Taxes Uncategorized

Who Qualifies Me for Head of Household on My Taxes?

Do you pay for more than half of the costs of keeping up your home?

Are you unmarried?

Do you have someone else living with you that you care for?

Well, you’re in luck! Congress decided you need a break. A tax break, that is! You may qualify for a beneficial filing status, called Head of Household.

But not so fast!

Just because you meet these criteria, does not mean that there are no more criteria that you must meet. 

For a person that lives with you to qualify you for the Head of Household filing status, they must be related to you in a way that is closer than a cousin is related to you.

For example, the person can be your parent, sibling, child, or a descendant of any of these. In-laws count also in this case. Even ex-in-laws! That’s right, if you divorce your spouse and are still taking care of one of their family members, you may still claim them as your qualifying person for the purposes of Head of Household filing status. 

Further, you can claim a person that meets these criteria for the Head of Household filing status, even if you cannot claim them as your dependent. There is a special spot on the Form 1040 that you can put this person’s name in case they do not show up elsewhere on the return as a dependent. 

Nonetheless, most dependents will qualify you for the Head of Household filing status.

However, if you can claim someone as a dependent that meets the Member of Household test, and that is the only reason they qualify as your dependent, then you may not use them as your qualifying person for the Head of Household status. 

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Thank you for reading. This article should not be regarded as legal advice. For information on your specific situation, please consult a local professional. 

If you are a tax or financial professional, hang around awhile. Feel free to leave a message. We’d love to hear from you and chat. Thanks!


Is My Scholarship Taxable?

One of the benefits of being a good student in high school (or filling out many different forms from many different organizations and attempting to make up for not being a great student) is earning a scholarship and having some of your tuition and books paid for. 


What is a Scholarship?


For those unaware, a scholarship is generally awarded by an organization (usually a non-profit) to a student for outstanding grades, athletic ability, or some other attribute of the student. It is generally monetary and must be used toward school tuition or necessary supplies for classes.


Scholarships generally are tax-favored for those receiving them.


Great, so my Scholarship is Tax-Free?


Possibly. Obviously nothing is quite that black and white with taxes. For the portion of your scholarship that does not exceed your education expenses and does not represent wages that were earned for the scholarship, yes it is tax-free.


If the organization did not specify that your scholarship must be used for education expenses, part or all of the scholarship is generally going to be taxable.


If any of the scholarship represents wages that were earned, then the organization will report those wages on a Form W-2 and you must report this income on line 1 of Form 1040 (your personal income tax return).


Can I use my Scholarships toward education credits? 


When it comes to the tax education credits and benefits, you generally can’t double dip. If your tax-free scholarship covered some or all of your education expenses, you cannot use those same expenses toward the American Opportunity Tax Credit, Lifetime Learning credit, or any other credit or deduction.


However, if your scholarship is not tax-free, it generally would be wages or other earned income, meaning there is no tax advantage to them. Since they’re not already tax-advantaged, you can use the education expenses paid for by the scholarship to claim an education credit.


This article does not constitute legal, financial, or tax advice. For help retarding your situation, please consult your local tax advisor.

Taxes Uncategorized

I Started a Business With My Spouse. Do We Have to File a Tax Return?

There’s a million things to consider when first starting a business, and unfortunately many of those items revolve around tax and tax reporting. In addition to federal filing and paying requirements, you may also have state and local reporting requirements.

If you’ve just recently started a business with your spouse, you know you and your new business partner have a lot to do. And filing a tax return is one of those things.

Your spouse and you will likely be required to file a Form 1065 Partnership Information Return. This information return is purely to report the income and expenses of the business. After these items are reported on the Partnership return, the net income and other items (such as Health Insurance paid on behalf of the partners) are reported on Schedules K-1. 

Think of Schedules K-1 like a W-2 for a wage earner. The net income is essentially the wages that would have been paid to an employee. However, tax likely was not withheld from this income. Also, the income reported to each partner is distributed based on percentage of ownership in the business. 

If no other percentage is specified, it is generally assumed that each owner has equal percentage ownership (for spouses, 50% each). 

