Reply
Community Manager
Community Manager

Ask The Experts: Tax Prep

Thanks for joining us! AARP Foundation staff and volunteers from the Foundation’s Tax-Aide program are here to answer your questions about this year’s tax season and filing your return.

 

Please note:  If your inquiry is about requesting service by appointment only, please visit the AARP Foundation website: www.aarpfoundation.org/taxaide.

 

Post a reply below for a chance to have your questions answered.

66,828 Views
129
Report
Reply
AARP Foundation Tax-Aide

Sorry for your loss.

 

Her estate attorney is correct. Her income is below the filing limits. She was entitled to both Economic Impact Payments. If she did not receive the payments, you could file to receive them in the form of a tax refund. If there was any tax withheld from her on her 1099-R you could file to collect that. Neither of the examples above are likely to apply.

0 Kudos
21,939 Views
0
Report
Reply
AARP Foundation Tax-Aide

@a697212s 

Based on the income amounts you provided, you do not need to file a tax return for your mother for that income. However, if she received a Form 1099-S for the sale of her home, you would need to file a return to report that sale. Assuming she lived in and owned the house for at least two of the last five years, she would be entitled to exclude $250,000 of the gain on the sale. This IRS page https://www.irs.gov/taxtopics/tc701 and the links on it have more details about how to determine the gain and report the sale.

0 Kudos
21,935 Views
0
Report
Reply
Regular Contributor

Our combined income only totaled more than 32,000 because it calculated the 26,783 we got in Social Security as 7,238 being taxable, putting us at 39,880 total income. Why did it put us over before the $32,000 threshold was reached?

0 Kudos
22,576 Views
1
Report
Reply
AARP Foundation Tax-Aide

The threshold amount is not your total total income less social security. To determine the threshold amount add 1/2 of Social Security benefits to ALL other income (including tax-exempt interest), minus adjustments from Schedule 1 Line 22 plus student loan interest plus tuition and fees adjustment. 

 

You must add 1/2 of the $26,783 you received in Social Security and that put you over the threshold resulting in the $7,238 being taxable. If you are using common Tax Preparation software, these calculations are correctly done by the software.

0 Kudos
44,333 Views
0
Report
Reply
Contributor

My son received several HEERF payments in 2020 while attending college.  He is a full time student, not employed and we claim him as a dependent on our taxes.  Does he need to file a return and claim the HEERF distributions as income?

0 Kudos
22,570 Views
1
Report
Reply
AARP Foundation Tax-Aide

The emergency grants your son received under the CARES act do not count as Gross Income and are not taxable. There is no need to file a return. I recommend that you review the Q and A on the IRS website: FAQs: Higher Education Emergency Relief Fund and Emergency Financial Aid Grants under the CARES Act ...

 

 

0 Kudos
44,384 Views
0
Report
Reply
Social Butterfly

What is the maximum penalty for not filing a return this year?

0 Kudos
22,730 Views
1
Report
Reply
AARP Foundation Tax-Aide

Hello, @2Papa ,

 

The failure-to-file penalty is usually five percent of the tax owed for each month, or part of a month that your return is late, up to a maximum of 25%. If your return is over 60 days late, there's also a minimum penalty for late filing; it's the lesser of $435 (for tax returns required to be filed in 2021) or 100 percent of the tax owed.   For more information on IRS penalties for late filing or payment, see this page:  https://www.irs.gov/taxtopics/tc653

0 Kudos
45,193 Views
0
Report
Reply
Contributor

I received a 1099 for interest income on a joint account with my husband who passed away 2 years ago. The account carries his SSN.  Do I include this with my income for this year?

0 Kudos
21,623 Views
1
Report
Reply
AARP Foundation Tax-Aide

Hello @m846771f ,

 

Yes, you should include this income on your tax return this year since it is considered "income in respect of a decedent" because you had unrestricted access to the funds.  To avoid this issue in the future, you should have the account re-titled to your name only so that all future tax reporting is done under your SSN.

0 Kudos
45,194 Views
0
Report
Reply
Contributor

I didn't use all my child support funds from my pay withholdings. I was told that I have time until March 31 ro use it. But due to covid, my son is not going to school and I may not use it.  What happens if I don't use it?

