Your Tax Question - 039

Dear John, I'm not exactly sure what the difference is between a deduction and and a credit, could you explain it to me? Thank you, Jim-Bob
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Hi Jim-Bob,

Sure thing, a deduction reduces the amount of income that you pay taxes on and a credit reduces the amount of tax that you actually pay. For instance, in the Adjusted Gross Income section of the form 1040 you can enter certain expenses that you may have during the year and they will reduce the income that you earned and it is that reduced income that is used to with your Itemized or Standard Deductions to determine your Taxable Income and it from your Taxable Income that your Tax is determined. Then, after the Tax is determined Credits are figured and these reduce the Tax amount.

There are 2 types of Credits: Refundable and Non-refundable. A Refundable Credit is one that gives you back money even if the Tax that you owe is $0.00 and Non-Refundable credits do not give any money if you are not paying taxes. The Child Credit is a Refundable Credit so this is why you hear of people getting money back even when they are too poor to pay taxes.

I hope this answers your question Jim-Bob,
John

PS. Congress is not likely to continue the tax cuts and credits that were enacted during the Bush administration which means that many of the tax Refunds and Credits that you now enjoy will end after your next tax season. If you need help figuring out what happens, email me.

Your Tax Question - 038

Dear John, This past year I found out the hard way that my employer was not keeping enough money out of my paycheck - it was ugly! I had to pay a lot of money, penalties, and something called the Estimated Tax every quarter this year. I have filled out a new W-4 with my employer but I am still not sure that there is enough being kept out of my weekly paychecks. Can you tell me how to check this? Thanks, Bunny.

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Hi Bunny,

Thanks for your question. The IRS has a calculator on its website that you may use to input your information to check your withholding status. Of course it is only a guide to help you avoid the dreaded Estimated Tax burden but it should get you pretty close. Use the link below and try it out - its FREE to use.

IRS Withholding Calculator

Best of luck,

John

PS. You are wise person to be checking this now rather than waiting until it is too late to make a difference - I commend you.

Your Tax Question - 037

(PLEASE NOTE: I am sorry that I have been so long between questions. I am finding that as the time gets less until tax deadline I am getting more calls for space on mt client list. There are less than 30 days left and I still have a couple spaces open on my client list. Please contact me before it is too late if you would like to schedule a position on the list.)

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Dear John, My husband has filed our joint return for the last few years and I suspect that he has played fast and loose with the numbers. He announced this year that he is divorcing me but he insists that we will still be filing a Joint return because I had no income of my own. He files our return by efile and I have never seen a return nor signed one in these many years. Is there anything that I can do? Thank you, Jenni
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Hi Jenni,

I am sorry for the situation that you find yourself in.

Generally speaking, a spouse is considered liable for everything on a return that his or her name has been signed to. Since your husband has forged your signature I suspect that you might qualify for one the three forms of Innocent Spouse Relief. Getting the IRS to approve this is apparently quite the feat but if you are innocent and there has been wrong doing then it may well be worth the effort.

The three types of relief are such:

1. Innocent Spouse
2. Seperation of Liability
3. Equitable Relief

I hope this helps and please email me if I can be of service to you in this matter.

Thank you,
John

PS: I still have a few slots open in my client list, email me to one of the final few.

Your Tax Question - 036

Dear John, I own a small business with a small amount of lawn that needs to be cut each week during the summer. The business owner next to mine mows my lawn and I in turn help her by power-washing her storefront. I want to show the lawn as an expense to my business and she wants to show the power-washing as an expense to her business but no money actually changes hands. How is this situation viewed by the IRS? Thanks, Max
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Hi Max,

What you have is a bartering service situation. The IRS requires that your business and hers both value the services that you receive and included it in your gross incomes. You will have to enter this information on your Schedule C or C-EZ. Your accountant can explain how to track this in your books.

I hope this helps,
John

PS. Email me and we can talk.

Your Tax Question - 035

Dear John, I have money saved in an off shore account and I am told that I now have to report that money. Is this true? Thanks, Jim
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Hi Jim,

The treasury requires that you report to the government if you have $10,000 in total transactions, interest in, or balance of any signature foreign accounts. Unless of course you are a banker, but if you are a regular old Joe then you are required to file form Form TD F 90-20.1.

I will leave my opinion of this to the political pundits...

John

PS. I still have slots available in my client list if you are interested. Email me