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.
Since it was introduced nearly 45 years ago, earned income tax credit has boosted the income of low and moderate income staff. The IRS reports that four out of every five EITC employees claim the benefit, but they would like to see everyone who qualifies benefit from it. If you qualify, this tax credit can help you to make this tax season a little more room for your budget. Some facts about the EITC you need to know: eligibility: even if you have not previously qualified, if your family or financial situation has changed, you may be eligible for this year. Review the requirements annually, as you must claim your tax credit in order to receive it. You have to work throughout the year and earn less than $54,884 in income. You can still file a credit claim even if you do not have to file a tax return.
Rules: The EITC has a certain set of guidelines and it is important to correctly follow them in order to obtain the credit. Consider this: You can not file separately Married Filing. All parties listed on the return must have a valid Social Security Number (you, your spouse and dependent children). Income like wages, self – employment and agricultural income must have been earned in the tax year. You may be eligible for credit if you are married or single, whether or not you have children. However, without children, you have to meet additional restrictions on age, residence and dependency. For all military personnel serving in a fighting zone, special guidelines apply. The income tax credit can reduce the amount of federal taxes you owe that can reimburse you. Qualified taxpayers may receive up to $6,431 of a credit. That’s enough reason to see if you qualify today!
Many taxpayers who receive a refund choose to deposit directly. Actually, it is the best way to receive payment for a federal tax refund. It is completely safe and delivers the cash you have the right to, especially when combined with electronic filing methods, quickly and easily. About 95 million taxpayers opted for direct deposits in 2018 and its popularity is expected to continue in 2019.
When you submit this tax season, consider directly placing your refund on your bank account. Four reasons for choosing a direct deposit–It’s so easy, it’s nearly too easy. Almost. Almost. With a direct deposit, your refund is automatically credited to your bank account and you save the steps of actually going to the bank, waiting in line and depositing the check. Security–Since no physical check is issued, you don’t have to worry about it being lost or stolen or waiting to be sent in the mail. Simplicity–Again, almost nothing is done. You just have to choose the direct deposit option in the tax software or check the tax forms section. Both will have detailed instructions, which essentially only require your bank account number and routing.
Choices–you can let the government do it for you instead of transferring your money around. You may decide to divide your refund into three separate bank accounts. In addition to the checking and savings accounts, various pension plans, health or education accounts may be eligible for deposit. You should check with your bank before you decide to deposit directly if you file your tax with your spouse. Some financial institutions require both names to be included in the deposit. In addition, you should never deposit your refund into the account of another person. Always ensure that you have the correct bank account number and that the account is either in your name or in the name of your spouse, if not both.
If you heard about the Alternative Minimum Tax, you probably wonder if it applies to you and what to expect if it applies. If your income exceeds a specific amount, you may fall under the Alternative Minimum Tax guidelines. The purpose of the AMT is to keep a minimum tax payment for those who choose certain credits. Some important fact about the AMT that you should know in order to better prepare this tax season: if your taxable income, including adjustments, is higher than the AMT exemption amount based on the filing status you use, you will be required to pay. Individuals with an annual income below the exemption amount usually do not have an AMT.
The Alternative Minimum Tax (AMT) exemption amount rises in 2018 to $95,750 ($191,500, for married couples filing jointly).
Alternative minimum tax guidelines are more detailed than regular income tax rules, so it is important to know that you are correctly filing. The use of tax software can make it easy and accurate to file your return. Electronic filing software can calculate your AMT automatically, if you have to pay. You must file Form 6251, Alternative Minimum Tax for individuals, if you owe the tax.
Personal or investment property owned by you is typically a ” capital asset. ” Examples include materials such as a house or a car and investment items such as stocks and bonds. When a capital asset is sold, capital gains or losses occur. Whether you consider selling a capital gain or loss depends on the amount you receive for the asset compared to what you originally paid for it. Any profits in capital must be included in your annual income. Those with a net investment income above the statutory threshold have been subject to a net investment income tax of 3.8 per cent. NIIT applies to persons, properties and trusts. The loss of capital can be deducted from the sale of investment property, but not from personal property. vs. Long-Term. Short – term Whether a capital gain or loss is considered to be long – term or short – term depends on the duration of the property’s time.
