support, are you allowed to deduct anything on your taxes or claim the child as an exemption?

Nothing can be deducted for the child support payments. Child support payments are neither deductible by the payer nor taxable income to the payee. You may be able to claim the child as a dependent. Generally, the custodial parent generally is treated as the parent who provided more than half of the child's support. This parent is usually allowed to claim the exemption for the child if the other exemption tests are met. However, the noncustodial parent may be treated as the parent who provided more than half of the child's support if the custodial parent signs a Form 8332 (PDF), Release of Claim to Exemption for Child of Divorced of Separated Parents, or a substantially similar statement.

When determining if parents can be claimed as dependents, the income test says a gross income of less than $3,050. Is their pension and social security counted as gross income?

Generally, any taxable income is included in gross income. Taxable pension income is included as gross income. Similarly, the taxable portion of social security is included in gross income.

If your parents are married and file a joint return, they must combine their incomes and their social security and/or equivalent tier 1 railroad retirement benefits when figuring the taxable portion of the benefits. The taxable amount of the benefits is figured on a worksheet in the Form 1040 or 1040A instruction book.

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?

If you claim your daughter as a dependent on your income tax return, she cannot also claim herself on her income tax return.

If an individual is filing his or her their own tax return, and if the individual can be claimed as a dependent on someone else's return, then the individual cannot claim their 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.

If I sell my home and use the money I receive to pay off the mortgage, do I have to pay taxes on that money?

It is not the money you receive for the sale of your home, but the amount of gain on the sale over your cost, or basis, that determines whether you will have to include any proceeds as taxable income on your return. You may be able to exclude any gain from income up to a limit of $250,000 ($500,000 on a joint return in most cases). If you can exclude all of the gain, you do not need to report the sale on your tax return.

For additional information on selling your home, refer to Publication 523, Selling Your Home.

Do I report the buying of stock?

Ordinarily, you do not have to report the purchase of stock, only the sale of stock.

However, if you exercise a nonstatutory stock option, a type of stock option granted by an employer, you may have income to report in the year of exercise (the excess of the fair market purchase value of the stock less the exercise price) if your rights in the stock are substantially vested at the time of exercise, see Publication 525, Taxable and Nontaxable Income, for further information.

How do we show on our tax form where dividends are reinvested?

Some corporations allow investors to choose to use their dividends to buy more shares of stock in the corporation instead of receiving the dividends in cash. If you are a member of this type of plan, you must report the fair market value on the dividend payment date of the dividends that are reinvested as income on your tax return. You do not actually show that the dividends were reinvested on your return. Keep good records of the dollar amount of the reinvested dividends, the number of additional shares purchased, and the purchase dates. You will need this information when you sell the shares.

Report the dividends that were reinvested with your other dividends, if any, on line 9 of Form 1040 or Form 1040A. If your total income from ordinary dividends is over $1,500.00, you also must file either Form 1040, Schedule B  or Form 1040A, Schedule 1 .

For more information on this and other types of dividend reinvestment plans, refer to Ordinary Dividends in Chapter 1 of Publication 550, Investment Income and Expenses.

We will be filing a joint tax return. Can we file our return electronically?

Yes. Filing your return electronically is faster, safer, and more accurate than mailing your tax return because it is transmitted over telephone lines directly to an IRS computer. Refer to Tax Topic 252, Electronic Filing, for more information.

I filed electronically but my tax return was rejected. What do I do now?

Your next action depends on the reason your return was rejected. If you made a mistake in entering the social security number or misspelled a name, you can fix these errors and have the return sent again to the IRS. There are other errors that will cause you to have to file using a paper return. If you have further questions, you can call our Customer Service number at 1-800-829-1040. For general information about e-file, refer to Tax Topic 252, Electronic Filing.

How long after I change my name with social security will I be able to file my tax return electronically?

Generally, two weeks after you change your name with the Social Security Administration, the IRS should have the information and you should be able to file electronically. If you do not have two weeks to wait before the due date for filing your return timely, you will need to file a paper return. For general information about e-file, refer to Tax Topic 252, Electronic Filing.

I don't owe taxes. Can I file electronically after April 15th?

