Find answers to complicated tax questions

Tax laws change frequently. Poeman’s Tax Prep and Accounting wants to make sure you have answers you need to feel confident about your taxes. Check out our FAQs below and schedule an appointment with us.

What happens to my taxes if I withdraw money from a retirement account early?

Withdrawing money early from certain retirement accounts comes with a 10% tax penalty. Not only does it come with a penalty, but also the amount withdrawn is counted as income that a taxpayer has to pay regular income tax on. This could potentially move you into the next tax bracket, which could affect Social Security taxes and other considerations.

How do I determine the value of non-cash charitable contributions?

Non-cash contributions can only be deducted at the fair market value or “the price at which property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts.”

What information do I need to keep?

Your accountant will need certain paperwork and receipts to fill out your tax information and make sure that you receive all of the deductions you qualify for.

What direct business expenses can I deduct?

Knowing how many of your expenses you can deduct will help you plan for filing taxes during the year. More often than not, you can deduct the money that your business directly spends on services, rental space, equipment, and other items. As long as there is no gray area, such as in the case of home businesses, an expense will usually qualify as deductible.

Is there anything I should do to increase my savings?

Sometimes, you will get a bigger deduction for buying certain items, such as an energy-efficient air conditioner as opposed to a standard one for your office. Knowing these answers will help you plan for filing taxes when you are deciding on a purchase.

How much of my home office is deductible?

If you work from home, this will be an important question. You can deduct utility and mortgage or rent amounts that you spend on your home office, but there are certain guidelines you must follow. Your accountant will know the exact answers that pertain to your situation.

How much of my car is deductible?

If you have a car that is used for business purposes, you may be able to deduct part of your payment, insurance, and maintenance costs at tax time. This guideline is especially true if you use the car only for those purposes.

Who can I claim as a dependent?

Your significant other is probably many things to you—but is he or she also a tax deduction? The question of who you can claim as a dependent has confused taxpayers for years.

The short answer: You can claim a “qualifying child” or “qualifying relative” if they meet specific requirements related to residence, relationship to you, age, financial support provided, and income. And yes, you may be able to claim a girlfriend, boyfriend, domestic partner, or friend as a qualifying relative in some cases. Claiming dependents can give you a tax deduction worth up to $3,800 per dependent and also make you eligible for many other tax deductions like the Earned Income Tax Credit.

What is the Earned Income Tax Credit, and how do I claim it?

The Earned Income Tax Credit is a tax credit for low to middle-income wage earners that has lifted nearly 7 million people out of poverty; however, many people still miss it. Why do so many people miss it? Many think they don’t make enough to file their taxes, so they don’t claim it. You have to file your taxes to get this valuable tax credit, which may help a family with three dependents receive a credit worth up to $5,891.

Are unemployment benefits taxable?

The unemployment rate has dipped to 7.9 percent vs. 8.3 percent in January 2013. But that’s little comfort to the jobless who find out their unemployment income is taxable income. The good news is that job search and moving expenses may be tax-deductible. See the next question for more details.

Can I deduct the cost of searching for a job? Are moving expenses for my new job tax deductible?

Job seekers may be able to deduct many expenses related to their search: printing résumés, fees for employment and outplacement agencies, career seminar costs, and business-related travel. Moving expenses relevant to your job search may be deductible if you meet the distance and time test.

What are the tax implications of withdrawing money early from a retirement account to pay bills or debt?

In difficult economic times, many people start eyeing their retirement accounts to pay off bills or debt. While it is your money, you may be unaware of the impacts of withdrawing from your nest egg. Withdrawing money early from a retirement account comes with a 10 percent tax penalty in addition to the regular income tax on the amount withdrawn.

There can be other consequences too. The retirement money may bump you into a higher tax bracket, which can result in the taxation of other income, such as Social Security, that you wouldn’t have been taxed on otherwise.

My house foreclosed, how does that impact my taxes?

The Mortgage Forgiveness Debt Relief Act survived the recent "fiscal cliff," receiving a one-year extension through 2013. One implication of this legislation is that you don’t have to pay taxes on the loss of your home through foreclosure or short sale, up to $2 million (or $1 million if married filing separately).

I started my own business; can I deduct my home office expenses?

Many entrepreneurs are reluctant to write off the business use of their home for fear of being audited. But home office expenses are a legitimate tax deduction you shouldn’t overlook. Keep in mind the space you claim as a home office should be used exclusively and regularly for that purpose.

How much of my household bills and equipment is deductible?

You may also be able to write off a portion of your household bills, such as Internet and phone. Also on the list could be your home computer, printer, and fax machine, depending on how much you use these items to run your home business.

How much of my travel expenses are deductible?

While most business-related travel expenses are tax-deductible, there may be exclusions or special rules if you brought your family along or turned it into a mini-vacation for yourself.

What are the special requirements for business deductions?

If you plan to take deductions for a home office, a car, travel expenses, or household bills and equipment, then you will need to know the rules of doing so. For example, the portion of your home that you write off as your home office must be a space that you use exclusively for business purposes.

Does the legal structure of my business matter when filing taxes?

Maybe you are a sole proprietor looking to incorporate or trying to decide between LLC and S Corp; either way, you will want to know how your choice is going to affect you when filing taxes.

Do my employees count as independent contractors or true employees?

This is an important question because you have more responsibilities for a true employee, such as withholding income taxes and paying a portion of the employee's employment taxes. These are just some of the tax prep questions you will need to ask your accountant. As the rules can change from year to year, it is important to sit down and talk with your CPA before tax time arrives so that you will be ready.

What is the First-Time Home Buyer Credit?

The First-Time Home Buyer Credit was available to taxpayers who purchased a primary residence in 2008, 2009, or 2010. Your current return may be affected if you took the credit during those years and you have since been repaying it. If you have been making payments, you'll enter that information on the Federal tab / Additional Information sub-tab under "Additional Questions." Click Add or Review on the "First Time Home Buyer Credit Repayment" line.