10 Common Tax Questions Answered

Tax filing can be frustrating because it involves understanding and complying with a complex set of rules, regulations, and laws the government sets. 

The tax code is constantly changing, which can make it difficult to keep up with the latest rules and requirements. Additionally, each individual's financial situation is unique, making it challenging to determine which deductions and credits apply to them. 

To make matters worse, mistakes made on tax returns can lead to fines or other penalties, adding to the stress and confusion. Tax season can be confusing, but it doesn't have to be scary. Here are 10 common tax questions and their answers to help you navigate the process.

1. What is my filing status?

Your filing status depends on your personal and marital situation. The five options are Single, Married Filing Jointly or Surviving Spouse, Married Filing Separately, Head of Household, and Qualifying Widow(er) with Dependent Child. (Source: Investopedia)  The choice of filing status can significantly impact the amount of taxes owed or the size of the refund received, so it's important to choose the correct one.

  • Single status is for individuals who are unmarried or considered unmarried on the last day of the tax year.
  • Married Filing Jointly (MFJ) or Surviving Spouse is for married couples who choose to file a joint return.
  • Married Filing Separately (MFS) is for married couples who choose to file separate returns.
  • Head of Household (HOH) is for unmarried individuals who pay over half the cost of maintaining a home for themselves and a qualifying person.
  • Qualifying Widow(er) with Dependent Child is for individuals who have lost their spouse and have a dependent child.

It's important to evaluate all of the eligibility requirements for each filing status before making a final decision.

 

2. What is the deadline for filing taxes?

For individuals, the deadline for filing federal taxes is always around the middle of April. For the 2022 Tax Year, the deadline is Tuesday, April 18, 2023. However, if you need more time to file, request an extension to file your federal taxes. Print and mail Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return.

3. What is a W-2 form?

A W-2 form is a document that your employer sends you to report your annual income and the amount of taxes withheld from your paycheck.  A W-2 form is a document that an employer is required to issue to an employee at the end of each tax year. If you don't receive your W-2 or get it in a timely manner, the company you work for could be subject to fines from the Internal Revenue Service (IRS). 

The W-2 form reports an employee's total taxable earnings for the year, including salary, bonuses, and any other taxable compensation. The form also includes information on federal, state, and city taxes withheld, as well as Social Security and Medicare taxes. 

This information is used to complete the employee's personal tax return and to calculate the employee's federal and state tax liability. The W-2 form is also submitted to the Social Security Administration (SSA) and the IRS to keep track of an employee's earnings and taxes paid.

4. What is a 1099 form?

A 1099 form is a document that reports income you received as a self-employed individual or from other sources, such as interest or dividends. 

There are several different types of 1099 forms, including 1099-INT for interest income, 1099-DIV for dividends, and 1099-MISC for miscellaneous income. The form reports the total amount of income received during the year, which must be reported on the recipient's tax return. 

Unlike a W-2, which is issued by an employer, a 1099 form is issued by a payer, such as a bank or a client, to an individual or business that performed services as an independent contractor. The recipient must use the information from the 1099 form to report the income on their tax return and to calculate their tax liability. The payer is also required to file a copy of the 1099 form with the IRS.

5. What is the standard deduction?

The standard deduction is a dollar amount that reduces your taxable income. 

The standard deduction for married couples filing jointly for the tax year 2022 rises to $25,900 (up $800 from the prior year). For single taxpayers and married individuals filing separately, the standard deduction rises to $12,950 for 2022, up $400 from last year, and for heads of households, the standard deduction will be $19,400 for the tax year 2022, up $600 from last year. (Source: IRS)

6. What is a tax credit?

A tax credit is a dollar-for-dollar reduction of your tax liability. Tax credits can come from a variety of sources, including education expenses and childcare expenses.

Common tax credits include: 

  • Child and Dependent Care Credit: This credit is available for taxpayers who pay for child care or dependent care expenses to enable them to work or look for work.
  • Earned Income Tax Credit (EITC): This credit is designed to provide financial assistance to low- to moderate-income working individuals and families.
  • American Opportunity Tax Credit (AOTC): This tax credit is designed to help offset the costs of higher education.