Yes, you can electronically file your return after April 15th, however to do so you must file Form 4868 , an Application for an Extension of Time to File, on or before April 15th . If the extension is timely filed, you have until August 15th to file your return. If the 15th falls on a weekend or federal holiday, you have until midnight the following business day to submit your extension or your tax return. If additional time is needed please refer to the instruction for Form 2688 , Application for Additional Time to File US Individual Income Tax Return. Please note that the Form 2688 is not an automatic extension and must be approved by IRS; if it is approved you may have until October 15th to file your return electronically.

If we cash in an IRA account while in our thirties, what forms do we need to fill out?

You will need to file a Form 1040 and show the amount of withdrawal from your IRA. Since you took the withdrawal before reaching age 59 1/2, unless you meet certain exceptions listed in Publication 590, Individual Retirement Arrangements (IRAs), you will need to pay an additional 10 percent tax on early distributions from qualified retirement plans that is reported on line 57 of Form 1040. You may need to complete Form 5329 , Additional Taxes on Qualified Plans (including IRAs) and Other Tax-Favored Accounts, and attach it to the tax return, if required. If you ever made nondeductible contributions to your IRA, you must complete Form 8606 , Nondeductible IRAs and Coverdell ESA's attach it to your return. Form 8606 is used to determine if the total amount of your distribution is tax free.

If we cash in an IRA account while in our thirties, when do we pay the taxes and penalties?

Because our tax system is a pay-as-you-go system, you may need to make an estimated tax payment by the due date for the quarter in which you received the distribution. When calculating your tax liability to determine whether you need to make an estimated tax payment, your total tax for the year should include the amount of the additional 10 percent tax on early distributions from qualified retirement plans unless any exception applies.

You would calculate the tax on Form 1040-ES , Estimated Tax for Individuals, and any 10 percent additional tax on early distributions from qualified retirement plans on Form 5329 , Additional Taxes On Qualified Plans (Including IRA's) and Other Tax-Favored Accounts. Any 10 percent additional tax would go on Form 1040ES line 12 "other taxes," when completing the worksheet.

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

You must complete the rollover by the 60th day following the day on which you receive the distribution. (This 60-day period is extended for the period during which the distribution is in a frozen deposit in a financial institution.) The IRS may waive the 60 day requirement in certain situations, such as in the event of a casualty, disaster, or other event beyond your reasonable control. To obtain a waiver, a request for a ruling must be made and a user fee of $90.00 will apply, See Revenue Procedure 2003-16 (within IRS Bulletin 2003-4). A written explanation of rollover must be given to you by the issuer making the distribution. For information on distributions which qualify for rollover treatment, refer to Tax Topic 413, Rollovers from Retirement Plans . For information on the Direct Rollover Option, refer to Publication 590 Individual Retirement Arrangement .

If the child is born in the last week of December, can the child be a qualifying child for the Earned Income Credit and how do you file without a social security number?

Normally, to be your qualifying child and meet the residency test, your child must have lived with you for more than half of the tax year. For Earned Income purposes, if your child was born or died during the year, the child is considered to meet the test as if they child lived with you for the entire time he or she was alive during the tax year.

For example, if your child was born on October 1, 2003, and lived with you for the remainder of the year, your child meets the residency test.

If your child does not have a social security number, apply for one by filling out Form SS-5 with the Social Security Administration, or call the Social Security Administration at 1-800-772-1213. It usually takes about 2 weeks to get a social security number.

If the filing deadline is approaching and you still do not have a social security number, you have two choices.

1. File the return on time without claiming the Earned Income Credit. After receiving the social security number, file Form 1040X  , Amended U.S. Individual Income Tax Return, claiming the Earned Income Credit. Attach a completed Form 1040, Schedule EIC  , Earned Income Credit. Refer to Tax Topic 308, Amended Returns for information.

2. Request an automatic 4-month extension of time to file your return. You can get this extension by filing Form 4868 , Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. Refer to Tax Topic 304 Extensions of Time to File Your Tax Return. for more information.

In order to claim the Earned Income Credit, does the child have to be claimed as a dependent?

A qualifying child for the Earned Income Credit does not need to qualify as a dependent unless he or she is married.

Refer to Publication 596, Earned Income Credit, for a full discussion of the Earned Income Credit rules.

If the noncustodial parent receives permission from the custodial parent to claim a child on his or her tax return, is the noncustodial parent eligible for the Earned Income Credit?

The noncustodial parent cannot claim the Earned Income Credit on the basis of that child because the child did not live with that parent and does not meet the residency test. The custodial parent may be able to claim the Earned Income Credit.

