The head of household filing status is for taxpayers who are either unmarried and not an RDP or meet the requirements to be considered unmarried or considered not in a registered domestic partnership and maintain a home for a relative who lived with them for more than half the year.

Registered Domestic Partners (RDPs)

Effective for taxable years beginning on or after January 1, 2007, RDPs under California law must file their California income tax returns using either the married/RDP filing jointly or married/RDP filing separately filing status. RDPs will have the same legal benefits, protections, and responsibilities as married couples unless otherwise specified. For more information on RDPs, see FTB Pub. 737, Tax Information for Registered Domestic Partners.

If you are an RDP, you may qualify to use the head of household filing status if both of the following apply:

• You are in the process of ending your relationship.
• You meet the requirements to be considered not in a registered domestic partnership.

General Rules

Do I qualify for head of household?

You are entitled to the head of household filing status only if all of the following apply:

• You were unmarried and not an RDP or met the requirements to be considered unmarried or considered not in a registered domestic partnership as of the last day of the year.
• You paid more than one-half the costs of keeping up your home for the year.
• Your home was the main home for you and a qualifying person who lived with you for more than half the year.
• The qualifying person was related to you and met the requirements to be a qualifying child or qualifying relative.
• You were entitled to a dependent exemption credit for your qualifying person.  However, you do not have to be entitled to a dependent exemption credit for your qualifying child if you were unmarried and not an RDP and your qualifying child was also unmarried and not an RDP.
• You were not a nonresident alien at any time during the year.

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• You can choose each tax year to take the amount of a qualified tax paid or accrued during the year as a foreign tax credit or as an itemized deduction.
• The foreign tax credit is intended to relieve U.S. taxpayers of the double tax burden when their foreign source income is taxed by both the United States and the foreign country from which the income is derived.
• Only income taxes paid or accrued to a foreign country or a U.S. possession qualify for the foreign tax credit.
• You can choose to take the amount of any qualified foreign taxes paid or accrued during the year as a foreign tax credit or as an itemized deduction.
• To choose the foreign tax credit you must generally complete Form 1116 (PDF), Foreign Tax Credit, and attach it to your Form 1040 (PDF).
• You may claim credit without attaching Form 1116 if all of your foreign source income is interest or dividends reported to you on qualified payee statements, the total amount of qualifying foreign taxes you paid or accrued is not more than $300 ($600 in the case of a joint return) and is also paid to countries recognized by the United States.
• To choose the deduction, you must itemize deductions on Form 1040, Schedule A (PDF).
• There are numerous items that can be claimed only as a deduction.
• You may not take either a credit or a deduction for taxes paid or accrued on income you exclude under the foreign earned income exclusion or the foreign housing exclusion. There is no double taxation in this situation because the income is not subject to U.S. tax.

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Millions of workers would soon see an extra $13 in their weekly paychecks and thousands of small businesses operating in the red could get tax refunds under the economic recovery bill nearing completion in Congress.

Businesses won’t fare as well as they did in earlier versions of the legislation. But most of the tax cuts for families and individuals were preserved, though some were reduced.

There are tax breaks for low-income families with children; college students; first-time homebuyers; people who buy new automobiles; and those collecting unemployment benefits.

The Obama administration says 95 percent of taxpayers will get relief.

“There are provisions that could pay you now and some that could pay you later,” said Amy McAnarney, executive director of the Tax Institute at H&R Block. “They’re going to give you money to spend, and then they’re going to give you incentives to spend it.”

In all, the $789 billion plan includes about $280 billion in tax cuts.

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Although the alternative minimum tax (AMT) was intended to apply to high-income taxpayers who take advantage of loopholes (called “tax preferences” in professional lingo), it can also apply to middle-income taxpayers who haven’t planned their taxes thoroughly enough. In fact, the AMT is hitting more and more taxpayers each year, and without annual patches, it would increase taxes on millions of taxpayers.You’re probably not familiar with all of the issues surrounding the AMT — but in this case, ignorance isn’t necessarily bliss. Let’s take a few minutes to see where you and the AMT might meet.

The characteristics most likely to give rise to AMT liability for “ordinary” taxpayers who do not operate businesses are:

• A large number of personal exemptions.
• A large amount of state and local taxes paid.
• A large amount of miscellaneous itemized deductions.
• A large amount of deductible medical expenses.
• The bargain element of incentive stock options.
• A large amount of capital gains.

