If you know what tax deduction is and how it works, you may end up saving yourself a lot of money in 2019. For example, if you fall into the 25% tax bracket, you will be saving $250 on a $1000 tax deduction. (25/100*$1000).
Your accountant or tax preparer may advise you if it is okay to defer your income and accelerate tax deductions.
A tax deduction reduces the amount you are meant to pay as a tax by reducing your taxable income.
A Federal Tax deduction is an amount the Inland Revenue Service allowed you to subtract from your gross income(adjusted). This makes your tax bill to reduce as your taxable income is reduced.
This is an amount in dollar that enables you to access deduction on your taxable income adjusted yearly for inflation.
The basis for standard deduction is your filing status and the subtraction is done on your Adjusted Gross Income(AGI).
A filing status defines the kind of return on tax form you must use at the point of filing your taxes. It is somewhat related to marital status. It is very crucial your marital status, the number of children and dependents, your job and other factors determine what you pay as tax. It is expedient to file your status with all honesty and integrity. Anything otherwise will be considered as a fraudulent action when the Inland Revenue service conduct assessment on your returns.
You have five options on filing status. This is based on marital status and other conditions.
1. Single: If you are unmarried, widowed, separated (legally), or divorced, you can file using the single option. If you do miss the requirement for other filing status, you can as well use this option as it is permitted by IRS. There is a low income limit for almost all the exemptions for a single filer.
2. Joint Filing as Married:
The condition to be satisfied to use this option is to still be legally married till the end of the tax year in question. You will be required to turn one aggregate income or shared income and pay tax on it. Widowers who have not remarried after the death of spouse can file using this option too. Return on tax jointly filed usually gives a higher tax refund or reduces tax liability. It pays if only one of the partners’ income is significantly high, but if their income is equally large and unequal, separate filing is recommended.
3. Separate Filing as Married:
When couples have high income or large itemize deductions like from expenses on medics or contributions to charity, they choose to file separately. If a spouse itemizes deduction, the other party cannot claim standard deduction. Some couples may feel filing separately is ideal because of the notion that it may push them to a higher tax bracket if their income is merged. The tax bracket and the standard deviation for taxpayers that are married as at 2018 is still unchanged for single taxpayer. The only exception is for those in 35 percent and 37 percent brackets with a taxable income between $200,001 to $300,000 and above.
4. Head of Household:
Someone filing under this status is expected to be paying over 50% of the total cost of maintaining his/her household and has a qualifying dependent living with them for at least about six months. The person with this status may be single or unmarried. His or her expenses may include aggregate household bills such as rent, mortgage, bills on utility, insurance expenses, taxes on properties, expenses incurred on groceries, repairs and some other common household expenditures. Qualified relational members may be a dependent child, grandparent, brother, sister, grandchild or any dependent that can be claimed as an exemption
5. Qualifying Widow or Widower having dependant (child):
It is applicable for the same year that the spouse died and effective for the next two year after the death.
While filing out the returns form, you will need to indicate your filing status. The five filing status have already been highlighted above and you will need to report them on return of your personal income. You can also consult a tax accountant to help you in knowing which of the status fits you the most.
HENRY OSEGO TAX SERVICE