Frequently Asked Questions
1. How do I know if I must file a tax return?
• Whether you’re required to file a tax return will depend on several factors, including your gross income, filing status, age, and whether you’re a dependent on someone else’s federal income tax return. And you may have to file even if you don’t owe any tax.
2. What income do I have to pay taxes on?
• According to the IRS, income includes money, property or services. Any income is taxable unless the law specifically exempts it, and all taxable income must be reported on your tax return. Some nontaxable income must be reported, too, even though you won’t pay taxes on it.
3. Are state tax filings required?
• Each state maintains individual requirements with regard to residency and non-residency status and subsequent filing requirements. Normally if you are moving overseas for an indefinite period that will exceed one year you file a part-year state return the year you move overseas, and in future years you file non-resident state returns if you have income taxable to the state (rental property, ownership in an S Corporation with offices in the state, etc.).
4. What filing status should I choose?
• Tax filers are treated differently based on household status. To inform the IRS of which rules apply to you, you’ll have to choose a filing status. There are five: single, married filing jointly, married filing separately, head of household and qualifying widow(er) with dependent child. Your filing status affects your tax rate, standard deduction, and eligibility for certain deductions and credits.
5. Why should I file my taxes early?
• The longer you wait to file your tax forms, the longer you wait for your tax refund. The most important reason to file your taxes ahead of the deadline, however, is to save money. The longer you wait to file your taxes, the more likely you are to miss the deadline. If you accidentally miss the deadline, you will be responsible for penalties to the IRS. Waiting until the last minute can also cause problems. If there is an issue with your tax return, you will have less time to refile before the deadline.
6. Do I have any dependents?
• A dependent is a person you’re responsible for supporting. If you can claim a dependent, you can become eligible for certain tax breaks, including the child tax credit. You may also qualify for head-of-household status. You may have a dependent if … You have a qualifying child younger than 19, or under 24 if they’re attending school full time. Your child must either live with you for more than half the year — or qualify for an exception — and must not provide more than half their own support. Your child also can’t file a joint tax return, except to claim a refund. You have a qualifying relative. Your qualifying relative either has to share a specific family relationship with you or must live with you all year long. You must provide more than half their support, they must earn very little, and they can’t be claimed as a dependent by anyone else.
7. To qualify for head of household filing status, do I have to claim my child as a dependent?
• Generally, to qualify for head of household filing status, you must have a qualifying child or a dependent. However, a custodial parent may be eligible to claim head of household filing status based on a child even if he or she released a claim to exemption for the child.
8. How do I know my tax bracket and tax rate?
• The U.S. has a progressive tax system, so not all your income is necessarily taxed at the same rate. Tax brackets refer to the range of incomes taxed at specific rates, while your marginal tax rate is the highest tax bracket applicable to your income. There are seven tax brackets under current tax law. To find out which one you fall into — and what your tax rate is — you’ll need to know your income.
9. Are alimony payments or child support payments considered taxable income?
• Child support payments are neither deductible by the payer nor taxable to the recipient. When you calculate your gross income to see if you're required to file a tax return, don't include child support payments received.
Under divorce or separation instruments executed on or before December 31, 2018, alimony payments are deductible by the payer and taxable to the recipient. When you calculate your gross income to see if you’re required to file a tax return, you should include alimony payments received under such an instrument.
10. What’s all this about credits, exemptions, and deductions?
• Credits, exemptions, and deductions are very important to understand to maximize your tax return. Deductions and exemptions are the main sources of tax reductions. Both reduce your taxable income. In turn, this lowers your total tax bill. Exemptions are different from deductions in that they only apply to people in your family. The more family members you have, the more exemptions you will be eligible for on your tax filing. In contrast, deductions depend on a variety of factors such as student loans, investments, and more. Credits, on the other hand, are simply discounts on your taxes. Instead of reducing your income that can be taxed, credits reduce the tax bill itself.
11. How much will be deducted in qualified medical expenses?
• In 2019, taxpayers can deduct qualified unreimbursed medical expenses that exceed 7.5% of their adjusted gross income, or AGI, as an itemized deduction.