If you have any of these issues on your tax return, or any combination of them, you could have the unpleasant obligation of paying the AMT.

Personal exemptions
While personal exemptions are allowed to reduce your regular tax, they are not allowed for AMT purposes. Consider the little old lady who lived in a shoe, of nursery-rhyme fame. She had seven children, so between herself and her kids, those personal exemptions allowed her to reduce her regular taxable income by about $27,200 — eight personal exemptions at $3,400 each — in 2007.

But for AMT purposes, personal exemptions are ignored. It’s possible that these personal exemptions, coupled with some other tax issues, could introduce that little old lady to the AMT. Living in a shoe might not be her biggest problem.

There’s no real way to “plan” your personal exemptions for AMT purposes. After all, you’re obviously not going to kick a son or daughter out the door to reduce your personal exemptions. But you might be able to plan other tax items that could trigger the AMT, if you know that your significant personal exemptions already put you at risk.

State and local taxes
State, local, and other taxes that you pay and claim as itemized deductions on Schedule A are not allowed as deductions for AMT purposes. If possible, you should try to pay state and local taxes in years when you won’t face the AMT; otherwise, they’ll give you absolutely no tax relief. Whenever possible, know when you’re in the AMT zone, and do your best to move these tax payments to another year when the AMT won’t bother you.

Suppose that you’re subject to the AMT this year, but you expect to avoid it next year. You should try to defer your state and local tax payments until next year. Doing so might lead to underpayment penalties at the state or local level, but in most cases, those underpayment penalties are small potatoes compared with the potential tax dollars you might save.

Likewise, if you expect to be subject to only the regular tax for this year, and the AMT the following year, your tax payments should be accelerated into this year whenever possible. Just remember that the IRS will not allow a deduction for state and local income taxes unless the taxpayer reasonably believes the taxes were owed when paid. Therefore, you can accelerate your deduction for state income taxes by making estimated tax payments, but only if your reasonable computations indicate that those taxes are actually owed.

In addition, real property taxes cannot be deducted until they are actually paid to the taxing authority. If you pay property taxes through a mortgage lender, you’ll need the lender’s cooperation in paying the taxes before the due date if you want to accelerate or defer the deduction. But if you make your own property-tax payments, you have free rein regarding the timing of the payments. Again, deferring those payments might lead to some penalties, but the tax savings could be well worth it.

Medical expenses
Medical expenses can be deducted for AMT purposes, but they must exceed 10% of adjusted gross income, instead of 7.5% for regular tax purposes. Thus, as with the deduction for state and local taxes, you might be able to time medical deductions to avoid the AMT, or at least obtain the maximum benefit from the deductions. Again, medical problems and expenses aren’t something you can usually plan, but you do have a bit of control over when you pay medical bills. So think about the acceleration and deferral methods that we discussed here when dealing with medical-expense payments.

Miscellaneous itemized deductions
Miscellaneous itemized deductions that are greater than 2% of your adjusted gross income are deductible for normal tax purposes, but they are not deductible for AMT purposes. These expenses include unreimbursed employee business expenses, expenses for the production of income, tax-return preparation expenses, and many others too numerous to mention here. Unlike with the previous items, you do have much more control over these expenses. If you know they’ll be large, make sure to do your AMT planning so you don’t lose the tax benefit of these expenses.

Large capital gains
You might have heard that the lower tax rates for capital gains will not trigger the dreaded AMT. That’s only partially true. For AMT purposes, you’ll also receive a lower rate on long-term capital gains. But because of the workings of the AMT, a large long-term capital gain could trigger some AMT taxes. So if you’ve done well with your long-term investments and are looking to liquidate, you should at the very least review your AMT consequences and determine what (if any) impact such a sale would have. If you look before you leap, you can potentially take steps to minimize your AMT taxes — for example, by selling only part of the investment in each of two or three tax years.

Incentive stock options (ISOs)
If you receive ISOs from your employer, beware. The bargain element — the difference between your exercise price and the fair market value of the stock on the exercise date — is considered a tax preference for AMT purposes. Although you’ll owe no regular tax on this bargain element, it could certainly trigger the AMT. For many of you, this could be a very large trigger for the AMT. ISO issues are much too complicated to discuss here in any detail. Just know that if you’re exercising ISOs, you have potentially big AMT issues.

