9 Things Everyone Should Know About Income Taxes

The American tax code can seem quite confusing for many people. This is to be expected, as the laws that govern income taxes in the US can be quite complicated. For many people, there is no need to worry. Here are nine things that every American should know about their income taxes.

The Standard Deduction

You won’t have to pay taxes on all of your income. You’ll be able to deduct the first $12,000 that you earn as an individual or the first $24,000 that you earn as a married couple from your household income in 2018. This means that your bill will be a bit less than you might have expected. The standard deduction tends to go up based upon inflation each well. Therefore, you’ll be able to exempt more of your income from taxation as each year goes by. 

Your Tax Rate

You won’t have to pay the tax rate that’s associated with your particular tax bracket. For example, if you’ve earn enough to hit the 22-percent bracket, that rate only applies to the part of your income that exceeds $77,400 if you’re filing as a married couple. Everything below this level will be taxed at a lower rate. 

You May Owe Quarterly

If you’re an entrepreneur, you’ll likely need to remit quarterly estimated tax payments to the IRS. If you fail to do so, you might wind up having to pay interest. If you’re employed by someone else, your employer will be the one making the quarterly payments. 

Some Credits Are Refundable

There are some credits that will just cut your actual tax bill. On the other hand, some of these are refundable. The most popular refundable credit is the child tax credit of $2,000 per child. You can get up to $1,400 of this $2,000 credit back even if you didn’t owe anything. This means that filing a return would be to your advantage in this case. 

You Can Affect Your Tax Bill

Most people think that whatever the tax table says is what they’ll pay. There are ways to cut this bill down, possibly quite substantially. Saving in an HSA if you have a high deductible on your health insurance is a good way to cut your taxable income. Saving in a traditional IRA or a 401(k) account is another common way that people are able to cut their taxable income. You’ll save on your tax bill in the current year, and you’ll also have money put away for the future if you use the right accounts for saving. 

You Could Cut Your Tax Bill Until April 15

Your tax bill is not set in stone until April 15. If you still have room to put money toward your deductible HSA or IRA account, you can elect to put up to the maximum allowable into the account until April 15. For example, if you only put $2,500 into a traditional IRA before December 31, you could put an additional $3,000 toward 2018 as long as you put it into the account by April 15. If your family hit the 22 percent tax rate, you’d cut your tax bill by $660. 

Refunds Can Be Forfeited

If you’re owed a refund, it’s a good thing to claim it as soon as possible. You might not be required to file a return in a given year, but if the government owed you based upon your withholding, you’ll want to claim the refund. After three years, any refund that the government owes you will be forfeited. That means that you just gave the government some of your money for nothing. Who wants to do that? 

Recent Changes Are Temporary

The tax cuts that went into effect in 2018 have a sunset provision. In effect, most tax legislation that affects budget deficits can only last for 10 years. Therefore, the personal tax cuts will end in 2026 unless Congress decides to extend them. However, the business tax reform is permanent. 

You Can Probably File On Your Own

There are tax returns that can be quite complicated. Most, on the other hand, are not. There are many programs that allow most Americans to file their own taxes with few worries. If your return is simple, you could save some money by filing on your own.

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