20 MOST USEFUL TAX QUESTIONS ANSWERED

Navigating the labyrinth of tax terminology can be daunting, especially when tax season rolls around. As a small business owner or an individual filer, you might find yourself grappling with questions like, “What exactly is my filing status?” or “How do tax credits and deductions work?” Don’t worry—you’re not alone. In this comprehensive guide, we address the 20 most useful tax questions answered, demystifying the complexities of the tax code and empowering you with the knowledge to handle your taxes with confidence and ease. Let’s dive into the 20 Most Useful Tax Questions Answered!

What is Filing Status?

Your filing status determines which tax rate schedule applies to your tax return. Here are the five statuses:

• Single (S): For those unmarried on the last day of the year.
• Married Filing Joint (MFJ): Couples choosing to file together.
• Married Filing Separate (MFS): Couples opting to file separately.
• Qualified Surviving Spouse (QSS): Widows/widowers with a dependent child.
• Head of Household (HH): Singles maintaining a household for a dependent, meeting specific criteria.

For more details on filing statuses, visit the IRS Filing Status page.

When is an Individual Required to File?

Generally, you must file a tax return if your income exceeds the standard deduction for your status. Self-employed individuals must file if earnings exceed $400. Even if not required, filing can help claim refunds or credits like the Earned Income Tax Credit.

Learn more about filing requirements on the IRS Filing page.

What is AGI?

Adjusted Gross Income (AGI) is your gross income minus specific adjustments. This includes wages, dividends, capital gains, and more, minus items like educator expenses, student loan interest, and retirement contributions.

For more on AGI, visit the IRS website.

Which is Better, Itemized Deductions or the Standard Deduction?

Itemized deductions, requiring substantiation, include expenses like medical bills, mortgage interest, and charitable contributions. The standard deduction is a set amount based on filing status. Use itemized deductions if they exceed the standard deduction.

Check out this guide on deductions.

What is a Tax Write-Off?

Tax write-offs include business expenses, capital losses, and itemized deductions like property taxes and medical expenses. Be cautious and ensure your deductions are legitimate and well-documented.

For more on tax write-offs, see the IRS overview.

How is Taxable Income Determined?

Taxable income is your AGI minus either the standard deduction or total allowed itemized deductions.

Visit the IRS page on taxable income for more information.

What is the Difference Between Graduated Tax Rates and Tax Brackets?

Graduated tax rates apply different rates to different portions of income, creating a step function. For instance, the first $11,000 might be taxed at 10%, the next portion at 12%, and so on. Tax brackets define the income ranges for these rates.

What is a Tax Credit?

A tax credit reduces your tax liability dollar-for-dollar. Some credits are refundable, meaning if the credit exceeds your tax liability, you get the excess as a refund.

Find out more about tax credits on the IRS page.

Which is Better, a Tax Credit or a Tax Deduction?

A tax credit is generally better because it directly reduces your tax bill, while a deduction reduces the income subject to tax.

Read about the differences between credits and deductions here.

What is an RMD?

Required Minimum Distributions (RMDs) are withdrawals that must be taken from traditional IRAs and certain retirement plans starting at age 73. Failing to take RMDs can result in penalties.

For details on RMDs, visit the IRS guide.

What Income Do I Have to Pay Taxes On?

Generally, all income is taxable unless specifically exempt, like municipal bond interest or certain Social Security benefits.

Explore more on taxable income on the IRS page.

What is the SALT Limitation?

The State and Local Taxes (SALT) deduction is capped at $10,000 per year. This includes state income or sales tax, real property tax, and personal property tax.

Learn about the SALT limitation here.

What is an Information Return?

An information return is a form used by payers to report certain types of income to the IRS, like interest (1099-INT) or dividends (1099-DIV). This ensures taxpayers report accurate income.

Find out more about information returns on the IRS wehttps://www.irs.gov/businesses/small-businesses-self-employed/a-guide-to-information-returnsbsite.

What is Basis?

Adjusted basis accounts for improvements, depreciation, and other factors.

For more on basis, visit the IRS page.

Are Inheritances Taxable?

Inheritances are generally not taxable, but inherited assets often have a basis equal to their fair market value at the decedent’s death.

Learn more about inheritance tax rules here.

Are Gifts Taxable?

Gifts are not taxable to the recipient, but income generated from a gift is. Donors must report gifts exceeding annual exclusions.

Check out the IRS guidelines on gifts here.

How Long Does It Take to Receive a Refund?

E-filing with direct deposit typically results in refunds within 21 days. Paper filings and mailed checks can take longer.

Find out more about refund timelines on the IRS page.

When Are Individual Taxes Due?

Individual tax returns are due April 15th unless an extension is filed.

Visit the IRS website for more details.

What Are the Late Filing Penalties?

Late filing incurs a penalty of 4.5% per month of the tax due, up to 22.5%. Late payment penalties are 0.5% per month until paid.

For penalty details, see the IRS penalties page.

What is Timely Mailing?

Ensure timely mailing by obtaining proof from the post office. Dropping mail in a box may delay postmarking, leading to penalties.

Read more about timely mailing here.

Understanding these 20 most useful tax questions answered can simplify your tax filing process and ensure compliance, helping you avoid penalties and make informed financial decisions. Whether you’re questioning your filing status or navigating tax credits, having the right information can save you time and money. For more detailed guidance, visit our comprehensive resources at Perlinger Consulting. We partner with certified tax professionals to help you.

This blog is meant for educational purposes only. Articles contain general information about accounting and tax matters and is not tax advise and should not be treated as such. Do not rely on information from this website as an alternative to seeking assistance from a certified tax professional. Perlinger Consulting partners with certified tax professionals to assist our clients.