by Independent Tax Preparer Deborah Ritz

My husband received a 1099-Miscellaneous for the fee he received as executor of his mother’s estate. 

The tax preparer we took our information to told us this was taxable as self employment and subject to social security and income tax. 

If that is the case, can we deduct the expenses we incurred while he was settling his mother’s estate? 

Answer: Basically, if the fee was received as payment for the service of executor and the receiver is not in the business of performing executor duties for a living, the fee is not considered self employment and is reported on line 21 (other income) and not subject to self employment tax.

The expenses can be deducted in the year the income is received on Schedule A – Miscellaneous Deductions.

The self employment question is usually avoided if the income is reported in Box 3 “other income” instead of Box 7 “nonemployee compensation.”

Check your 1099-Miscellan-eous. If the income is in Box 7, contact the issuer of the 1099-Misc. and ask for a corrected form moving the figure into Box 3.

This will eliminate the confusion between income and self employment income.

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What is the fastest way to get a refund? Continue reading →

What children cannot be claimed as dependents?

Is there an age limit for claiming my children as dependents?

There are two types of dependents, a qualifying child and a qualifying relative.

A “qualifying child” may enable a taxpayer to claim several tax benefits, such as head of household filing status, the exemption for a dependent, the child tax credit, the child and dependent care credit and the earned income tax credit.

In general, to be a taxpayer’s qualifying child, a person must satisfy four tests: Relationship, Residence, Age and Support.

• Relationship — the taxpayer’s child or stepchild (whether by blood or adoption), foster child, sibling or stepsibling, or a descendant of one of these.

Continue reading →

Can I withdraw on my Roth IRA without getting tax-whacked?

QUESTION: Are ROTH IRA Withdrawals Tax Free?

Most of the time ROTH IRA withdrawals will be tax free if…

• You withdraw just the amount of your original contributions, and contributions are always considered to be withdrawn first, with earnings coming out last.

The earnings in some cases might be taxable.

• You have had your ROTH IRA for at least five years, and you are over age 59.5, all withdrawals including earnings will be tax-free.

The five-year clock is measured from January 1st of the calendar year for which you first make a ROTH IRA contribution.

Differing rules will apply to…

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What is the earned income tax credit and do I qualify?

What is the earned income tax credit?

The IRS estimates that four out of five eligible taxpayers actually claim this credit, but many still are either unaware of their eligibility or don’t know how to claim it.

For example, some families, including those in the military and those raising children with disabilities, may not realize there are special rules that could help them qualify.

To qualify for Earned Income Tax Credit or EITC, you must have earned income from employment, self-employment or another source, have very little in investments and meet certain rules.

In addition, you must either meet the additional rules for Workers without a Qualifying Child or have a child that meets all the Qualifying Child Rules for you.

Rules for Workers without a Qualifying Child: Continue reading →

How to fix a faultily filed federal return

Question: What should I do if I made a mistake on my federal return that I have already filed?

If you made a mathematical error it will be caught in the processing of the tax return itself so you may not need to correct the return, the IRS will do it for you.

If you did not attach a required schedule, the IRS will contact you and ask for the missing information. Continue reading →

Filing tips for students, educators and divorcees

How do I qualify for the Educator expenses?

You must be a full-time (900 hours during a school year) kindergarten through 12th grade teacher, counselor, principal, or aide.

You can deduct up to $250 for out of pocket expenses that you paid for supplies, books, equipment, and materials used in your classroom.

Qualified expenses do not include expenses for home schooling or non-athletic supplies for courses in health or physical education.

Do not include expenses that were reimbursed.

Who can deduct student loan interest? Continue reading →