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How To Do Taxes (as a Single Mom)
16th July 2012 | Money

tax

Taxes are a once a year pain in the neck problem that most people have to deal with. Taking one look at even the most basic of tax forms can be overwhelming. Every line is numbered and this line needs to be added to that line and subtracted from the other line. You need to know this number and that number and what your Earned Income and Passive Income are. At a glance, taxes are overwhelming. However, if you know what everything means then taxes become much simpler.

So what do you need to know about filing taxes? First off, you need to know who needs to file taxes because, surprisingly enough, not all Americans are required to file taxes. You need to know which tax forms to use and what to put down as your filing status. You also need to know who qualifies as a dependent. Other things you should know about are deductions, tax credits, exemptions, and methods of compiling and filing taxes.

 

Who Must File

Whether or not a person has to file taxes is dependent on age, filing status, income and citizenship status. All US citizens and residents can be required to file taxes as long as you meet certain income standards. This is true even if you do not live in the US. Once you reach a certain income level you are required by law to file taxes. The income standard for filing taxes is defined by your age and filing status. Age is divided into two categories: those 65 and older and those younger than 65. For those younger than 65 the minimum income standard is $9,500  if your filing status is Single. If you file as a Head of Household, you only have to file taxes if your income is at least $12,200. If you file as Married Filing Jointly, you and your spouse have to have a combined income of at least $19,000 before you are required to file taxes. If you file as Married Filing Separately you need to have a minimum income of $3,700 before you are required to file taxes. Lastly, if you file as a Qualifying Widow or Widower your income needs to be at least $15,300 before you need to file taxes.

Whether or not you are required to file taxes, going through the effort to file taxes anyways can be profitable. Even if  you are not required to file taxes, you could be entitled to a refund that the government will not give you unless you make the effort to file your tax return. If you file taxes at a later time the government may not give you the full amount of the refund or any at all due to fees and penalties.

For more information visit: http://www.dailyfinance.com/2010/01/20/who-must-file-a-tax-return/

 

Tax Forms

There are seemingly millions of tax forms and schedules available to be filled out. Which one or ones do you need to fill out when you file your taxes? The standard forms are: Form 1040, Form 1040A, and Form 1040EZ. Which one of these forms you choose depends on if you meet the conditions laid out for its use.

Form 1040 is the most basic of tax forms also known as the long tax form. You need to use this form if your taxable income is greater then $100,000 and is from unreported tips, non-taxable distributions, self employment, because you are a beneficiary of an estate or trust, or because you are a shareholder or partner in an “S” class company.  Another reason to use this form is if you wish to itemize your deductions or claim certain tax credits. Lastly, you must use this form if you are adjusting your income or owe household employment taxes.

Form 1040 can be found here: http://www.irs.gov/pub/irs-pdf/f1040.pdf?portlet=103

 

Form 1040A is the short tax form. When using this form your taxable income must be below $100,000. Your income needs to be from wages, salaries, tips, taxable scholarships/fellowships, interest, dividends, capital gain distributions, pensions, annuities, IRAs, unemployment compensation, social security, or the Alaska Permanent Fund dividends. If you choose to use this form you cannot itemize your deductions and you can only adjust your income on this form if you are doings so for IRA deductions, student loan interest deductions, educator expenses, or the tuition and fees deduction. The only tax credits you can claim using this form are: the child and dependent care expenses, earned income, adoption, elderly or disabled, education, child tax , the additional child tax, and retirement savings contribution tax credits.

Form 1040A can be found here: http://www.irs.gov/pub/irs-pdf/f1040a.pdf

 

Form 1040EZ is know as the easy tax form. This form is to be used when you are filing as Single or Married Filing Jointly and are not claiming dependents. Your income needs to be under $100,000 and come from wages, salaries, tips, taxable scholarships/fellowship grants, unemployment compensation, state tuition program earnings, or the Alaska Permanent Fund dividends. You cannot have a taxable interest exceeding $1,500. You must be under 65 and have your eyesight. You cannot receive advanced earned income credit payments. You cannot owe household employment taxes for wages paid to a household employee. You cannot claim certain deductions (student loan interest, educator expense, and tuition and fees) or credits (education, retirement savings contributions). As well, you cannot claim income/tax credit adjustments.

Form 1040EZ can be found here: http://www.irs.gov/pub/irs-pdf/f1040ez.pdf

 

Other standard tax forms include 1040NR, 1040NR-EZ, and 1040X. The 1040 NR form is for Nonresident Aliens. The 1040NR-EZ form is for Nonresident Aliens without dependents. Nonresident Aliens can use the 1040, 1040A, or 1040EZ form if, and only if, they are married to a US citizen. Finally, the 1040X form is only for if you are correcting one of the other 1040 forms.

 

 

Whichever 1040 form you use it will instruct you on any other forms you need to fill out and attach.

 

Filling Status

After filling in your personal information the first line on the 1040 form is to declare your filing status. Your filing status will decide which tax rates and standard deductions you will receive. Two people can have the same income but receive different tax rates and standard deductions simply due to their filing status. There are five different fillings statuses you can choose from depending on your marital status and whether or not you have dependents. The different filling statuses are: Single, Married Filing Jointly, Married Filing Separately, Head of Household, and Qualifying Widow or Widower. If you are single on the last day of the year you file as Single. If you are married on the last day of the year you file as either Married Filing Jointly or Married Filing Separately.