It should be noted that Form 1065 and Schedules K-1 are considerably more difficult to fill out than a Schedule C attachment on a normal tax return for a sole proprietor.

Because of this, the IRS allows a special rule for married couples starting a new business. If you are what is considered a Qualified Joint Venture, you and your spouse can elect to file two separate Schedules C (each reporting equal amounts of revenues and expenses) and attach them to your tax return.

In order to make this election, you must not be recognized as a state organized entity (like an LLC). 

The rules are set up this way specifically to give both spouses credit for Social Security and Medicare earnings under their Social Security Numbers.


This article is not meant to constitute tax or legal advice. For help regarding your situation, please consult a local professional.

Taxes Uncategorized

Do I Report Income From My Garage Sale?

We get a lot of questions regarding what transactions are taxable and what which are not, especially in regards to sales of various items and at various prices. 

Most of us know that when we sell capital assets like stocks and bonds, it creates a taxable event. There are special rules for these scenarios and many other common events; one of those common scenarios is having a garage sale.

When you sell any of your old household items, shouldn’t it make sense that the money you receive from the sale would also create a taxable event?

If you had followed the rules perfectly, you would have tracked your basis (original cost of each item) in all of these items that you’ve sold, so that you would know if you had a gain or loss on every item.

So do you get to deduct your losses? After all, surely you spent way more on these things than you ever would have sold them for!

Unfortunately, personal items do not qualify for a deduction against your other income when you sell them at a loss.

But that certainly will not stop the government from taking its cut when you sell personal items at a profit. 

If you by some miracle are able to sell any of your old items at a profit, this does create a taxable event.

These items are considered personal-use property, so they are considered capital assets and any gains on them are to be reported on Schedule D (Capital Gains and Losses) as a capital gain. 

If this is an event that does apply to you, make sure to consult the IRS publications for help. The taxable amount will be the sales price minus the original purchase price and minus any improvements made to the property.


This article is meant to be generalized guidance and does not constitute legal or tax advice. For help regarding your specific situation, please consult a local professional.

Taxes Uncategorized

Is the Interest from my Bank Taxable?

We often overlook some of our sources of income, especially if they seem insignificant compared to other sources, such as a primary job or business.

One source of income we often overlook is interest from our bank accounts or brokerage accounts held at various financial institutions.

Robert asks, “Hey Mike, hope you’re able to answer this for me. I didn’t receive any statements for the interest I received from my bank account in 2018. Is that because I don’t have to report it? This got me wondering if interest is even taxable at all. Thanks in advance.”

Robert, you likely did not receive an interest statement from your bank because it was less than $10. If you receive less than $10 in interest in a year from a single account at a financial institution, the financial institution is not required to report the interest to you in a tax statement.

The tax statement you would be looking for is called a 1099-INT. Again, in this case you would not receive one. However, just because the bank does not have to report the interest to you does not mean you do not have to report it on your tax return.

Unless the interest is from a tax-exempt source (e.g. municipal bond interest or tax-deferred or tax-free interest in an IRA), you must report and pay tax on the interest on your tax return.

It is taxable as ordinary income at ordinary income tax rates. 

If you did not receive a tax statement for your interest and would still like to stay compliant, the best way to make sure your interest is accurate is to compile all monthly statements from each bank account and add them up separately for each account. 

Round to the nearest dollar each account and report the interest on your tax return. If your combined interest is greater than $1,500 you must report it on Schedule B of Form 1040. If less than $1,500, you may report it on the applicable line of Form 1040 alone and not on Schedule B. 

I hope this overview was helpful, Robert, and thank you for writing in.


To have your question featured, leave a comment below.

This article is not to be considered tax, financial, or legal advice. For help regarding your specific situation, please consult your local advisor.

Annuities retirement Uncategorized

“What is a Fixed-Index Annuity?”

Planning for retirement can be a minefield, especially when so many different financial professionals are giving different advice. And it may be that each one is giving valid advice, but you still want to know who is giving the best advice. And where we come in is not as advice, but as information so that you can make the best choice knowing all of your options and how each option works.