12. May I claim both the child tax credit and the dependent care credit?
• Yes, you may claim both the child tax credit (CTC) and the child and dependent care credit on your return if you qualify for both credits.
13. Can I claim the credit for the elderly or the permanently and totally disabled?
• If you're a U.S. citizen or resident, you may qualify for this credit if before the end of 2018 —you were age 65 or older; or you retired on permanent and total disability and received taxable disability income. A married individual must file a joint return to claim the credit unless the individual lived apart from his or her spouse for the entire taxable year or qualifies to file as head of household.
Even if you meet the above tests, you can't claim the credit if either of the following exceeds certain amounts: your adjusted gross income; or the total of your nontaxable social security benefits, nontaxable pensions, nontaxable annuities, and nontaxable disability income.
14. My spouse and I filling separate returns. How do we spilt our itemized deductions?
• If you and your spouse file separate returns and one of you itemizes deductions, the other spouse must also itemize, because in this case, the standard deduction amount is zero for the non-itemizing spouse. You may be able to claim itemized deductions on a separate return for certain expenses that you paid separately or jointly with your spouse. When paid from separate funds, expenses are deductible only by the spouse who pays them.
15. What tax breaks can I take advantage of?
• This is going to depend a lot on your situation. People with a mortgage or dependents automatically get a few big tax breaks. These are two of the biggest tax breaks, but there are plenty more out there. Anyone contributing to a retirement account is eligible for discounts and tax breaks. If you contribute more money to your retirement account, you’ll pay less in taxes. Many retirement plan contributions are also tax-exempt. On top of that, there are tax breaks for students. Students can receive tax breaks on student loan interest. They can also receive tax cuts for tuition they pay for school.
The Earned Income Tax Credit is another big tax break. This tax break helps people who earn a low amount of income. If you earn less than $20,000 a year, you may be eligible for the Earned Income Tax Credit. This is particularly helpful for part-time workers.
16. What does earned income include?
• Income that must be reported, even if eligible for the Foreign Earned Income Exclusion, includes salary and wages as well as commissions, bonuses, professional fees, and tips; the fair market value of lodging if provided in kind or the amount of any housing allowance (with some exceptions for assignment to isolated areas); use of a car provided by your employer or a car allowance if paid in cash; cost of living allowances; overseas differentials; family separation allowances; tuition for dependents at overseas/private schools; and home leave allowances.
17. What expenses qualify for an education credit?
• Expenses that qualify for an education credit (whether the American Opportunity Tax Credit (AOTC) or the Lifetime Learning Credit) are qualified tuition and related expenses paid by the taxpayer during the taxable year. Qualified tuition and related expenses are tuition and fees required for the enrollment or attendance of the taxpayer, the taxpayer's spouse, or any dependent of the taxpayer at an eligible educational institution for courses of instruction. For the AOTC, the expenses must be paid in a program to acquire a postsecondary degree program. For the Lifetime Learning Credit, the expenses must be paid in a program to acquire a postsecondary degree or to acquire or improve job skills.
For the AOTC provisions, student activity fees are included in qualified education expenses only if the fees must be paid to the institution as a condition of enrollment or attendance. Expenses for books, supplies, and equipment needed for a course of study are included in qualified education.
18. What if I Can’t Pay My Taxes?
• We get it. Everyone has financial struggles, and taxes can throw you for a loop. How you choose to handle tax debt is up to you. If you have a small amount of tax debt, putting the total on a credit card might be a good option. This will give you some more time to pay off the taxes you owe. Personal loans are another good option for paying off tax debts. Banks and credit unions offer many personal loan options that you can use to pay off your debt. Another option is to reach out to the IRS directly. Setting up a payment plan with the IRS can help you pay off your tax debt in a timely fashion without high-interest rates. Finally, you can seek tax relief from the internal revenue service. The IRS has systems in place to help citizens who need tax relief.
19. Will I be charged interest and penalties for filing and paying my taxes late?
• Yes, when you file your tax return late, you'll be charged interest on any unpaid balance and you may also be subject to failure-to-file and failure-to-pay penalties. Interest accrues on the unpaid balance and compounds daily from the due date of the return (without regard to any extension of time to file) until you pay the balance in full.
