Not everyone is required to file a tax return. Most people are, but for those who aren’t, it may still prove beneficial to do so anyway. If you’re not sure if you have to file a tax return, you should familiarize yourself with the rules before tax season approaches.

Income, age, and filing status all factor into determining whether or not you need to file. More requirements apply to those who are self-employed or considered a dependent of another taxpayer. You will need to cover all bases when deciding whether you’re required to file a return.

You’ll need To File If:

You’ll be required to file a return if your employer withheld federal tax from your salary throughout the year, or you are self-employed and made estimated tax payments each quarter. When you file, you may be entitled to a refund if you overpaid, but the only way to know is to file a return. (more…)

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Since the enactment of the Affordable Care Act, your taxes are now affected by your health care coverage status. The new policy states that all Americans must have qualified health insurance, though there are a few circumstances in which an exception may apply.

Generally, 3/4ths of the taxpayers who file a return will only be required to check a box on their form that indicates that they have health insurance. This applies to those who are covered under an employee sponsored health plan, or government plans such as Medicare, Medicaid, or military health benefits.

If you purchased health care coverage through the Marketplace, you may have received an advanced tax credit to supplement the cost of your monthly premiums. If you chose to use the tax credit when you purchased your plan, you will have to reconcile the mount you received with the amount you were eligible for on your tax return.

The tax credit is based on your estimated household income, which you supply when you purchase coverage through the marketplace. At tax time, if your actual income is more than you estimated, you may have received a larger tax credit than you are eligible for. If this happens, you may have to pay back the excess credit. You can do so by deducting the amount from any refund you are owed on your taxes, if applicable.

You will receive a document that indicates the amount you received for the credit and other pertinent information in order to file your tax return.

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A special provision of the Affordable Care Act, which requires each taxpayer to have qualifying health care, comes into effect when you file your tax return.

Unless you meet a certain exemption, you are expected to have a health care plan which meets the minimum requirements of the Affordable Care Act. The Individual Shared Responsibility Provision states than any taxpayer who can afford health care and isn’t exempt from purchasing it must make a payment at tax time. This payment is calculated using Form 8965.

Many taxpayers will simply check a box on their return that indicates that they had acceptable health care coverage for the tax year. You are responsible for ensuring both you and your dependents are covered, unless you qualify for an exemption. While some exemptions have to be claimed through the Marketplace, many are claimed directly on your tax return.

Choosing to file your tax return electronically can save you time and ensure you have prepared your return correctly, regardless of your health care coverage status. Electronic filing uses special software that will help you accurately claim an exemption, indicate your coverage, or even make a quick individual shared responsibility payment effortlessly. This year, chose to e-file and learn more about how the Affordable Care Act affects your taxes.

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Do you receive unemployment benefits? Depending on which program the benefits are distributed from, you may be responsible for paying taxes on the income. Taxable compensation amounts include money received from any of the following programs:

  • State unemployment insurance
  • Federal Unemployment Trust Fund
  • Railroad unemployment compensation
  • Disability compensation
  • Allowances paid in accordance with the Trade Act of 1974
  • Disaster Relief and Emergency Assistance Act of 1974

If you received benefits from the above programs, you may be required to pay taxes on the income. Some types of income are not considered to be unemployment compensation, such as worker’s compensation payments, or distributions from a private unemployment fund. Private unemployment benefits are taxed as if you received a larger sum than you contributed, and is reported on line 21 on your Form 1040. Supplemental unemployment benefits from a fund that your employer supports are also not considered unemployment compensation, and are subject to income tax, Social Security and Medicare taxes, as per regular income. You will find these amounts reported on your W-2 from your employer.

You should include unemployment compensation amounts in your gross income at tax time. You can either chose to have taxes withheld from your benefits, or you may be required to makes estimated tax payments. If you receive unemployment benefits from the government you should receive a Form 1099-G, Certain Government Payments, which documents the total amount of compensation you received. You should seek advice from a qualified tax assistant in order to correctly report your benefits on your tax form.

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Raising children on your own isn’t easy. Single parents can use any help they can get, which is why, at tax time, there are certain tips that can come as a welcome relief. When filing your tax return as a single parent, consider the following eight points:

  1. Head of Household Status – if your children lived with you for over 50% of the year, and you were single by the end of the tax year, you can file using the head of household status. You have to have made a majority of the household income, but it can greatly reduce your tax burden and offer new deductions.
  2. Dependent Qualifications – the amount of dependents you claim can change which credits and deductions you may be eligible for. Deductions for one child can’t be split between parents, so usually a written decree (from divorce or separation) is in place to state who can claim the child. Generally, the custodial parent is entitled to the deduction for dependents, as they meet all the requirements on care and household support. A dependent child is one who lived with you for at least six months of the year and has been financially supported by your income during that time.
  3. Exemptions – Every taxpayer is entitled to a personal exemption, but you can also claim a dependent exemption for each of your qualified dependents. These exemptions can add up, but if you make over $279,650 a year and claim Head of Household, you can’t claim these exemptions.
  4. Dependent Credits –those who earn less than $75,000 are able to claim a $1000 credit per dependent child under the age of 17 on the final day of December.
  5. Child Care Tax Credit – paying for someone else to care for your child while you work can net you a $3,000 credit for a single child ($6,000 for two or more). The types of child care that qualify vary, but can include after school programs and day camps.
  6. Dependent Spending Accounts – You can contribute up to $5,000 tax free in a special account provided by your employer that allows for dependent expenses.
  7. Earned Income Credit – parents who earn less than $46,997 and have three or more dependent children qualify for this credit, which is based on income and dependent amounts. Taxpayers with less children may qualify for a portion of the credit.
  8. Adoption credit – Federal tax credits apply to help offset the costs you may have incurred for an adoption throughout the tax year.
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If you sell a service or a product, the money you make is generally defined as business income. Additionally, business income includes real estate rents and any fees for service that is paid to an individual. Business income must be reported at tax time, regardless of the type of business.

