"Is there a common mistake people frequently make regarding their taxes?"
Actually, there are several:
First, many times people decide to prepare their taxes themselves. Many of
those people forgo the benefit of working with a tax professional, which can
frequently reduce the amount of taxes that one would otherwise pay.
Next, your circumstances may have changed. Be sure to point out to your tax
professional that you have married, divorced, had a child, or had an elderly
family member move in with you.
Another important consideration is to avoid waiting until the
last minute. The closer to the deadline, the greater the risk for missing
a tax-minimizing opportunity.
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"I received a distribution from my 401K when I left my previous employer during the 2001 calendar year. How do I report that on my taxes?
If you have not taken any distribution from your 401K
account, you do not need to report anything. Further, there is no deadline
to move your funds from your previous employer's account. In the event that
you do move your funds, they must be transferred directly from your previous
employer's 401K account to your own personal individual retirement account
(IRA). By either leaving the funds where they are or transferring your funds
to your new IRA account, you defer paying tax and penalties on those funds.
If you do draw the funds from a tax-deferred account, the funds are taxed
as normal income and, depending upon the circumstances, may also include a
penalty.
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"I received unemployment compensation during 2001. Is the unemployment compensation taxable?"
Yes, it is taxable as normal income. It is important
to note that if you itemize your deductions, the costs of looking for a new
job are tax deductible. Costs include resume preparation and mailing, travel
to interviews that is not reimbursed by the prospective employer, etc. Job-hunting
expenses are included with other miscellaneous deductions. Note that a tax
break occurs only when the miscellaneous expenses exceed 2% of your adjusted
gross income.
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"I receive Social Security. How much was I able to earn during 2001 before my Social Security income is taxable?"
If you were 65 years or older for all of 2001, your
Social Security benefits are not taxable, no matter how much you earn. If
you were between 62 and 65, you lose $1 or every $2 earned above the exempt
Social Security amount of $10,680.
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"Following my divorce this year, I have been receiving alimony payments. Am I required to pay tax on these funds?"
Yes, alimony is taxable as normal income.
Note that if you pay alimony, those amounts are deductible. You must show
the Social Security number of the alimony recipient on your income tax return.
It is important to note that if you receive alimony, you are required to report
and pay taxes on alimony you receive.
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"If I pay my January mortgage payment before the end of the year, is the interest deductible in this tax year?"
Yes, because the payment was made in this tax year.
The same treatment applies to estimated taxes paid in this year that are normally
due in January.
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"I had losses on my investments in the stock market. Are the losses tax-deductible?"
Yes, but there are limitations. Losses incurred in
the tax year can be applied as an offset to capital gains realized during
the year. Losses beyond those that can be offset by capital gains are limited
to $3,000 per year. Excess losses are carried forward to future years.
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"For my charitable gifts, what documentation do I need?"
Any single gift over $250 requires a receipt from
the charity. Your cancelled check is not sufficient documentation.
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"What is the maximum amount of investment income that a child can earn before the child is taxed at the parent's tax rate?"
For children under 14, the child can earn from $750
to a maximum of $1,500 of investment income and be taxed at the child's rate.
Below $750, no tax is assessed. For amounts above $1,500, the child is taxed
on the investment income over $1,500 at the parent's rate.
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"Can I get a tax deduction for un-reimbursed business expenses?"
Your un-reimbursed business expenses can be claimed
as deductible expenses on your tax return. Keep copies of your receipts. Note
that dry cleaning and laundry are deductible expenses while you are on a business
trip and are also deductible for the first dry cleaning and laundry bill when
you get home.
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"What is the amount of tax credit for each child?"
For each child under 17 years of age, you qualify
of the child tax credit of $600 in the year 2001.
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"If I am overpaying my taxes, what changes should I make?"
Adjust your withholding or prepayments and invest
the extra amount into an interest-bearing account. Note that the IRS does
not pay interest on your overpayments!
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"What is the best advice for minimizing my taxes?"
Consult Management Horizons! Our certified
public accountants and tax advisors will give you expert advice. Want even
better advice? Consult our professionals before you make economic
decisions. Your income and expenses will be affected and the consultation
could save you some real money!
Top
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