It’s All About the Taxes: 5 Things Every Adult Should Know About Their Taxes
This tax season brought upon significant changes for individuals and businesses alike. The primary reason was the passage of the United States Tax Cuts and Jobs Act (TCJA). This law executed the most significant overhaul of the tax code in decades.
The TCJA’s impact was dramatic. Roughly 65 percent of Americans paid less in taxes in 2018. On the other hand, only 6 percent paid more.
There is a lot of confusion surrounding tax season, especially with the new law. Read on to learn all about taxes so that you can meet the Internal Revenue Service requirements. Explore 5 things that every tax filer should know.
1. When Are Taxes Due?
The first thing you need to know is when taxes are due. This guides whether you will file using tax software or hire a tax professional.
For the vast majority of filers, taxes are due in mid-April. In 2020, the specific date is April 15th.
It is possible to request an extension. This will give you more time to file your taxes.
2. Do You Have to File Taxes?
Depending on your income, or lack thereof, you may not need to file taxes. The IRS sets income thresholds each year that determine whether a tax filing is necessary.
This reporting threshold ranges from $12,000 to $25,300. The primary variable for the exact income limit is your filing status. For example, the reporting threshold increases for those over age 65 or married couples filing jointly.
3. What Are Your Withholdings?
To alleviate your tax burden in April, your employer withholds some of your pay for taxes. This amount is determined by what you claim on the W-4 form.
This is a document that is signed when you start a new job. The more dependents you claim on a W-4, the less money your employer withholds for taxes.
4. Are You Itemizing or Using the Standard Deduction?
There are two different methods to reduce your taxable income. The easiest way is to claim the standard deduction.
If you are single, the standard deduction reduces your income by $12,200. For married couples filing jointly, the amount doubles to $24,400.
Itemizing is the more time consuming strategy, however, it could reduce your taxable income even further. Expenses like property taxes and mortgage interest are tax deductible. Add up your deductions to see whether itemizing is the right approach.
5. What Documents Do You Need?
There are a number of tax documents that are necessary to file taxes. Perhaps the most important is a W-2 or 1099-MISC from your employer.
These forms tell the IRS how much money you earned during the calendar year. It’s critical that your tax filing exactly matches these documents.
There are many other important tax documents if you are itemizing. These documents are called 1098 forms and you may get multiple versions from different sources. It is important to retain all these documents for personal tax compliance.
A Recap of All About Taxes
For wage earners, tax season is an annual milestone. It’s important to keep all important tax documents and know the basics of the tax filing system.
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