Friday, March 8, 2013

TurboTax's top 15 most frequently asked tax questions compiled by TurboTax's experts:

ABC News Radio writes: TurboTax's tax experts have fielded thousands of questions from tax filers, and the questions tend to ebb and flow with changing economic times.  This year's most popular question is related to confusion over who can be claimed as a dependent, says Lisa Greene-Lewis, lead CPA with the American Tax and Financial Center at TurboTax.   "There is a lot of confusion about who people can claim as a dependent," Greene-Lewis says.  "There are parents moving in with kids and kids supporting them, or vice versa, with the changing economy."  Last year, the same question was also a frequently asked question.  "There are so many different areas and different specifics that people ask about this particular question," she says.

Here are TurboTax's top 15 most frequently asked questions compiled by TurboTax's experts:

Who can I claim as a dependent?

TurboTax says the short answer is that you can claim a "qualifying child" or "qualifying relative" if they meet specific requirements related to residence, relationship to you, age, financial support provided and income.  Even significant others or friends can qualify in some cases. 

What is the earned income tax credit and how do I claim it?
This question is also a frequent question for hard times, but many low- and middle-income filers are not familiar with this credit.  Some families believe they don't make enough to file their taxes, but taxes must be filed to get this credit, which may help a family with three dependents receive a credit worth up to $5,891.

Does health care reform impact my 2012 taxes?

TurboTax encourages filers to relax because the requirement to purchase health care does not impact your 2012 or 2013 taxes.  That starts January 2014 (and won't need to be filed until the next year).  There may be exceptions based on income, religious beliefs and citizenship.

Are unemployment benefits taxable?

Yes, unemployment income is taxable income, TurboTax says.

Can I deduct the cost of searching for a job?  Are moving expenses for my new job tax-deductible?
Job search and moving expenses may be tax-deductible depending on distance and other factors, TurboTax says.

What are the tax implications of withdrawing money early from a retirement account to pay bills or debt?

TurboTax says withdrawing money early from a retirement account comes with a 10 percent tax penalty plus regular income tax on the amount withdrawn.  Watch out if that additional retirement money bumps you into the next tax bracket, which could affect Social Security taxes and other considerations.

What are qualified education expenses?  And when can I file?

TurboTax says there are a number of education credits and deductions, including the American Opportunity Credit, which was extended through 2012.  It benefits full-time and part-time college students with a maximum $2,500 credit per student, based on income requirements.

My house foreclosed.  How does that impact my taxes?

The Mortgage Forgiveness Debt Relief Act was extended another year through 2013, meaning homeowners don't have to pay taxes on the loss of their homes through foreclosures or short sales, up to $2 million (or $1 million if married filing separately).

I started my own business; can I deduct my home office expenses?

Though this is a legitimate tax deduction, expenses for a home office should be used exclusively and regularly for the home office, and not a space that is mixed residential and business.

Will January tax law changes impact my taxes?

The drama of the fiscal cliff came to a temporary end this year with the passing of The American Tax Relief Act of 2012, including "a permanent extension of the alternative minimum tax (AMT) patch, the permanent reduction of tax rates and the reinstatement of several tax deductions, including the educator expense deduction, the tuition and fees deduction, and state sales taxes in lieu of state income taxes," TurboTax experts say.

I was impacted by a natural disaster in 2012.  What tax breaks are available to me?

TurboTax says it's possible to take a tax deduction for "property loss claims not compensated by insurance or, in some special cases, when you're still waiting for compensation.  These are known as casualty losses and include hurricanes, floods, earthquakes, tornadoes, fire -- even vandalism and shipwrecks."

Am I eligible for a child and dependent care deduction?

"People often ask questions about what benefits are available in general, if you work and pay for child care," says Greene-Lewis.  She says some parents don't realize they can deduct the cost of summer camp if sending their child to one allows them to work.  If you work and pay for child care for your dependents under 13 years old you may be able to qualify for a deduction of up to $2,100, TurboTax says.

What is the eligibility for the child tax credit?

You can claim an additional $1,000 credit for each dependent child under the age of 17 if you meet income and support tests.

What are some other education credits available?

In addition to the American opportunity credit mentioned above, the lifetime learning credit helps with expenses related to post-secondary education, even if it's not a four-year program, and can be worth a credit as much as $2,000.

How do you find the value of non-cash charitable contributions?

With all the devastation last year related to Superstorm Sandy and other tragedies, many people volunteered time, money and donated their belongings.  You can deduct travel expenses if it's related to volunteering directly with a non-profit organization.  When it comes to the value of goods donated, you can deduct the fair market value at which they would re-sell an item.  TurboTax also has a tool called, "it's deductible," which estimates the fair market value of a good based on its characteristics.

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