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The IRS allows persons who are the head of a household to claim relatives who live with them as dependents on their tax return. This means that you can claim your parents as tax dependents, but before you do so, you must pass the test set out by the IRS to determine if your parents qualify as non-child dependents. IRS regulations provide five requirements that must be met before you claim a relative as a tax dependent.
→ Read MoreIf you are undergoing an audit and need to substantiate, or prove, the statements you made on your tax return, pull out your stash of canceled checks, logs, receipts, bank statements, or any other financial documents related to your tax return. You will be asked to show all financial records that you used to show your taxable income when filing the tax return to prove you did so correctly.
→ Read MoreA taxable year is the 12-month time period that the IRS defines for each person’s tax season. In most cases, the taxable year is the regular calendar year, starting in January and ending in December. However, a taxable year under IRS rules does not necessarily have to be a regular calendar year.
→ Read MoreNearly everything owned by taxpayers is considered a capital asset. It doesn’t matter whether the taxpayer uses the property for personal or investment purposes. The most common capital asset owned by U.S. taxpayers is their primary residence. Other examples of capital assets include household furnishings, stocks and bonds held in a personal account, and jewelry.
→ Read MoreTo be safe, keep your income tax returns indefinitely since they can be your paper trail. Documents regarding investment, real estate and business assets, and other supporting documents (receipts, canceled checks, credit cards, and so forth) should be kept for six years. This is because the IRS can go back three years from the filing date to audit your records and returns, and impose additional tax. In some cases, the IRS can audit up to six years after filing if income is under-reported by 25% or more or if there is suspected fraud. Even if you have always been completely honest about your income and have never been audited, you still need to keep tax records. Sometimes mistakes are made that are not your fault and having the records on hand can help correct the problem with less hassle.
→ Read MoreThe IRS has many collection tools in its toolbox if you do not pay your taxes, including tax levies on wages or bank accounts. If the IRS threatens a tax levy, or you receive a notice of tax levy, it is important to work with an attorney experienced at managing IRS tax collection.
→ Read MoreMaking legally-mandated child support payments has no tax consequences for either the person making the payments nor the person with custody of the child who is receiving them. In general, child support payments are considered’outside’ of the tax system for both parties.
→ Read MoreThere are a variety of red flags that the IRS uses in order to determine whether an IRS tax audit is warranted.
→ Read MoreExclusions from gross income tax are only those provided by statute including most proceeds from life insurance contracts, most damages received for personal injuries, and gifts or inheritances. In order to understand all the available exclusions from gross income tax in your state, contact local income tax attorney.
→ Read MoreThe types of income tax documents needed to file your income tax return will depend on a number of factors including source of taxable income, medical expenses, interest payments, available deductions, and more. Common income tax documents include personal income records, medical expense records, and records of business expenses or charitable contributions.
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