There are three different classifications for the type of businesses one can own.

  1. Sole Proprietorship is defined as an individual-owned business that has no incorporation. If the owner leaves, the business is no longer active. An important distinction is that all business debts and expenses belong to the individual owner and are considered personal. If your business is registered as a limited liability corporation (LLC), the IRS will consider it a sole proprietorship if you are the only owner. However, you can chose to have your LLC taxed as a Corporation if you chose. Sole Proprietorship businesses will file Form 1040, Schedule C, Profit or Loss from Business (Sole Proprietorship), or Form 1040, Schedule C-EZ when completing a tax return. These types of businesses which make greater than $400 net profit are required to pay Social Security and Medicare taxes, which can be calculated by filing a Schedule SE, Self-Employment Tax.
  2. Partnership is defined as a business venture with two or more individuals responsible for the operation of the business, trade or finances. This type of business is not incorporated, and each “owner” is responsible for the operation of the business in order to gain shares and the rights to losses. LLCs with multiple owners are treated as a partnership, unless the LLC has opted to be taxed as a corporation. Each partner is responsible for a distribution of the taxes, instead of the entire partnership being taxed as a single business. The partners will report on their individual returns the amount of partnership taxes stated on a Form 1065 Schedule K-1.
  3. Corporation is defined as its own legal entity that is completely detached from both owners and shareholders. Businesses, such as LLCs, can chose to be taxed under the corporation regulations. In doing so, all businesses taxed as a corporation are required to report their net profits using Form 1120, U.S. Corporation Income Tax Return. Corporations can chose to be taxed as a subchapter S corporation, provided certain regulations are met. S corporations generally are taxed under the guidelines for a partnership, where regular income tax is not applicable. Instead, the shareholders are taxed and need to report the amount individually on their tax returns.
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Are you a stockholder for any corporations? In some cases, stockholders can receive dividends from the corporation as property distribution. These dividends are generally paid in cash, though they may also be distributed as additional stock or property.

Dividends may also be received through trusts, estates, partnerships, and associations subject to tax as either a corporation, or a subchapter S corporation. If you’re a stockholder in any of those firms, you’ll be able to receive a dividend if the corporation has paid your debt, otherwise you have received services from the corporation or have be granted access to use the property of the corporation. Any services you give for the corporation could also be reciprocated through dividend payments in far more than what a third party would charge for the identical services. Distributions received as stock rights or additional stock within the corporation might not qualify as dividends.

Dividends originate from the profits of the corporation and are the most popular distribution. Dividends are divided into two categories:

  1. Ordinary: taxed similarly to regular income
  2. Qualified: taxed at a lower rate as long as they meet certain circumstances.

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On a Roll to Retirement

January 21, 2016

If you have money or assets saved in an eligible retirement plan, you may be able to transfer the funds to a different retirement plan without having to pay taxes on the withdrawal, as long as you perform a rollover. In order to be considered a rollover, the transfer has to happen within sixty days, and although it isn’t taxed, the distribution will be shown on your tax return. Not every distribution is eligible for a rollover. Some examples of non-eligible distributions include:

  • Post-tax contributions to retirement plans. There are some exceptions to this rule which may allow certain non-taxed distributions to be eligible, so as your financial planner for assistance in determining if your distributions fit the exception.
  • Distributions that are a portion of a life-time payment to you or a beneficiary, or any distributions which will be made over a period of ten years or more.
  • Distributions made as part of a required minimum statement
  • Hardship distributions
  • Dividends from employer securities
  • Life insurance coverage expenses

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If you purchased your health care through the Health Insurance Marketplace, you may have been eligible to receive a tax credit with can assist with the cost of your monthly premiums. This tax credit can be applied up front to help lower the cost of your premiums, in the form of an advance payment. In the Marketplace, the tax credit is estimated based off the income and household information you supply.

If you chose to use the tax credit as an advance payment of your premiums, you’ll have some calculations to do at tax time. You’ll have to reconcile the amount of the credit that you received with the actual amount you are eligible to receive by using Form 8963, Premium Tax Credit. You will have to use your actual income to determine the amount you should have received as an advance. If you received more of a credit than your income deems you eligible for, you will have to repay the excess you received. There are limitations on the amount you will be required to pay back.

You should expect to receive Form 1095-A, Health Insurance Marketplace Statement by the beginning of February if you used the marketplace to purchase insurance. You’ll use this form to complete your tax return, as it includes the name of your insurer, the date you are insured, premium amounts, and the amount of the credit you received, if you opted to use it. You’ll also use this form to complete the premium tax credit section of your tax return.

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Is Interest Taxable?

January 19, 2016

Interest bearing accounts can help you add a little bit extra to your savings. However, if you are able to withdraw the funds without any type of penalty, then you should be aware that interest paid to those funds is considered taxable income for the year you made it available. Interest will be reported on a Form 1099-INT or a 1099-OID, and you will be responsible for transcribing the information onto your return. All taxable interest must be reported, whether or not you receive documentation from the payer.

Examples of taxable interest:

  • Interest on savings bonds. You can include the interest each year of the bond, in which case you won’t have to report the interest once the bond has matured.
  • Treasury notes that accrue interest, even if they are exempt from state or local taxes, as they are still subject to federal taxes.
  • Bank accounts, money market accounts, certificates of deposit and insurance dividends that have accrued interest. Typically, dividend distributions are taxable and include share accounts from cooperative banks, credit unions, domestic building and loan associations, domestic federal savings and loan associations, and mutual savings bank accounts.

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