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Tag: tax penalty

Litchfield, NH Resident Worries About the Implications

If you missed the tax deadline for only the past year’s tax return, you should go ahead and file as soon as
possible. However, if you have missed multiple years of filing taxes the IRS will require you to submit
the past six years of tax returns. Late filers may be hit with failure-to-file penalty from the IRS. The
amount of this fine is based on the amount of unpaid taxes and how late the return is filed. This penalty
is 5% of the unpaid taxes for each month the return is late.

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How Does Filing for Bankruptcy Affect Tax Debt?

Milford, NH Resident Weighs His Options

Filing for bankruptcy is a difficult decision, and one that should not be taken lightly.  While under federal bankruptcy law this will stop creditors from chasing you, tax debt is treated differently being considered nondischargeable priority debt.  With exceptions, bankruptcy will not eliminate this type of debt and it is given priority over other claims.  If you have a tax lien against your property, filing for bankruptcy will not remove the lien and the IRS will still have a claim to your property until the debt is paid.

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Goffstown, NH Resident Has Questions

Head of household tax filers can claim significantly more tax deduction than their single counterparts.  To qualify for head of household status you must be unmarried or living separately from your spouse for at least six months of the year.  Temporary absences for work or school are not considered living separately.  The head of household must pay more than half of the expenses for the home, including rent or a mortgage, utilities, repairs and property taxes.  You must have a qualifying dependent, such as a child or elderly parent, residing in the home the majority of the year.

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Hollis, NH Resident Seeks Help

The American Opportunity Tax Credit (AOTC) allows a maximum $2,500 per child per year for those paying for an undergraduate tuition.  This credit can only be used for qualifying expenses that are not being paid with a 529 distribution.  The Lifetime Learning Credit offers a maximum credit of up to $2,000.  The Lifetime Learning Credit is not restricted to undergraduate study and can be used in graduate programs as well.

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Common Tax Return Errors

Amherst, NH Resident is Careful to Avoid These Mistakes

Filing before you have all your tax documentation is a common mistake.  Without this necessary paperwork finalized, some of the numbers in your tax return may not be accurate.  The 2021 Child Tax Credit statements were mailed at the beginning of the year to families that received this money.  If the money on this statement and that reported on your tax return are not in sync, this will require a manual review by the IRS.  Math errors in your tax return can be a red flag for an audit.  It is important to make sure that your calculations and figures are correct prior to filing.

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Brookline, NH Resident Looks to Plan Ahead

Employers and financial institutions have until January 31st to send your end of year tax documents.  Knowing that this will be coming soon, it is a good idea to keep an eye out for these critical items.  This includes a W2 from employers, 1099-INT and 1099-DIV from financial institutions documenting interest and dividends earned throughout the year, Form 1098 outlining any mortgage interest paid, and additional 1099 forms for other income earned.

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How Does a Stock Sale Affect Your Taxes?

Hudson, NH Resident Seeks Clarity

Stock shares sold from a regular brokerage account will be subjected to capital gains tax.  If the assets were owned for less than a year, this is short-term capital gains.  For assets that you have had longer, you will need to pay long-term capital gains on the profit.  Short-term capital gains are typically the same tax rate as your current tax bracket, while long-term capital gains can be anywhere from 0% to 20% depending on your taxable income and filing status.

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What to Do if You Can’t Pay Your Tax Bill

Hudson, NH Resident Has Concerns

If you cannot pay your tax bill when it is due, the outstanding amount owed will begin to accrue interest and penalties.  If time goes on without any payment to the IRS, they may put liens on your property or garnish your wages.  In extreme cases of tax evasion, violators may be subjected to jail time. 

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How Will the Child Care Deduction Affect Your Taxes?

Nashua, NH Resident Looks for Answers

Child tax credit payments began over the summer and will continue through the year for qualifying families.  When you go to file your 2021 taxes, you will only be eligible for half of the normal child care credit because the other half was already received throughout the second half of 2021.  Since the deduction is based off of your 2020 income, a significant increase in your income may leave you owing some of the money back to the IRS if it exceeds the thresholds set. 

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How to Avoid Tax Penalties on a 529

Amherst, NH Parent Has Questions

A 529 is a great way to save for education expenses.  Withdrawals are tax-free when used on qualified education expenses.  However, if the money is withdrawn for non-qualified expenses or if there is money left over to be withdrawn after all expenses are paid this is considered taxable income.  In addition to paying taxes on the leftover amount, you will also incur a 10% penalty for these withdrawals.

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