Frequently Asked Questions

Questions: What expenses qualify for the education credits? Most of my income is from farming. Are there any special provisions related to estimated tax payments for farmers? What is a Lifetime Learning Credit? Who can claim the Lifetime Learning Credit? I am self-employed. How do I report my income and how do I pay Medicare and social security taxes? Do self-employment taxes need to be paid quarterly or yearly? What kinds of property can be depreciated for tax purposes? I donated a used car to a qualified charity. I itemize my deductions, and I would like to take a charitable contribution for the donation. Do I need to attach any special forms to my return? What records do I need to keep? What is Your Filing Status? How do you claim a child if you agree with your ex-spouse to claim him 6 months and he claims him the other 6 months of the year? Economic Stimulus Payment Questions? Answers: What expenses qualify for the education credits? Expenses that qualify for an education credit are qualified tuition and related expenses required for enrollment or attendance at an eligible educational institution. An eligible educational institution includes most accredited colleges, universities, vocational schools, or other post-secondary educational institutions eligible to participate in the student aid programs administered by the Department of Education. Qualified expenses do not include expenses student activities, athletics (unless the course is part of the student's degree program), for room and board, insurance, transportation, or similar personal, living, or family expenses. The cost of books and equipment are generally not qualified expenses because eligible educational institutions usually do not require that the cost of the books or equipment be paid to the institution as a condition of the student's enrollment or attendance at the institution. (Text from IRS website.) Top Most of my income is from farming. Are there any special provisions related to estimated tax payments for farmers? If you have income from farming, you may be able to avoid making estimated tax payments by filing your return and paying the entire tax due on or before March 1 of the year your return is due. If March 1 falls on a weekend or legal holiday, you have until the next business day to file and pay tax. This estimated tax rule generally applies if at least 2/3 of your total gross income is from farming during the tax year or previous tax year. Refer to Chapter 2 in Publication 505 , Tax Withholding and Estimated Taxes and Tax Topic 416, Farming and Fishing Income, for additional information. (Text from IRS website.) Top What is a Lifetime Learning Credit? This credit is a nonrefundable tax credit with a dollar limit per family that is available for qualified tuition and related expenses of higher education whether the student is at the undergraduate or graduate level. The Lifetime Learning Credit is calculated by taking a percentage of the qualified educational expenses paid. For additional information refer to Publication 970, Tax Benefits for Education, Tax Topic 605 , Education Credits, or Form 8863 (PDF), Education Credits (Hope and Lifetime Learning Credits). (Text from IRS website.) Top Who can claim the Lifetime Learning Credit? Generally, you can claim the Lifetime Learning Credit if all three of the following requirements are met. 1. You pay qualified tuition and related expenses of higher education. 2. You pay these the tuition and related expenses for an eligible student. 3. The eligible student is you, your spouse, or a dependent for whom you claim an exemption on your tax return. The Lifetime Learning Credit is based on qualified tuition and related expenses you pay for yourself, your spouse, or a dependent for whom you can claim an exemption on your tax return. As with the Hope Credit, generally, the Lifetime Learning Credit is allowed for qualified tuition and related expenses paid in the tax year for an academic period beginning in that year or in the first 3 months of the following year. For purposes of the Lifetime Learning Credit, an eligible student is a student who is enrolled in one or more courses at an eligible educational institution to acquire or improve job skills In general, an eligible educational institution is an accredited college, university, vocational school, or other postsecondary educational institution, including accredited, public, nonprofit, and proprietary (privately-owned, profit-making) postsecondary institutions. Additionally, in order to be an eligible educational institution, the school must be eligible to participate in a student aid program administered by the Department of Education. The educational institution should be able to tell you if it is an eligible educational institution. You cannot claim the Lifetime Learning Credit if any of the following apply. 1. your filing status is married filing separately. 2. you are listed as a dependent in the Exemptions section on another person's tax return (such as your parent's). (See Who Can Claim a Dependent's Expenses, later.) 3. your modified adjusted gross income is above a specified amount. (Modified adjusted gross income is explained later under Does the Amount of Your Income Affect the Amount of Your Credit. ) 4. you (or your spouse) were a nonresident alien for any part of the tax year and the nonresident alien did not elect to be treated as a resident for tax purposes. (For additional information, refer to Publication 519 U.S. Tax Guide for Aliens); or 5. you claim the Hope Credit for the same student in same year For more information, refer to Publication 970, Tax Benefits for Education, Tax Topic 605, Education Credits, or Form 8863 (PDF), Education Credits (Hope and Lifetime Learning Credits). (Text from IRS website.) Top I am self-employed. How do I report my income and how do I pay Medicare and social security taxes? Your self-employment income is reported on Form 1040, Schedule C (PDF), Profit or Loss from Business, or on Form 1040, Schedule C-EZ (PDF), Net Profit from Business. Your Medicare and social security taxes are reported on Form 1040, Schedule SE (PDF), Self-Employment Tax. As a self-employed person, you pay your Medicare and social security taxes the same way you pay your income taxes. If you expect to owe less than $1,000 in total taxes, you can pay them when you file your income tax return. If you expect to owe $1,000 or more in total taxes, you will need to make estimated tax payments. These payments are made quarterly using Form 1040-ES (PDF), Estimated Tax for Individuals. You will need to figure these taxes at the beginning of the year. To learn about figuring and making estimated tax payments, please refer to Publication 505, Tax Withholding and Estimated Tax. (Text from IRS website.) Top Do self-employment taxes need to be paid quarterly or yearly? If you are