Nashville Tenn. CPA Firm with Your Business in Mind.
What does personal income tax pay for?
Not many people enjoy thinking about taxes. There are confusing tax laws and rules not to mention math. Even computer programs don’t make it an easy process. Worst of all, you may have to pay. Taxes are necessary though. The government needs taxes to help finance the country. We need taxes for Medi-Care, Social Security, education, and other social services. Income tax pays government salaries, repairs infrastructure, and helps the government run in general.
Does everyone pay income tax?
For this reason, all United State Citizens pay taxes. Whether you have a job or not, you may have to pay taxes. Requirements change year to year. The requirements are based on amount of income, filing status and age. Individuals on unemployment and those receiving social security benefits are subject to paying taxes. If you work outside of the U.S., you are subject to paying taxes. There may be advantages to filing even if you are not required. The deadline in the U.S. is Tax Day, April 15th. You must submit your completed tax return and any money owed by that date. If not, you should file an extension. You can also make payment arrangements with the IRS if you can not pay the total in full. This installment plan has to be agreed upon by the IRS. This should take place no later than April 17th to avoid even more penalties. Filing can be completed online or by mail to the IRS.
What qualifies as taxable income?
The process can be very simple if you are a single adult without a lot of assets or children. The more you have, the harder it becomes. This is why good tax planning is important. Tax planning can save you money in the long run. Most people that pay taxes have a job. Your employer will provide you with a W-2. This W-2 has to be available by January 31. A company can do this by mailing it to you or providing it in electronic form. This will provide information about your earned income such as salary, bonuses, and benefits. You will also receive records on unearned income as well. Sources of unearned income could be items such as interest or dividends, rent, or gambling winnings. Most money coming to you will be taxable. Child support is one example of non-taxable income. Inheritance and gifts are non-taxable. Be careful, any earnings after they are received may be taxable. IRS Publication 525 has more information on taxable and non-taxable income. It is always a good idea to keep track of any income whether it is taxable or not.
Paying taxes becomes even harder if you are self-employed. Federal taxes still have to be paid. You become responsible for paying the whole burden. You don’t have an employer that pays half or with-holds the amount out of your check each month. You have to pay estimated quarterly taxes. Tax planning becomes a priority.
Examples of tax deductions
Tax deductions aid to the confusion. Tax deductions are one way to lower taxes. Knowing yearly tax rules is the best way to find tax deductions. Tax laws change every year. Consistent deductions exist. The rules surrounding them change. There are two types of deductions, standard and itemized. You can only choose one. In some instances, it is not a choice. You have to take the standard deduction. The amount of the standard deduction is decided on by the IRS. Your standard deduction amount depends on your filing status. Itemized deductions are expenses that you have during the year that the IRS identifies as tax deductible.
Some deductions include:
- Job expenses not reimbursed by employer
- Student loan interest paid
- Medical expenses
- Contributions to non-profit and charity
- Mortgage interest
- Property taxes
- State and local income taxes
- There are other items that you can deduct. You just have to follow the current rules. You can use Form A to find the total of your deductions. Compare your itemized total to the standard deduction amount for which you are eligible. The higher amount is the deduction you should use.
So, make sure you know the current tax rules and tax laws. Invest time into tax planning and pay your taxes on time.