If you're not a tax expert, you'll most likely have questions, especially since the tax code can change from year to year. To make your tax filing easier this year, review some of these frequently asked tax questions and answers.
1. What filing status should I choose?
Your filing status can determine your standard deduction and your eligibility to claim certain tax deductions or credits but choosing one isn't always straightforward. If you're married and separated, for example, you may be unsure whether your status should be married filing separately or head of household. Fortunately, the IRS offers a free tool you can use to narrow down which status to file.
2. What income is taxable?
This is a common income tax question among people who have income from sources other than a traditional full-time job. For example, if you're running a side business you may wonder whether that money has to be reported. IRS Publication 525 goes into more detail about what's taxable and what isn't.
3. Should I claim the standard deduction or itemize?
Deductions reduce your taxable income for the year, and there are two ways to claim them on your tax return. Taking the standard deduction allows you to deduct a set amount, based on your age and filing status, while itemizing allows you to deduct individual expenses. Visit the IRS website to stay up to date on standard deduction amounts.
4. Are there any updated deductions I need to know about?
The Tax Cuts and Jobs Act made changes to several deductions, including capping the state and local tax (SALT) deduction at $10,000 and changing the guidelines for deducting mortgage interest. It also eliminated deductions for these expenses altogether:
- Home equity loan interest paid (excluding loans used exclusively for home improvements)
- Moving expenses
- Unreimbursed employee expenses
- Unrestricted casualty losses
5. Who can I claim as a dependent?
Claiming dependents on your tax return could save you money if you're able to qualify for certain tax breaks, such as the Child Care Tax Credit or student loan interest deduction. To claim someone as a dependent, they must meet certain IRS guidelines.
Specifically, a dependent must be a qualifying child or a qualifying relative.
6. What happens if I miss the filing deadline?
Not filing your taxes on time can trigger the failure-to-file penalty, which is 5% of your unpaid taxes due each month if you owe. If you don't think you'll be able to file by the April deadline, you can request an extension, which gives you six additional months to prepare your return and file. Interest will accrue on any outstanding taxes owed during this period.
7. What happens if I can't pay what I owe?
If you owe taxes and don't pay them, you can be charged a separate failure-to-pay penalty, which is one half of one percent of your outstanding taxes owed. If you file late and pay late, your maximum penalty is 5% per month. If you don't think you'll be able to pay on time, start planning now. Consider how you plan to pay your balance and be sure to explore a payment plan with the IRS.
Want to learn more? Explore other personal finance considerations on the Protective Learning Center.