In order to file as Single you must be unmarried. This includes those who are divorced and legally separated. If you have dependents, you should first check to see if you qualify to file as Head of Household before filing as Single.

If you are married you have two choices on which filing status you can choose.. You can choose to file as Married Filing Separately or Married Filing Jointly. If you choose to file separately it means that you and your husband are choosing to each file your own taxes. If you are separated but not yet divorced this will, most likely, be your filing status. This filing status is the least favorable to tax payers. However, it is beneficial when one spouse owes taxes and the other is eligible for a refund. Even filing separately spouses still need to cooperate on certain details. For example: who will claim dependents and if your spouse is receiving the standard deduction or itemizing his deductions. Filing Separately disqualifies you from some tax credits and benefits. Choosing to file as Married Filing Jointly means you and your spouse will combine your incomes when filing your tax returns. When filing Jointly this both spouses are required to sign the tax return.

Head of Household is a filing status for those who are unmarried with at least one dependent. Unmarried status includes those who are divorced or widowed. To be the Head of Household means that you pay for more than half of the bills needed to take care of your house and family. There is an exception to the Unmarried requirement. If you have been separated for more than six months you are able to file as Head of Household as well.

The last filing status is Qualifying Widow or Widower. This filing status is for a person who has lost their spouse and has at least one dependent. You can file as a Qualifying Widow or Widower for only 2 years. The year your spouse dies you can file as Married Filing Jointly (or Separately if you wish). The next two years you can file as a Qualifying Widow or Widower. You are ineligible to use this filing status if you remarry. Filing as a Qualifying Widow or Widower means that you will receive the same rates and standard deductions as if you filed Married Filing Jointly.

For more information visit: http://taxes.about.com/od/filingstatus/qt/FilingStatus.htm

 

Dependents

A dependent is either a child or qualifying relative. A dependent child must be under the age of 19 or under the age of 24 and a full-time student for at least 5 months out of the year. A dependent child can also be of any age if he is fully disabled. The child needs to be your biological child, a step-child, adopted, a sibling, a foster child or any one of their descendents. The child must live with you for at least 51% (six months and one day) of the year and cannot be providing more than half of his own support. The residency rules mean you should keep track of where your child spends the night if you share custody in case of an audit.

A qualifying relative must not be a dependent child of another taxpayer and must be related to you. Some qualifying dependents must live with you for an entire year before you can claim them as a dependent while others do not. Qualifying Relatives who do not need to live with you for one year are: children and grandchildren (whether biological, adopted, step, or foster); siblings (whether biological, step or half); parents, step-parents, and grandparents; nieces and nephews; aunts and uncles; and in-laws. Members of your household who have lived with you for 1 year can be claimed as a dependent as well. This is true only so long as the relationship does not violate local law. Qualifying relatives must also meet other requirements. The Qualifying Relative must earn less than the personal exemption amount ($3,700 in 2011). You must provide at least 51% of their support. He must be a US citizen or a resident alien of Canada, Mexico, or the US and not file as Married Filing Jointly.

For more information on dependents visit: http://taxes.about.com/od/dependents/a/Dependents.htm

 

The rules of claiming a dependent are such that only one person can claim the same dependent. In all cases the custodial parent takes precedent over anyone else’s claim on the dependent. If two or more people attempt to claim the same dependent the IRS does an audit to see whose claim is the most valid. This can be the most expensive type of audit there is because the taxpayer who loses not only loses the right to claim the dependent but can also lose the right to file as Head of Household and receive certain tax credits.  If the custodial parent chooses he or she can share the benefits which come with claiming a child dependent. When you claim a dependent you must write their social security number on your tax return.

For more information on dependents visit: http://taxes.about.com/od/dependents/a/Dependents.htm

 

Income

Income is money you receive and what you pay taxes on. There are three different types of main income. There is earned income, investment income, and passive income. These three types of income pus other earnings are added up to come to your total income. Your Earned Income is money you have worked to obtain. This, usually, includes wages, salary, commission, tips, and bonuses. Your W-2 form contains your Earned Income information. A W-2 form is provided by your employer (no later than January 31st) and has to be attached to your tax return. Investment Income is money you receive from dividends, interest, rent or similar sources. Lastly, Passive Income, the last of the three, is for money received from activities in which you take no active part. Other earnings include alimony, awards, lottery winnings and prizes. All of these are earnings are taxable. Going line by line through the tax form will tell you what different forms of income the government is looking to tax. If you do not receive income for one of the lines, for example Alimony, then enter 0 into that line.

For information about W-2 Forms visit: http://taxes.about.com/od/formw2/a/IRSFormW2.htm

Once you have calculated your total income then it is one to the next section of the tax form. In this section you are calculating your Adjusted Gross Income (AGI). To calculate your AGI you are going to subtract certain expenses and deductions from your Total Income. Once you come to your Adjusted Gross Income you will subtract your standard or itemized deduction and your exemptions. This will bring you to your Taxable Income. Your Taxable Income is the amount you will actually be taxed on.

