Author: Leon Clinton

Six Facts About Form 1040-SR

Taxpayers aged 65 or older now have the option to use Form 1040-SR, U.S. Tax Return for Seniors, thanks to the Bipartisan Budget Act of 2018, which required the IRS to create a tax form for seniors. Here are six facts you should know:

1. Form 1040-SR is designed with larger font size (i.e., “large print”) to make it easier to read, as well as a standard deduction chart, both of which make it easier for older Americans to read and use. Taxpayers who electronically file Form 1040-SR may notice the change when they print their return.

2. Both the 1040 and the 1040-SR use the same “building block” approach introduced last year that can be supplemented with additional Schedules 1, 2 and 3 as needed. Many taxpayers with basic tax situations can file Form 1040 or 1040-SR with no additional schedules.

3. Taxpayers born before January 2, 1955, have the option to file Form 1040-SR whether they are working, not working or retired. The form allows income reporting from other sources common to seniors such as investment income, Social Security and distributions from qualified retirement plans, annuities or similar deferred-payment arrangements.

4. Seniors can use Form 1040-SR to file their 2019 federal income tax return, which is due April 15, 2020. All lines and checkboxes on Form 1040-SR mirror the Form 1040 and both forms use all the same attached schedules and forms. The revised 2019 Instructions cover both Forms 1040 and 1040-SR.

5. Eligible taxpayers can use Form 1040-SR whether they plan to itemize or take the standard deduction. Taxpayers who itemize deductions can file Form 1040-SR and attach Schedule A, Itemized Deductions, when filing a paper return. For those taking the standard deduction, Form 1040-SR includes a chart listing the standard deduction amounts, making it easier to calculate. It also ensures seniors are aware of the increased standard deduction for taxpayers age 65 and older.

6. Married people filing a joint return can use the Form 1040-SR regardless of whether one or both spouses are age 65 or older or retired.

If you have any questions about Form 1040-SR, please call.

• By Leon Clinton
• February 19, 2020

Do You Need to File a 2019 Tax Return?

Most people file a tax return because they have to, but even if you don’t, there are times when you should – because you might be eligible for a tax refund and not know it. The tax tips below should help you determine whether you’re one of them.

General Filing Rules

Whether you need to file a tax return this year depends on several factors. In most cases, the amount of your income, your filing status, and your age determine whether you must file a tax return. For example, if you’re single and 24 years old you must file if your income, was at least $12,200 ($24,400 if you are married filing a joint return). If you are age 65 or older, income thresholds are higher ($13,850 in 2019 for single filers). If you’re self-employed or if you’re a dependent of another person, other tax rules may apply (see below).

Tax Withheld or Paid

Did your employer withhold federal income tax from your pay? Did you make estimated tax payments? Did you overpay last year, and have it applied to this year’s tax? If you answered “yes” to any of these questions, you could be due a refund, but you have to file a tax return to receive the refund.

Eligibility for Certain Tax Credits

1. Premium Tax Credit. If you, your spouse , or a dependent was enrolled in healthcare coverage purchased from the Marketplace in 2019 you might be eligible for the Premium Tax Credit if you chose to have advance payments of the premium tax credit sent directly to your insurer during the year; however, you must file a federal tax return and reconcile any advance payments with the allowable premium tax credit.

2. Earned Income Tax Credit. Did you work and earn less than $55,952 last year? You could receive EITC as a tax refund if you qualify with or without a qualifying child. You may be eligible for up to $6,557. If you qualify, file a tax return to claim it.

3. Additional Child Tax Credit. Do you have at least one child that qualifies for the Child Tax Credit? If you don’t get the full credit amount, you may qualify for the Additional Child Tax Credit and receive a refund even if you do not owe any tax.

4. American Opportunity Credit. The AOTC (up to $2,500 per eligible student) is available for four years of post-secondary education. You or your dependent must have been a student enrolled at least half-time for at least one academic period. Even if you don’t owe any taxes, you still may qualify; however, you must complete Form 8863, Education Credits, and file a return to claim the credit.

5. Health Coverage Tax Credit. If you, your spouse, or a dependent received advance payments of the health coverage tax credit, you will need to file a 2019 tax return. Form 1099-H, Health Coverage Tax Credit (HCTC) Advance Payments, shows the amount of the advance payments.

