Need for Extra Cash, Tax Implications of Dipping Into Savings Top 2013 List of Taxpayer Dilemmas

Need for Extra Cash, Tax Implications of Dipping Into Savings Top 2013 List of 
Taxpayer Dilemmas 
Top Five Taxpayer Questions Range From Canceled Debt to Military
Residency Issues 
KANSAS CITY, MO -- (Marketwired) -- 04/11/13 --  To get the pulse of
how taxpayers see their financial situations, all one has to do is
step inside one of the 11,000 H&R Block (NYSE: HRB) offices or scroll
through the help section on its At Home solution. As the 2013 tax
season comes to a close, The Tax Institute at H&R Block unveils some
of the top taxpayer questions. 
In prior years, unemployment, foreclosures and dependent care
questions from the sandwich generation dominated the question queue.
This year, the questions are about military residency, canceled debt
and hardship distributions from retirement savings. This shows
taxpayers are still seeking ways to save money, but also may have had
to tap into savings.  
"We are hearing about complicated topics on our digital product's
help line and via the questions being asked at the tax desk," said
Kathy Pickering, executive director of The Tax Institute at H&R
Block. "We often say people's lives and their taxes intersect, and
the proof is in this list. These tax topics are about some of the
bigger life changes." 
The following questions (and answers) are among the top searched by
taxpayers and H&R Block tax professionals.  
Q1. 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? 
While this may seem really complicated, the simple rule is 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. A military spouse
may be eligible for the same tax treatment as the service member.
Because individual situations vary, it's best to consult a tax
professional to be sure. 
Q2. 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. Sometimes when the
canceled debt is taxable income, taxpayers can exclude that income
and reduce other tax attributes, such as a capital loss carryforward. 
Exceptions that allow taxpayers to not claim canceled debt as income
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.  
Q3. Do I owe penalties if I took a hardship distribution from my
Unless a penalty exception is explicitly stated in tax code,
financial hardship is not an exception to the penalty. Generally,
there is a 10-percent early distribution penalty when money is
withdrawn from a 401(k) before the holder is 59 1/2. Following are
some exceptions to this penalty:  

--  When the distribution is made to beneficiaries after the account
    holder's death
--  When the distribution is because of total and permanent disability
--  When the distribution will pay for tax-deductible medical expenses.

Q4. 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.  
Q5. 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 an eligible educational
institution and meet the other eligibility requirements may qualify
to claim education tax breaks. An eligible institution is 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. Individual
institutions should be able to tell students if they are eligible
If tuition is paid with money from a trust, education tax breaks can
be claimed as long as the other eligibility qualifications are met. 
"Taxes really aren't a one-time, annual event," Pickering said.
"Deaths in the family, moves due to job changes and financial
hardships happen all year and impact the tax return. Knowing the tax
impact of these events when they occur can help save stress and
possibly money." 
H&R Block's tax professionals prepare and sign their clients' tax
returns, guaranteeing accuracy and the maximum refund. In-office
preparation services include Second Look(R) reviews and Block
Live(SM), the industry's only video tax preparation solution. H&R
Block At Home(TM) gives do-it-yourself filers the expertise and
guidance of The Tax Institute at H&R Block on their computers, iPads
and smartphones. The new My H&R Block Account lets taxpayers upload
receipts and other important tax season documents securely, to one
place, year-round, for free. The company offers affordable financial
products and services through H&R Block Bank and keeps its offices
open and tax conversation going with clients year-round via blogs,
tweets and Facebook. 
Regardless of who prepares tax returns, taxpayers are legally
responsible for the contents. To find the nearest H&R Block office,
visit or call 800-HRBLOCK. 
About H&R Block
 H&R Block, Inc. (NYSE: HRB) is the world's largest
tax services provider. More than 600 million tax returns have been
prepared worldwide by and through H&R Block since 1955. In fiscal
2012, H&R Block had annual revenues of $2.9 billion with 25.6 million
tax returns prepared worldwide. Tax return preparation services are
provided in company-owned and franchise retail tax offices by
approximately 90,000 professional tax preparers, and through H&R
Block At Home(TM) digital products. H&R Block Bank provides
affordable banking products and services. For more information, visit
the H&R Block Online Press Center. 
About The Tax Institute at H&R Block
 The Tax Institute at H&R Block
is the go-to source for objective insights on federal and state tax
laws affecting the individual. It provides nonpartisan information
and analysis on the real world implications of tax policies and
proposals to policymakers, journalists, experts and tax preparers.
The Institute's experts include CPAs, Enrolled Agents, tax attorneys
and former IRS agents. Building off more than 10 years of research
and analysis from a specialized tax research group at H&R Block, the
company launched The Tax Institute in 2007. 
For Further Information:
Gene King
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