LINE ONE INC. The Tax Solution :: FREQUENTLY ASKED QUESTIONS

Frequently Asked Questions

Bought a home w/IRA
Didn't file a tax return
Divorced in 2006
Don't have my W2s
Everyone have to pay income tax?
Gave mother financial help
Got married in 2006

Insurance deductibles
Moved to a new job location
Refinanced mortgage
Started a business in 2006
Spouse had little income
Spouse passed away

Social Security FAQs
and other tax info

I bought a home in 2007 and withdrew money from my IRA to help finance the purchase. Is it true that the first $10,000 of the distribution to me will not be taxable?

Not exactly. In the case of a “first-time home buyer” up to $10,000 may withdrawn from an IRA (in the taxpayer's lifetime), and used for qualified costs of purchasing a principal residence, without incurring a penalty tax of 10% for an early distribution. The portion of the amount withdrawn is still subject to regular income tax as applicable. A "first-time home buyer" is a person (including a spouse, if married) who has not had an ownership interest in a principal residence in the two year period ending on the date that the new home is acquired.

I refinanced my mortgage in 2007, to take advantage of lower interest rates. May I deduct the “points” I paid for the refinance?

“Points” paid to obtain a mortgage only to replace a previous mortgage, are not currently deductible, but must be deducted pro-rata over the life of the new mortgage. However if the replaced mortgage had previously non-deducted points, those points may be currently deductible. Refinance points paid in association with the building or substantial improvement of your home would be currently deductible. In addition, to be currently deductible the points paid on the new loan must be paid in cash, not added to the amount of the loan.

Does everyone have to file an income tax return?

No, there are minimum levels of income below which an individual income tax return is not required to be filed, depending on your filing status, and age and/or blindness. However many people who are not otherwise required to file a return, may qualify for credits that will result in a refund even though they’ve paid no tax. In addition if someone not required to file a return has had tax withheld from income (usually wages), they should file an income tax return to have that withheld tax returned to them.

I gave my mother a lot of financial help last year. Can I use her as a dependent on my tax return? My brother and sister also provide a lot financial help for her.

Generally you need to provide more than 50% of a person’s total support for the year in order to claim them as a dependent for tax purposes. In addition, if that person is not your child under 19 or a full-time student under 24, then if that person has at least $3,300 of gross taxable income he or she cannot be taken as a dependent. Where appropriate, a group who together provide more than 50% of a persons support, may enter into a valid agreement to rotate that person as a dependent on their respective tax returns over applicable years (Multiple Support Agreement). Other conditions for claiming a dependent also apply.

I got married late in 2007. Will I file as single for a part of the year?

Your marital status, for tax purposes, is the same as your status on December 31st of the year. If you were married at the end of 2007 then you were married for the entire year for tax purposes. Some taxpayers may file as unmarried under certain circumstances, even though they were still married at the end of 2007.

I started a business in 2007. Will I need to file a separate return for my new business? Can I still file a joint return with my spouse?

If your business is operated as a sole-proprietorship (you are the sole owner of an unincorporated business), then the income from that business is calculated on your Individual Income Tax Return, along with any other taxable income for the year. An additional return for the business is not filed. As a married person you have the same options of filing with your spouse, including filing jointly.

My spouse had little or no income in 2006. Should I file by myself?

Filing jointly with your spouse, in that situation, is a financial advantage because your spouse adds no significant income to your return, but you receive the benefit of their deductions and allowable credits, and so maximize your return.

I moved to a new job location in 2007. Is any part of my moving expense deductible?

If your new job location is at least fifty miles further from your old home than your old job location was, and the move is closely related in time to the start of work at your new location, you may have deductible moving expenses. These are the expenses of moving yourself, your family, and your property to your new work location. These expenses must be reduced by any reimbursement you receive.

My spouse passed away in 2007 (or in 2008 before we filed our tax returns). Will separate returns need to be filed?

