If you try to determine the difference between taxable and non-taxable income, remember one basic fact: All income that is not specifically excluded by law is taxable. In essence, any money you receive in the form of wages or tips for work is taxable. In addition, any revenue you earn from property or services, whether cash or non-cash, is also taxable. For example, if you exchange non-cash goods with another party, both of you must include in your tax return the market value of the items. The law excludes certain types of income from taxation, such as: Payouts for life insurance. These are usually not taxable if they are paid to you. However, the amount received above the cost of the policy will be taxed if you cash out a life insurance policy.
Any income from a scholarship is usually not taxable. The money you use for education costs such as books and tuition is not taxed, but it is used for room and board. Payments made to you by an agency may not be taxable if they fall into one of the following categories: Inheritance gifts, child support payments, welfare benefits, compensation for physical injury, cash discounts offered by the manufacturer of the product, reimbursement of expenditure incurred by adoption. If you received a reimbursement from local or state taxes, the money may be taxable. A third party agency may submit a Form 1099-G by mail or electronically. To report any taxable refunds you may have received, you should use this form. Even if you do not receive the form, you still have to report the income, so you should contact the agency to find out how to obtain Form 1099-G.
In 2018, it’s $12,000 for single filers and separate married filers, $24,000 for jointly filing married filers and $18,000 for head of household.
Even if you have no other qualifying deductions or tax credits, the IRS lets you take the standard deduction on a no-questions-asked basis. The standard deduction reduces the amount of income on which you must pay taxes. You can either take the standard deduction or itemize on your tax return — you can’t do both. Itemized deductions are basically expenses allowed by the IRS that can decrease your taxable income. The standard deduction means that you can not deduct interest on home mortgages or take many other popular tax deductions-for example, medical expenses or charitable donations. (But if you itemize, you should hang onto records supporting your deductions in case the IRS decides to audit you.)
The standard deduction is $1,300 higher for those who are over 65 or blind; it’s $1,600 higher if also unmarried and not a surviving spouse. If someone can claim you as a dependent, you get a smaller standard deduction.
The bottom line is this: If your standard deduction is less than your deductions, you should probably itemize and save money. If your standard deduction is more than your deductions, it may be worth taking the standard and saving some time. Try this fast check. Although it is easier to use the standard deduction than to itemize, if you have a mortgage or home equity loan, it is worth seeing whether it would save you money. Use the numbers on Form 1098, the Mortgage Interest Statement . Compare the deduction amount of your mortgage interest to the standard deduction. Property taxes, state income taxes or sales taxes, and charitable donations may also be deductible. Run the numbers in both directions. If you use tax software, it’s probably worth the time to answer any questions you may have about detailed deductions. Why is that? The software can run both ways to see which method will produce a lower tax bill. Even if you end up with the standard deduction, you’ll at least know you’re coming forward.
If you choose not to have taxes withheld from your wages, or if you have not paid enough for each paycheck, you may have to make estimated tax payments. Similarly, self-employed people typically pay income tax by estimated payments. Four Important facts about estimated taxes If you think you need to pay estimated taxes, or if you are looking for more information about making estimated tax payments, please refer to the following tips: If you expect to owe more than $1,000 in federal income tax for 2018, you should be prepared to pay estimated tax.
To determine the amount you may need to pay, you should estimate your total annual income, taking into account any deductions or credits for which you are eligible. Any changes in your status, such as a child’s birth or marriage, may change the amount you are responsible for paying. Those who rely on estimated tax payments usually pay four times a year, on or about 15 April, June and September, and again on 15 January next year. So you’d pay for your 2018 taxes in April, June and Sept. in 2018, and the last payment would be in January 2019. Payments can be made via the internet or by phone. If you wish to send payments to the IRS by mail, you should use the relevant vouchers provided with Form 1040-ES, Estimated Individual Tax.
It can be stressful to deal with the loss of a job, even if you have just been laid off. You’re struggling to find out how to meet the ends, and unemployment benefits can be the answer to the help you’re looking for. You must remember, though, that they are taxable. You must include any compensation you receive from unemployment benefits when calculating your income for the year. This amount should be reflected in Form 1099-G, Certain Government Payments, which details any already withheld federal tax and the amount of benefits paid to you.
