The Good Tax Guide » Tax Questions

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 possible to get a tax extension from the IRS?

Tax Guide — Wed, 05 Nov 2008 08:19:11 +0000

Yes, it is possible to get a tax extension from the IRS. A six month automatic extension will be provided by them. This can be obtained if one files the extension tax form. It is filed for getting more time for the payment of tax. It is also useful in certain situations where you can escape from tax penalties due to the late payment. But here the problem is that once you file the extension tax form you will have to pay the interest when you make the tax payment on that year up to the date. Such a rule is made so that the person will pay the tax as early as possible for avoiding the further interest. The extension tax form should be sent to the IRS service centre. There is another option available for the person; he can pay the tax in instalments. The penalties of late payment can be avoided if the amount paid as tax equal about 90% of the total tax due. In this case the interest will be charged only on the unpaid amount left. In case of tax extension there are two separate rules. One rule is for the U.S citizens and the other one for the non residents.

Is it possible to deduct the Elderly or disabled credit on tax return?

Tax Guide — Wed, 22 Oct 2008 08:15:49 +0000

It is possible to deduct the elderly credit on the tax return if the person’s age is 65 years or more. Disabled credit on tax return is applicable to people who have got some genuine disabilities. In the case of the elderly credit, the person should be having the age 65 or above before January 1st of the current taxable year. Both the elderly and disabled credit is 15% of the base amount after reductions. There will be some initial base amounts at first depending on certain criterion. The base amount is reduced under some conditions which include railroad retirement benefits, social security, annuity and tax free pension. They are also reduced if one half of the adjusted gross income exceeds 7,500$ in case the tax return is filed as a single one or 10,000$ in case the tax return is filed as a joint one or 5,000$ in case if you are married and separated. This is applicable to both elderly and disabled tax returns. These benefits will not be available if the income exceeds above a certain limit. These special benefits are also available for non resident aliens, married tax payers. Disabled persons and in case of separate tax return filing.

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.

Are Credit Card Rewards Taxable?

Tax Guide — Thu, 17 Dec 2009 02:39:06 +0000

Nowadays almost every credit card out there gives you cash back, airline miles, or some other form of rewards. For some people, they may only earn a few dollars a year. Meanwhile big spenders may rake up thousands of dollars annually in cash back. Whether you’re getting $10 or $10,000, is this money taxable?

What Does The IRS Say About Credit Card Rewards?
According to Mike Dolen, editor-in-chief at Credit Card Forum, the rewards are generally not considered income by the IRS (in the United States). Because it’s considered to be a rebate on spending, they presently don’t classify them as taxable income (but check with your accountant to be sure). It’s similar to if you bought a $500 camera which came with a $50 mail in rebate. The $50 you are getting back is not income, since it’s dependent on the $500 you spent. It’s merely a rebate on your spending.

Are Credit Card Rewards Donated To Charity Deductible?
Most credit cards offer you the ability to donate your frequent flyer miles or accumulated cash back to charity. Usually, each card issuer has a handful or charities they work with. The cardmember has the option to choose one of them and donate their rewards. However for the same reason they are not taxable, they also are not deductible. So if you choose to give away your cash back to a certain cause, don’t try and deduct it on your tax return.

So if you want the deduction, what you should do is elect for the cash back which you can deposit into your bank account. If you then turn around and write a check to make a donation, it probably will be deductible. However this particular situation may be a slipper slope, so check with your tax advisor to find out for sure.

Will Credit Card Rewards Ever Be Taxable?
So far the IRS has been fairly vague with their stance on this issue, so it’s within the realm of possibility that they may change their position. If they do change their policy, they are most likely to only apply it to cash back (not the rebates which can only be applied to merchandise and services). So if you have a grocery store rebate credit card, you will probably be safe. For example, the Kroger credit card only gives a rebate that can be used at Kroger grocery stores, so it will probably never be taxable.

Is it possible to deduct losses from declared disaster areas on one’s tax return?

Tax Guide — Tue, 30 Sep 2008 20:45:56 +0000

One can deduct taxes in case of casualty losses. But this is applicable for the particular year in which the casualty has occurred. Tax deductions can be obtained for that particular tax year only. But in certain cases like disasters which have got approval from higher authorities like one from the president of United States, the tax deduction can be made immediately in the preceding year also. There is provision for that also. So the authorities provide 2 years of time for a person to make tax deduction in case of any disaster. So a person can choose any year from this which will provide him the maximum benefit or deductions. So, in such a situation decisions should be taken appropriately so that you can save some money on that account. Also in certain disaster cases they may neglect the taxes from that area or may provide some reductions in the tax. This help will be provided by the IRS. IRS can also give you the option to give your money back which had been filed as the previous tax returns. Such options will be provide if the conditions are very worse. For additional information one can contact the IRS office.

Is it necessary to pay tax on advance commissions?

Tax Guide — Mon, 29 Sep 2008 02:37:21 +0000

If a person receives advance commission then he must include the commission amount while calculating the tax. In other words it is a taxable income. In most of the cases, agents are given advance commissions even before the customer pays the premium amount. Such advance payments should be reported. If any repayment of advance commission is done then it should be reduced from the amount included in your tax if the amount is received on the same year. But if the amount is repaid on the next year then one can deduct the repayment on one’s tax return by including it as an itemized tax deduction. Some people adjust the payment so that they can get the maximum reduction while paying the tax. But there are some limits on it. If the amount exceeds $3,000 it will not be subjected to the 2% AGI floor. But if the advance payment amount is $3,000 or less then that amount will be subjected to 2%AGI floor. So by adjusting the amount one can make sure that the necessary deductions in tax are obtained. The details regarding the itemized tax deduction is given in the Form 1040, line 27 of schedule A in one’s tax return form. The good tax guide.

Tax Deduction on Medical Expenses

Tax Guide — Wed, 25 Mar 2009 07:28:28 +0000

Deductions can be obtained in tax if the medical expenses fall in the category mentioned in the list provided by them. It include expense related to birth control pills prescribed by the doctor, legal abortion, organ donor, food facilities provided by the hospital during the treatment, service fee for the hospital, the expenses related to dogs and other pets, oxygen equipment, prescribed medicines, psychiatric field, nursing wages and other related to the dental issues. Deduction in tax in all these case can be obtained if and only if it is supported by proper valid documents. There are certain other medical and dental expenses for which tax exemptions will not be given. If the medical expenses comes under the category of those which can be deducted then it should not be mentioned in the taxable part. In the taxable part it is necessary to include the medical expenses which do not come under the non taxable part. Social activities, general health improvement program, weight loss programs and many others do not come in the category of non taxable items. So, one must pay the tax for these items. Tax reduction is also given on certain dental expenses. The deduction is also based on the age limit of the person.