Can I get the earned income credit?

You may be able to take this credit for 2003 if you did not have a qualifying child and you earned less than $11,230 ($12,230 for married filing jointly). You may also be able to take this credit if you had one qualifying child and you earned less than 29,666 ($30,666 for married filing jointly), or you had more than one qualifying child and you earned less than $33,692 ($34,692 for married filing jointly). Other rules apply. For details, refer to Tax Topic 601, Earned Income Credit (EIC), or Publication 596, Earned Income Credit.

I thought I was an employee and thought my employer was withholding tax from my pay. My former employer sent me a Form 1099-MISC and didn't withhold any taxes. Is there a procedure to have the situation reviewed and possibly make the former employer pay the taxes due? What can I do?

You can ask the IRS to make a determination as to whether an employer-employee relationship exists by filing Form SS-8 , Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding. If the IRS finds that an employer incorrectly treated an employee as a nonemployee, the employer will be liable for the social security and Medicare tax withholding that he or she failed to withhold and pay. (There are some exceptions to this noted in Publication 15-A , Employer's Supplemental Tax Guide).

Holding the employer liable for the tax that was not withheld does not relieve you from the liability for your share of social security and Medicare taxes. To pay your portion, attach Form 4137 , Social Security and Medicare Tax on Unreported Tip Income, to your individual income tax return and report the employee share of social security and Medicare on page 2 of Form 1040. Cross out the word "Tip" and insert the word "Wages" at the top of the Form 4137 and also at the top of Schedule U, U.S. Schedule of Unreported Tip Income, which is attached to the bottom of Form 4137. Also notate on the Form 4137 that a Form SS-8 has been filed. You may call us at 1 800-829-1040, the toll-free information number if further clarification of the procedure is necessary.

I am self-employed. How do I report my income and how do I pay Medicare and social security taxes?

You are a sole proprietor if you are the sole owner of a business that is not a corporation. Report your income and expenses from your sole proprietorship on Form 1040, Schedule C , Profit or Loss from Business (Sole Proprietorship), or on Form 1040, Schedule C-EZ , Net Profit from Business.

If the total of your net profit from all businesses is $400 or more, you must pay into the Social Security and Medicare systems by filing Form 1040, Schedule SE , Self-Employment Tax. Self-Employment tax consists of the Old-Age, Survivors, and Disability Insurance (social security) and the Hospital Insurance (Medicare) taxes. For more information on this, refer to Publication 533, Self-Employment Tax.

The Federal tax system is based on a pay-as-you-go plan. Tax is generally withheld from your wages or salary before you get it. However, tax is generally not withheld from self-employment income. Thus, you may be required to make estimated tax payments. Publication 505, Tax Withholding and Estimated Tax, provides information on making estimated tax payments.

References:

• Form 1040, Schedule C , Profit or Loss from Business (Sole Proprietorship)
• Form 1040, Schedule C-EZ , Net Profit from Business (Sole Proprietorship)
• Form 1040, Schedule SE , Self-Employment Tax
• Publication 533, Self-Employment Tax
• Publication 505, Tax Withholding and Estimated Tax

What is the difference between a Form W-2 and a Form 1099-MISC?

Both of these forms are called information returns. The Form W-2 is used by employers to report wages, tips and other compensation paid to an employee. The form also reports the employee's income tax and Social Security and Medicare taxes withheld and any advanced earned income credit payments. The Form W-2 is provided by the employer to the employee and the Social Security Administration. A Form 1099-MISC is used by a person engaged in a trade or business to report payments made in the course of such trade or business to another person or business who is not an employee. The form is required when payments of $10 or more in gross royalties or $600 or more in rents or services are paid. The form is provided by the payor to the IRS and the person or business that received the payment.

How do you determine if a person is an employee or an independent contractor?

The determination is complex, but is essentially made by examining the right to control how, when, and where the person performs services. It is not based on how the person is paid, how often the person is paid, nor whether the person works work part-time or full-time. There is no statutory definition of what an employee is, but from common law three basic areas have been identified:

·  behavioral control,

·  financial control, and

·  type of relationship.

For more information on employer-employee relationships, refer to Chapter 2 of Publication 15-A , Employer's Supplemental Tax Guide. If you would like the IRS to determine whether services are performed as an employee or independent contractor, you may submit Form SS-8 , Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.