 

Deductions

A Deduction is an amount that is subtracted from your Adjusted Gross Income before calculating your Taxable Income. You can receive a Standard Deduction, which is available to everyone, or you can itemize your deductions. In 2005, the standard deduction for couples who used the filing status Married Filing Jointly was $9,700. The standard deduction is different depending on your filing status. Individuals who are blind or over 65 will receive a higher standard deduction than a person would otherwise. Besides your standard deduction there are also itemized deductions. Itemized deductions are where you calculate your own deduction instead of using the standard one. The most common deductions you can receive are: Medical and Dental Expenses, Taxes, Contributions, Casualty and Theft Losses,  Moving Expenses, and Job Related and Other Expenses. To itemized deductions you need to use Schedule A.

In order to receive deductions you must maintain records that document any expenses that qualify for a deduction. If the IRS audits you, you will need these documents to prove you have not miscalculated your deductions. When choosing whether to accept the standard deduction or do an itemized deduction it would be smart to itemize your deductions first and then chose based on the deduction which will reduce your Adjusted Gross Income the most.

For more information visit: http://www.wisegeek.com/what-is-a-tax-deduction.htm and http://www.businessknowhow.com/money/50deduct.htm

 

Exemptions

An Exemption is an amount of money deducted from your Adjusted Gross Income. An Exemption is given for people: you, a spouse, and any dependents you may claim. You cannot check the exemption box for yourself if someone else is claiming you as a dependent. Your exemption amount will be the number of people you are claiming exemptions for multiplied by $3,700. The dollar amount may change year to year.

 

Tax Credits

A Tax Credit is an amount of money that is subtracted from your Taxable Income. By using tax credits you can reduce the amount of taxes you owe the government to zero. However, you can not use tax credits, most of the time, to receive money from the government. This is because most tax credits are non-refundable. So, when your taxes reach zero your left over tax credits either disappear or can be saved to use another year. There are two refundable tax credits, the Additional Child Tax Credit and the Earned Income Tax Credit. Even after your taxes have reached zero you can use these two tax credits to get a refund from the government.

The tax credits listed on the 1040 form are: General Business Credit (Form 3800), Credit for Prior Year Minimum Tax (8801), Foreign Tax Credit (Form 1116), Child and Dependent Care Expenses Credit (Form 2441), Education Credits (Form 8863, line 23), Retirement Savings Contribution Credit (Form8880), Child Tax Credit, Additional Child Tax Credit (Form 8812), Residential Energy Credit (Form 5695), Adoption Tax Credit (Form 8839), First-time Homebuyer Credit (Form 5405, line 10), Earned Income Credit (Schedule EIC), American Opportunity Credit (Form 8863, line 14), Health Coverage Tax Credit (Form 8885), and Federal Tax on Fuels Credit (Form 4136).

Visit http://www.irs.gov/app/picklist/list/formsPublications.html?value=&criteria=formNumber&submitSearch=Find to search for any needed Forms or Schedules

 

Methods of Compiling and Filing Your Taxes

You have a few different options when it comes to compiling and filing your taxes. The compiling methods are: by hand, software programs, using tax services, or E-filing. As opposed to all the different methods of compiling taxes there are only two methods of filing taxes. You can either file your taxes by mail or you can file your taxes electronically (through the internet).

Filing taxes by hand is where you sit at a desk or your kitchen table and fill in the tax forms yourself. Once done, you mail your taxes to the IRS. You can buy different software packages, such as TaxCut or TurboTax, to help you do your taxes. These types of software programs help you to fill out any tax forms you need for your tax return, including the Form 1040. By using a software program you are still doing your taxes by yourself but can save up to 10 hours of time and effort. You put in the information and the program does the calculations for you. With a program you can file your taxes either electronically or you can send them in by mail.

The last two ways to compile your taxes are: a tax service and E-file. Tax services are companies that help people fill out and file their taxes. Depending on the company depends on how your taxes will be filed (either by mail or electronically). These companies do not offer free service. They can cost anywhere from $40 to $2,000. There are a wide variety of companies that offer tax services from banks, to government tax specialists, to one man companies, to accounting firms, and law firms. If you wish to E-file there are many different companies that offer to help. E-filing your taxes means you are filling out and filing your taxes online. There is free e-filing available for those who qualify. For those who don’t qualify for free e-filing, they will be offered a small fee to use the service.

For information on e-filing visit: http://www.irs.gov/efile/index.html

For more information visit: http://www.taxtips.ca/filing/taxfilingmethods.htm

 

Conclusion

Taxes can seem big and scary at first glance. However, once you break the forms down doing your taxes can seem a whole lot easier. Figure out if you have to or want to file your taxes. Learn what Forms and Schedules you will need to use and what filing status to file under.  List all of your dependents and declare all of your income. Do not forget to attach your W-2 form. After that it is the home stretch. You need to calculate your deductions and tax credits. This will help you calculate the amount of taxes you owe the government. The only rule left unsaid is the deadline. You have a deadline you must file your tax return by, this deadline is April 15th.