Do I Have To Claim The Credits
No, you never have to take advantage of tax breaks, but why wouldnt you? Yes, filing taxes can be an intimidating hassle. But it can be well worth it. And taking advantage of any available tax breaks while minimizing your tax bill is a smart way to give yourself a financial boost.
Acorns does not provide legal or tax advice. Please consult your tax and/or legal counsel for specific tax or legal questions and concerns.
Stacy Rapacon is a freelance writer, specialized in personal-finance topics including investing, retirement, and smart spending. Her work can also be found on Kiplinger.com, U.S. News and World Report, CNBC, and other publications.
How To Figure Estimated Tax
Individuals, including sole proprietors, partners, and S corporation shareholders, generally use Form 1040-ES, to figure estimated tax.
To figure your estimated tax, you must figure your expected adjusted gross income, taxable income, taxes, deductions, and credits for the year.
When figuring your estimated tax for the current year, it may be helpful to use your income, deductions, and credits for the prior year as a starting point. Use your prior year’s federal tax return as a guide. You can use the worksheet in Form 1040-ES to figure your estimated tax. You need to estimate the amount of income you expect to earn for the year. If you estimated your earnings too high, simply complete another Form 1040-ES worksheet to refigure your estimated tax for the next quarter. If you estimated your earnings too low, again complete another Form 1040-ES worksheet to recalculate your estimated tax for the next quarter. You want to estimate your income as accurately as you can to avoid penalties.
You must make adjustments both for changes in your own situation and for recent changes in the tax law.
Corporations generally use Form 1120-W, to figure estimated tax.
These Situations May Require A Tax Return
You might also be required to file for reasons other than, such as if youre:
- Self-Employed and earned at least $400
- Received payment on a 1099-MISC or 1099-NEC form
- Bought health insurance from a state or federal marketplace
Just like the tax code, trying to determine if you make enough income to file a tax return can get involved. If you are unsure, its best to speak with a tax professional or use DIY tax software to see if it makes sense to file.
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When To File A Return Even If Not Required
Just because you are not legally required to file a tax return, that doesn’t mean that you shouldn’t. You should file if one of the following applies.
- Income tax was withheld from your pay
- You made estimated tax payments for the year
- You had any part of a tax overpayment for last year applied to this year’s estimated tax
- Qualified for the earned income tax credit
- Qualified for the child tax credit
- Eligible for the refundable American opportunity education credit
What Happens If You Don’t File A Return
What happens if you fail to report income this year? You won’t get arrested. The IRS doesn’t have any tax police out looking for non-filers. But, eventually, bad things will likely happen and get worse over time. Sooner or later, the IRS will probably discover you should have filed a return. This usually happens because third parties reported to the IRS payments they made to you. This could be any of the following:
- Salary an employer reports on Form W-2,
- Income you earned as an independent contractor reported by your clients on Form 1099-MISC, or
- Interest income reported by a bank or other financial institution on Form 1099-INT
IRS computers will check and see if you reported this income on your timely filed tax return. If there is no return on file, the IRS will send you a notice called Notice CP 59, First Notice Request for Your Tax Return. This form demands that you file a tax return and pay any tax due. In addition to the taxes you should have paid, you’ll owe interest and penalties. These can be severe. As much as 25 percent of your unpaid taxes.
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When Your Child Must File
In 2018 and 2019, certain children were taxed using the estate and trust tax brackets, but in 2020, for income above a certain level, the tax rate of the parents will be used. Four tests determine whether a dependent child must file a federal income tax return. A child who meets any one of these tests in 2020 must file:
- If the child only has unearned income above $1,100
- If the child only has earned income above $12,400
- If the child has both earned any unearned income, and the child’s gross income is greater than either $12,400 or their earned income plus $350, whichever is less.
- The child’s net earnings from self-employment are $400 or more
Additional rules apply for children who are blind, who owe Social Security and Medicare taxes on tips or wages not reported to or withheld by the employer, or who receive wages from churches exempt from employer Social Security and Medicare taxes.
If filing a return is required by the first test above and the child has no other income besides unearned income, you can avoid a separate filing for your child by making an election described later in this article.
Four tests determine whether or not a dependent child must file an income tax return with the IRS.
Filing Rules For Everyone Else
If you’re not self-employed, whether you need to file a tax return usually depends on your filing status and your gross income. The chart below shows the tax filing income thresholds for 2018. Choose your filing status, your age and your gross income for 2018. If your gross income is above the threshold for your age and filing status, you should file a federal income tax return. Gross income is not dirty or disgusting income. It means all the income you received during the year that was not exempt from tax. This includes:
- Income from sources outside the United States
- Income from the sale of your main home even if you can exclude part or all of it from tax
- Gains, but not losses, from sales of stock and other securities, and
- Business income reported on IRS Schedule C or Schedule F
For example, if you’re single and under 65, you should file a return if your gross income for 2018 was $12,000 or more. If your gross income was less than $12,000, you aren’t required to file, subject to a couple of exceptions noted below. You’re 65 for the 2018 tax year if you were born any time before January 1, 1954.
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How Does Having A Dependent Affect Taxes
If you are dependent on someoneâs taxes, how much can you make?
If you are claimed as a dependent, you have a similar threshold to file as single filers. The earned income is the same as needing to earn more than $ 12,400. As a dependent, you are not allowed to have an unearned income of $1,100. Unearned income is income resulting from interest, dividends, gains from selling investments, and income earned from the ownership in a business operation. Exceeding these limits may trigger the kiddie tax, which is a more complex topic and filing.
