Tax Preparation FAQ'S
WHAT IS THE DIFFERENCE BETWEEN EARNED AND UNEARNED INCOME?
Earned income is income that was worked for; generally, this is wages, self-employment income, and certain disbursements from partnerships are what fall under this category.
Unearned income is income that is passive, such as unemployment, retirement, interest, dividends, and so on.
WHAT CREDITS DO I LOSE IF I FILE MARRIED-FILING SEPARATELY?
You cannot take the credit for child and dependent care expenses in most cases, and you can only exclude $2,500 of income from an employer's dependent care assistance program. Your capital loss deduction limit is $1,500.
You cannot take the earned income credit, education credits, student loan deductions, or adoption credits. You cannot exclude interest income from a US savings bond.
You can receive half of the joint-return deductions for the exemptions, the child tax credit, the retirement savings contributions, and itemized deductions. If your spouse itemizes, you cannot claim the standard deduction.
If you lived together with your spouse at any point of the year, you can't claim the elderly or disabled credit and you must include 85% of social security or equivalent railroad retirement benefits. Please ask about our offer and compromise services in Houston, TX
WHO AM I ALLOWED TO CLAIM ON MY TAX RETURN?
If you are getting ready for tax preparation in Houston, TX, it is important to note that you are allowed to claim yourself, your spouse, and any dependents that are actually your dependent. They do not have to be related to you to claim their exemption, but they do have to be a qualified relative to claim other credits against them.
MY CHILD WORKS. CAN I CLAIM THEM?
In Houston, TX if you earned three times or more than their income, yes. They should make less than the exemption on a tax return, but that is not always the case. In some cases, as long as the dependent makes less than 3x the amount the parent makes, they can still be claimed.
Note: Dependents must be dependents to be claimed. If they do not rely on you for the bills and for food, and instead pay for it themselves, they are not dependents.
WHAT IS AN EXTENSION?
An extension is a form that extends the deadline to file a tax return by 6 months. This allows individuals to file later than the deadline and not be penalized for failing to file. However, the penalties for failure to pay interest on the balance due will still be assessed until payment in full is rendered.
An extension on a personal income tax return (Form 1040 series) extends the deadline from April 17 to October 15.
Credit Score FAQ'S
WHAT IS A CREDIT SCORE?
A credit score is a number generated by a mathematical formula that is meant to predict credit worthiness. Credit scores range from 300-850. The higher your score is, the more likely you are to get a loan. The lower your score is, the less likely you are to get a loan. If you have a low credit score and you do manage to get approved for credit then your interest rate will be much higher than someone who had a good credit score and borrowed money. Therefore, having a high credit score can save many thousands of dollars over the life of your mortgage, auto loan, or credit card.
WHAT AFFECTS YOUR CREDIT SCORE?
WE WILL HELP YOU IMPROVE YOUR CREDIT BY:
- Showing you how to maximize your debt ratio score, even if paying off credit cards is not an option;
- Helping you remove inaccurate and obsolete credit inquiries from your credit report. Most people are aware of the three credit reporting bureaus, Equifax, Experian and TransUnion. The average difference in scores between the highest and lowest of your credit scores, from the three bureaus, is 60 points. This is the result of the credit bureaus having different items on their report, which may be correct, incorrect or are not reported in full compliance with credit law. According to a recent study, nearly 80% of all credit reports have serious errors on them and this does not even include the even smaller errors for which we look for;
- and If we cannot remove at least 25% of the negative credit items from all three of your credit reports, we will refund 100% of your AUDIT fee.
WHAT CAN YOU DO ON YOUR OWN TO HELP RAISE YOUR CREDIT SCORES?
- Pay all of your bills on time, every time. This includes your utility bills, mortgage and auto payments, and all of your revolving lines of credit like credit cards. Check your credit report at least once a year. You can find out how to challenge bad information on your credit report here.
- Never charge more than 30% of the available balance on any of your credit cards. Banks like to see a nice record of on-time payments, and several credit cards that are not maxed-out. If you are carrying high balances on your credit cards, then make paying them down below 30% a priority. Do use your credit cards – Many people who make mistakes with their credit believe that the best way to fix things is to never use credit again. If you are afraid that you cannot handle your credit cards correctly then the best policy is probably this one: Run only your utility bills on your credit cards each month, and then pay the balance in full by the due date. This ensures that your utility bills get paid on time automatically, and as long as you keep the habit of paying off your credit card balance each month your score will continue to go up. Leave the credit cards locked in a safe or drawer at home.
- Keep your accounts open as long as possible – Even if you are no longer charging on the card. The best policy is to keep those unused accounts open, blow the dust off your card every few months to make a small purchase, then pay it off. How long each of your accounts have been active is a major factor in your credit score.
- Remember that this all takes time – Following the above steps consistently over a long period of time will increase your credit score and allow you to qualify for better loans and lower interest rates. Repairing your credit score does not happen overnight, so if you do these things for a few months and do not see a large increase in your score, do not give up. They are all habits that you will want to maintain throughout your life, as they will help you to keep your finances and lines of credit under control.
HOW LONG WILL CERTAIN ITEMS REMAIN ON MY CREDIT FILE?
- Delinquencies (30-180 days): A delinquency may remain on file for seven years; from the date of the initial missed payment.
- Collection Accounts: May remain seven years from the date of the initial missed payment that led to the collection (the original delinquency date). When a collection account is paid in full, it will be marked as a "paid collection" on the credit report.
- Charge-off Accounts: When a delinquent account is sent to a collections company. This will remain for seven years from the date of the initial missed payment that led to the charge-off (the original delinquency date), even if payments are later made on the charge-off account.
- Closed Accounts: Closed accounts are no longer available for further use and may or may not have a zero balance. Closed accounts with delinquencies remain for seven years from the date they are reported closed, whether closed by the creditor or by the consumer. However, the delinquency notation will be removed seven years after the delinquency occurred when pertaining to late payments. Positive closed accounts continue to be reported for ten years from the closing date.
- Lost Credit Card: If there are no delinquencies, credit cards reported as lost will continue to be listed for two years from the date the creditor is contacted. Delinquent payments that occurred before the card was lost are reported for seven years.
- Bankruptcy: Chapters 7, 11, and 12 will remain on one's credit report for ten years from the filing date. A Chapter 13 bankruptcy is reported for seven years from the filing date. Accounts included in a bankruptcy will remain for seven years from the date reported as included in the bankruptcy
- Judgments: Remain seven years from the date filed.
- City, County, State, and Federal Tax Liens: Unpaid tax liens remain for fifteen years from the filing date. A paid tax lien will remain on one's score for 10 years from the date of payment.
- Inquiries: Most inquiries listed on one's credit report will remain for two years. All inquiries must remain for a minimum of one year from the date the inquiry was made. Some inquiries, such as employment or pre-approved offers of credit, will show only on a personal credit report pulled by you.
INFORMATION THAT CANNOT BE IN A CREDIT REPORT:
- Medical information (unless you provide consent)
- Notice of bankruptcy (Chapter 11) more than ten years old
- Debts (including delinquent child support payments) more than seven years old
- Age, marital status, or race (if requested from a current or prospective employer)
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