required to make estimated tax payments, self-employment tax is paid by making quarterly estimated tax payments which include both income tax and social security tax. References: • Publication 334, Tax Guide for Small Business • Publication 505, Tax Withholding and Estimated Tax (Text from IRS website.) Top What kinds of property can be depreciated for tax purposes? Only property used in a trade or business or in an income producing activity can only be depreciated. Additionally, the property must be something that wears out or becomes obsolete and it must have a determinable useful life substantially beyond the tax year. The kinds of property that can be depreciated include, but are not limited to, machinery, equipment, buildings, vehicles, and furniture. Some intangible property may also be depreciable (e.g. patents). Depreciation is a complex topic. For more information, refer to Tax Topic 704, Depreciation, or Publication 946, How to Depreciate Property , or Publication 534 (PDF), Depreciating Property Placed in Service Before 1987. (Text from IRS website.) Top I donated a used car to a qualified charity. I itemize my deductions, and I would like to take a charitable contribution for the donation. Do I need to attach any special forms to my return? What records do I need to keep? If you claim a deduction on your return of over $500 for all contributed property, you must attach a Form 8283 (PDF), Noncash Charitable Contributions, to your return. If you claim a total deduction of $5,000 or less for all contributed property, you need only complete Section A of Form 8283 (PDF). If you claim a deduction of more than $5,000 for an item or a group of similar items, you generally need to complete Section B of Form 8283 (PDF) which requires, in most cases, an appraisal by a qualified appraiser. You will need to obtain and keep evidence of your car donation and be able to substantiate the fair market value of the car. If you are claiming a deduction of $250 or more for the car donation, you will also need a contemporaneous written acknowledgement from the charity that includes a description of the car and a statement of whether the charity provided any goods or services in return for the car and, if so, a description and estimate of the fair market value of the goods or services. For more information on these requirements, refer to Publication 526, Charitable Contributions; Publication 561, Determining the Value of Donated Property; Form 8283, Noncash Charitable Contributions, and its instructions. (Text from IRS website.) Top What is Your Filing Status? Generally, your marital status on the last day of the year determines your status for the entire year. If you are unmarried, or if you are legally separated from your spouse under a divorce or separate maintenance decree according to your state law, and you do not qualify for another filing status, your filing status is single. Generally, to qualify for head of household status, you must be unmarried and you must have paid more than half the cost of maintaining as your home a household that was the main home for a qualifying person for more than half the year. You may also qualify for head of household status if you, though married, file a separate return, your spouse was not a member of your household during the last six months of the tax year, and you provided more than half the cost of maintaining as your home a household that was the main home for more than one half of your tax year of a qualifying person. If you are married, you and your spouse may file a joint return or separate returns. If your spouse died and you did not remarry in the year that your spouse died, you may still file a joint return for that year. This is the last year for which you may file a joint return with that spouse. You may be able to file as a qualifying widow or widower for the two years following the year your spouse died. To do this, you must meet all four of the following tests: 1. You were entitled to file a joint return with your spouse for the year he or she died. It does not matter whether you actually filed a joint return, 2. You did not remarry in the two years following the year your spouse died, 3. You have a child, stepchild, or adopted child (a foster child does not meet this requirement) for whom you can claim a dependency exemption, and 4. You paid more than half the cost of maintaining a household that was the main home for you and that child, for the whole year. After the two years following the year in which your spouse died, you may qualify for head of household status. More detailed information on each filing status can be found in Publication 501, Exemptions, Standard Deduction, and Filing Information. (Text from IRS website.) Top How do you claim a child if you agree with your ex-spouse to claim him 6 months and he claims him the other 6 months of the year? The dependency exemption can not be split. Generally, the child is treated as the qualifying child or qualifying relative of the custodial parent. This parent is usually allowed to claim the exemption for the child if the other exemption tests are met. However, the child may be treated as the qualifying child or qualifying relative of the noncustodial parent if certain conditions are met. The custodial parent signs a Form 8332 (PDF), Release of Claim to Exemption for Child of Divorced or Separated Parents, or a substantially similar statement, and provides it to the noncustodial parent who attaches it to his or her return. Please beware that if the custodial parent releases the exception, the custodial parent may not claim the Child Tax Credit. Refer to Publication 501, Exemptions, Standard Deduction, and Filing Information or Publication 504, Divorced or Separated Individuals, for more information on the special rule for children of divorced or separated parents. References: • Publication 501, Exemptions, Standard Deduction • Publication 504, Divorced or Separated Individuals • Form 8332 (PDF), Release of Claim to Exemption for Child of Divorced or Separated Parents • Tax Topic 354, Dependents (Text from IRS website.) Top Economic Stimulus Payment Questions? Starting in May, the Treasury will begin sending economic stimulus payments to more than 130 million households. To receive a payment, taxpayers must have a valid Social Security number, $3,000 of income and file a 2007 federal tax return. IRS will take care of the rest. Eligible people will receive up to $600 ($1,200 for married couples), and parents will receive an additional $300 for each eligible child younger than 17. Millions of retirees, disabled veterans and low-wage workers who usually are exempt from filing a tax return must do so this year in order to receive a stimulus payment. Please refer to the following website for additional information: http://www.irs.gov/newsroom/article/0,,id=177937,00.html (Text from IRS website.) Top