If your spouse passed away in 2007 (or 2008, as above), you still have the option of filing a joint return or filing separate returns. If your spouse passed away in 2007 you of course will have that same option for your 2008 tax return. In addition if you have dependent children you may be eligible to file as a Qualifying Widow(er) with dependent child for the two years succeeding the year of the death of your spouse. Your single income would then be taxed at the advantageous joint return rates for those years.

Do I have to have my W2's to file my taxes? I haven't gotten them from my employer.

The first thing you need to do is to contact your employer and get another copy. If your efforts to retrieve a W-2 have been unsuccessful, a "substitute" will be accepted. W-2 after February 15. It must list the employer's EIN, the wages and withholding—usually from a final pay stub for the year. On the substitute W-2 you will need to explain the efforts you have made to get an official W-2 and how the amount of wage and tax withheld was determined. The IRS can also supply you with a document that is usable to file with your tax return. Call IRS Taxpayer Assistance at 1-800-829-1040 for instructions. Otherwise, the original W-2 is a must.

I did not file my tax return for 2001, and I would have been due a refund for that year. Is that refund still available?

The “statute of limitations” for a tax return is three years from its original or extended due date, or if 25% or more of gross income was omitted from a tax return, the statute on that return is six years. After the three-year period the IRS is no longer obligated to honor a refund due you. Accordingly, at the present time, only returns for 2004, 2005, and 2006 are available for refund. There is no statute of limitations on a return that has not been filed. After the due date for 2007 tax returns has passed, the statute for 2004 tax returns will close that year. These time limits also affect the ability of the IRS to audit or adjust your tax returns. There is an exception for military reservists called to active duty between September 11, 2001 and December 31, 2007 for at least 180 days, or for an indefinite period of time. This is in regard to having paid an early withdrawal tax penalty for a distribution from certain retirement plans on a previously filed tax return. These persons may be able to get a refund of this tax penalty that they paid for a year as early as 2001, on an amended tax return for that year.

I was divorced in 2007, and have made monthly child support payments to my ex-spouse since the divorce was final. May I claim that child that is in his/her custody as my dependent for tax purposes?

For tax purposes the custodial parent is assumed to be deserving of the dependency deduction for the child, barring documentation to the contrary. That documentation would include a stipulation in the divorce decree granting the deduction to the non-custodial parent for any specified years (e.g. "all years", "all odd-numbered years", etc.). However timely child support payments is required and more than 50% of the child's support must be supplied by both parents combined. In addition the custodial parent may allow the non-custodial parent to claim the child for tax purposes by supplying a signed form 8332 to the non-custodial parent. The form 8332 must be attached to the tax return for successful claiming of the dependent child not in the taxpayer's custody. Pertinent pages of the divorce decree (cover page, page describing the non-custodial parent's right to the deduction for the child, and signed signature page) may also be used to verify the right to the deduction. If appropriate documentation is not provided with the filed tax return the deduction will be denied. Different rules applied for divorces final before 1985.

I was in an auto accident in 2007, and had to pay a $500 deductible on the required repairs to my vehicle. Is that amount usable as a deduction on my tax return?

A casualty or theft loss may be deductible as an itemized deduction. There are, however, complicated limitations in arriving at the deductible amount. The amount of each casualty or theft occurrence in the year must be reduced by $100. The amount of the deduction is limited to the lesser of the fair market value or the basis (net investment for tax purposes) of the lost or damaged property. Any reimbursement will reduce the amount of your loss for tax purposes, and any prior losses or deductions (for tax purposes) associated with the property in question, will need to be considered. The total deductible amount of all casualty and theft losses in the year is limited to the amount that the total exceeds 10% of the Adjusted Gross Income on your tax return. The loss may not be due to your own negligence (e.g. if your diamond ring fell into your sink drain and was washed away, there will be no deduction). If your loss was due to a casualty in a Federally Declared Disaster Area (Hurricane Katrina would be an example) you have the option of using any deductible amount on your current year’s return or the return for the prior year, whichever is to your greater advantage.