Although there are several different types of unemployment benefits, you should typically include any income you have paid under the federal or state government’s unemployment law. You should also include benefits paid to you by a union. Separate rules apply to non-deductible contributions to specific union funds. In the case of non-deductible contributions, you only have to include the amount of income higher than your contribution. You can choose to withhold federal tax from unemployment benefits using FormW-4V, Voluntary Withholding Application. Otherwise, payments based on an estimated tax amount may be required.
If you plan to retire by building a savings plan through an IRA or 401 (k) plan, there is a good chance that you can qualify for a special tax credit. The Saver’s credit is available to pensioners and can help reduce your tax liability. The Saver’s Credit, also known by its extended name, The Retirement Savings Contribution Credit, can provide a maximum benefit of up to $2,000 for married couples who file together ($1,000 for individual taxpayers). The eligibility requirements are based on your annual revenue and your selected filing status.
In order to qualify for the 2018 tax year, the following criteria must be met: A single taxpayer or married couple filing separately, who earned no more than $30,000 Filing as head of the household with an annual income of up to $45,000 Married Filing Jointly taxpayers who have a combined income of up to $60,000 The Saver’s Credit has additional rules that may affect your credit. You must be at least 18 years old and not a full-time student for the year. You can’t also be listed as a dependent on the return of anyone else. Obviously, if you want to claim the benefit on your tax return, you must have actually put money into workplace retirement savings, such as a 401 (k) or similar by the end of 2018. Contributions to an IRA may be claimed as late as the due date for tax returns, typically 15 April 2019. You must file Form 8880, Credit for Qualified Retirement Savings Contributions, in order to claim the credit. Many tax software programs will do this for you if you choose to e-file. The Saver’s Credit is just one of several tax savings that you can benefit from if you save later. You can also deduct any contributions to a traditional IRA.
If you enjoy trying your luck at the tables, watching the slots spin, or hoping to win your horse, any money you have earned from these activities is taxable, the IRS must be advertised. Every once in a while you can enjoy a game of chance, but you should never play your taxes. Follow these basic tips to ensure that the odds remain in your favor at the time of taxation: Revenue from gambling: Anything won from a casino, lottery or horse racing is included in the revenue from gambling. Apart from cash and money, the fair market value includes prizes such as cars and holidays. Tax form: If you receive money for gambling winnings, you can receive a FormW-2 G, Certain Gambling Winnings, to report the income to the IRS.
The payer can provide the form at the time of payout depending on the type of game you played, how much you won and some other factors. If the payer immediately withholds taxes, you will still receive the form. Reporting: Anything won from gambling must be reported as income, even if you do not receive a FormW-2G. Typically, gambling income falls under the “other income” category. Deductions: Losses from gambling can be deducted up to the amount of gambling income you report using Schedule A, Itemized Deductions. If you report winnings of $3,000, you can only deduct losses of $3,000 at most. Receipts: You will need proof, such as gambling logs, statements, tickets or receipts, just like any other deductions. A clear record of all wins and losses should be kept.
You may be entitled to beneficial tax credits when you have children. Some credits are specifically aimed at parents and can be extremely helpful in saving money or in compensating for the cost of raising children. You can claim your child as a dependent in most scenarios, including children who were just born in the current tax year. The following credits are available to parents who meet the qualifications:
Child Tax Credit: You may be eligible to claim the Child Tax Credit for every child under the age of 17 by the end of the tax year you claim as a dependent. The total credit amount is $2,000 per child, but you can qualify for an additional child tax credit if you receive a smaller amount.
Child and Dependent Care Credit: You can claim this credit if you have paid another party for the care of a qualifying person. This benefit applies to any child care expenses incurred for a child under 13 years of age while working or looking for a job.
Earned Income Tax Credit: There is a tax credit for those who earned less than $54,884 in 2018 that can be particularly beneficial for working parents. Parents with three eligible children can earn up to $6,431 of the Earned Income Tax Credit, which must be claimed on their return. Adoption credit: There is a credit for parents who have taken a child during the tax year to claim some of the costs incurred.
Higher education credits: There are two separate post – secondary education credits, which can help reduce higher education costs. You may be eligible to receive either the American Opportunity Credit or the Lifetime Learning Credit if you have paid the expenses to attend college for you or an employee. Both can reduce your federal taxes and the American Opportunity Credit can be reimbursed up to $1,000.
