When most people think about income tax, they usually mean individual income tax, paid either by employees or self-employed individuals who make monthly income. But businesses, partnerships, estates, and other kinds of entities also usually pay income tax depending on income or revenue. If you have an earned income, you are liable for income tax. It is important for you to know your rights in regard to income tax.
Most people get confused about what income tax is. They believe that individual income tax is the same thing as income tax, when in reality, these two are actually different. In actuality, income tax only applies to your net income (the amount of income you earn minus your expenses). On the other hand, income tax is the only kind of tax that the federal government applies to individuals.
The federal government collects federal taxes from you or a business entity. They publish the information regarding federal taxes on their official web site. You will be able to get different income tax returns from this official web site. You can also get information regarding filing federal taxes by visiting their offices.
Every year, you are required to file an income tax return with the federal government by filing a paper tax return or by sending a completed, signed tax return to them through the mail. You must mail your tax return as soon as possible because some states allow early filers to receive refund. Filing federal income tax returns may include paying federal income tax immediately or waiting until April 1st to file your return. There is no grace period for the payment of federal taxes. Once you file your federal tax return, you are required to pay all your federal income tax fees.
There are various types of deductions available to taxpayers. Most taxpayers have one form of deductible expense and another form of deductible expense. You can save more money by selecting the standard deduction first then choosing the itemized deduction. By doing this, you can maximize your personal income tax deduction.
Self-employed individuals and married people with joint incomes can take advantage of the tax credit unearned interest and capital gains. These credits are different from standard deductions because they do not have to be claimed on income tax returns. You have to claim these credits if you have earned them. Self-employed individuals and married people can also take advantage of tax credits for estate tax relief and state income tax relief. These credits are different from standard deductions so you have to choose which category has the highest tax rate.
Tax deductions are only applicable if you have paid the entire amount and have no other taxes to be taken out of your total income. You can claim a deduction for expenses related to childcare expenses, charitable contributions, child care, transportation, education, house cleaning and casualty insurance premiums. You have to allocate these deductions on the basis of your filing status so you should know about all the existing deductions before estimating your taxable income.
You have to include the income of your spouse if he or she is taxable. If your spouse does not earn any income and you are single, then you cannot include his or her income in your income tax return. Self-employed persons should file joint income tax returns and include their spouse’s taxable income. The spouse’s share of marital savings could be taxable if the income of the spouse is less than that of the partner’s.
If you are self-employed, you must file a joint income tax return if you have more than one employee. If you are married, you have to file separately with your personal income tax return. Married people must file separately all the income-based deductions apart from exemptions and capital gains.
You must file a federal income tax return only if you are an American citizen or a resident alien over 18 years. You have to follow all the rules and regulations for filing the federal income tax return. There are special rules for children and spouses. In case of disability, the disabled person or the spouse is treated as the dependent for tax purposes. If the dependent is a minor, he or she will be eligible for the Medicaid program.
If you have any unearned assets such as stocks, bonds, money owed to friends, dividends paid to you as self-employed, etc., you have to report the value of such assets in your federal income tax return. Your investment in a commercial activity could have yielded some profits, but not all the profits will be taxable. In case you do not pay any interest on these loans, you will be liable to pay tax on them. Further, if you have rental income, you will be liable for the interest on this loan. However, if you have made a provision for loan payment to a non-removable beneficiary, then such loan payment shall not be taxed.