Ed writes in: “Hi, I’ve been following the blog for a while and I’ve recently been meeting with a financial advisor. She’s been talking to me about something called a fixed index annuity. She tells me there’s guarantees and the product cannot lose value, but it will still grow because it’s tied to the performance of the market. Curious to know your opinion. Thanks for the help.”

Thanks for writing in, Ed. She’s not wrong. A fixed-index annuity generally won’t lose value and some even guarantee a minimum return (maybe 0-3%) even when the market goes down. They’re relatively conservative vehicles for retirement. That being said, their performance is tied to the stock market, as their name suggests, a market index.

In return for guaranteeing a minimum return on your money, the insurance company will generally cap the returns of the annuity so the annual growth will not go above a certain amount (maybe 3-4%). 

The insurance company does not mind giving you guarantees in this because when the market goes up (which is does more often than it goes down, historically), the insurance company keeps the growth on your money beyond the cap. Over a medium to long time horizon, the insurance company wins by a landslide. 

That being said, they’re not the worst products and generally they don’t carry any fees (the implicit “fee” is the insurance company keeping your excess gains). If you are overly conservative by nature, have a mild heart attack when any of your investments take a small dip, or have a short time horizon from the time that you purchase the annuity, this may be a great option for you.

Make sure to explore other options also, though, such as fixed and variable annuities and see if these are more suited to you. Review prospectuses carefully and with a professional.

We hope this helped explain this option a little better and thank you for taking the time to write, Ed. 


To have your question featured, leave it in a comment below.

This article does not constitute legal, financial, or tax advice. For help regarding your situation, please consult your local tax advisor.


Can I Claim the Earned Income Credit Without a Child?

The Earned Income Tax Credit was introduced as a way to help alleviate the tax burden for lower income individuals and also it is used as a way to help supplement their wages.

The rules for claiming the credit are different given the situation of each individual, but in general the rules can be broken up into the rules for those with qualifying children and for those claiming the credit without any qualifying children.

So I Can Claim the Credit Without Any Children?

Maybe. It depends on your earned income, filing status, and age.

So What Age Do I Need to Be?

For starters, you can only claim the credit without children if you are under the age of 65 or at least the age of 25 by the end of the year.

If you are 24 at the end of the year and your birthday is on January 1st, then your birthday will be considered the 31st of December and you will be considered 25 for the purposes of the EIC.

Likewise, if you are age 66 at the end of the year and your birthday was the 31st of December, your birthday will be considered the 1st of January for the purposes of the EIC and you will be considered 65 years old.

What Filing Status Do I Need to Use?

You will be ineligible to claim the Earned Income Tax Credit if you are filing as Married Filing Separately. You can claim the credit with any other filing status. However, the amount of earned income that applies to or limits the credit will be different depending on your filing status.

How Much Earned Income Do I Need to Claim the Credit?

With no qualifying children and with $15,270 or less of income, individuals filing as single, head of household, or widowed can claim the Earned Income Credit.

If a couple is filing jointly, their combined earned income will need to be equal to or less than $20,950.

Please note that this article only covers the general tests for those claiming the Earned Income Credit without qualifying children.

Please take time to review what constitutes earned income in regards to the credit and also review the rules for the limitations on how much investment income an individual can have before being disqualified for the EIC.


This article does not constitute financial, legal, or tax advice. For information regarding your specific situation, please consult your local professional.

Taxes Uncategorized

Why Claim Dependents When There Is No Benefit for 2019 Taxes?

Claiming a dependent on your taxes has always yielded what is called an exemption. This means that a certain amount of your income was exempt from taxation. For 2017, the amount of each dependency exemption you were able to claim meant that $4,050 of your income was not federally taxable income.

For example, a family with four children would be able to claim six exemptions (four dependency exemptions and two personal ones for the mother and father). This means that the family would have been able to exempt $24,300 (6 x $4,050) from their income.

But with 2017’s Tax Cuts and Jobs Act, your ability to claim a dependency exemption was eliminated. However, please note that the ability to claim a dependent was not eliminated.

So Why Would I Claim a Dependent If I Do Not Receive an Exemption?

Claiming a dependent still enables you to receive certain credits or enhance the benefits of claiming certain credits.

