Federal Income Tax Questions
We will begin with filing status and take it from there. Your filing status determines the rate at which your income is taxed.
There are five different filing statuses:
2. Married filing jointly
3. Married filing separately
4. Head of Household
5. Qualifying Widow (er) with dependent child
Once you have determined your filing status, you are then ready to think about dependents, deductions, and tax credits. Here’s an interesting tax tip. Married filing jointly offers the lowest tax rate.
Qualifying Child Test
Having the ability to claim a dependent is a huge tax deduction. Ask yourself these questions to test the ability to claim a dependent.
- Relationship - The child has to be the taxpayer’s child or stepchild, (by blood or adoption), foster child, sibling or stepsibling, or a descendant of one of these.
- Residence – Must have the same main home as the taxpayer for more than half of the year. Exceptions do apply to this particular item.
- Age – Children must be under the age of 19 at the end of the tax year. The child can also be under the age of 24 if he or she is a full-time college student for more than five months of the year. The child can be permanently or totally disabled at any time during the year.
- Support – The child did not provide one half of his or her support for the year.
Alright, we have covered the filing status and qualifying children. A qualifying relative is a whole different category but, you should look into that exemption if you think you qualify for it. If you have a child you may qualify for, The Child Tax Credit, Credit for Child and Dependent Care Expenses, and the Earned Income Credit. You would be surprised how many taxpayers miss out on these tax credits you can claim.
Deductions and Credits
The big question is, “Should I take the standard deduction or itemize?” Well, that depends on your particular situation in life. The standard deduction amount is based on your filing status. The amounts increase each year to keep up with inflation.
Filing as single will allow you to deduct more than $5,000. Married filing jointly will allow you to deduct more than $10,000. The big question is, “Do my deductible expenses add up to more than the standard deduction?” That is the big question you have to ask yourself. Medical care, mortgage interest, taxes, charitable contributions, casualty losses, and miscellaneous deductions can add up to more than the standard deduction.
Just the Tip of the Iceberg
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