The IRS has no official publication on the AMT, but it does provide an online worksheet that might help with your AMT planning. As of now, the worksheet hasn’t been updated for the 2007 tax year, but you can enter your information in the existing worksheet, find out how close you might be to getting smacked by the AMT, and even play some “what if” games for future planning purposes. Spend a few minutes with the worksheet to see how the AMT might affect your specific tax situation going forward.

This article was originally published on Sept. 22, 2006. It has been updated.

The Motley Fool

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Form 1040 is due April 17, 2012. The due date is April 17, instead of April 15, because April 15 is a Sunday and April 16 is the Emancipation Day holiday in the District of Columbia.

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Truth in taxation. We’re so , so afraid of the IRS.

The Constitution says the Government can levy an income tax (see the Amendment) and the passing of the tax code gives them the mechinism to deduct it directly, when any income is earned. That section of the code says “when a return is required”. To determine that the government hast to return your money, you have to file a return where you do the calculations. So, you pay by law and file to prove you didn’t owe.

So are we liable for taxes or not? The answer lies in the 60,000 pages of Tax Code.

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Your children will always remain in your heart. But if you’re like most parents, you don’t expect them to always remain in your house.

Alas, the prolonged economic downturn has forced thousands of young adults to move in with their parents until their job prospects improve. These multigenerational households must tackle a host of thorny issues, ranging from the allocation of chores to the rules for overnight guests.

With tax season approaching, a lot of parents are grappling with another issue: Can you claim an adult child as a dependent on your tax return? For 2011, each dependent reduces your taxable income by $3,700. For a family in the 25% tax bracket, that works out to a tax savings of $925, which buys a lot of groceries.

Sadly, the fact that you provide housing and sustenance for an adult child — or anyone else — doesn’t automatically mean you can claim that individual as a dependent. Factors that affect whether an individual is a “qualified child” include:

•Relationship. The individual must be your child, stepchild, foster child, sibling, stepsibling or a descendant of one of those (i.e., a grandchild).

•Age. They must have been under age 19 at year’s end, or under 24 if the child was a full-time student for at least five months of the year.

•Residence. The child must have lived with you for more than half of the year. There are some exceptions for children of parents who are separated or divorced.

•Support. The child cannot have provided over half of his or her own support during the year. To calculate how much you spend on support, you can include your child’s college costs, food, clothing and medical and dental expenses. If your child is on your health insurance plan, you can include a portion of your premium, says Richard Rhodes, an enrolled agent in Hinckley, Ohio.

You can also include a percentage of your ongoing household expenses when calculating the amount you spend on support. For example, if five people live in your home and one is an adult child, you can include one-fifth of your utility bills, Rhodes says.

As long as your child’s income doesn’t exceed the amount you spent on support, and meets the other tests, you can claim the child as a dependent, says Terry Durkin, an enrolled agent in Burlington, Mass. For example, suppose your daughter graduated from college in May, found a job in September and earned $20,000. As long as the amount you spent on her support exceeded $20,000, you can claim her as a dependent, Durkin says. However, if you claim your child as a dependent, she can’t claim a personal exemption on her own tax return.

Qualifying relative

The live-in adult child phenomenon isn’t limited to recent college graduates. Thousands of adults who have been out of college for a few years have also been forced to move in with their parents because they lost their jobs, their homes or both.

If you’re supporting an adult child who fails the age test, you may still be able to claim him or her as a “qualifying relative.” Be advised, though, that the standard for claiming a qualifying relative as a dependent is much higher.

The qualifying relative must have gross income of less than the amount of the personal exemption. This income test prevents a lot of parents from claiming older adult children as dependents because even a part-time job will render the child ineligible, Durkin says.

At the other end of the generational spectrum, hard times have also forced many families to take in older parents, or provide them with financial support. Claiming a parent as a dependent may be easier than claiming an older child or other relative, for two reasons:

•Social Security isn’t included in the gross income test. If Social Security is your parent’s sole source of income, the income test isn’t a problem for you. However, you can’t claim a parent who earns $3,700 or more from other sources, such as a pension, interest or dividends.

•Your parent doesn’t have to live with you. Suppose your parent lives in an apartment or assisted-living facility, but you pay most of the bills. You can claim that parent as a dependent, Rhodes says, as long as the other tests are met.

Source

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Dozens of suspected identity thieves and others pursuing fraudulent tax refunds have been arrested in a nationwide crackdown aimed at reversing a sharp increase in crimes victimizing honest U.S. taxpayers, the IRS said Tuesday.