For example, the Earned Income Tax Credit increases the amount a person receives as their refundable credit when they have a dependent on their return.

Also, the Child Tax Credit was expanded and now yields a $2,000 reduction in taxes instead of last year’s $1,000 reduction.

In addition to this, claiming dependents also affects who is able to claim education credits and deduct student loan interest, whether it be the actual student or the parents.

Credits are much more powerful than exemptions and deductions because deductions only reduce your taxable income. Credits are a dollar for dollar reduction in either the tax you owe or a dollar for dollar increase to your refund.


This article does not constitute financial, legal, or tax advice. For help regarding your specific situation, please consult a local professional.

Taxes Uncategorized

Can I Deduct My Employee Business Expenses for 2019 Taxes?

Many deductions were either eliminated or expanded after 2017’s Tax Cuts and Jobs Act. One of these deductions that has gotten a lot of attention is the employee business expense deduction.

To keep employed individuals on the same footing as a self-employed individual who has seemingly unlimited tax write-off capabilities, employees have been able to deduct any unreimbursed expenses that they incurred against their income on their tax return for many years.

Starting in 2018, if your boss is unwilling to reimburse your business expenses, however, you will no longer be able to deduct these on your tax return.

This has caused a lot of frustration among many individuals who have tracked their expenses and mileage on their car, finding that being able to deduct these expenses against their income was a middle ground to not being reimbursed at all.

What Kind of Expenses Used to Be Deductible?

It’s important to know what expenses were deductible so individuals are not looking for a place to put them in their tax return software this year.


Any extra miles tacked onto your car besides the ones that got you to your first work station for the day would have been deductible.

Work Clothes

Any clothes bought for work that only had a practical purpose of being worn at your place of employment would have been deductible.


As an employee, if you had to buy your own tools, you could have written them off at the end of the year.

Anything Else That Only Had a Primary Purpose of Being Used at Your Job

If something that you bought for work only had one purpose and that purpose was for use in employment, it could be written off at the end of the year.

So What Can I Do About This?

Talk to your employer about being put on an accountable plan. An accountable plan is to help reimburse employees for any business expenses that they incur.

Recordkeeping around an accountable plan will involve filling out expense reports and keeping track of miles, but getting money back for putting extra miles on one’s car driving between worksites is a fair trade-off.

Why Would My Boss Want to Do an Accountable Plan?

Normally, when your boss pays you wages they are taxed on those wages beyond what they withhold for you. With an accountable plan, these wages go un-taxed, therefore giving them a small caveat to reimbursing you.


This article does not constitute legal, financial, or tax advice. For help regarding your specific situation, please consult a local professional.


Short Term Disability: What is Fully Insured?


What Does it Mean to Be Fully-Insured?

When a company gets big enough, it may realize that it needs to add benefits to either comply with legal regulations or just to increase employee retention or productivity for its own benefit. One of the benefits the business owner may decide to offer might be short-term disability insurance as opposed to the required workers’ compensation, which is why this concept is important. And there’s a few ways for the business owner to get short-term disability insurance.

One of the ways for a business to insure its employees is to be considered fully-insured, meaning that the business is paying premiums (whether being funded by the company or its employees) to an insurance company to insure its employees. The term fully-insured can be used to mean fully-insured by an insurance company, which is the main takeaway here. This type of coverage is considered the traditional way of covering employees.

When a company sets up the plan through an insurance company, the premiums are fixed for a year, meaning they could change from year to year as new insurance contracts are put out. The premium amount is based on the number of employees enrolled in the plan, making it more beneficial for the insurance company and employer to enroll more employees.

The benefit to the employer (or employees if paid by them) is generally reduced premiums and the benefit to the insurance company is a greater pool of people that the risk is spread across.

In a fully-insured plan, traditional insurance concepts and policies prevail because it is an insurance company handling the administration of the insurance. Therefore, for short-term disability, a claim is filed when an employee becomes sick or injured and waiting periods and benefit periods apply, unlike what might be expected in some self-insured plans.


Disclaimer: This information does not constitute financial advice. For specific information for short-term disability policy plans and features, consult your local insurance agent.