Taxes Myths and the 1st tooth.

This is a month long series of tax tips for you to use this tax filing year to 2010 taxes.

Time to get that MONEY!

4 tax myths that can cost you money

We all think we know the parts of the tax code that affect us. But do we really? If you believe some of these myths, you could pay more tax than you should.

Our culture is full of myths. And our tax system is full of myths, half-truths and untruths that can cost you big bucks if you don’t understand the rules. I’ll share a few with you now and if you find you need more help, check KPTaxService.webs.Com  for more information, or consult your tax professional.

Myth 1. Students are exempt.

 Students do get special tax credits, the Lifetime Learning Credit and the new American Opportunity Credit, which has replaced the Hope Credit for 2009 and 2010. In addition, distributions from a Section 529 Plan are tax-free. But their income is subject to tax, just like everyone else’s.

Many students who work over the summer check the box “exempt” on their W-4’s. If they had no taxable income the previous year and don’t expect to have any the current year, that’s OK. But let’s say a student earned more than $5,450 in 2008 or $5,700 in 2009. And let’s say she is claimed as a dependent on her parents’ return. She will owe tax and penalties if she owes more than $1,000 or actually fails to file. Don’t get caught in this trap.

Myth 2: My child is working, so I can’t claim him as my dependent.

Again, pure myth. As long as you provide more than half that child’s support (and meet other qualifications such as citizenship and relationship), the child qualifies as your dependent, and you can deduct, for example, all the medical costs you paid for that child.

You can also qualify for a personal exemption for that child if the child doesn’t earn more than the value of that exemption — $3,650 in 2009. This income test doesn’t apply to whether the child qualifies as your dependent, nor does it apply if the child is under age 19 or is a full-time student under age 24.

Myth 2: My child is working, so I can’t claim him as my dependent

Again, pure myth. As long as you provide more than half that child’s support (and meet other qualifications such as citizenship and relationship), the child qualifies as your dependent, and you can deduct, for example, all the medical costs you paid for that child.

You can also qualify for a personal exemption for that child if the child doesn’t earn more than the value of that exemption — $3,650 in 2009. This income test doesn’t apply to whether the child qualifies as your dependent, nor does it apply if the child is under age 19 or is a full-time student under age 24.

Myth 3: I’m married, so I have to file a joint return

Again, not true. If you’re married, you can always file “married filing separately.” That normally results in you having to pay more in taxes. But in some situations, it can be to your advantage.

For example, if one spouse has substantial medical or miscellaneous deductions, those deductions are subject to the 7.5% and 2% floors, respectively. That is, only medical expenses over 7.5% of adjusted gross income and miscellaneous deductions over 2% of adjusted gross income are deductible. If I had $10,000 in income and my spouse had $90,000 in income, the first $7,500 in medical expenses and the first $2,000 in miscellaneous expenses aren’t allowed.

But if I filed as “married filing separately,” the disallowance would apply only to the first $750 in medical expenses and the first $200 in miscellaneous itemized expenses. The potential availability of $8,550 ($7,500 plus $2,000, less the sum of $750 and $200) in additional deductions could offset the bracket and other limitations of filing separately.

 Try it both ways, and see which gives you the lower total tax. You can change your filing status annually.

I should add a caveat on this filing myth. If you’re married, you normally can’t file as single or head of household. Let’s say, though, that you’re married but separated, and you have a child. There’s a special rule that will let you file as a head of household.

You can qualify as an “abandoned spouse” if your spouse didn’t live with you for the last six months of the year and you have a child living with you who qualifies as your dependent. If so, you can file as head of household rather than jointly or married filing separately.

Run the numbers and see which produces the lowest tax bill.

Our tax code is complicated and changes with painful regularity. Many of the old rules are poorly remembered and distorted into myths. Don’t get caught in the trap of using the wrong rules. That can cost you big!

Myth 4:  You want to itemize AND file today, 01.07.11? NOT!

As a result of the late-breaking tax legislation signed into law at the end of December, the IRS has announced that taxpayers who itemize deductions and those claiming the Higher Education Tuition and Fees deduction or the Educator Expense Deduction will need to wait to file their 2010 tax return until at least mid-February.

Get your taxes done right!

Taxpayers claiming itemized deductions on Schedule A. Itemized deductions include mortgage interest, charitable deductions, medical and dental expenses as well as state and local taxes. In addition, itemized deductions include the state and local general sales tax deduction extended in the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 enacted Dec. 17, which primarily benefits people living in areas without state and local income taxes and is claimed on Schedule A, Line 5.

Taxpayers claiming the Higher Education Tuition and Fees Deduction. This deduction for parents and students, covering up to $4,000 of tuition and fees paid to a post-secondary institution, is claimed on Form 8917. However, the IRS emphasized that there will be no delays for millions of parents and students who claim other education credits, including the American Opportunity Tax Credit and Lifetime Learning Credit.

Taxpayers claiming the Educator Expense Deduction. This deduction is for kindergarten through grade 12 educators with out-of-pocket classroom expenses of up to $250. The educator expense deduction is claimed on Form 1040, Line 23, and Form 1040A, Line 16.

 Ok, now onto something cute and fun! 

 And guess who is teething?

TeHun, my 6 month linebacker

He hasn’t bit me yet, but I know it’s coming because he let me feel his gums and the little ridges just massaged my fingers! Aweeeeeeeee.  I told my husband, he minute he does bit me, it time to introduce him to Earthbest or something. The Mom Jerk Bistro will be closed. Of course I’ll express for him, but the “tap” will be packed.

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