Posts Tagged "1040"

The real definition of “dependent” may surprise you

Posted on Feb 21, 2017

Many people think of a “dependent” as a minor child who lives with you. This is true, but it’s important to remember dependents can include parents, other relatives and nonrelatives, and even children who don’t live with you. Exemptions and your taxable income. Each dependent deduction is worth $4,050 on your 2016 and 2017 federal income tax returns. This exemption reduces your taxable income by this amount. You’ll lose part of the benefit when your adjusted gross income reaches a certain level. For 2016, the phase-out begins at $311,300 when you’re married filing jointly and $259,400 when you’re single. Definition of a dependent. A dependent is a qualifying child or a qualifying relative. While there are specific rules, generally, a dependent is someone who lives with you and who meets several tests, including a support test. For qualifying children, the support test means the child cannot have provided more than half of his or her own support for the year. For qualifying relatives, the support test means you generally must provide more than half of that person’s total support during the year. There are many exceptions. For example, parents don’t have to live with you if they otherwise qualify, but certain other relatives do. If you’re divorced and a noncustodial parent, your child doesn’t necessarily have to live with you for the dependent deduction to apply.   Who can’t be claimed? Your spouse is never your dependent. In addition, you generally may not claim a married person as a dependent if that person files a joint return with a spouse. Also, a dependent must be a U.S. citizen, resident alien, national, or a resident of Canada or Mexico for part of the year. For a seemingly simple deduction, claiming an exemption for a dependent can be quite complex. You’ll want to get it right, because being able to claim someone as a dependent can lead to other tax benefits, including the child tax credit, education credits, and the dependent care credit. Contact our office to learn who qualifies as your dependent. We’ll help you make the most of your federal income tax exemptions. Gilliland & Associates, PC is a full-service CPA firm specializing in tax planning for individuals and businesses in the Northern Virginia area. We are based in Falls Church, VA and also service clients in McLean and Tysons Corner, VA. Gilliland & Associates is known for our superior knowledge and aggressive interpretation and application of tax laws. We help you keep more of your earnings by finding you the lowest possible tax on your business or personal tax return. You can connect with us on Google+, LinkedIn, Facebook, and...

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Tax bracket, tax rate, what’s the difference?

Posted on Jan 19, 2017

The difference between your tax bracket and your tax rate is more than a trick question. For example, knowing your tax rate gives you an accurate reflection of your tax liability in relation to your total income. Knowing your tax bracket is useful for planning purposes. For instance, you may want to spread a Roth conversion over several years in order to stay within the income limits of a particular tax bracket. So, what’s the difference between the two? The main difference is that a tax bracket is a range of income to which a specific tax rate applies, while your effective tax rate is the percentage of your income that you actually pay in tax. Put another way, not every dollar is taxed at the same rate. Your tax bracket shows the rate of tax on the last dollar you made during the tax year. Your effective tax rate reflects the actual amount you paid on all your taxable income. For example, say you’re single and in the 25% bracket for 2016. That means your taxable income is between $37,650 and $91,150. Yet the tax you pay is less than 25% of your income. Why? Because the 25% tax rate only applies to the amount of taxable income within the 25% bracket. The tax on income below $37,650 is calculated using the rate that applies to income in the 10% and 15% brackets. So, if your 2016 taxable income is $40,000, only $2,350 is taxed at 25%. The remainder is taxed at 10% and 15%, leading to a “blended” overall rate. The result: a tax bracket of 25%, and an effective tax rate of less than that. Good tax advice can affect both your bracket and your rate. Want to know how? Contact us. Gilliland & Associates, PC is a full-service CPA firm specializing in tax planning for individuals and businesses in the Northern Virginia area. We are based in Falls Church, VA and also service clients in McLean and Tysons Corner, VA. Gilliland & Associates is known for our superior knowledge and aggressive interpretation and application of tax laws. We help you keep more of your earnings by finding you the lowest possible tax on your business or personal tax return. You can connect with us on Google+, LinkedIn, Facebook, and...

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Tax questions after you file your tax return

Posted on May 11, 2012

Once you have filed your 2011 tax return, you may still have a few tax questions. The IRS provides these answers to commonly asked questions. * How can I check the status of my refund? You can go online to check on your refund. Go to www.irs.gov and click on “where’s my refund?” Or call 1-800-829-4477 for automated refund information available 24 hours a day, seven days a week. * What records should I keep? Keep receipts, canceled checks, or other substantiation for any deductions or credits you claimed. Also keep records that verify other items on your tax return (W-2s, 1099s, etc.). Keep a copy of the tax return, along with the supporting records, for seven years. * What if I discover that I made a mistake on my return? If you discover that you failed to report some income or claim a deduction or credit to which you are entitled, you can correct the error by filing an amended tax return using Form 1040X. * What if my address changes after I file? If you move or have an address change after filing your return, send Form 8822 “Change of Address” to the IRS. You should also notify the Postal Service of your new address so that you’ll receive any refund you’re due or notices sent by the IRS. For answers to other tax questions you may have, give us a...

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