Tuesday, February 8, 2011

Runny Nose

Ok, I need a break from thinking of taxes. Here's something I was thinking about last night while I brushed my teeth: WHY is my nose running? I have pretty dry skin as is, so the drier and colder weather in the winter can really do a number on my delicate skin. I get a snuffly nose off an on throughout the day for more logical reasons: going into or coming out of a colder climate, eating food or sipping hot tea. I know that nasal mucus is a good thing even if I don't always appreciate it slipping down my throat while I gasp for breath during a jog.

Now the logical thing to do would be to ask the fiance med student, but he's at anatomy lab right now, and by the time he comes home I'll be cooking dinner and have forgotten. I skipped around the interwebz to try and find a somewhat plausible answer but find nothing satisfactory. One person, on MetaFilter posited that it is because people normally breathe through their nose. Nope, try again. I read all sorts of reasons, though normally not what I would call trustworthy, that were not the common ones of cold or allergy symptoms. Pressure, perhaps from leaning forward while spitting, increased saliva production, or maybe it's because I'm, unbeknowst to me, allergic to something in our toothpaste?

Oh, well. At least I tried to learn a possible reason why! Here's something that is way more fun than runny noses or tax returns, enjoy!

Who exactly is a Head of Household?

Covering the filing status section of tax returns was a funny jolt back to filing my first return by myself. Feeling annoyed that I had supported myself through the year while attending college but not getting any way to recognize this on an IRS tax form, the filing statuses left me confused and I'm pretty sure I initially checked head of household... even though I lived in a dorm. Figuring out the correct filing status took some skills to really determine what those supposed English words meant. Oh, the folly of youth! Today, the five different filing statuses are relatively straight forward.

A taxpayer is considered single IF on December 31st of that tax year s/he is either 1) unmarried, 2) legally separated or divorced, or 3) was widowed before the beginning of the tax year and did not remarry. Review all the options though because a person may be single but can qualify to be a Head of Household or a Qualifying Widow(er), either of which will result in a lower tax- but of course we will have to learn about those two options below.

Married Filing Jointly
This one also seems relatively straight forward, but to be thorough: a taxpayer can file thus if on the last day of the year s/he was 1) married and living with their spouse for the last six months of the year, 2) married and living apart, but not legally separated or divorced, 3) living together in a common law marriage that is recognized in the state of residence, and or 4) did not remarry after their spouse died during the year. Fairly straight forward right?

Now a little unpacking of option four. Even if a spouse dies during the tax year, you are considered married for the entire year, so long as the surviving spouse did not remarry. A surviving spouse can also file as Married Filing Separately, or as a Qualifying Widow(er) if the survivor has a dependent child. But what if the surviving spouse gets remarried? She or he must either file jointly with the new spouse or as MFS. Here are a few catches about taxpayers who have had a spouse die. The taxpayer can only count him- or herself as married for up to two tax years after the loss of their spouse. So, for the 210 tax year a person can still mark MSJ if their spouse died in 2008 or 2009. After talk about active listening skills I figured there would be a touch of sensitivity concerning someone who is filing a tax return after the loss of their spouse, but I guess society treats this situation as a "grin and bear it" sort of thing?

A couple can select MFJ status even if one of the spouses does not have to file a tax return, and generally if this is the case the taxpayer who is filing will claim their spouse as an exemption on the return form. So why does anyone who is married not opt to file Married Filing Jointly? A married taxpayer might opt to file separately so that she or he is not held responsible for their spouse's tax obligations (perhaps that spouse already owed the IRS money) or because filing jointly will result in a lower total tax obligation. If one person in the marriage has high medical expenses, filing on a separate return could result in lower taxes resulting from a lower adjusted gross income, which allows a taxpayer to deduct more expenses. Aha, so there are tax benefits to being married, but not always.

Married Filing Separately
Touched upon above, this filing status is for taxpayers who are married, as defined above, but either 1)choose to file separately, or 2) cannot agree to file a joint return. Now, you might be wondering, can a person who qualifies for Married Filing Separately also qualify for say, Head of Household? Yes! More on that below.

Generally, MFS will result in a higher tax. Usually the taxpayer cannot take advantage of such things as credits for children and other expenses associated with taking care of dependents. If one spouse files as MFS and makes itemized deductions the other person in the relationship must itemize as well OR take the standard deduction of zero.

