Diversity Income Tax Service

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12/31/2025

When a taxpayer have one W-2 with both federal and state wages/withholdings and another with only state information and no federal.

Tax preparers can only file a single federal tax return reporting all customer income from all W-2s, and separate state returns as required.

If the forms are from the same employer and the federal information in boxes 1-14 is the same, some software will allow tax preparers to combine the state details on a single entry by adding an extra state line in boxes 15-17.

12/18/2025

Due Diligence Questions

By law, a tax preparer must keep contemporaneous records of their interaction with the taxpayer, asking the taxpayer questions and documenting their answers.

Here are some different kinds of questions taxpre may want to ask.

If the taxpayer has income, does the income reported seem sufficient to support the taxpayer and the qualifying children being claimed? If not, you should ask additional questions pertaining to both the income and the children.

If the taxpayer has self-employment income, ask your client: How long have you owned your business? Do you have documentation to substantiate your business? Who maintains the business records? Do you have separate banking accounts for personal and business transactions? If not, how do you differentiate between the two? Have you received a 1099-NEC or 1099-MISC to support the income?

Ask yourself: Did the client provide satisfactory records of all income and expenses? Are the expenses reported consistent with this type of business? Is the amount of expenses reported reasonable? Are there expenses missing that are typical for this kind of business?

If the taxpayer is claiming Head of Household status, ask your client: Have you ever been married? Is your spouse deceased? If divorced, can you provide a copy of your divorce decree if requested by the IRS?

If separated, can you provide a copy of a separate maintenance agreement if requested by the IRS?

If married, did you live apart from your spouse for the last 6 months of the year and can document that if requested by the IRS? Did you maintain more than half of the cost of the home and can you document that if requested by the IRS?

By asking detailed questions and clarifying unclear information, as a tax preparer not only comply with IRS regulations but also to ensure the accuracy of tax returns especially those claiming specific credits or filing statuses, protect both tax preparer and the clients from potential audits, disallowances, penalties, and interest.

Is It Time To Stop Tossing Your Paystubs? Time To Take a Closer LookThe abbreviation "EMB" on a check stub most likely s...
12/08/2025

Is It Time To Stop Tossing Your Paystubs? Time To Take a Closer Look

The abbreviation "EMB" on a check stub most likely stands for Employer-Paid Benefits or Employee-Paid Benefits.

This indicates contributions made toward benefit plans such as health insurance or retirement savings.

The specific meaning can vary by employer, as companies often use customized codes for items on a pay stub. To be certain, you should check with your employer's human resources or payroll department.

It's advised to read your paycheck to ensure you are being compensated correctly, catch errors in pay, hours, deductions, correct tax withholdings, your name, Social Security Number, and other details are accurate to prevent tax filing errors.

A common, unfortunate discovery made at tax time is when employees realize their tax withholdings were insufficient, leading to a substantial balance due." As a taxpayer, you are responsible to pay the taxes owed regardless of errors made by third parties, such as your employer employer's error. You can inform your employer of their error and ensure they fix their withholding for future pay periods by submitting a new Form W-4.

Regularly checking your pay stub is a fundamental financial habit for financial control and accuracy, errors happen more often than you think.

12/04/2025

Test ODC for a Qualifying Relative

This is the biggest tax mistakes people make when claiming tax credits. To avoid common tax mistakes, taxpayers should familiarize themselves with the specific IRS rules for claiming a qualifying relative as a dependent.

What is ODC?

An Other Dependent Credit (ODC) qualifying relative is a dependent, who is not your qualifying child, for whom you provide more than half of their support. The ODC is a nonrefundable tax credit of up to $500 per qualifying person.

The relationship can be a wide range of blood or legal relations, including: parents, siblings, half-siblings, grandparents, stepparents, foster children, nieces, nephews, aunts, uncles, and certain in-laws. Unrelated individuals who lived with you for the entire year as a member of your household (cousins only qualify if they live with you all year).

To claim someone as a qualifying relative for tax purposes, you must meet the following tests:

Not a qualifying child: The person cannot be your qualifying child or the qualifying child of any other taxpayer.

Member of household or relationship: The person must either live with you all year as a member of your household or be related to you in a specific way.

Gross income: The person must have a gross income below a specific threshold (e.g., less than $5,200 for tax year 2025).

Support: You must provide more than half of the person's total financial support for the year.

Joint return: The person must not file a joint tax return for the year, unless it is filed only to claim a refund of withheld income tax or estimated tax paid.

Here is a sample question that tests the rules for a qualifying relative:

Question: Your half-sibling, who is 28 years old and not a student, lived with you for the entire tax year. He earned $6,000 from a part-time job during the year, and you provided more than half of his financial support. He did not file a joint return. Can you claim him as a qualifying relative?

Answer: No. While he meets the relationship, residency, and support tests, his gross income of $6,000 is over the $5,200 threshold for tax year 2025.

It is essential for all taxpayers to carefully review their tax returns before filing to ensure accuracy and avoid common mistakes.
Verify that you qualify for all claimed credits and deductions. Double-checking your return helps ensure you receive the correct refund amount and avoids future issues with tax authorities.

Hope this information is helpful! If you have any further questions, please don't hesitate to reach out.

D.I.T Solutions

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