As parents what all tax benefits you can claim

Internal Revenue Service department offers number of benefits which parents can claim while filing their annual income tax returns. Some of the common claims which parents can claim are listed below.

  1. In most of the cases the child in the year which he/she is born can be classified as a dependent and parent can claim for rebate.
  2. For Parents whose children are below 17 years of age can claim for Child Tax Credits while filing their tax returns.
  3. In case you are making some payments to someone to take care of your child who is under 13 years of age, these payments can qualify for rebate under Child and Dependent Care Credit.
  4. If you are adopting a child you are bound to make certain expenses towards the legal cost of adoption. All these expenses can be claimed under Adoption Credit scheme.
  5. In case your child is earning income he/she is entitled to file their income tax returns.
  6. There are also circumstances wherein investment income of a child is taxed at the rate that of his/her parents.
  7. Under American Opportunity and Lifetime Learning Credit schemes money spend by parents for higher education of their children can be claimed back in tax credits.
  8. An interest paid on a student loan can also be eligible of tax benefits.

You must study all these points in further details and can identify how you can minimize your tax liability as a parent.

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Prepare and File your returns electronically in 2011

In year 2011 the Internal Service department is giving more incentives and convenience to people who are willing to file their income tax returns online. Already close to 70% of the American taxpayers are filing their returns electronically and IRS plans to convert the rest to use this option very soon.

In the current year IRS has laid down new norms which require paid tax prepares to get them registered with IRS so the taxpayers who want to use their services can be sure about their skills in filing returns on their behalf. Now the people who are not very comfortable with internet can use the help of any of these registered tax preparers in preparing and filing their tax returns online. However, the tax preparers those who are not paid don’t have to get registered with IRS as tax preparers.

A tax returned which is e-filed in more safe and secure than the one filed through paper. Within 48 hours of e-filing your return you will receive acknowledgement through IRS regarding its acceptance. In case a return in not accepted you will still be told regarding the same and the reasons for its rejection. A taxpayer can quickly making corrections and resubmit the corrected return.

The taxpayers who e-file their return along with the option of direct deposit, can receive their tax refund as early as 10 days (after IRS acknowledges receipt of their returns). All the positives associated with the electronic filing of returns have made it so successful.

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Choosing your Income Tax return form

In olden days choosing the right income tax return form was made easy by income tax packages we used to receive by IRS in our mail. But this service now has been discontinued as substantial numbers of people choose to e-file their income tax returns and can get loads of information online regarding the same. So for the people still following the old traditional method of filing income tax returns, things have been little more difficult.

For someone who is e-filing their tax return gets support of the online system which guides them through the entire process of filing their tax returns. For the taxpayers who choose to file paper return can consider following guidelines for choosing the right form for them:

1040EZ would be the right form for you if:

  1. Your taxable earning is lesser than $ 100,000
  2. You can file under the status single or married filing jointly.
  3. If you and your spouse are married and under the age of 65 years.
  4. The income generated from interest if less than $ 1,500.
  5. You do not wish to claim for any dependents.

1040 would be right for you if:

  1. Your taxable earning is lesser than $ 100,000.
  2. You income has source of capital gain distributions.
  3. You have to claim few tax credits.
  4. You also plan to claim adjustment of income for IRA contributions and student loan interest.

If you do not qualify under the above two accounts your would have very little choice but to file your income tax return using form 1040.

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Tax implications for Tip Income

For the people working in occupations where they generate income from tips are often seen wondering on what tax implication will this have in their income tax returns. Internal Revenue Service department has already laid several guidelines on how to treat this source of income. Following the important things you should be aware of:

  • Tips are taxable part of Income: For all those who think they can get away with including tips in part of their taxable income just because this is something extra they should be well aware that according to the guidelines of the IRS the tips are considered taxable part of your income. Even the non-cash tips in form of free tickets or passes or any other items of value become part of your taxable income.
  • Tips in your Income Tax Returns: As it is already clear that tips are a part of your taxable income there is no reason they should not appear in your annual income tax return. These should always been shown while filing your tax return.
  • Reporting of Tips: Any tips beyond $20/month qualify for mandatory report to your employer. As your employer requires withholding federal income tax, Medicare and social security on your part he should be aware of these earnings.
  • Record your Tips: IRS has also recommended employees to maintain a daily log of tips received and report the same to your employer. This log will help you and employer both in maintaining proper record of the actual income earned.

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