The Top 5 Most Common Tax Questions & Answers

The Top 5 Most Common Tax Questions & Answers

By Jeannie Holliday, CFA, CDFA™, Financial Advisor, RJFS

Independent Financial Services

A recent US News & World Report story listed some of the most common tax questions that preparers at TurboTax hear each year. As April 15th quickly approaches, I thought it would be a good idea to share these common questions with you, in hopes of making your Tax Day a little less stressful.

Here is a quick snapshot of this tax season's top five frequently asked tax questions and answers:

1. What documents do I need to do my taxes?

There are two common tax forms that taxpayers receive in the mail: a W-2 from your employer or a 1099-INT for bank interest from a savings account. There are also other pieces of supporting information you should have in front of you when you sit down to do your taxes, such as the correct Social Security numbers for yourself, your spouse and anyone you are claiming as a dependent, and your mortgage statement showing the interest paid along with your real estate taxes paid. Also, if you made a charitable contribution within the last year, be sure to gather receipts of your donations to turn your good will into tax-time savings.

2. I didn't make much money last year -- do I still need to file my taxes?

Americans should file a 2013 federal income tax return even if their total income is below the internal revenue service filing requirement ($10,000 for individuals or $20,000 for married filing jointly under age 65). You need to file the return to get a refund on any withheld federal income tax and especially if you're eligible for refundable tax credits like the earned income tax credit. Every year, money is left on the table because people don't think they need to file. The average unclaimed tax refund is more than $600, and it's important to know that the IRS places a three-year window on claiming these past refunds.

3. Who can I claim as a dependent?

This question has stumped taxpayers for years. Most of us know you can deduct your children on your tax return, but many people forget they might be able to deduct elderly parents, significant others or other relatives who also qualify as a dependent. Do you have a relative or significant other you've been supporting or a friend whose been sleeping on your couch? They may turn out to be a tax deduction if they can be claimed as a "qualifying relative." They'll have to meet certain requirements to qualify, but for each dependent you can deduct $3,900, which is likely to reduce your taxes.

4. What tax deductions and credits are available for parents?

Did you have a baby last year? A child means you may receive a dependent exemption of $3,900, which reduces your taxable income by that amount. Even if your baby was born on Dec. 31, 2013, you are still eligible for this deduction.

-- Child and dependent care tax credit: If you paid for child care you may be eligible for a tax credit worth up to $1,050 for your child.

-- Earned income tax credit: This refundable tax credit is advantageous and available to low- to middle-income working Americans. The credit could be as much as $6,044 for someone with three or more children.

-- Child tax credit: Do you have a big family? This credit may be worth $1,000 for each of your children under age 17.

5. What tax benefits are available for college students?

To help alleviate the ever-increasing cost of a college education, the tax code provides some relief options, which are available via education tax credits and deductions. Knowing the types of items you can deduct can save you money on college expenses because you may be able to deduct things like tuition or fees, books and supplies for you, your spouse and your dependents. Some education deductions and credits include:

-- The American Opportunity Tax Credit: Helps parents and students pay for college education by giving them a credit up to $2,500 per student for tuition and fees, books, supplies and equipment.

-- Lifetime Learning Credit: Taxpayers may be able to claim a credit up to $2,000 per tax return for college tuition, fees and supplies paid directly to the educational institution.

-- Tuition and fees deduction: An education benefit, which allows you to deduct up to $4,000 from your taxable income for college expenses.

If you have additional questions, make sure to talk with a qualified tax preparer.

Due to regulatory constraints, we are unable to accept online comments on this article. However, if you have any questions or would like to discuss issues brought up in this article, feel free to call or email me at (813) 908-2701 or jeannie.holliday@raymondjames.com or Jodi Perez, CFP at jodi.perez@raymondjames.com.

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The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Jodi Perez and not necessary those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject o change without notice.