No one can blame you if taxes confuse you. Even among those who diligently pay their taxes on time, we at Fidelity Tax Relief have observed that there are some lingering questions. To make it easy for you, we have compiled a list of six common tax questions with their answers.
1. What income is taxable for me?
The IRS defines income as money, services, or property. Unless there is a specific exemption, all income that’s taxable must be reported. IRS Publication 525 has information on what constitutes taxable income.
2. What’s my tax rate and tax bracket?
The government doesn’t tax all income at the same rate. Different ranges of income – or tax brackets – attract different rates of tax. Once you know your income for the year, you can use the IRS Tax Rate Schedules to find out which out of the seven brackets you belong to.
3. What are the advantages of filing taxes early?
The biggest advantage of filing your tax early is that you will also get your tax refund early. You can request an extension if you believe you may miss the deadline. If you don’t seek an extension and miss the deadline, you will owe fines and interest.
4. What form should I use when filing taxes?
Since 2018 taxpayers are mandated to file using Form 1040. It simplifies the filing procedure and is almost half the size of the previous forms.
5. How do I know if I have a dependent?
If you are responsible for the financial support of an individual, that person is referred to as a dependent. You can claim tax breaks if you have a dependent. The dependent could be a child or a relative you are supporting. Use this handy IRS tool to know whether you have a dependent.
6. What are some of the biggest tax breaks?
One of the smartest ways to get a tax break is by making retirement contributions. The more you pay, the lower your tax will be. Those paying student tuition or interest on student loans can also claim tax deductions.