20. How Will 2018 Tax Law Changes Affect My 2019 Return?
• No More Personal Exemptions- The law used to say that taxpayers could reduce their income by claiming personal exemptions for their spouse, dependents, or themselves. As of 2019, these personal exemptions will no longer exist. Personal exemptions will come back into play in the 2025 tax year.
Standard Deductions Double- Under the previous laws, taxpayers who chose not to itemize their deductions could claim a standard deduction. The standard deduction amount was equal to $6,350 for individuals with a single filing status or 12,700 for married couples. For 2018 taxes, these deductions have increased. Individuals can claim a standard deduction of $12,000 and married couples can claim $24,000.
Changes to Tax Brackets- Tax brackets have changed as of 2018. In the past, there were seven tax brackets. The tax bracket an individual fell into was determined by their income level. In 2018 the tax rate for these tax brackets was lowered significantly. The good news is that this will offer you a higher income tax return for 2019.
21. What are My Self-Employed Tax Obligations?
• As a self-employed individual, generally you are required to file an annual return and pay estimated tax quarterly. Self-employed individuals generally must pay self-employment tax (SE tax) as well as income tax. SE tax is a Social Security and Medicare tax primarily for individuals who work for themselves. It is similar to the Social Security and Medicare taxes withheld from the pay of most wage earners. In general, anytime the wording "self-employment tax" is used, it only refers to Social Security and Medicare taxes and not any other tax (like income tax).
22. Why should I keep records?
• Good records will help you monitor the progress of your business, prepare your financial statements, identify sources of income, keep track of deductible expenses, keep track of your basis in property, prepare your tax returns, and support items reported on your tax returns.
23. What kinds of records should I keep?
• You may choose any recordkeeping system suited to your business that clearly shows your income and expenses. Except in a few cases, the law does not require any special kind of records. However, the business you are in affects the type of records you need to keep for federal tax purposes.
24. How long should I keep records?
• The length of time you should keep a document depends on the action, expense, or even the document records. You must keep your records as long as needed to prove the income or deductions on a tax return.
25. Who Must Pay Estimated Tax
• Individuals, including sole proprietors, partners, and S corporation shareholders, generally have to make estimated tax payments if they expect to owe tax of $1,000 or more when their return is filed. Corporations generally have to make estimated tax payments if they expect to owe tax of $500 or more when their return is filed. You may have to pay estimated tax for the current year if your tax was more than zero in the prior year. See the worksheet in Form 1040-ES, Estimated Tax for Individuals (PDF), or Form 1120-W, Estimated Tax for Corporations (PDF), for more details on who must pay estimated tax.
26. Do I have to pay taxes on my social security benefits?
• Social security benefits include monthly retirement, survivor and disability benefits. The base amount for your filing status is:
$25,000 if you're single, head of household, or qualifying widow(er), $25,000 if you're married filing separately and lived apart from your spouse for the entire year, $32,000 if you're married filing jointly,$0 if you're married filing separately and lived with your spouse at any time during the tax year.
If you're married and file a joint return, you and your spouse must combine your incomes and social security benefits when figuring the taxable portion of your benefits. Even if your spouse didn't receive any benefits, you must add your spouse's income to yours when figuring on a joint return if any of your benefits are taxable.
27. What if I have not filed a return in many years?
• While US taxpayers are normally required to file returns annually, the IRS has a forgiveness program that allows a taxpayer to file the previous three years of returns and pay any tax due. This returns the taxpayer to a favorable status with the IRS.
28. When will I get my refund?
• According to the IRS, most refunds are issued within 21 days for taxpayers who e-filed and who are having their refund directly deposited. Refunds take up to six weeks if you submitted paper returns.
29. What is a spilt refund?
• A split refund lets you divide your refund, in any proportion you want, and direct deposit the funds into up to three different accounts with U.S. financial institutions.
30. Whom can I call with a tax question?
• You can contact us anytime by phone or email. You can use the following phone numbers: (770) 856-1170 or (833) TAX-GEAK- email: info@taxgeaks.com