Frequently asked tax questions among the top searched by taxpayers and H&R Block tax professionals.
1. I am in the military and stationed in a different state than where I usually live. What state tax returns do I need to file?
Taxpayers file where they “live” and not necessarily where they are “stationed.” If the only reason a military member lives in a particular state is due to active duty status, then the original “home” state should be used for filing purposes.
2. I negotiated with my credit card company to cancel my debt. How do I know if I am eligible to exclude that from my income?
Income from the cancelation of personal credit card debt is not excludable income. Generally, when a debt is canceled, that amount must be reported as income on a tax return. Exceptions include debt canceled as a result of insolvency or bankruptcy. Through 2013, the Mortgage Debt Relief Act makes some taxpayers eligible to exclude canceled debt from foreclosures.
3. Do I owe penalties if I took a hardship distribution from my 401(k)?
Unless a penalty exception is explicitly stated in tax code, financial hardship is not an exception the penalty. Generally, there is a 10-percent early distribution penalty when money is withdrawn from a 401(k) before the holder is 59 ½. Some exceptions include if the distribution is made to beneficiaries after the account holder’s death, if the distribution is because of total and permanent disability, or if the distribution will pay for tax-deductible medical expenses.
4. Who is responsible for paying a deceased taxpayer’s taxes?
The deceased taxpayer’s estate is responsible for paying the taxes and the executor of the estate is responsible for making sure a tax return is filed. Federal taxes due generally must be paid before all other estate debts. If the executor pays other debts first and there isn’t enough money left to pay the taxes, the executor could become personally responsible for the taxes.
5. If I take online classes, can I claim education tax breaks? What if I used money from a trust to pay the tuition?
Students who take online courses from any college, university, vocational school or other post-secondary educational institution eligible to participate in a student-aid program administered by the Department of Education can. Individual institutions should be able to tell students if they are eligible institutions. If tuition is paid with money from a trust, education tax breaks can be claimed as long as the other eligibility qualifications are met.