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Tax Payers' Frequently Asked Questions
If I am paying my expenses with financial aid, can I claim education credits?
If the taxpayer pays for qualified educational expenses with certain tax-free funds, such as a tax-free scholarship, Pell grant, VA education assistance, employer provided educational assistance, etc., that amount can not be used to claim the credit. The taxpayer’s educational expenses must be reduced by any of the above before calculating the credit. However, if the taxpayer pays with funds received as a tax-free gift, loan or inheritance, the expenses will still qualify for the credit.
You should keep source records of items that support deductions and credits claimed on your tax return. Good recordkeeping will make it easier for you to prepare and file your taxes. What should individuals keep? In most cases, keep records that support items on your tax return for at least three years after that tax return has been filed. Examples include bills, credit card and other receipts, invoices, mileage logs, canceled, imaged or substitute checks or other proof of payment and any other records to support deductions or credits claimed. You should typically keep records relating to property at least three years after you’ve sold or otherwise disposed of the property. Examples include a home purchase or improvement, stocks and other investments, Individual Retirement Account transactions and rental property records.
What should Small Business Owners keep? Typically, keep all your employment tax records for at least four years after the tax becomes due or is paid, whichever is later. Also, keep records documenting gross receipts, proof of purchases, expenses and assets. Examples include cash register tapes, bank deposit slips, receipt books, purchase and sales invoices, credit card charges and sales slips, Forms 1099-MISC, canceled checks, account statements, petty cash slips and real estate closing statements. Electronic records can include databases, saved files, e-mails, instant messages, faxes and voice messages.
For the purposes of the EIC, the taxpayer can only claim a qualified child defined as follows:
Generally, you cannot deduct expense items such as repairs to your personal home. However, you may be able to deduct expenses related to the business use of part of your home if you meet specific requirements. Even then, your deduction may be limited. To qualify to deduct expenses for business use of your home, you must use part of your home exclusively and regularly as your principal place of business: Where you meet or deal with patients, clients, or customers in the normal course of your trade or business.
You should keep good records of any donation you make, regardless of the amount. All cash contributions must be documented to be deductible – even donations of small amounts. A cancelled check, bank or credit card statement, payroll deduction record or a written statement from the charity that includes the charity’s name, contribution date and amount usually fulfill this record-keeping requirement.
Unemployment compensation you received under the unemployment compensation laws of the United States or of a state must be included in your income. It is taxable income. If you received unemployment compensation, you should receive Form 1099-G showing the amount you were paid and any federal income tax you elected to have withheld. Whether you receive a refund or not depends on deductions and credits claimed to offset the tax liability on your tax return.
For more information, see IRS Publication 525, Taxable and Nontaxable Income.
A taxpayer is considered unmarried for the whole year if on the last day of the tax year, they are unmarried or legally separated from their spouse under a divorce or degree of separate maintenance according to the law of the state in which they reside.
If you owe a debt to someone else and they cancel or forgive that debt, the canceled amount may be taxable. The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief. This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition. More information can be found in IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments.