The tax deadline is around the corner, so it’s natural for questions to arise as people prepare to file. Most of us aren’t tax professionals, so there is a lot of confusion around this time of year. We’re here to help — here are the answers to some of the top questions people ask around tax season.
- When are taxes due?
This year, deadlines are a little different. The usual April 15 deadline lands on a Sunday this year, so the deadline should be the 16th, right? Actually no. April 16 lands on Emancipation Day — a recognized District of Columbia holiday — so the national deadline is April 17. If you file for an extension you will have until October 16 to file your taxes.
- When can I file?
The IRS started accepting electronic returns on January 23, 2017. Technically, if you really feel like cutting it down to the wire, you can wait until the night of April 17th, but that’s not recommended. If for whatever reason, something goes wrong and delays bring you past the deadline, you run the risk of incurring large late fees. It’s best to handle taxes well in advance of the deadline.
- When will tax reform affect my taxes?
Most provisions didn’t kick in until January 1, 2018, so your 2017 taxes — the taxes due this April — will mostly not be affected. As you plan for 2019 taxes, be aware there are new guidelines for withholdings, but again these don’t apply this year.
- What can be expensed?
For the nearly 35 percent of the workforce that subsists on freelance income, taxes can be extra tricky. Tax returns can be significantly reduced due to 1099 quarterly taxes, but one way to offset self-employment taxes is to expense correctly. Most anything can be expensed — as long as you have proof that it was used for business purposes. Popular expenses include, but are not limited to, your car, apartment, computer, cell phone, equipment, postage, and much, much more.
- What is the minimum income level required to file taxes?
There is no cut-and-dry answer to this question — filing status, a source of income, age and other factors all play into the taxpayer threshold. In general, if your gross income (all income from all sources) exceeds $10,000 you will have to pay federal tax. For freelancers, or what the IRS calls “non-employee compensation,” you have to pay taxes on anything over $600. This online IRS tool can help you determine if you owe federal tax or not.
- How do I file my taxes
What might seem like a basic question is actually a genuine concern for many people — especially young professionals no longer under the tutelage of their parents. If you make less than $66,000 a year, you can file for free on the IRS website. In most cases, those with limited sources of income can simply upload a picture of their W2 and be done. Otherwise, if your taxes require a little more finesse, tax preparers like TurboTax or H&R Block offer online software, walk-in appointments, and even mobile apps to help guide the tax preparation process.
- How long should I keep tax documents?
It is generally recommended that you hold onto tax documents for three years. This is because, in the event of an IRS audit, you will be expected to present the last three years of documents. In extreme cases, such as suspicion of fraud, you will be expected to show seven years of documents.
- Who can be claimed as a dependent?
Each dependent comes with a tax exemption, so it’s important to solidify who can and cannot be claimed. Put simply, a dependent is anyone you support financially. A key requirement: you provided a least half of the dependent’s support for the year. This includes food, clothes, shelter, etc.
- Does a tax audit negatively affect my credit?
Owing the IRS doesn’t, in and of itself, affect your credit. But, how you choose to pay taxes certainly can. If you pay your taxes through credit — such as a credit card, personal loan, etc. — standard credit factors apply. Credit report items such as payment history, credit utilization, credit type, and more all still affect your FICO score even if you’re paying off a tax bill. Be mindful of your credit score before paying taxes on borrowed money. Check your credit for free online before borrowing money to pay taxes.
- What is the Earned Income Tax Credit?
Earned Income Tax Credit (EITC) is a tax benefit for low, or middle-income families. To qualify for this break, you must meet specific requirements which involve income amount, filing status, qualifying dependents, and more.
- Are unemployment benefits taxable?
Unemployment compensation is reported under a 1099-G form, and this income is subject to quarterly estimated tax payments. Supplemental unemployment benefits that come from a company financed fund are not considered unemployment compensation, and this income is reported on your W2. In general, unemployment benefits are taxed.
- What are qualified education expenses?
Qualified education expenses are costs associated with a college education. This includes amounts paid for tuition, fees, school supplies, and other student costs. Items that cannot be expensed include room and board, insurance, medical expenses, transportation, non-credit courses, etc.
- Is childcare deductible if I work full time?
Many parents who work full time overlook the fact that, in many cases, they qualify for a sizeable tax deduction if their kids go to childcare while they work. Daycare, summer camp and other forms of childcare are eligible for deduction. Basically, if you work fulltime, and your child is under 13, you might qualify for a deduction up to $2,100.
- Do I qualify for the child tax credit?
The child tax credit can reduce your tax burden by up to $1,000 — per kid — if you meet certain requirements. Qualification criteria include age, child relationship, dependent status, family income, and more.
- I’m married, but we keep our finances separate, so can I file as single?
Technically, you can file separately, but you will miss out on many tax advantages that come with being married. Jointly filing couples receive a larger standard deduction, qualify for two exemptions, and, in some cases, qualify for two tax credits. If you have a financial reason to file separately it is possible, but it’s important to recognize the benefits of joint filing.