The property owned for more than one year falls under the long – term definition, while the property owned for less than one year is regarded as short – term. A person who earns longer – term gains than losses is considered to have a net long – term gain. A ” net capital gain ” is achieved when net long – term gains exceed short – term losses. Tax rates Net capital gains tax rates will vary depending on income. The maximum net tax on capital gains increased is 20% in 2018 and many taxpayers still fall below the 0 or 15% rate. Certain types of net capital gains may be subject to a tax rate of 25%-28%. Capital loss can be deducted if it is more than any capital gains. You can claim them in your tax return as a loss, although they are limited to $ 3,000 per year. If you are married but file separate returns, you have a capital loss deduction of $ 1,500. If you have a net loss of capital above the maximum limit, you can deduct the amount remaining in the tax return of the following year, treating the loss as if it occurred during that year. To report capital gains and losses, you must submit Form 8949, Sales and other capital asset provisions. In addition, you must submit your regular federal tax return with Schedule D, capital gains and losses.
Tax time can be confusing if you are a self – employed. It is not difficult to file a federal tax return, and with a little information, independent contractors and small business owners can easily file returns just like the rest of the taxpayers. Understanding what is classified as self – employed income and your tax liability is key to a smooth process of filing. Follow these tips for easy implementation of taxes.
Income from self-employment includes anything you made doing part time work as well as profits from your regular job. When filing a return, you are required to include a Schedule C, Profit or Loss from Business, or Schedule C-EZ, Net Profit from Business with your Form 1040.
If you have profited from work or your business, you may be subject to a self-employment tax, which includes Medicare and Social Security taxes. To determine the amount of the tax you have to pay, fie Schedule SE, Self-Employment Tax, with your regular return.
You can be charged penalty fees if you haven’t paid enough taxes, so it’s critical to keep records of all deductions and payments. You may be required to make tax payments, based on income that isn’t subject to withholding, to ensure you don’t get penalized.
Any deductions must be deemed necessary, and can’t be uncommon. The expense must be typical to your industry, and required to help your business run smoothly and efficiently.
Not much can make you happy when it’s time to pay taxes. During the tax season, the tax credit can be your friend and ally, so it is important to know for which credits you can qualify. Tax credits reduce the amount of tax that you pay and some of them are even reimbursable. You can still get a refund if you qualify for a refundable credit even if you do not have to pay any taxes. The following five tax credits can make taxation time a bit more friendly.
For those who work but don’t make a lot of money, Earned Income Tax Credit is available. You can earn up to $6,431 credit and can be reimbursed. Eligibility is based on total income, status of filing and number of employees. Under certain circumstances, individual employees with zero employees are eligible for credit.
Child and Dependent Care Credit is available to those who use daycare or daycare services to provide children under 13 years of age with child care. This tax credit is not only for children and can be claimed for expenses for a disabled spouse or other dependent adult.
Child Tax Credit reduces your tax liability by $ 2,000 for each child under the age of 17, which you claim to be a household dependent. There are additional requirements for eligibility, although this credit can help to compensate for the costs of raising children.
The saver’s credit is available to people planning to retire. If you contribute through your employer to a pension plan or IRA and your income is less than $ 60,000 per year, you can qualify.
American Opportunity Tax Credit can help to make the four – year college after high school a bit cheaper. Each eligible student may receive up to $ 2,500 if he or she is enrolled for a full academic period of at least half time. This credit requires that you complete Form 8863, Education Credits, to be included in your tax return, even if you do not owe anything.
A retirement fund is a smart financial decision to help offset the costs associated with life after employment. However, situations can occur that require you to withdraw some cash earlier than you expected from your savings plan. In this way, you can activate an additional tax and report withdrawals to the IRS. The following facts refer to early withdrawals from pension funds and can help you to file taxation times. Early withdrawal is defined as any money removed before the age of 59 1⁄2 from the pension savings. Any withdrawals during the fiscal year have to be reported to the IRS. You will probably have to pay income tax on the money you have received and you can pay an additional 10% withdrawal tax. However, this additional tax is not applicable to withdrawals which are not taxable. If you withdraw the amount you cost to participate in the pension plan, including all previously taxed contributions before you are added to the plan, you will not have to pay tax.
