The Good Tax Guide » tax guide

Do I have to pay tax on academic scholarships?

Tax Guide — Wed, 24 Sep 2008 03:59:58 +0000

One can remove the academic scholarship from taxes if they meet some criteria. These criteria are put forward by the responsible tax authorities. Day by day the cost of living is going on increasing. As it increases the college costs also increases. So, more amount of money is required for this purpose. So if a child is getting scholarship it can help a lot.

Also the benefit of scholarship can be improved more if proper steps are taken to avoid it from taxes. In case if the child is attending a private college rather than a government college then the cost will be double. So it would be difficult for the parents to pay the money even with the available scholarships if taxes are deducted from that. So, proper measures must be taken to make sure that such academic scholarships get free from taxes.

If the academic scholarship is used for other purposes like paying room rent and travel expenditures then it should be shown in the tax form. In that case it will become taxable as the scholarship is meant only to be used for paying tuition fees and for buying the necessary books. The scholarship will be free from tax if and only if the person is a candidate for a degree in some educational institution. The scholarship money should not be used for other purposes. If you use it for any other purpose then you will have to pay the tax on that amount.

Is Tax payment on accelerated death benefits and viatical settlements necessary?

Tax Guide — Wed, 24 Sep 2008 03:54:18 +0000

Everyone knows that day by the cost of living as well as medical expenses are increasing. So, more money is required if a person gets admitted in the hospital. As the cost of medical care is very high, most of the insurance companies are having insurance policies with the accelerated death benefit feature. The cost paid by the insurance company on the insurance policy to the terminally ill for surrendering his/her policy is known as accelerated death benefit.

Another option is to sell the policy to a viatical settlement company. These companies buy this policy mainly for their investors. Some companies also buy the policies for themselves. Both, accelerated death benefit and viatical settlement are tax free. But if the benefits are used for a long term care, then the excess mount is taxable and should be shown when filing the tax returns. This is applicable if and only if it exceeds IRS per diem limit. So make sure that you show the proper amount when filing the tax forms. Make sure that you get the tax reduction by placing the accelerated death benefit or viatical settlement below the limit mentioned by them. So choose appropriate measures to keep it away from the tax zone.

Home Office Tax Deduction

Tax Guide — Wed, 15 Apr 2009 07:41:12 +0000

In order to get home office tax deduction, IRS have provided two methods for an individual. According to the first method the person must show that the principal base of the business is home office. For this necessary documents or proof are required to show that. It should be genuine also. Another way is to show that the home office is the place where the individual meets the clients or customers. For getting the tax deduction one must spent certain number of hours in home office and necessary proof must be given for showing that majority of the business income which are taxable comes through the office. The documents must be presented to the IRS for verification purpose. Deduction will be given only after the verification. The deductible tax includes mortgage interest, utilities, operating expense, depreciation, real estate tax. Only these items are allowed to receive the tax benefits. Things which are not included in this are not eligible for getting the discounts. There is also a limit set by the IRS for giving the deduction. If the amount exceeds that limit, then it will become taxable. The failure to report the items which are taxable will result in penalties.

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.

Deduction of long term care cost on tax returns

Tax Guide — Sat, 17 Jan 2009 08:47:57 +0000

It is possible to deduct long term care cost on tax returns. It is applicable to the person, his/her spouse or to his dependent if they are affected by chronic illness. According to the rules the reimbursed expenses that are above the 7 and a half percentage of Adjusted Gross Income can be deducted from one’s tax returned. Thus some amount of money can be saved by a person. But the deducted amount must be reimbursed by any reimbursement. It is also necessary to bring the required documents to show that the person is really sick. This document should be of the appropriate type as it has got a legal value. It should also mention the disabilities in doing any of the following things like toileting, bathing, dressing, continence or transferring. The deductions made should be genuine. Otherwise you will have to face the penalties charged by the respective authorities. So the supporting proof or the document should be strong and a valid one. Also there is a limit in amount which is deductible from the tax. So amounts above that will be taxable. So make sure that the amount remains within the limit so that you can enjoy the benefits provided.