Typically, dependents file their taxes if they have a job that withholds federal and state taxes. Oftentimes employers will withhold payroll taxes during the year but come tax time, their income isnât high enough to generate a tax. This event results in all of the withholding being returned to the individual as a refund.
Do You Need To File A Tax Return In 2018
Tax season opens on Monday, January 29, 2018. The Internal Revenue Service expects to process nearly 155 million individual tax returns in 2018. Will you be filing one of those returns? And more important, do you need to?
For the 2018 tax filing season, you’ll report the income and corresponding deductions for the tax year 2017. That includes pay received in 2017 but not pay that you receive in 2018 for services performed in 2017 .
Just because you received income in 2017, however, doesn’t necessarily mean that you have to file a federal income tax return. For most taxpayers, you can figure whether you have to file by checking the chart below. Choose your filing status, your age and your gross income for the year if your gross income is above the threshold for your age and filing status, you should file a federal income tax return.
For this purpose, gross income means all income you received that isn’t exempt from tax, including:
- Any income from sources outside the United States
- Income from the sale of your main home even if you can exclude part or all of it from tax
- Gains, but not losses, reported on form 8949 or Schedule D and
- Business income reported on Schedule C or Schedule F .
For purposes of figuring your age, if you were born on January 1, 1953, you are considered to be age 65 at the end of 2017.
And, of course, the health care law complicates matters a bit. Here’s what you need to know about filing a tax return and health care:
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How Much Do You Have To Make To File Your Taxes
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Not everyone is required to file a tax return. It depends on your age, filing status, and amount and type of income.
If you make little income, chances are you wont need to file. But there are some circumstances outside of income that can require filing a tax return.
Calculating Your Social Security Income Tax
If your Social Security income is taxable, the amount you pay in tax will depend on your total combined retirement income. However, you will never pay taxes on more than 85% of your Social Security income. If you file as an individual with a total income thats less than $25,000, you wont have to pay taxes on your social security benefits in 2021, according to the Social Security Administration.
For the 2021 tax year, single filers with a combined income of $25,000 to $34,000 must pay income taxes on up to 50% of their Social Security benefits. If your combined income was more than $34,000, you will pay taxes on up to 85% of your Social Security benefits.
For married couples filing jointly, you will pay taxes on up to 50% of your Social Security income if you have a combined income of $32,000 to $44,000. If you have a combined income of more than $44,000, you can expect to pay taxes on up to 85% of your Social Security benefits.
If 50% of your benefits are subject to tax, the exact amount you include in your taxable income will be the lesser of either a) half of your annual Social Security benefits or b) half of the difference between your combined income and the IRS base amount.
The example above is for someone who is paying taxes on 50% of his or her Social Security benefits. Things get more complicated if youre paying taxes on 85% of your benefits. However, the IRS helps tax payers by offering software and a worksheet to calculate Social Security tax liability.
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Minimum Gross Income Thresholds For Taxes
The IRS defines “gross income” as anything you receive in the form of payment that’s not tax-exempt. Gross income can include money, services, property, or goods. The thresholds cited here apply to income earned in 2020, which you must report when you file your 2020 tax return in 2021.
In a practical sense, the limits are equal to the years standard deduction, because you can deduct this amount from your gross income and only pay income tax on the difference. You would owe no tax and would not be required to file a return if youre single and earned $12,400 in 2020, because the $12,400 deduction would reduce your taxable income to $0. But you would have to file a tax return if you earned $12,401, because youd have to pay income tax on that additional dollar of income unless you had applicable tax credits you could use.
As of the 2020 tax year, these figures are:
|Single under age 65|
|Qualifying widow age 65 or older||$26,100|
You Must File An Income Tax Return If:
- You owe tax to the CRA.
- Youve participated in the Home Buyers Plan or Lifelong Learning Plan and have repayments owing.
- You disposed of capital property. If you sold your home, you must file a tax return even if you dont have to pay capital gains tax on the sale .
- You have received a Canada Workers Benefit advance payments in the tax year.
- The CRA has sent you a Request to File.
- If the CRA has sent you a Demand to File, then that means they are serious about your lack of filing and you had better get to it.
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When It Pays To File
For those few who dont legally have to file, it pays sometimes to send in a return anyway.
This is the case for individuals who dont earn much but might be eligible for the earned income tax credit. This benefit is available to qualified individuals even if they owe no tax, meaning they would get money back from the federal government. Many people think the credit is available only to parents. Its not. But the credit amount is greater for eligible low-wage taxpayers with children.
Plus, the IRS says that most individual taxpayers are due a tax refund. But those taxpayers must send in a Form 1040, Form 1040A or Form 1040EZ to get that cash.
You can check out the filing requirements section of IRS Publication 17 for more details.
Once youve determined that you need to file taxes, your next question is likely to be when do I have to file taxes? This year, the deadline for filing your 2020 tax return is Thursday, April 15, 2021. If youre still not sure whether you must file a tax return, ask a tax professional, call the IRS at 829-1040 or make an appointment at your nearest IRS Taxpayer Assistance Center.
This Guide Can Help Your Child Learn The Process And Build Good Habits
As your child moves toward adulthood, you face several milestone decisions that involve, in part, a desire to help your child become more independent and responsible. But one milestone you may not anticipateeven though it will be part of your child’s growing-up experienceis the filing of that first income tax return in their name.
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