The Good Tax Guide » Tax Deductions

Tax Deduction for Legal Fees on Tax Return

Tax Guide — Tue, 24 Feb 2009 06:42:56 +0000

Deduction in tax can be obtained for legal fees if the dispute involves business, property or employment or property. In such case deductions can be made while filing the tax returns. But the legal fees which are used for personal matters will not get any tax discounts while filing the tax returns. Such legal fees should be included in the tax returns as they are taxable. Legal fees related to alimony are tax deductible. But the legal fee concerned with divorce is also not taxable. Legal fees used as the estate planning fees are tax deductible and can be deducted on the tax returns. But in all the cases there will be limit and if the amount goes above that limit then it will become taxable. Other non taxable legal fees include will disputes and wrongful death suites. Will dispute is not taxable as it is an inherited income. It should be reported in the tax returns. All the legal fees which are not taxable should be appropriately mentioned in the tax returns. Otherwise penalties may be charged. Legal fee involved in tile dispute or property dispute is not taxable also. In case of personal injuries, the legal fess depends on the situation.

Tax on Life Insurance death benefit

Tax Guide — Sun, 01 Feb 2009 08:49:10 +0000

Under normal condition one does not have to pay any tax on life insurance death benefit. But it can be taxable if the amount paid exceeds a particular limit as mentioned in the rules. The amount will be included in the gross taxable income if the amount paid by the life insurance company is more than what they agree to pay at the time of death of the person. This can be explained in a better way with the help of an example. Suppose if the life insurance death benefit is $60,000 and if the company paid you $60,500 at the time of payment. Then the additional $500 paid will be taken as the taxable amount and should be included in the tax return form while filing it. If the amount paid is equal or less than the amount agreed then it will not be included in the taxable amount. Certain companies pay the life instalment benefits on instalment basis. So, if the money is received in the form of installments then you can remove that amount from the taxable part. But proper proof should be given. Also by dividing the amount received into payment in different years one can free it from tax.

Tax return for children

Tax Guide — Fri, 26 Dec 2008 08:43:34 +0000

In certain cases, the children will also have to file tax return. If the income earned by the child goes above a specific limit then he/she should file the tax return. The limit is $750 including all types of income like interests and dividends. If the amount received is less than this there won’t be any taxable income. For a child under the age of 18 years if his/her annual income exceeds 1,500$ then the tax returns should be filed at maximum marginal tax rate. For the child, the tax rule is also called as the kiddie tax. Also if the child does not pay the tax then it is the responsibility of his/her parents to pay the tax before the due date. Also parents can sign in the tax form on behalf of the child’s name if the child is minor. Also the investment made by the child can be deducted from the received amount. This can help to save some money to an extent. In case of no investment made tax returns have to be filed if the income of the child is above 5,150$ or above. So it is the responsibility of the parents to make sure that the tax returns for the child is paid before the due date.

Tax on Veterans insurance dividends

Tax Guide — Thu, 18 Dec 2008 08:39:57 +0000

All types of interest received by you are taxable in all cases. Interests are considered as a form of income. Interest on bank accounts, deposit, insurance, dividend and money market certificates are some of the well known examples of taxable interest. In the case of veterans, the insurance dividend provided is called by the name veteran insurance dividend. The veteran dividends are not taxable and are applicable to veterans and their beneficiaries. For getting this benefit one must receive two forms Form 1099-INT and Form 1099-OID. In the case of a normal individual no discounts will be given. Any interest above 10$ is taxable and should be included in the tax form before filing it. Failure to include the details will be notified to you by the tax authorities. They will get the information from the dividend providers which are checked by the computer. Failure to include will lead to penalties as a result of which additional tax should be paid. Also if the interest you receive is 1,500$ or less then you should file Form 1050EZ or Form 1040. If the interest is above 1,500$ then the Form 1040EZ cannot be filed. But the Form 1040 or Form 1040A should be filed

Is it necessary to pay tax on wages and salaries?

Tax Guide — Mon, 10 Nov 2008 08:20:59 +0000

Wages and salary belong to the taxable income. They are taxable because they are the payments received by the person for doing services for an employer. But there will be exemption in certain cases also. It include social security tax, Medicare tax, pensions, insurance and union dues. These things must be included in the gross taxable income on one’s tax return in that particular year. The items which are taxable income include commissions, royalties, salaries, tips, vacation pay, dismissal pay, sick pay, wages, back pay and bonuses. In case if the employer pays you social security tax and Medicare tax without making any tax deductions then they have to be included in the gross taxable income. All the wages and salaries obtained through all the means should be mentioned in the tax form. Failure to mention anyone may risk you to pay penalties. So before filing the tax form ensure that all the salaries or wages are properly mentioned in the form at appropriate places. In certain cases you may receive another tax form after filing the first original tax form. The new form sent has to be filled with the changes if any and should be filed.

