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Anne Powelson Anne Powelson
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Tax questions everyone asks

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Whether you've just gotten your first W-2 or have been filing for years, there are a few questions everyone asks.

Why did I get this 'Important Tax Form'? 

Every tax form you receive has also been sent to the IRS. Some forms, like W-2s and 1099s, list income you need to report.  Forms starting with '1098' or '5498' often list potential deductions. 

Do I need to file a tax return? 

Filing requirements are based on age, filing status, dependency status and types of income received during the year.  

Self-employed people need to file if net earnings are $400 or more.  

Dependents do not need to file if their income is below $950. If a dependent's income is over $950, they are required to file if their income is greater than earned income plus $300 OR $5950.  

If you are single, under age 65 and not blind, you need to file if your income is greater than $9750.  Certain situations, such as household employee taxes, repayment of a first-time homebuyer credit, or penalties for withdrawals from tax-favored accounts (e.g  401ks and HASs) will require you to file an income tax return, regardless of your income.

Why might you want to file even if you don't need to? 

Even if you are not required to file a tax return, you may wish to file to get back taxes which were withheld during the year or to take advantage of a refundable credits, like the Earned Income Credit or American Opportunity Credit.

My neighbor gets $14,000 from social security and he doesn't have to file. I earn less than that at my job; why do I have to file?  

Different rules apply to different types of income. Income can be broken into three categories: usually taxable, taxable in certain situations and generally tax free. Wages, unemployment and pensions are usually taxable.  Scholarships, Social Security and profit on the sale of your residence are types of income which are sometimes taxable. Veteran's Disability, Child Support and General Assistance are examples of income that is generally not taxed. Publication 525, 'Taxable and Nontaxable Income,' provides further guidance in this area.

I see a lot of 'may's and 'should's in your writing; why is that? 

For almost every rule in taxes there is an exception. For example, life insurance proceeds paid to you because of the death of the insured person are not taxable to you - unless the policy was turned over to you for a price. Government benefit programs from a public welfare fund based upon need are not included in income - unless they are obtained fraudulently.

Why are taxes so difficult?  

If you put a dozen people in a room, about the only thing they will agree on is they should not have to pay any more in taxes. America is a large, complex country, filled with an amazing variety of people. Some folks earn wages. Others sell crops they've raised, repair houses or sell things they've made on Etsy. Some people gain money through investments, others inherit their funds or win the lottery. The tax code attempts to cover a wide variety of situations.

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