FAQs
FAQs
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A: Look at your income to see if you made the minimum required to file a tax return (Single: $14,600 MFJ: $29,200 HOH: $21,900 MFS: $14,600). Typically, if your income exceeded these thresholds for your filing status then there may be filing requirement.
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A: The big difference between tax deductions vs. tax credits is that deductions chip away at the income you’ll pay taxes on, which then reduces your taxes, while credits directly reduce the amount of taxes you owe.
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A: Married Filing Jointly (MFJ)
Advantages:
- Lower tax rates: MFJ generally offers lower tax brackets compared to MFS.
- Higher deductions and credits:
- Larger standard deduction.
- Eligibility for many credits, such as the Earned Income Tax Credit (EITC), Child Tax Credit, and education credits (e.g., the American Opportunity Credit).
- Simplified filing: Combining incomes and deductions into one return can be less complicated.
Potential Drawbacks:
- If one spouse has significant medical expenses, business losses, or deductions tied to income, the combined income may reduce the deductible amount.
- You share responsibility for the accuracy of the return and any tax owed.
Married Filing Separately (MFS)
Advantages:
- Separate liabilities: You are only responsible for your own tax return, not your spouse’s.
- Strategic deductions:
- If one spouse has significant medical expenses or miscellaneous deductions, filing separately might allow you to deduct more.
- Protecting refunds: If your spouse owes back taxes, child support, or student loans, filing separately might protect your refund.
Drawbacks:
- Higher tax rates and reduced deductions:
- Smaller standard deduction.
- Many credits are unavailable or reduced, such as the EITC, Child and Dependent Care Credit, and certain education credits.
- Itemized deductions must match: If one spouse itemizes, the other must also itemize, even if the standard deduction is better for them.
When to Consider Each Option
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- File Jointly (MFJ): If you and your spouse both earn moderate incomes and qualify for credits.
- File Separately (MFS): If one spouse has high deductions tied to income, concerns about liability, or legal separation.
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A: Starting a small business could substantially lower your family’s taxes, even if your new business is not yet profitable. Because a business can claim tax deductions that aren’t available to the individual (nonbusiness) filer.
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A: Requirements for Deducting Gambling Losses
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Itemized Deductions:
- Gambling losses can only be deducted if you itemize deductions on Schedule A (Form 1040). If you take the standard deduction, you cannot deduct gambling losses.
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Limited to Gambling Winnings:
- The amount of gambling losses you deduct cannot exceed the amount of gambling winnings you report as income.
- For example, if you report $5,000 in gambling winnings, you can only deduct up to $5,000 in gambling losses, even if you lost more.
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Documentation and Records:
- To substantiate your losses, you must keep detailed records, including:
- Receipts, tickets, or statements from the casino or venue.
- A log of your gambling activity (dates, locations, amounts won/lost, and type of gambling).
- To substantiate your losses, you must keep detailed records, including:
How to Report Gambling Winnings and Losses
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Winnings:
- Report all gambling winnings as income on your tax return.
- Winnings might also be reported to you on Form W-2G, depending on the amount and type of gambling.
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Losses:
- Deduct your losses as an itemized deduction under “Other Itemized Deductions” on Schedule A.
Key Considerations
- Professional Gamblers: If gambling is your primary profession, different tax rules apply, and losses may be deductible as a business expense.
- State Taxes: Some states follow federal rules for deducting gambling losses, while others may have stricter rules or disallow the deduction entirely.
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A: It doesn’t matter if the child is related. If you provided more than half of her support for at least 6 months for the current tax year, and no one else can or will claim the child on their return, then yes, you can claim the child.
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A: When parents share 50/50 custody, only one parent can claim the child as a dependent on their tax return for a given tax year. The IRS does not allow both parents to claim the same child as a dependent. Here’s how this is typically determined:
Who Gets to Claim the Child?
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Custodial Parent:
- The custodial parent (the one the child lived with for more nights during the year) generally has the right to claim the child.
- In a true 50/50 custody situation, the IRS uses tie-breaker rules to decide:
- Higher Adjusted Gross Income (AGI): The parent with the higher AGI gets the claim.
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Agreement Between Parents:
- Parents can decide who claims the child. For example, they might alternate years or split multiple children if there are more than one.
- The custodial parent must sign Form 8332 (or a similar statement) to release their claim to the noncustodial parent.
What Tax Benefits Are Involved?
Claiming a child as a dependent can allow you to take advantage of:
- Child Tax Credit: Worth up to $2,000 per child.
- Earned Income Tax Credit (EITC) (if eligible).
- Child and Dependent Care Credit: For work-related childcare expenses.
- Head of Household Filing Status: Requires the child to live with you for more than half the year.
Key Points to Remember
- Both parents cannot claim the same child in the same tax year. If they do, the IRS will reject one return and may impose penalties.
- If there’s no formal agreement and both parents claim the child, the IRS will use the tie-breaker rules.
- If one parent claims the child as a dependent, the other parent may still claim other tax benefits (e.g., the child care credit) if they meet the requirements.
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A: You’re required to pay taxes on crypto. The IRS classifies cryptocurrency as property, and cryptocurrency transactions are taxable by law just like transactions related to any other property. Taxes are due when you sell, trade, or dispose of cryptocurrency in any way and recognize a gain.