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What Is the Age Limit for Claiming a Child as a Dependent for Federal Tax Purposes?

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Tax Tips are not a substitute for legal, accounting, tax, investment or other professional advice. Always consult with your trusted accounting advisor before acting upon any Tax Tip.

 
Claiming a child as a dependent for federal tax purposes offers the taxpayer a number of tax related benefits. Along with being able to claim an exemption for the child, the taxpayer may also be able to take advantage of the Child and Dependent Care Credit and the Earned Income Credit, further reducing a taxpayer’s federal income tax obligation. In order to claim a child as a dependent, there are five basic tests that must be passed first. Those tests are the relationship, residency, support, joint return, and age test.
 
According to the age test, a child must be under the age of 19 at the end of the tax year in which a taxpayer plans to claim the child. In addition, the child must be younger than the taxpayer or the taxpayer’s spouse if filing jointly. If, however, the child is a full-time student, the age limit is raised. In that case, the child must be under the age of 24 at the end of the tax year and younger than the taxpayer, or the taxpayer’s spouse if filing jointly.
 
The age test does not apply if the child is permanently and totally disabled at any time during the tax year in question. In that case, there is no age limit

TAX ADVICE DISCLAIMER: In accordance with IRS Circular 230, any tax advice included in this communication, including attachments, is not intended or written to be used, and cannot be used by you or any other person or entity, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions, nor may any such advice be used to promote, market or recommend to another party any transaction or matter addressed within this communication. If you would like such advice, please contact us.
 

HRA Qualified Medical Expenses for 2012

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Tax Tips are not a substitute for legal, accounting, tax, investment or other professional advice. Always consult with your trusted accounting advisor before acting upon any Tax Tip.

 
A Health Reimbursement Arrangement, or HRA, is a plan offered to employees that will reimburse certain qualified medical expenses tax-free. Your individual HRA will be unique to what your business offers, but the basic eligible medical expenses and non-eligible medical expenses are the same. Understanding which expenses qualify under the HRA can help you get the most out of your plan.
 
HRA Qualified Medical Expenses for 2012
 
Under each HRA plan, there will be qualified medical expenses. These expenses include a certain amount that will be covered for the prevention, treatment, or diagnosis of certain medical conditions or illnesses as defined under Section 213(d) of the IRS Code.
 
For example, some of the common qualified medical expenses for 2012 HRA plans are ambulance fees, prescription birth control pills, acupuncture, dental treatment, chiropractic care, crutches, diabetes blood sugar test devices, eye glasses, hearing aid and batteries, laser eye surgery, lab fees, sterilization, surgery, optometrist, physician prescribed stop-smoking programs, x-rays and a list of dozens more eligible medical expenses.
 
HRA Non-Qualified Medical Expenses for 2012
 
There are also medical expenses that are not eligible for the HRA plan, including over-the-counter medications without a prescription, which became ineligible for HRA’s, along with Health Savings Accounts and Flexible Spending Accounts, as of January 1st 2011. Any medical expenses that occurred before you signed up for your HRA will not qualify under the HRA.
 
Other non-qualified medical expenses for 2012 include health club memberships, cosmetic surgery, bottled water, diaper service, hair transplant, maternity clothing, nutritional supplements, and other expenses.
 
The HRA provided by your company lets you receive reimbursements that are tax-free from medical expenses you are going to make throughout the year. If you know ahead of time that you will have many of the expenses that qualify for 2012, it can be extremely beneficial for you to sign up for your company’s HRA plan.
 
TAX ADVICE DISCLAIMER: In accordance with IRS Circular 230, any tax advice included in this communication, including attachments, is not intended or written to be used, and cannot be used by you or any other person or entity, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions, nor may any such advice be used to promote, market or recommend to another party any transaction or matter addressed within this communication. If you would like such advice, please contact us.
 

Federal Income Tax Return Filed Incorrectly: What Should I Do?

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Tax Tips are not a substitute for legal, accounting, tax, investment or other professional advice. Always consult with your trusted accounting advisor before acting upon any Tax Tip.

Because the IRS’s tax laws are complicated, it is possible to mistake a mistake — whether minor or major — when preparing your federal tax return. In fact, the IRS encounters thousands every year. If you have already sent in your federal tax return, but realize you made an error, you need to amend the return. In light of this, the IRS makes this as easy as possible by providing you with printable forms that give you detailed instructions on how to amend previous filed incorrect federal tax return.
 
Steps to File an Amended Return
 
1. Obtain and print Form 1040X, which is titled “Amended US Individual Income Tax Return.” From the IRS website. Form 1040X should be used if you originally filed forms 1040, 1040A, 1040EZ, 1040NR, or 1040NR-EZ.
 
2. Write the amending return year at the top of the form, complete your corrections on the form, and sign it at the bottom. The Form 1040X makes it easy to amend your return by listing step-by-step instructions on how to enter your corrections. Double-check that the amended return is 100% correct before signing it and preparing it to be sent.
 
3. Mail the completed and signed form to the address listed on the Form 1040X. If you are amending more than one tax return, you should fill out and send two separate forms and envelopes.
 
