Being on the telephone all day, taking calls from persons who have questions about their taxes is an interesting pastime with moments of levity thrown in for good measure. Here in the gist of a recent interaction, “Where is my tax refund?” “Did you have any income?” “No.” Duh.
Many of the questions don’t concern taxes per se, rather they address how and where to enter information into our software system. However, some of the questions are tax-related, and here are a few:
• If I have a foreign tax credit carryover, may that credit reduce my federal taxes if I have only U.S. source income? No
• Do I have to include in my 2012 income the 2011 state income tax refund I received in 2012? Not if you claimed the standard deduction in 2011.
• May I deduct the attorney fees I paid during my divorce? No
• Are court awards that I received for mental anguish taxable? No
• Why didn’t my tax preparation fee show up on my list of itemized deductions? Because those fees were not more than 2 percent of your adjusted gross income.
• Do I have to file a federal tax return? Maybe.
The IRS requires each person to file a tax return whenever one’s gross income is greater than the sum of the standard deduction based on your filing status, plus the dollar amount for one personal exemption. If you are senior, however, and Social Security is your sole source of income, you are not required to file a federal return.
If you claimed your child as a dependent, your child must file a tax return if he/she had unearned income that was greater than $950, or $2,400 if he/she were blind. Also, if your child had earned income that was greater than $5,950, a federal return is required.
OK, so you are not required to file a return, should you do so anyway? The answer is yes, if federal taxes were withheld from your pay, or if you made estimated payments, or if you had an overpayment in a prior year that was applied to this year. Filing a return is the only way to recoup those tax payments.
The other times when you should file occur when you might be eligible for federal tax credits, such as: the Making Work Pay Credit; the Earned Income Tax Credit, the Additional Child Tax Credit, the American Opportunity Tax Credit or the Heath Care Tax Credit. All of these credits are described on www.irs.gov.
Got a financial planning question for Greg? You may e-mail him at firstname.lastname@example.org.
Greg Roberts is a certified financial planner with 35 years of financial and estate planning experience.