Do I need to file a tax return?

The answer depends on your filing status, your age and the type of income you earn. Each person is allowed to earn a certain amount of income before they are required to file a tax return. Each individual is allowed a personal exemption of $4,050 and a standard deduction of $6,350 for 2017. Hence an individual can have $10,400 of taxable income before being taxed if under age 65. If age 65 or over, an additional $1,550 standard deduction is allowed, so the filing threshold increases to $11,950 of taxable income. Social security income is only taxable if one half the social security received plus all other income exceeds $25,000 single or $32,000 married filing jointly (MFJ). If the total is between $25,000-$34,000 single ($32,000-$44,000 MFJ) 50% of the social security is taxable, and amounts over $34,000 single ($44,000 MFJ) result in 85% of social security being taxed. Municipal bond interest, disability income and other forms of income can also be tax-free. Individuals filing married jointly under 65 can have $20,800 of taxable income before they are required to file ($22,050 if one spouse is 65 or older, and $23,300 if both spouses are 65 or older). Individuals filing married separately must file if taxable income exceeds $4,050. Head of household individuals (to qualify you must be unmarried and provide a home and over 50% support for a dependent) must file if taxable income exceeds $13,400 if under 65, or $14,950 if 65 or older). A qualifying widow(er) is an unmarried individual for two years after their spouse died, with a child/stepchild they can claim as a dependent. Qualifying widow(er)s must file if their taxable income exceeds $16,750 if under 65, or $18,000 if 65 or over. Even if you are not required to file, you may want to if you are eligible for refundable tax credits.

Nine things for parents to consider

when filing their taxes

1) A child born or who died can be claimed as a dependent for the full year.

2) If your child is under age 17, you can claim a $1,000 tax credit per child (each dollar of credit reduces your tax by one dollar). The child tax credit may be refundable if the credit exceeds your tax liability and your income does not exceed certain limits.

3) There is a tax credit for paying someone to care for your child(ren) under age 13 so that you can work or look for work.

4) Each child who is your dependent reduces your taxable income by $4,050 for 2017, so the above filing requirements are increased by $4,050 for each child you claim as a dependent.

5) If you are claiming a child who files their own tax return, the child cannot claim themselves as a personal exemption and must check a box to that effect on the tax return.

6) A child filing their own tax return receives a standard deduction of the greater of $1,000 or their earned income plus $350 up to a maximum of $6,350.

7) The amount of the earned income credit is determined by your income level and the number of dependent children you claim (to a maximum of three). The earned income credit is larger with more children. To qualify for the credit you must have earned income from wages, tips or a business you own.

8) A child's unearned income (taxable interest, dividends, capital gains, rents, royalties, taxable social security, pension/annuity income, taxable scholarships, unemployment, etc.) which exceeds $2,100 is taxed at the parent's higher tax rate. If the child is between 18-23 and a full time student, he/she must provide more than half of their support with earned income to avoid this "kiddie tax". If the filing requirements are met, the kiddie tax Form 8615 is required with the child's tax return (unless the parents elect to report the child's unearned income on their tax return) even if the child is not claimed as a dependent.

9) Look to see if you qualify for education credits (dollar for dollar reduction in taxes, some refundable) or for tuition and fees deductions for your children. Student loan interest is deductible up to $2,500 per year, even if you do not itemize your deductions as long as your income does not exceed certain levels. Parents paying interest on student loans can deduct the interest if they are legally obligated to pay the loan. If a parent is not obligated to pay on the loan, payments are treated as a gift to the student, who can then deduct the interest. If the student is claimed as a dependent and the parent is not obligated to pay on the loan, neither the parent nor the child can deduct the student loan interest.

Please contact us at Moats and Hebebrand CPAs (661) 822-1750 as we are well versed and can help you in all tax situations.