Student loan interest: You can deduct interest paid on certain student loans without separately listing all your deductions on your return.
New rules apply this year to taxpayers who want to deduct any type of medical expenses from their tax return. These new rules may affect your return and before you file you should be aware of them. If you seek deductions for your medical or dental expenses, familiarize yourself with the following guidelines.
Gross adjusted income: This tax year your medical expenses must be more than 7.5% of your adjusted gross income in order to claim a deduction.
Itemize: To claim medical or dental expenses, you must specify your deductions. These expenses can not be claimed in a federal tax return by means of a standard deduction.
Payment during tax year: only expenses you paid during 2018 can be claimed. For check payments, the payment date is usually determined by the day on which the check was delivered or mailed, not the day on which it was paid.
Out of Pocket Costs: Any costs reimbursed by insurance coverage or other third party agency shall not be deducted. You can only pay for yourself, your spouse and your dependents for medical and dental expenses.
Qualifying costs: You can deduct any costs related to the diagnosis, relief, prevention or treatment of an illness. In addition, you can deduct premiums paid for medical coverage and long – term health insurance policies. Expenses for prescription drugs and insulin may also be eligible.
Travel: You may be able to deduct any expenses incurred as a result of using public transport, paying tolls or parking, or using an ambulance if you have had to travel to get medical care. If you use your own vehicle, the standard 2018 medical travel mileage rate is 18 cents per miles.
Can’t Double Dip: If you pay a health savings account or a flexible spending arrangement for any medical expenses, you can not deduct them. Payments from these plans are typically already tax – free.
Health insurance premiums can be expensive, but fortunately there is a tax credit that can help offset the costs for moderate family income. To claim the premium tax credit, three requirements must be met: health insurance coverage must be obtained through the health insurance market. You can select a plan during the open registration period from 15 November 2018 to 15 December 2018.
You can not qualify for Medicare, Medicaid or any other coverage, including employer coverage, which covers a substantial portion of your external costs. When you register for coverage through the market, you can be informed that you are potentially eligible for the premium tax credit. If this happens, you can choose two options from. You can either choose to have the estimated credit amount directly applied to the insurance company, which will reduce your monthly costs instantly throughout 2018, or you can wait for your 2018 tax return and receive the credit in your 2018 return. If you have chosen the latter option, your tax requirement may change. It can increase or decrease your reimbursement. If you apply the credit to your monthly premiums, any changes in your income or family status can change your eligible credit amount. If the credit you receive does not match the figures in the tax return for 2018, you are responsible for any excess amounts paid. Instead, you can get a refund if you have overpaid. Therefore, it is important that you inform the market about all changes in income and family size during the 2018 tax year, so that you receive the appropriate credit.
The right filing status can not only affect how much you owe, but also what credits you are eligible to receive. The filing status you choose can actually determine if you must file a tax return. For IRS purposes, anyone married on or before 31 December is deemed to be married for the whole tax year. For same-sex married couples, special rules apply. Whatever your current residence, if you and your spouse have been married in a state or country that legally recognizes same – sex marriage, you must file in marriage status. It does not matter whether or not your current home recognizes same-sex marriage. If there are more than one filing status, you should choose the one with the lowest tax obligation. For tax returns, five different filing statuses are:
Single. If you are not legally married or if you are divorced or separated under state law, this is your status.
Married filing jointly. For the couple, one tax return is filed together. A spouse who died in the tax year 2018 still has the right to a joint return. After the first year, the surviving spouse may file for the next two years under the Widow status. Separately married filing. A married couple can file separately instead of submitting a return together. This reduces the tax liability of the couple in some cases, but it is also used for those who only want to be responsible for their own taxes.
Head of household. If you are not married, this status may apply if you have paid for yourself and an eligible dependent more than 50 percent of your living expenses. This status is often misused, so when selecting this status it is important to be very careful.
Qualified widow(er) wit dependent child. In addition to other conditions, this status may apply to anyone whose spouse died in the last two fiscal years. Anyone whose spouse died in 2016 or 2017 can be eligible for this year if the additional requirements are met.