Unless you have requested a determination by filing Form SS-8, you generally have to report your nonemployee compensation on Form 1040, Schedule C , Profit or Loss from Business (Sole Proprietorship), or Form 1040, Schedule C-EZ , Net Profit from Business. You also need to complete Form 1040, Schedule SE , Self-Employment Tax, and pay self-employment tax on your net earnings from self-employment, if you had net earnings from self-employment of $400 or more. This is the method by which self-employed persons pay into the social security and Medicare trust funds. Generally, there are no tax withholdings on this income. Thus, you may have been subject to the requirement to make quarterly estimated tax payments. If you did not make timely estimated tax payments, you may be assessed a penalty for an underpayment of estimated tax. Employees pay into the social security and Medicare trust funds, as well as income tax withholding, through payroll deductions.

How do I report income received as a prize or award?

If you win a prize in a lucky number drawing, television or radio quiz program, beauty contest, or other event, you must include it in your income. For example, if you win a $50 prize in a photography contest, you must report this income on line 21 (other income), Form 1040. If you receive merchandise, you must report the fair market value of the item(s) as income. Refer to Chapter 13 of Publication 17, Your Federal Income Tax, for additional information.

Is the money received from my settlement taxable?

For court awards and damages, to determine if settlement amounts you receive by compromise or judgment must be included in your income, you must consider the item which the settlement replaces. Include the following as ordinary income:

·  Interest on any award.

·  Compensation for lost wages or lost profits in cases other than those where the payments are for wages lost as a result of physical injury.

·  Punitive damages. (But see below)

·  Amounts received in settlement of pension rights (if you did not contribute to the plan).

·  Damages for: (A) Patent or copyright infringement. (B) Breach of contract. (C) Interference with business operations.

·  Any recovery under the Age Discrimination in Employment Act.

·  Injury to your reputation .

·  Alienation of affection.

Do not include in your income compensatory damages for personal physical injury or physical sickness (whether received in a lump sum or installments).

Damages for emotional distress due to a physical injury or physical sickness are not taxable.

Punitive damages are taxable. It does not matter if they relate to a physical injury or a physical sickness.

For additional information, refer to Publication 525, Taxable and Nontaxable Income, or Tax Topic 422, Nontaxable Income.

My employer is including amounts paid graduate school related expenses on my Form W-2. Where do I claim education expenses on my Form 1040?

The law changed in 2002 to allow up to $5,250 in graduate school related expenses paid by educational assistance program to be excluded from gross income. If your employer has included amounts paid for graduate school related expenses amounting to $5,250 or less with your wages, tips, and other compensation shown in box 1 of your W-2, ask your employer for a corrected W-2. If you have received amounts for graduate school related expenses that are includable in gross income, you may deduct expenses attributable to those amounts on Form 1040, Schedule A , Itemized Deductions.

Is money from student loans considered taxable income?

A school loan is not taxable at the time you get the money and should not be included as income on your return. A loan is not income because you are expected to repay the amount borrowed (plus interest). If, at a later date, any part of the loan is forgiven, the amount forgiven would be income in that year. Under certain circumstances, student loans forgiven are not income. For more information, refer to Exceptions under Canceled Debts in Publication 525, Taxable and Nontaxable Income.

My Form W-2 includes allocated tips. What are they and how are they taxed?

Certain employers must allocate tips if the percentage of tips reported by employees falls below a required minimum percentage of gross sales. To "allocate tips" means to assign an additional amount as tips to each employee whose reported tips are below the required percentage. For additional information on how the rules for tip allocation work, refer to Chapter 7 of Publication 17, Your Federal Income Tax. All tips you receive are taxable. If you do not have adequate records for your actual tips, you must include the allocated tips shown on your Form W-2  as additional tip income on your return. You must also complete and attach Form 4137 , Social Security and Medicare Tax on Unreported Tips. For more information on the requirements, refer to Tip Allocation in Publication 531, Reporting Tip Income. Refer to Tax Topic 402, Tips, for other important information.

Is it legal for my employer to require me to report 10% of my total sales as tips rather than reporting my actual tips?

No. When you report the actual tips you have received in the form of cash, check, or charge, in a signed and dated report, you are complying with your legal requirement. Your employer cannot legally ask you to do otherwise. Please see Publication 531, Reporting Tip Income, for further information.