Trying to send a message to would-be tax criminals as the federal tax season begins in earnest, the IRS said federal investigators took action against 105 individuals in 23 states over the last week, leading to arrests and indictments, serving search warrants and producing guilty pleas and court sentences.

The Florida-to-Alaska sweep also included separate visits to 150 money service businesses in nine metropolitan areas considered at high risk for identity theft or tax refund fraud.

• STORY: Early filers may have to wait longer for their tax refund

“Identity thieves have figured out that if they can steal Social Security numbers, they can file false returns with us,” said Steven Miller, the IRS deputy commissioner for services and enforcement. “Let me be clear that we will continue to pursue the criminals who would steal from the American taxpayer.”

Calling such crimes a growing problem, Miller said the IRS last year stopped more than 260,000 fraudulent tax returns involving confirmed cases of identity theft, preventing an estimated $1.4 billion in refunds from reaching suspected criminals.

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Some people may qualify for more than one filing status. Here are eight facts about filing status that the IRS wants you to know so you can choose the best option for your situation.

1. Your marital status on the last day of the year determines your marital status for the entire year.
2. If more than one filing status applies to you, choose the one that gives you the lowest tax obligation.
3. Single filing status generally applies to anyone who is unmarried, divorced or legally separated according to state law.
4. A married couple may file a joint return together. The couple’s filing status would beMarried Filing Jointly.
5. If your spouse died during the year and you did not remarry during 2011, usually you may still file a joint return with that spouse for the year of death.
6. A married couple may elect to file their returns separately. Each person’s filing status would generally be Married Filing Separately.
7. Head of Household generally applies to taxpayers who are unmarried. You must also have paid more than half the cost of maintaining a home for you and a qualifying person to qualify for this filing status.
8. You may be able to choose Qualifying Widow(er) with Dependent Child as your filing status if your spouse died during 2009 or 2010, you have a dependent child, have not remarried and you meet certain other conditions.

Source

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“The income tax has made more liars out of the American people than golf has.” – Will Rogers

But what if it were easier? And what if the IRS made it nearly impossible to lie? What then?

Last year, IRS Commissioner Doug Shulman hinted that one way to reduce the potential for tax fraud was to have IRS prepare returns for taxpayers. That’s right, you wouldn’t have to prepare returns come tax time: the IRS would do it for you.

The idea is commonly referred to as a “simple return” or “ready return” (yes, it sounds like a snack you might buy at a Wawa). Under the plan, the IRS would send out tax returns that had already been completed with taxpayer identification and wage information. Taxpayers would merely review the returns for accuracy and sign at the bottom… kind of a “check the box if you agree” system. Taxpayers would have the opportunity to correct any mistakes prior to submitting the returns to the IRS.

Why not? The IRS already has a good chunk of taxpayer information on file. Add to that the obligations of employers, financial institutions and other third parties to provide wage and other income information to the IRS and there’s already a nice little database at the IRS’ disposal.

But putting those returns together is not cheap. Right now, the IRS simply doesn’t have the manpower to prepare returns for taxpayers and pursuant enforcement and collections activities and adding to the rosters (and thus, the budget) would be a major endeavor. Shulman, however, seems to believe that it might be worth considering.

A limited version of the plan is already in place in California. The plan, called (of course), ReadyReturn, is free to taxpayers who qualify in the Golden State. The state uses information from the prior year’s return along with information from the form W-2 to pre-fill a California state tax return. The return only needs to be reviewed by the taxpayer and signed. Brilliant, right? Then how come no one is signing on?

For one, the number of taxpayers who qualify is limited. To qualify, taxpayers must have filed a 2010 California resident return as single or head of household and no more than five dependents. Taxpayers must only have income from wages from a single employer and must claim the standard deduction with no credits other than the renter’s credit. Depending on who you are, the program was either wildly successful or a terrible failure. The pilot program, sent out to 50,000 taxpayers, had a 27% participation rate. That works out to about 13,500 taxpayers. The state has about 20 million taxpayers, making the overall participation rate less than 1/2%. In 2009, the number of participants in the program grew to 60,000 taxpayers, or about 3%. Hardly statistically significant. But the folks who are using the system appear to like it.

The program has also seen success outside of the U.S. Programs in Sweden and Denmark claim participation rates of over 75% (downloads as a pdf). Could the IRS duplicate those kinds of results?

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