Tax on Sick Pay

Tax Guide — Thu, 08 Jan 2009 08:46:12 +0000

Sick pay is a type of wage received by the employee. So as per the rules all salaries and wages are taxable. Hence sick pay is taxable. So a person getting the sick pay must include this amount in the tax return before filing. It should not be left out. If left out then penalties would be charged as the pay will be reported in the tax return of the person who pays you the sick pay. It is a taxable income. It is the money received by a person in case if he faces any injuries or accidents. All companies will allot some amount of money for their employer’s sick pay. It is given as the health insurance allowance. The taxable amount should be submitted in a Form W-4S to the insurance company. This is to be done to withhold the IRS tax. If the premium for the health insurance is made through cafeteria plan then the premium will be taken as the one paid by your employer and benefits can be reaped by you on the tax returns if the money paid as premium was not included as taxable income to you. In case of long term care insurance it will be exempted from tax in most of the time.

Tax on Lump sum distribution

Tax Guide — Sat, 03 Jan 2009 08:44:37 +0000

Lump sum distribution refers to the large amount of money paid to the employee’s balance in a single tax year. In this case the payment is made according to the qualified plans of the person. The IRS has provided a different method for calculating the tax on lump sum distribution. It is called as the Special Averaging Method. The tax to be paid can be found out using this method. They have also provided a 10 year averaging tax option. It is given as special tax treatment and it is applicable if the person is born before 1936 only. In order to show the taxable lump sum distribution one should receive Form 1099-R from the person who employs you. So for filing the lump sum distribution makes sure that you receive this form so that the tax return can be filed appropriately without any delay. Delay in tax payment will result in penalties. There is also another option available other than the 10 year averaging tax plan. It is the IRA rollover. So make sure that you get the right benefits at the right time so that some amount of money can be saved. As everyone knows, money saved is money earned.

Is it necessary to pay tax on workers compensation?

Tax Guide — Wed, 10 Dec 2008 08:38:26 +0000

According to the workers compensation act one do not have to pay the tax on workers compensation which is received by the person who is given or by survivors for work related sickness. It is mentioned in workers compensation act. Also tax exemption is not applicable to the benefits given on the retirement plans. These benefits are given on the basis of age, service period or length, your contributions to the plan. This is applicable even if the cause of the retirement is injury or sickness related to occupation. In case if the payment is obtained from your employer then you have to include the obtained workers compensation in the taxable amount. Workers compensation may include social security benefits. The social security benefits included in the workers compensation is taxable and should be reported while filing the tax returns. Failure to report the social security benefits can lead to charges of penalties to you. In such a case one may have to pay more money as tax. So make sure that you enter all the income details before filing the tax form. The railroad benefit is also taxable and comes under the category of social benefits. So, it should be included in the taxable income.

Is it necessary to pay tax for household employees?

Tax Guide — Wed, 03 Dec 2008 08:38:21 +0000

If the amount paid to the household employee is $1,500 or more then one has to remit the IRS social society tax and Medicare tax, called as FICA. There will be another tax also known as FUTA. FUTA refers to Federal Unemployment tax which is to be paid to the IRS. This amount is to be paid if the employee does not work for any agency. FICA will not be applicable if the employee is your spouse or a child under the age of 21 years or if the wages are paid to the parents or if the household employee is under the age of 18 years. In case of FUTA tax, it is not applicable if the household employee is your spouse or a child under the age of 21 years. Also if the wages are paid to your parents then also the FUTA tax will not be applicable. The FUTA tax will be applicable if the amount of money paid to the household employee is 1,000$ or more. So if the salary exceeds the limit tax has to be paid for household employees, but if it remains within the limit then that amount will be exempted from taxes.

Is it necessary to pay tax on savings and loan association dividends?

Tax Guide — Sun, 12 Oct 2008 20:56:25 +0000

It is essential to put the savings and loan association dividends in the tax return. All interest that one receives comes under the category of taxable income. So, it should be reported on the tax return. Dividends include dividends on share accounts, deposits in banks, credit unions, mutual savings, and federal savings and loan associations. One who pays the interest income of yours must be provided with your security number. Otherwise it can result in a tax penalty. In such a case one may have to pay extra tax. Also it is necessary to receive a tax statement from the paying institution. The tax document can be Form 1099-INT and Form 1099-OID. A similar tax document is also acceptable. In case if you did not receive any such tax statements also you have to report the dividend on tax returns. If the interest paid is above 10$ then it should be reported. The payer also has to submit the tax returns along with the necessary documents showing these. So if the dividend receiver tries to hide the dividend he will be caught with the help of a matching process done by the computer. In such a case you will be charged with penalties by the IRS.