Common Questions About Filing Taxes
Most people dread filing their taxes every year. They worry they will make a mistake and end up being audited. Nobody wants to end up on the wrong side of the Internal Revenue Service because it remains the world’s largest collection agency today. What common questions arise regarding the filing of taxes?
What is the Best Way to Reduce a Tax Bill?
Individuals may reduce their tax bills with the help of deductions and credits. Deductions lower the taxable income, while credits are used to reduce tax liability. Men and women may reduce taxable income with the help of a retirement plan or account. In addition, they may benefit from a health savings account or flexible spending account. Many people find they are eligible for the child tax credit, a credit designed to reduce the cost of raising children. This credit benefits parents, as it reduces their bills dollar for dollar. Speak with a company offering tax services to learn about other credits and deductions that may reduce a tax bill.
Which Filing Status Should Be Used?
The IRS treats taxpayers differently based on the status of their households. A person might choose from single, married filing separately, married filing jointly, head of household, and qualifying widow(er) with a dependent child. The taxpayer must select the right status, as it determines the standard deduction, tax rate, and which deductions and credits the taxpayer may receive. An interactive tool provided by the IRS helps taxpayers determine which filing status is right for them, or the person may wish to work with a tax professional to make this determination.
Which Deductions Can a Taxpayer Claim?
Most taxpayers may claim either the standard education or itemize deductions to lower taxable income. In addition, individuals who are self-employed and those who own a business may save money, as they can claim deductions related to running and maintaining the business, including deductions for self-employment taxes and health insurance. Employees can make contributions to an employer-sponsored retirement plan and save on taxes. The same holds when they contribute to an HSA, FSA, or IRA. Student loan interest, mortgage interest, and more may also be deducted on a person’s taxes. Other deductions and credits a person might be eligible for include the child and dependent care tax credit and the deduction for medical expenses.
Who Qualifies as a Dependent?
Most parents realize they can claim their young children as dependents on their taxes. However, other people may qualify as dependents for tax purposes, and this could help the taxpayer. They may find they are eligible for tax breaks, such as the child tax credit, or can file as head of household. Dependents include children younger than 19 and children between the ages of 19 and 24 who are in school full-time. This child must live with the taxpayer for over six months of the year and provide less than half their own support. These children cannot file a joint tax return either unless doing so will give them a refund.
Today, many adults find they must care for their aging parents or relatives. The IRS might allow them to claim these family members on their taxes. However, the taxpayer must ensure this person meets the income requirements and cannot be claimed on another taxpayer’s tax return. If someone else may claim this person, the taxpayer cannot add them on the tax return.
What If You Can’t Pay?
Anyone who owes taxes but cannot pay the bill should still file taxes on time. The IRS works with these individuals and offers multiple payment plans. However, failing to file taxes by the deadline leads to penalties and interest. Although the IRS will assess penalties and interest when the taxpayer requests a payment plan, they are less than what a person will pay if they file their taxes late.
Ask for help when completing your federal income taxes or if you need help with state tax filing. It’s always best to request this help before things escalate and the IRS requests an audit. Spending money on a tax professional is wise, as you have peace of mind knowing the odds of this happening have decreased significantly.
About Academy West Insurance:
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