Another tax free withdrawal is a roll-out. Rollovers take place when you move your assets from one plan to the next. You usually have a period of sixty days to move your assets to the second plan after they have been withdrawn from the original fund. The rules for pension plans and IRAs are different, but there are exceptions to paying the additional 10% withdrawal tax. In addition to your regular return, early withdrawals require the filing of Form 5329, additional charges on qualified plans (including IRAs) and other favored tax accounts.
If you are a parent and have to work, there is a good chance that you will have to pay for your child’s care during work hours. This can be quite expensive, but thankfully there is a tax credit which can help to compensate for the cost of childcare. The is the Child and Dependent Care Credit available to working parents who pay for child care. The IRS lists the following ten credit facts, which you must know to make full use of:
If you pay someone in the last tax year to look after your child, dependent adult or disabled spouse, you may qualify. You have to prove that the care was necessary to obtain work or that you were scheduled to work for hours. This also applies to your spouse if you file together. To qualify, a dependent must be a child under the age of 13 or a spouse or adult dependent who is unable to take care of himself, whether mentally or physically. In addition, they have resided in your home for more than half a year. While there are special rules for disabled spouses or students, you must earn income to qualify if you file with your spouse. If you have a single file, you’ll need wage proof. You can not claim expenses you paid for a child’s car to your spouse, a child under the age of 19 (even if the child is not your dependent), or to the parent of a qualifying person or dependent.
The tax credit can compensate for up to 35% of the cost of care and depends on your total income. The threshold is $ 3,000 per person and up to $ 6,000 per person for two or more dependents. If you receive benefits from an employer for dependent care, there are additional rules. For more information, see Form 2441, Child and Dependent Care Expenses. You must provide the social security number of the person qualifying for the loan. You will also have to provide the name, address and telephone number of the company or person who cared for the credit. A social security number is usually sufficient for an individual or a company’s identification number for an employer. In addition to your tax return, you will need to submit Form 2441 to claim the credit.
There is a variety of status in which you can file your taxes and the difference between them can help you determine which status you should file. At tax time, you can make the process as easy and smooth as possible with all the help you can get. What are the tax ratings? You can choose to file your taxes under one of five different classifications: single, married, separate married, householder or widow with dependent child. You can only choose one, so if you have multiple statuses that match your situation, you should choose the one with the biggest tax benefits.
It may seem quite straightforward to file as a single person, but there are some situations that can affect a single status. If you were separated by the last month of the year, you are considered to be a single person for the whole tax year. If you are not married and have no dependents, you are eligible to file individually. Cancelation and divorce are situations where you would also file as one person. However, if you are single or widowed in the year, you would have to change your status to either head of household or widow.
Married Filing Joint
As with the single status, married file requirements are relatively simple. Legally married couples who live together can file as married even for a small part of the tax year. Common law couples may file as married if their union is legal in their country of residence. If you do not live with your spouse but are not legally divorced or separated, you must still file as a married person. Married couples have the option of submitting a joint tax return processing household income through a single return. This requires both spouses to sign the tax return form and date it. The joint filers share the responsibility of paying all taxes, deductions, credits and exemptions due to them. Some clauses do not require joint responsibility, such as innocent spousal relief, liability separation for those who have not lived together for the tax year or equitable relief. If a spouse can not sign the joint return, such as the deployment of the military, the primary filer can sign as a proxy for the other spouse as long as a written explanation is included.
Married Filing Separate
Tax status used by married couples who choose to record their income, exemptions and deductions on separate tax returns. In most cases, married registration offers the most tax savings, especially if spouses have different levels of income. There is, however, a potential tax advantage to filing separately if a spouse has substantial medical expenses or various itemized deductions— or if both spouses have about the same income.
If you have been widowed in the tax year and you have not remarried, you can file for that year with your deceased spouse. For the next two years, an unmarried widow can file with qualified dependents as a widow. If you remarry that same year that your previous spouse passed away, you should file separately with your current spouse and marry the deceased spouse.
It may seem complicated to determine the status of the file, but it is a crucial step in completing income tax returns. Once you have investigated the benefits that each status can offer you, you can make an informed choice about how to file and what the requirements for each status are.