Category: taxes

It’s a good idea for people to find out if they should file using the standard deduction or itemize their deductions. Deductions reduce the amount of taxable income when filing a federal income tax return. In other words, they can reduce the amount of tax someone owes.

Individuals should understand they have a choice of either taking a standard deduction or itemizing their deductions. Taxpayers can use the method that gives them the lower tax. Due to tax law changes in the last couple years, people who itemized in the past might not want to continue to do so, so it’s important for all taxpayers to look into which deduction to take.

Here are some details about the two methods to help people understand which they should use:

Standard deduction
The standard deduction amount adjusts every year and can vary by filing status. The standard deduction amount depends on the taxpayer’s filing status, whether they are 65 or older or blind, and whether another taxpayer can claim them as a dependent. Taxpayers who are age 65 or older on the last day of the year and don’t itemize deductions are entitled to a higher standard deduction.

Most filers who use Form 1040 or Form 1040-SR, U.S. Tax Return for Seniors, can find their standard deduction on the first page of the form.

Taxpayers who can’t use the standard deduction include:

A married individual filing as married filing separately whose spouse itemizes deductions.
An individual who files a tax return for a period of less than 12 months. This could be due to a change in their annual accounting period.
An individual who was a nonresident alien or a dual-status alien during the year. However, nonresident aliens who are married to a U.S. citizen or resident alien can take the standard deduction in certain situations.

Itemized deductions
Taxpayers may need to itemize deductions because they can’t use the standard deduction. They may also itemize deductions when this amount is greater than their standard deduction.

Taxpayers who itemize file Schedule A, Form 1040, Itemized Deductions or Form 1040-SR, U.S. Tax Return for Seniors.

A taxpayer may benefit by itemizing deductions for things that include:

– State and local income or sales taxes
– Real estate and personal property taxes
– Mortgage interest
– Mortgage insurance premiums
– Personal casualty and theft losses from a federally declared disaster
– Donations to a qualified charity
– Unreimbursed medical and dental expenses that exceed 7.5% of adjusted gross income

Individual itemized deductions may be limited. Form 1040, Schedule A Instructions can help determine what limitations may apply.

More information:
Publication 501, Standard Deduction, and Filing Information
How Much Is My Standard Deduction?
Topic No. 551 Standard Deduction

From IRS Tax Tip 2020-17

Taxpayers who work in the gig economy need to understand how their work affects their taxes. A little pre-planning can help make sure gig economy workers are prepared when it’s time to file their tax return.

First things first, here’s a quick overview of the gig economy:

The gig economy is also referred to as the on-demand, sharing or access economy. People involved in the gig economy earn income as a freelancer, independent worker or employee. They use technology to provide goods or services. This includes things like renting out a home or spare bedroom and providing car rides.

Here are some things taxpayers should know about the gig economy and taxes:

• Money earned through this work is usually taxable.

• There are tax implications for both the company providing the platform and the individual performing the services.

• This income is usually taxable even if the:
o Taxpayer providing the service doesn’t receive an
information return, like a Form 1099-MISC, Form
1099-K, or Form W-2.
o Activity is only part-time or side work.
o Taxpayer is paid in cash.

• People working in the gig economy are generally required to pay:
o Income taxes.
o Federal Insurance Contribution Act or Self-
employment Contribution Act tax.
o Additional Medicare taxes.

• Independent contractors may be able to deduct business expenses. These taxpayers should double check the rules around deducting expenses related to use of things like their car or house. They should remember to keep records of their business expenses.

• Special rules usually apply to rental property also used as a residence during the tax year. Taxpayers should remember that rental income is generally fully taxable.

• Workers who do not have taxes withheld from their pay have two ways to pay their taxes in advance. Here are these two options:
o Gig economy workers who have another job where
their employer withholds taxes from their paycheck
can fill out and submit a new Form W-4. The
employee does this to request that the other
employer withholds additional taxes from their
paycheck. This additional withholding can help cover
the taxes owed from their gig economy work.
o The gig economy worker can make quarterly
estimated tax payments. They do this to pay their
taxes and any self-employment taxes owed
throughout the year.

 

Excerpt for IRS Tax Tip 2020-06

The tax filing deadline has come and gone. If you didn’t file a tax return or an extension, but should have,  you need to take action now. Here are some tips to help you: (if you’re living abroad  you have until June 15, 2019 to file for an extension)
• There is no penalty for filing a late return after the tax deadline if a refund is due. If you didn’t file and owe tax, file a return as soon as you can and pay as much as possible to reduce penalties and interest.
• For those who qualify, IRS Free File is still available on IRS.gov through October 15 to prepare and file returns electronically.
• If you don’t qualify for IRS Free File, you can use Free File Fillable Forms to e-file. This option uses electronic versions of IRS paper forms. It does some of the math and works best for those who are comfortable doing their own taxes.
• You can get fast answers about your refund by using the Where’s My Refund? tool available on IRS.gov and through the IRS2Go mobile app. All you need is your Social Security number, tax filing status and the exact amount of your refund. Where’s My Refund? is updated no more than once every 24 hours, usually overnight, so you don’t need to check the status more often.
• If you owe taxes, you can view your balance, pay with IRS Direct Pay, by debit or credit card or apply online for a payment plan, including an installment agreement. Before accessing your tax account online, you must authenticate your identity through the Secure Access process. Several other electronic payment options are available on IRS.gov/payments. They are secure and easy to use. If you pay electronically, you’ll receive immediate confirmation when you submit your payment. Also, with Direct Pay and EFTPS, you can opt in to receive email notifications about your payments.
• If you need more time to pay your taxes, you can apply for an installment agreement with the IRS. The best way to apply is to use the IRS Online Payment Agreement tool. Once you complete the online process, you’ll receive immediate notification of whether your agreement is approved.

No matter how or when you file, you should keep a copy of your tax return and all supporting documents.

 

Courtesy of the IRS: May 10, 2019