Other Situations

You must file a return in other situations as well, including, but not limited to the following situations:

• You owe special taxes such as the alternative minimum tax (AMT), additional tax on qualified plans such as an individual retirement arrangement (IRA), or another tax-favored account, or household employment taxes. However, if you are filing a return only because you owe these taxes, you can file Schedule H, Household Employment Taxes, by itself.
• You (or your spouse if filing jointly) received Archer MSA, Medicare Advantage MSA, or health savings account distributions.
• You had net earnings from self-employment of at least $400.
• You had wages of $108.28 or more from a church or qualified church-controlled organization that is exempt from employer social security and Medicare taxes.

If you have any questions about whether you should file a return, please contact the office.

• By Leon Clinton
• February 16, 2020

Claiming an Elderly Parent or Relative as a Dependent

Are you taking care of an elderly parent or relative? Whether it’s driving to doctor appointments, paying for nursing home care or medical expenses, or handling their personal finances, dealing with an elderly parent or relative can be emotionally and financially draining, especially when you are taking care of your own family as well.

Fortunately, there is some good news: You may be able to claim your elderly relative as a dependent at tax time, as long as you meet certain criteria.

Here’s what you should know about claiming an elderly parent or relative as a dependent:

Who Qualifies as a Dependent?

The IRS defines a dependent as a qualifying child or relative. A qualifying relative can be your mother, father, grandparent, stepmother, stepfather, mother-in-law, or father-in-law, for example, and can be any age.

There are four tests that must be met in order for a person to be your qualifying relative: not a qualifying child test, member of household or relationship test, gross income test, and support test.

Not a Qualifying Child

Your parent (or relative) cannot be claimed as a qualifying child on anyone else’s tax return.

Residency

He or she must be U.S. citizen, U.S. resident alien, U.S. national, or a resident of Canada or Mexico; however, a parent or relative doesn’t have to live with you in order to qualify as a dependent.

If your qualifying parent or relative does live with you, however, you may be able to deduct a percentage of your mortgage, utilities, and other expenses when you figure out the amount of money you contribute to his or her support.

Income

To qualify as a dependent, income cannot exceed the personal exemption amount, which in 2019 was $4,200 ($4,300 in 2020). In addition, your parent or relative, if married, cannot file a joint tax return with his or her spouse unless that joint return is filed only to claim a refund of withheld income tax or estimated tax paid.

Support

You must provide more than half of a parent’s total support for the year such as costs for food, housing, medical care, transportation and other necessities.

Claiming the Dependent Care Credit

You may be able to claim the child and dependent care credit if you paid work-related expenses for the care of a qualifying individual. The credit is generally a percentage of the amount of work-related expenses you paid to a care provider for the care of a qualifying individual. The percentage depends on your adjusted gross income. Work-related expenses qualifying for the credit are those paid for the care of a qualifying individual to enable you to work or actively look for work.

In addition, expenses you paid for the care of a disabled dependent may also qualify for a medical deduction (see next section). If this is the case, you must choose to take either the itemized deduction or the dependent care credit. You cannot take both.

Claiming the Medical Deduction

If you claim the deduction for medical expenses, you still must provide more than half your parent’s support; however, your parent doesn’t have to meet the income test.

The deduction is limited to medical expenses that exceed 7.5 percent and you can include your own unreimbursed medical expenses when calculating the total amount. If, for example, your parent is in a nursing home or assisted-living facility. Any medical expenses you paid on behalf of your parent are counted toward the 7.5 percent figure. Food or other amenities, however, are not considered medical expenses.

What if you share caregiving responsibilities?

If you share caregiving responsibilities with a sibling or other relative, only one of you – the one proving more than 50 percent of the support – can claim the dependent. Be sure to discuss who is going to claim the dependent in advance to avoid running into trouble with the IRS if both of you claim the dependent on your respective tax returns.

Sometimes, however, neither caregiver pays more than 50 percent. In that case, you’ll need to fill out IRS Form 2120, Multiple Support Declaration, as long as you and your sibling both provide at least 10 percent of the support towards taking care of your parent.

The tax rules for claiming an elderly parent or relative are complex but if you have any questions, help is just a phone call away.

• By Leon Clinton
• February 14, 2020