If you send in your amended tax return quickly, or shortly after the original return was sent, you may have a chance to get your return processed in a timely manner. However, you should expect a minor delay in your tax refund while the IRS verifies the old return versus the amended return. The amended refund form gives you the chance to make your corrections and receive the appropriate refund. In addition, if your federal income tax return had a mistake, your state tax liability may be affected.
TAX ADVICE DISCLAIMER: In accordance with IRS Circular 230, any tax advice included in this communication, including attachments, is not intended or written to be used, and cannot be used by you or any other person or entity, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions, nor may any such advice be used to promote, market or recommend to another party any transaction or matter addressed within this communication. If you would like such advice, please contact us.
 

The importance of Creating a Last Will and Testament

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The Importance of Creating a Last Will and Testament
Many people make the mistake of assuming that estate planning is only important if you have a substantial estate to leave behind to beneficiaries. Nothing could be farther from the truth. Although an elaborate estate plan may not be necessary if your estate assets are modest, there are a variety of reasons why a basic Last Will and Testament should be executed anyway.
 
Probate — Probate is the legal process by which a decedent’s estate is inventoried, valued, and the assets ultimately transferred to beneficiaries. Probate can be a lengthy process and may incur significant fees. In some states, a small estate may be eligible for a less formal process that will save the estate time and expense; however, if the decedent failed to execute a Will, formal probate is typically required in order to determine who the legal heirs are to the estate.
 
Intestate Succession Laws — If you fail to execute a Will, the state laws of intestate succession will determine what happens to your assets. Friends, charities and distant relatives that were important to you will receive nothing from your estate if you give up control to the state.
 
Tax Consequences — If your estate assets are significant, a comprehensive estate plan is necessary to avoid the often high rate of estate taxes levied on an estate upon the death of the decedent. While a Will alone will not prevent your estate from incurring estate taxes, it is the foundation for an estate plan that can include tools aimed at minimizing your tax burden.
 
Fees and Expenses — By not leaving a Will, additional expenses will be incurred by your estate. Costs involved in locating and notifying heirs, locating and valuing assets, and defending any claims or challenges to your estate can reduce the value of your estate, leaving less for your heirs.
 
Guardianship of Minor Children — If you have minor children, your Will is the only chance you have to nominate someone as guardian in the event of your death. Although the court will ultimately decide who is appointed as guardian, your wishes will carry significant weight in the decision.
TAX ADVICE DISCLAIMER: In accordance with IRS Circular 230, any tax advice included in this communication, including attachments, is not intended or written to be used, and cannot be used by you or any other person or entity, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions, nor may any such advice be used to promote, market or recommend to another party any transaction or matter addressed within this communication. If you would like such advice, please contact us.
 
 
 
 
 
 

$50,000 NC Small Business Owners Tax Deduction

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Your first $50,000 of net business income starting with the 2012 tax year may be free of state tax!  That’s right; many North Carolina business owners will become eligible for up to $50,000 North Carolina income tax write-off thanks to the recent passage of North Carolina House Bill 200 and North Carolina Senate Bill 267.

The North Carolina $50,000 Tax Deduction

The new North Carolina deduction for business owners allow a single business owner to deduct up to $50,000 of net business income included on the federal return that is not considered passive.  Married business owners can deduct up to $50,000 each.  Business owners who report income on federal Schedule C, E, and/or F are eligible for the North Carolina $50,000 tax deduction.

North Carolina Passive vs. Non-Passive Income Defined

North Carolina defers to the Internal Revenue Code (IRC), specifically Internal Revenue Code 469, to define passive income.  Generally, passive activities are business activities in which there is material participation.  Per IRS guidance, “you materially participate in an activity if you are involved in the operation of the activity on a regular, continuous, and substantial basis”.  However there are very specific rules, especially for real estate professionals.  IRS Publication 925, Passive Activity and At-Risk Rules, provides a plain language examples of passive activities.

How to Claim the $50,000 Business Income Deduction

The 2012 North Carolina tax forms with specific instructions are expected to be released later this year.  Matthew J Rice, CPA PC will provide an update as soon as it becomes available.  Become a Facebook fan to get automatic updates on this deduction by clicking on this link. http://www.facebook.com/#!/matthewjricecpa

 

BEWARE- Intuit Tax ID Scam

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With tax season here, tax scams are here too! And of course theyare online! The latest tax-related scams out there is spreading via email.

The emails claim to be from Intuit ( security@intuit.com) with a subject header that says something sorta like “Urgent update of tax information is requested” or “Tax information required within 30 days.” It may look like this:

Dear Account Holder,

In our continuing effort to guarantee that exact data is being sustained on our systems, as well as to provide you better quality of service; INTUIT INC. has participated in the Internal Revenue Service [IRS] Name and TIN Matching Program.

We have discovered, that your name and/or Taxpayer Identification Number, that is stated on your account does not correspond to the data on file with the Social Security Administration.

In order to check the data on your account, please click here.

Regards,
INTUIT INC.

Corporate Headquarters
2632 Marine Way
Mountain View, CA 94043

There are a few variations on this but the idea is that they want you to confirm your tax identification number. Don’t.  Don’t even think about it.  Don’t click on any links and don’t give out your personal information.  Period. The link likely contains a virus.

The emails that came our way were from an address in marked as “an abusable web server” by spam filters. The address was also flagged by Barracuda Reputation System, and is listed on the Barracuda Reputation Block List, a free DNSBL of IP addresses known to send spam.

If you get one of these, best to delete it. If you’re not sure, you can forward any suspicious emails purporting to be from Intuit to the company directly via spoof@intuit.com.

(Author’s update: I contacted the folks at Intuit who advised that you can find out more about these scams through their corporate security web site, security.intuit.com.