Tax on employee achievement awards

Tax Guide — Mon, 27 Oct 2008 08:17:43 +0000

One can reduce the tax in case of an employee achievement award if and only if the employer deducts the employee achievement awards on its tax returns. Not only that, there are some other requirements which are to be fulfilled in order to get excluded from this tax. The IRS has mentioned the requirements clearly. According to their rules the reduction will be made as a part of meaningful presentation only. Also they have mentioned a limit above which such deductions will not be granted. Only those amounts which come under this limit will be considered for tax reduction if other requirements are met. It can be avoided from tax if it is given in the form of gift certificates rather than in the form of cash. It will be excluded if the amount is given for the service of the person towards the company for long time. Such achievement awards can be categorised in to two plans basically. They are non tax qualified plan and tax qualified plan. In the case of the tax qualified plan tax will be deducted for that tax year. But in the case of non taxable qualified plan they are eligible for tax exemption.

Is it necessary to pay tax on mutual fund dividends and capital gains?

Tax Guide — Thu, 16 Oct 2008 08:11:54 +0000

All the dividends you receive from mutual funds should be reported on tax returns. In the case of a mutual fund the dividend will be paid in several ways. So the receiver must show the received dividend amount which is taxable in the tax returns. Failure in doing so will result in tax penalties for the person. According to the procedure of the mutual fund, they will send Form 1099-DIV to the receiver. The necessary instructions required for filling the tax form will be sent by the mutual fund itself. The dividends are to be entered into the Form 1040, Schedule B, line 5. In line 13 the mutual fund capital gains has to be entered. These are the long term gains distributed by the mutual funds. One must report the mutual fund capital gains made in the tax return form. But mutual fund non taxable distribution is not taxable as the name suggests. But it is non taxable only until the basis is reduced to zero. In case of any foreign tax, it will be mentioned in the Form 1099-DIV by the mutual fund. So, all dividends that one receive should be reported in the tax returns, nothing should be left out.

Is it possible to deduct the lifetime learning credit for college expenses on tax return?

Tax Guide — Fri, 10 Oct 2008 02:54:30 +0000

As everyone knows the cost of education is increasing day by day. So, nowadays more money is required to meet the educational expenses. So parents are trying to save more money to put their children through college. The cost will be double if the chosen college is a private one. The cost includes different things like tuition fee, cost of the study books, travel expenses and hostel expenses if he is staying in hostel. But the Lifetime Learning credit is available for the tuition only. Other related expense like the travel charge will not be included in that. There is also a limit for this amount. Deductions can be availed only up to that limit and not beyond that. This facility is available for both graduates as well as for under graduates also. But there are certain exemptions also in this case. The loan expenses paid related to the studies are eligible for Lifetime Learning credit. If your income level is above a certain specified limit then you won’t be eligible to receive this facility. Also this Lifetime Learning credit cannot be claimed by both the father and the student son simultaneously. This condition is applicable if the student is dependent.

Properties for which you can take depreciation tax deduction on one’s tax return

Tax Guide — Tue, 07 Oct 2008 17:51:44 +0000

There is a list of properties for which a depreciation tax deduction can be made. The properties that they mention in the list include those properties which are used in trade or business or other income generating activity. No depreciation in tax return can be obtained if the property is used by the person for his own interest. An example of it is the personal residence. The properties include equipment, machinery, vehicles, furniture and buildings. But tax depreciation is a difficult task. There is a system which generates the depreciation percentage tax deduction. It is called as the Accelerated Cost Recovery System. It will show the percentage and the eligibility criterion for obtaining the depreciated tax reduction. There are some items listed for which you cannot get the depreciation on tax. The things for which depreciated tax return is applicable include land and farmlands. Also property and other inventory which are made for sale are not eligible for obtaining the depreciated tax deduction. So, all properties are not eligible for depreciated tax return. So before applying for the depreciation tax deduction on tax return one has to make sure that he is eligible for that. The depreciation percentage should be found out. The Good Tax Guide.

Is it possible to deduct an earned income credit on my tax return?

Tax Guide — Fri, 03 Oct 2008 02:48:25 +0000

The special credit applicable to the lower income workers who can deduct on their tax return is called as the earned income credit. In most of the cases this earned income credit can be claimed by worker people with certain number of children. But under special circumstances this facility can also be utilised by the people without children also. It can help you to reduce some amount of the tax you pay. By using this facility one can cop up with the increasing cost of living and social security tax. The most advantageous thing of the earned income credit is that it is directly deducted from the amount of tax you owe. So, more discounts can be obtained for the lower income workers. Also if you do not owe any tax also you may get some money back as it is a refundable credit. The tax form has clearly mentioned the requirements for getting the earned income credit. A person is not eligible for the earned income credit if he is getting an income greater than $2,800. It comes under the disqualified income category. Also one must have at least one child in order to get qualified for the earned income credit.

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