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How do I know if I need to 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.
To get more specific information on who must file, check out IRS Publication 501. For most people, gross income is the main trigger for filing requirements. For example, in 2019, the filing threshold for single people younger than 65 was $12,200. For married couples filing jointly, it was $24,400 if both spouses were younger than 65.
If you were named as a dependent on someone else’s return and had income, you might also have to file, even if your income was much lower than the general threshold. Publication 501 has more detailed information on when dependents must file.
You’ll also need to file a return if you had at least $400 in self-employment earnings or meet other specific requirements, such as earning untaxed tips, receiving money from tax-exempt churches, or owing alternative minimum tax. IRS Publication 501 goes into details about these and other special situations
What income do I have to pay on taxes?
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.
IRS Publication 525 has details on what counts as taxable income and what doesn’t, and it’s a lengthy list. Not all taxable income is treated the same. Earned income, like your wages, is taxed differently because you pay Social Security tax, Medicare tax, and state and federal income taxes on it.
Unearned income, like child support or Social Security benefits, isn’t subject to payroll taxes, but you do pay federal and sometimes state income tax on it. And some types of unearned income are taxed at a lower capital gains rate, rather than your normal tax rate
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.
The IRS provides an Interactive Tax Assistant Tool to help you determine if you have a dependent
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. You can then use IRS Tax Rate Schedules for the taxable year to determine your bracket, what your marginal tax rate is, and how much tax you might owe.
What’s the difference between a tax credit and tax deduction?
Both tax credits and tax deductions can reduce the amount of tax you must pay. Deductions reduce the amount of income you pay taxes on, which in turn can reduce your tax. Credits are a dollar-for-dollar reduction in the amount of tax you owe.
If you had an income of $30,000 and took a $1,000 deduction, you don’t have to pay tax on that $1,000 of income. The deduction could save you $200 (assuming a 20% tax rate on that $1,000).
By contrast, a $1,000 credit would reduce the actual amount of tax you owe by that $1,000. So if you owed $3,000 in taxes, you’d now owe $2,000 and save $1,000.
What do I need to have to file my taxes with Professional Tax & Business Services?
What you need to file your taxes varies depending on your situation. For example, a tax prep checklist for a self-employed college student may include a 1099 and 1098-T. However, if you weren’t in college and only received a W-2, you could skip those items on your tax documents checklist.
Download our tax readiness sheet to review the information you may need when you are preparing to file your taxes - download here.
Is your consultation Free?
Your first consultation with Professional Tax & Business Services is always Free. We will work with you to answer any questions you have about the tax or other processes free of charge.