How to file multiple tax returns
Anke van Wyk/Shutterstock Time is running out on tax season for 2014, and according to the Wall Street Journal. the Internal Revenue Service will receive 30 million returns -- or about 20 percent of the total filed -- in the last week before the April 15 deadline.
The last thing many taxpayers want to hear at this point is that they'll have to fill out more than the two returns for Uncle Sam and the state they live in. But there are some fairly typical situations in which you'll have to file in multiple states.
You Moved Mid-Year
If you moved between two states that impose a state income tax during 2013, then you'll almost certainly have to file tax returns for both. The only exception is if you moved early enough or late enough in the year that your income in one state falls below the filing limit -- and even in that situation, some states will make you file if your total income for the year falls above a certain amount.
Usually, you'll have to file as part-year residents in both states. Each return will reflect the income that you earned in that state while you lived there. As a result, most of the time, your income won't be double-taxed, even if the states involved don't allow tax credits against each other's tax liability. But if you continued to earn income from sources within a state even after you stopped living there, you might have to prepare a nonresident return for a separate time or incorporate part-year resident and nonresident status on the same state income tax return, if it's allowed.
You Live in One State but Work in Another
Some people live in one state but work in another. In those cases, unless the states have a reciprocal tax agreement, you'll typically have to file two tax returns: a nonresident return for the state in which you work and a resident return in the state where you live.
Again, many states offer tax credits for state taxes incurred in another state. Typically, it makes sense to complete the tax return for the state in which you work first, as states that offer credits for taxes paid elsewhere typically yield to whichever state was the source of the income.
Once you know how much tax you'll pay as a nonresident worker in the one state, you can often claim all or part of that tax paid as a credit against your tax in the state in which you live on your resident return.
You Have Investments In Other States
If you own stocks, bonds or mutual funds, you usually have to pay tax only in the state where you live, regardless of where a particular company or fund does business. In rare circumstances with more complex investments, you might have to file a state tax return in another state based solely on investment income.
For instance, with master limited partnerships. you're considered to earn taxable income in any state where the partnership operates and generates income. Typically, a given partnership has operations in so many different states that the amount of income allocable to any one state is small enough to avoid having to file. Moreover, many partnerships operate in areas where no state taxes are
owed. But if you do have a large enough position, you could be required to file tax returns if a given state's allocable income is big enough.
Because of the way the IRS shares information with various states, you shouldn't assume that another state won't find out about income you earned there. The safe thing to do is to look at the tax laws governing multiple state returns and make sure that you either file or qualify for an exemption to filing requirements. Otherwise, a state audit could make your life uncomfortable.
Taxpayers may forget that donations they gave last year may get them a bigger refund. If you cleaned out your bulging closet and dropped off clothing or household goods at your favorite charity, this may be deductible on your tax return .
Taxpayers taking a full course load and working toward a degree can receive education benefits through the American Opportunity Tax Credit for college expenses. But even those who just took one class to further their career may be able to take the tuition and fees deduction. With this credit, you can deduct up to $4,000 for tuition and fees, books and educational supplies for you, your spouse or your dependents .
Taxpayers can deduct state income taxes, but what about residents of states that don't have a state income tax? In this case, the state and local sales tax deduction is especially useful because these taxpayers can deduct sales tax paid on purchases. Even people who live in states that pay state income tax can benefit if they paid more sales tax due to large purchases.
The earned income tax credit is a refundable tax credit given to filers who earn low to moderate income from their jobs. The credit can be worth up to $6,044, depending on your income and how many dependents you have, but one in five tax filers overlook this opportunity, according to the Internal Revenue Service. You must file your taxes to get it, so even if you make less than $10,000 (the minimum income filing requirement), you should still file your taxes.
If you were looking for a job last year, you may be able to deduct costs related to your job search -- even if you didn't secure a job. Job search expenses such as preparing and sending resumes, fees to placement agencies and even travel related to the job search can be included.
This credit is often overlooked and seldom talked about. If you have an income up to $29,500 ($59,000 for married filing jointly), you can save for retirement and get a tax credit worth up to $1,000 for individuals and $2,000 for couples if you contributed to a qualifying retirement plan such as an individual retirement account or 401(k). The retirement saver's tax credit is a win-win situation since contributions to your IRA may also be a deduction from income.
Taxpayers who weren't so lucky gambling last year should know that losses can be deducted if they itemize their deductions. However, your amount of losses cannot surpass your winnings, which must be reported as taxable income. For example, if you have $2,000 in winnings and $4,000 in losses, your deduction is limited to $2,000. Make sure to collect documentation such as receipts, tickets and other records to support your losses.Source: www.dailyfinance.com