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7 Answers to Frequently Asked Income Tax Questions

Money Girl answers 7 common questions about paying income tax that will help you comply with the law, minimize what you owe, understand tax deductions and credits, pay household workers or nannies properly, and avoid trouble if you can’t pay Uncle Sam on time.

By
Laura Adams, MBA,
Episode #580
7 Answers to Frequently Asked Income Tax Questions

Taxes are one of the most confusing aspects of personal finances. The IRS regulations are complicated, and many tax rules change from year to year. Even if you have a relatively simple financial situation or use a good tax software program such as Turbo Tax, taxes can still trip you up.  

In this episode, I’ll cover answers to seven common questions about income tax. They’ll help you comply with the law, minimize what you owe, understand tax deductions and credits, pay household workers or nannies properly, and avoid trouble if you can’t pay Uncle Sam on time.  

7 Answers to Frequently Asked Income Tax Questions

  1. Who must pay income tax? 
  2. When should you itemize income tax deductions?
  3. Who can claim the home mortgage interest tax deduction? 
  4. If my raise puts me in a higher tax bracket will I get less pay? 
  5. What’s the difference between tax deductions and credits? 
  6. Do I have to pay taxes for a household worker or nanny? 
  7. What if I can’t afford to pay my taxes?

Here are the answers to some common income tax conundrums.

Question 1: Who must pay income tax?

Michelle B. from Orlando, Florida, says, “Hi, Laura. I’m a longtime podcast listener and have purchased your books on Audible. I’ve got a burning question and think you’re the perfect person to trust to answer it correctly. Is it true that filing an income tax return is optional or not required if you don’t have any taxable income?”

Thanks for your kind words, Michelle! It’s true that not everyone must file an income tax return. The requirements depend on how much you earn, your filing status, and age.

For 2018, if you’re a single taxpayer, you must pay taxes if your gross income exceeds the standard deduction, which is $12,000. If you’re married and file jointly, the limit is double that, or $24,000. If you’re over age 65, these income thresholds go up slightly.

Gross income is all income you receive that isn’t exempt from tax. It typically includes wages, retirement benefits, and investments. It includes all sources of income, including any earnings you might have from outside of the U.S.

These income limits apply when no one can claim you as a dependent. Note that if you are claimed as a dependent on someone else’s tax return, you may be required to file taxes, even if you earn less than the thresholds I mentioned. And if you’re the parent or guardian of a dependent who is required to file but isn’t able to do so on their own (such as an adult child), you must file an income tax return on his or her behalf.

The IRS specifies more situations when you must file taxes. These include having net self-employment income of at least $400 and receiving distributions from a tax-favored account, such as an IRA or HSA.

Even if you don’t owe tax, filing a return is the only way to get money back from the government that it owes you.

Even in years when you’re not required to file a tax return, you might want to. That’s because filing could allow you to qualify for refundable tax credits or to receive a refund for federal taxes withheld from your paycheck. Even if you don’t owe tax, filing a return is the only way to get money back that the government owes you.

If you’re not sure if you must file a return be sure to ask a professional tax preparer or accountant. You can also use a tool at IRS.gov, the Do I Need to File a Tax Return? Calculator, to learn more.

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About the Author

Laura Adams, MBA

Laura Adams received an MBA from the University of Florida. She's an award-winning personal finance author, speaker, and consumer advocate who is a trusted and frequent source for the national media. Her book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show. 

 

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