Head of Household
Oh so sticky that Head of Household filing. To be considered HOH a taxpayer must 1) be unmarried or considered unmarried and is not a qualifying widow(er) with a dependent child. Hold the phone! What does "considered unmarried" translate as? Here is a little list of ways to qualify for HOH, but all the qualifications must be met:
  • You are filing separately from your spouse
  • You pay more than half the cost of keeping up a home, which is occupied for more than half the year by your child, stepchild, foster child, or someone you can claim as a dependent
  • You paid more than half of the household costs of the home lived in by your child, married child, parent, or other qualifying relative.
It is option number one that makes filing as HOH so complex, and the sub-definitions one might need to know make it even more confusing sometimes. In easy terms, a qualifying child is one that is younger than you, lived with your for more than half the year, the child did not provide over half of his or her own support, and to make it really complex can only be qualifying if she or he is married but filing as MFS. Whew. You can have a qualifying relative (grandchild, sibling, parent, niece/nephew) so long as that person earned less than $3,650.00, you provided more than half of their support, and so long as you or your spouse cannot be considered someone a dependent on another person's return. Wow, ok, enough details.

To be considered HOH a taxpayer must 2) have paid more than half the cost of keeping up a home during the year, and 3) had a qualifying person living in that home for more than half the year (excluding temporary absences such as for school). The perk of filing as HOH is that it allows for a higher standard deductions and, usually, a lower tax rate than if the taxpayer chose Single or MFS.

Qualifying Widow(er)
A taxpayer whose spouse died in either the previous year, or two years prior, to the filing year can be a QW so long as they have one or more qualifying dependents. To be able to file as QW the taxpayer must 1) be entitled to file as MFJ for the year their spouse died, regardless of whether the taxpayer actually did this, 2) have had a spouse who died in (for 2010) 2008 or 2009 and the taxpayer must not have remarried before the end of 2010, 3) have a qualifying child or qualifying relative, and 4) have furnished over half of the costs of keeping up a home for her- or himself and the qualifying child or relative.

Now that the five filing status are not a mystery, WHO HAS TO FILE? I promise the legwork was all done above.

  • Under 65 with a gross income of $9,350.00
  • Over 65 with a gross income of $10, 750.00

Married Filing Jointly
  • Under 65 (both spouses) with a gross income of $18,700.00
  • Over 65 (one spouse) with a gross income of $19,800.00
  • Both spouses 65 or older with a gross income of $20,900.00

Married Filing Separately
  • Any age with a gross income of $3,650.00

Head of Household
  • Under 65 with a gross income of $12,050.00
  • Over 65 with a gross income of $13,450.00

Qualifying Widow(er)
  • Under 65 with a gross income of $15,050.00
  • Over 65 with a gross income of $16,150.00

Saturday, February 5, 2011

Let the tax prep begin!

Long hiatus for me... there's nothing like feeling guilty about not blogging, as if you forgot to feed a friend's fish while house sitting or something. In any case, I decided to volunteer to do the IRS Volunteer Income Tax Assistance program, henceforth a VITA volunteer. Each year local United Ways put on the Earned Income Tax Credit Coalition, trying to help low income folks get as much back on their tax return as possible. As someone who technically falls into the demographic "living under the poverty line," I thought it would be great to be a helping hand. If anyone is interested in volunteering through their local United Way, you can do other things besides preparing taxes, so be sure to check it out.

When I was a college student I learned early on that I was mainly a visual learner. I have an accordion file folder full of notes I deemed worth keeping post graduation, haven't used them yet but I know they will come in handy. Since I have four IRS volunteer guides that I'm self educating from, I thought perhaps I should stop studying on the couch and do some "note" taking. What better way to reinforce my knowledge than by sharing it, so I will be going through the basic sections on how to prepare taxes. Here's what I've learned so far from the IRS: active listening skills. Ha, ok, but seriously thanks to the guide books I have been able to stumble through explanations one might commonly see on a 1040, or other tax related piece of paper, and make sense out of the nonsensical-English sentences.

Situations when you should file even though you are not required to
I will get into the specifics on how to determine if you should file later. Here are some reason to file:
  • You are eligible for a refund of taxes withheld for that year
  • You are eligible for the Earned Income Credit- a tax credit for people who do not make high incomes, so as to lessen their tax burden and supplement their wages (more on this later!)
  • The additional child tax credit, the health coverage tax credit, the first-time homebuyer credit
  • The American opportunity credit- a tax credit in this case for a parent, to help offset the costs of their child's higher education