0 Kudos
21,570 Views
1
Report
Reply
AARP Foundation Tax-Aide

I assume you are referring to funds from a Section 125 Cafeteria Plan.

 

Normally you must use the funds or lose them by the end of the year. However, Congress passed the Consolidated Appropriations Act, 2021 that offers more discretion for FSA and dependent care assistance programs. The Act allows for more flexibility when it comes to carrying over unused balances from plan years 2020 and 2021, as well as extending permissible grace periods for these plan years. I suggest you check with your Human Resources department or Plan Administrator for specific information on your plan.

0 Kudos
19,046 Views
0
Report
Reply
Periodic Contributor

I withdrew 325000 from my ira this year in order to pay cash for a home. I did this in April and returned the money to my ira in may. I just got a 1099 from my brokerage and the tax is undetermined. It was my assumption that if I returned it within 60 days no tax was owed. Am I correct or am I in trouble.

20,082 Views
7
Report
Reply
AARP Foundation Tax-Aide

Hello @walker5050 ,

 

You performed what is known as an "indirect rollover" that is tax-free as long as the funds are re-deposited in another (or the same) IRA within 60 days of the original distribution AND you have not performed another such indirect rollover within the previous 365 days.  When reporting this on your 2020 tax return, you must report the gross amount of the distribution as part of Form 1040 line 4a, but you would omit the entire amount from Form 1040 line 4b and write "ROLLOVER" next to line 4b to explain the difference.  If preparing your return using tax software, the software should allow you to omit the taxable amount and indicate the rollover in some fashion.

45,195 Views
6
Report
Reply
Periodic Contributor

One issue with taking funds out of an IRA even with an indirect rollover as described in the question, is that it is regarded as income for federal income tax purposed.  If the person is paying for Medicare B, it could put the person into a high bracket resulting in much higher Medicare B costs. Just something to think about!

0 Kudos
15,882 Views
3
Report
Reply
AARP Foundation Tax-Aide

@tomkro 

 

In this case, the IRA distribution that was timely rolled back to the IRA has no impact on his/her adjusted gross income since there was no taxable portion of the distribution. There would therefore be no impact on his/her future Medicare payments.

0 Kudos
15,635 Views
0
Report
Reply
Periodic Contributor

I thought that the surcharge for Medicare (IRMAA) was based on my adjusted gross income. If I report this rollover as not taxable I believe that it wouldn't be included.  

0 Kudos
14,644 Views
1
Report
Reply
AARP Foundation Tax-Aide

You are correct - no taxable income from the IRA distribution since it was rolled back in time and therefore no addition to AGI which therefore means it won't impact future Medicare payments.

0 Kudos
13,812 Views
0
Report
Reply
Periodic Contributor

I did a Roth conversion from my IRA within 365 days prior. I hope that is not considered an indirect rollover.

 

0 Kudos
15,101 Views
1
Report
Reply
AARP Foundation Tax-Aide

No, a Roth conversion is not considered to be an indirect rollover.

14,034 Views
0
Report
Reply
Periodic Contributor

As many other Americans did this past year, I dabbled in the stock market and was able to make a bit of a profit. In the past, I had no need to file my taxes using anything more than the 1040EZ. Can I still use that form? If not, what exactly do I need to use to claim my meager additional earnings?

0 Kudos
15,543 Views
5
Report
Reply
AARP Foundation Tax-Aide

@Jazzygirlme 

 

First - there no longer is a Form 1040EZ. The only forms are a Form 1040 or a Form 1040-SR for seniors that is exactly the same as 1040 except with larger type.

 

Whether you need to file depends on if your income is above a certain level, which varies depending on filing status, age and the type of income received. 

 

The easiest way to determine if you have a federal filing requirement is to use the IRS Interactive Tax Assistant for this topic: https://www.irs.gov/help/ita/do-i-need-to-file-a-tax-return.

0 Kudos
46,868 Views
4
Report
Reply
Contributor

I received a letter from my 401k.. I was told because of the stimulus money that I received that I would not receive the required distribution this year. Will this raise a red flag on my tax return this year since I received it last year and my income will be less.

