Once you start earning money, you should begin thinking about filing your taxes immediately. It is a civic duty that is expected from any income-generating citizen. The Internal Revenue Service (IRS) is the government agency tasked to manage the nation’s taxation, implement tax policies and provide information to serve as a guide on tax duties required from each earning citizen. Find out more details here turbotax-2012.org.
The IRS follows a set of rules that govern how income taxes are enforced and collected. This set of rules, commonly known as the tax code, is also used as a guide to releasing tax refunds, credits, and rebates.
How does the IRS interpret the Tax Code?
The IRS follows a set of rules in the IRS regulations. This is their basis for all the applications of the tax law. However, each tax code differs in regulation while others have no regulation at all.
In the case where disputes with income tax rates are raised, the matter can be taken to the court to decide how the tax code is to be applied.
Answer These Five Tax Questions as Your Guide on Tax Basics
Do I need to file a tax return?
There are different factors that will let you know if you need to file a tax return. These factors can be on the amount of the income you make, your filing status, or if someone will claim you as a dependent.
You are expected to file a tax return if your income is equal or if it exceeds the amount listed below:
- Single – Under 65 -$12,400
- Single – 65 or older -$14,050
- Married filing separately – All ages – $5.00
- Head of household – Under 65 – $18, 650
- Head of household – 65 or older -$20,300
- Married filing jointly – Both spouses under 65 – $24,800
- Married filing jointly – One spouse under 65 – $26,100
- Married filing jointly – Both spouses 65 or older – $27,400
- Qualifying widow or widower with dependent child – Under 65 – $24,800
- Qualifying widow or widower with dependent child – 65 or older – $26,100
You can use the Interactive Tax Assistant tool of the IRS if you need help in determining if you need to file or not.
For dependents, you will consider a few things to know if you need to file a tax return. As an example, you must file a tax return even if you are claimed as a dependent if you are single at the age under 65 and are not blind if the total of your earned income is more than $12,400, your unearned income is more than $1,100, or your gross income is more than $1,100 or $11,850 in the form of earned income.
Earned Income Tax Credit
Sometimes, even if you fall under the minimum income requirement, you would still want to file a tax return to qualify for tax credits that are refundable like the Earned Income Tax Credits. The IRS requires you to file a return if your account is eligible to receive refunds from the IRS.
What is Taxable Income?
Since income is one of the avenues through which taxes are applied, it is important for you to understand which types of income are subject to taxation. Basically, there are two types of income that are subject to taxation. The first type is earned income and the second type is unearned income.
Earned income may come from wages, salary, commissions, tips, unemployment benefits, bonuses, fringe benefits and sick pay.
Unearned income that is taxable can be any of the following: profit from the sale of assets, rents, alimony, interest, dividends, business income, farm income, and even gambling winnings.
There are many ways that taxable income can be reduced. You can talk to tax professionals for help or check at the IRS website for information regarding contributing to retirement accounts.
How to Maximize my Deductions?
You should take advantage of the allowed deductions specified by the government. These deductions can be different types of expenses or minor adjustments to the gross income.
Expenses such as state and local taxes, mortgage interest, charitable contributions, and medical expenses can be used as deductions under itemized expenses.
Which tax forms do I need to prepare?
As your tax situations become more and more complex, you will have to be familiar with the different tax forms used during the tax filing season. These forms are specific to classify the details you are reporting like federal taxes, your sales tax, income deductions, and many more.
W-2 Form: If you are employed, whether as a full-time employee or part-time, your employer will give you this form which indicates the income you have earned along with the amount of the income tax withheld from your salary.
1099 Form: This form is used to indicate other streams of income aside from employments. This is commonly used by freelance agents and contractors. This is also used for income received from rental properties.
1099-NT: Sometimes, your earn from dividends on investments or interest in savings accounts, this is the form to use to report these types of income.
1098: This form details all the interest payments you made on your student loans or interest payments on your mortgage.
You need to develop a system through which you can organize and store your tax documents. This is a crucial step to help you stay away from a stressful tax season. You need to keep certain documents for a specific period of time to make sure you can provide proof in case the IRS would require more information from you.
Get help with a complicated tax filing season
If your tax situation becomes complex, you can onboard third parties like tax preparation services or tax preparation software to help you streamline the process of filing your return.
What’s the best guide on tax filing?
The key takeaway when it comes to your tax filing can be summed up in two terms: Due Dates and Proper Documents.
If you keep monitoring these two things in processing your returns, you will have a less than stressful tax season than most taxpayers.