0 Kudos
14,092 Views
3
Report
Reply
AARP Foundation Tax-Aide

@pr42836301 

 

Although 'this year' is now 2021, we are assuming you are referring to 2020 in your question. The first two stimulus payments were actually advanced payments of the Recovery Rebate Credit that is part of your 2020 tax return and are not considered income. Also, for 2020, you were not required to take a normally required distribution from a 401(k) or IRA. These are two separate provisions from the 2020 tax law changes that are not related. If you did not receive a distribution from your 401(k) in 2020, you will have no amount to report on your tax return and that is what the IRS will expect. You don't report the stimulus payments on your tax return, but if you received less than the maximum amounts, you do use these payments to calculate any Recovery Rebate Credit you can claim.

0 Kudos
45,429 Views
2
Report
Reply
Newbie

My husband passed away on June 23, 2021, is it best for me to file Head of Household for my 2021 IRS taxes?

0 Kudos
10,295 Views
1
Report
Reply
AARP Foundation Tax-Aide

Hello @ShaydaM705537 ,

 

We are sorry for your loss.  We assume that your husband passed away in 2020 and you are asking about your filing status for your 2020 tax return being filed in 2021.

 

You can file a joint return with your late husband for 2020.  This is usually the best filing status to use.  For next year, if you do not remarry, you may be able to file as Qualifying Widow, Head of Household, or Single, depending on your circumstances.

 

To file as Qualifying Widow, you must generally have a child or stepchild whom you can claim as a dependent, and this filing status can only be used for the first two tax years after your spouse's death.  To file as Head of Household, you must generally have a qualifying person whom you can claim as a dependent.  For both of these filing statuses, you must pay more than half the cost of maintaining a home for you and the child/qualifying person.

 

For more information on filing status, see IRS Publication 501.

 

You can also use this IRS Interactive Tax Assistant to determine your filing status:  https://www.irs.gov/help/ita/what-is-my-filing-status

0 Kudos
10,212 Views
0
Report
Reply
Contributor

Doing my mother in laws taxes and she passed away on November 13, 2020.  Is she still eligible for the $600.00 stimulus check(the second check)?  According to turbo tax she is.

Thanks,

Cynthia McNussen

[email removed by moderation]

0 Kudos
14,431 Views
9
Report
Reply
AARP Foundation Tax-Aide

@cmcnussen 

 

Sorry for your loss and yes - she is eligible for the second stimulus payment as a Recovery Rebate Credit on her 2020 tax return.

0 Kudos
46,188 Views
8
Report
Reply
Contributor

settlement money

Helping my brother who is memory impaired do his taxes. He lost his condo due to non foreclosure about 4 years ago. Bank eventually auctioned off the property and received more than he owed. Several other units were I same situation. Attorney filed lawsuit on behalf of group of 5 people to recover money. In 2020 bank agreed to settlement. Bank sent my brother and attorney a 1099 misc for 68,400. Attorney sent check to my brother for 44,000. The difference was his fee.

Received the following from attorney

“Please note that we are not tax attorneys, so we do not give tax advice. However, because we have handled many of these settlements, we originally engaged a tax attorney to study the best way to characterize these settlement monies.  His conclusion was that it is properly treated as "additional sales proceeds" from the auction by the Bank.  This may mean that the money is not taxable if your "basis" was high enough.  Also, we have been told that because it is a suit to pursue additional sales proceeds from an investment asset, the fees spent on our firm (basically the difference between the $68,400 and the net that was wired to you) should be deductible.”

So my plan is to report this as a home sale, the unusual part to me is the 1099-misc showing the monies received. Dollars involved are well below $250,000 so would not be taxable.  I think I would attach a statement about the 1099 misc?

Advice?

Ron

0 Kudos
2,559 Views
1
Report
Reply
AARP Foundation Tax-Aide

Ron,

 

Due to the multiple legal actions surrounding the property, we cannot give you accurate advice how to handle the specific situation. 

 

The communication from your brother's attorney gives you some guidance based on the specific facts of this transaction. Maybe they would give you an overview on the practicality of your approach it you contacted them. 

0 Kudos
2,528 Views
0
Report
Reply
cancel
Showing results for 
Show  only  | Search instead for 
Did you mean: 
Users
Need to Know

"I downloaded AARP Perks to assist in staying connected and never missing out on a discount!" -LeeshaD341679

AARP Perks

More From AARP