7. What is an itemized deduction?

An itemized deduction is a list of expenses you can use to reduce your taxable income. Some common itemized deductions include mortgage interest, state and local taxes, and charitable contributions.

To claim itemized deductions, taxpayers must have documentation for their expenses. Some common documents needed for itemized deductions include:

  • Medical and dental expenses: receipts or statements from doctors, dentists, hospitals, and other healthcare providers for expenses such as co-pays, prescription drugs, and medical equipment.
  • Charitable contributions: receipts or statements from the charity for donations made during the tax year, along with a record of the date and amount of each contribution.
  • State and local taxes: receipts or statements for state and local income, sales, and property taxes paid during the tax year.
  • Mortgage interest: a statement from the mortgage lender detailing the amount of interest paid during the tax year.
  • Job search expenses: receipts or statements for job search-related expenses such as resume preparation, travel, and employment agency fees.
  • Unreimbursed employee expenses: receipts or statements for expenses incurred in the course of employment that was not reimbursed by the employer.

It's important to keep accurate records and documentation of these expenses to support the itemized deductions claimed on the tax return.

8. What is the earned income tax credit (EITC)?

The EITC is a tax credit for individuals and families with low to moderate income. It is designed to help offset the taxes owed and can result in a tax refund. You may qualify for the EITC even if you can’t claim children on your tax return. 

According to the IRS website to qualify for the EITC, you must:

  • Have worked and  earned income under $59,187
  • Have investment income below $10,300 in the tax year 2022
  • Have a valid Social Security number by the due date of your 2022 return (including extensions)
  • Be a U.S. citizen or a resident alien all year
To check if you qualify use the IRS EITC Assistant.

9. What is a tax refund?

A tax refund is the amount of money you get back from the government after you file your taxes. It is the result of having too much money withheld from your paycheck during the year. 

Tax refunds can be requested as a direct deposit into a bank account or as a check, and the amount of the refund depends on the taxpayer's total taxable income, deductions, and credits for the tax year. 

Taxpayers can check the status of their refund by using the IRS's "Where's My Refund" tool, which provides updated information on the status of the refund and an estimated date of receipt. 

10. What should I do if I owe taxes?

If you owe taxes, you should pay them as soon as possible to avoid additional penalties and interest charges. 

If you owe taxes, you have several options for paying the amount owed to the government. These options include:

  • Pay by mail: You can visit IRS Taxpayer Assistance Center (TAC).  Here's a checklist to help you before you go.
  • Pay using a credit or debit card: You can pay your taxes using a credit or debit card by using a third-party payment processor authorized by the IRS.
  • Same-Day Wire Federal Tax Payments: You may be able to do a same-day wire from your financial institution.
  • Pay by Check or Money Order: You can mail this payment in. The IRS asks that before submitting a payment through the mail, please consider alternative methods.
  • Pay in installments: If you are unable to pay the full amount owed in a single payment, you can request to make payments through a monthly installment agreement with the IRS.

Takeaway

Taxes can be complicated - but understanding the basics can help simplify the process. If you have additional questions or need help with your taxes, consider seeking the advice of a tax professional. 

BYB Tax prep has a team of experienced and knowledgeable tax professionals who stay up-to-date on the latest tax laws and regulations. We offer a comprehensive and personalized approach to tax preparation that takes into account your unique financial situation and goals.

Our firm uses the latest software and technology to ensure accuracy and efficiency, and we provide timely and thorough support throughout the entire tax filing process. By choosing our tax prep firm, you can have peace of mind knowing that your taxes are in good hands and that you are taking advantage of all available opportunities to save money on your taxes.

Contact BYBTax.com today to chat and learn more about our services!

Written by Keturah Miller, PSM I     

Photo Credits: Mizuno K, Leeloo Thefirst, Josh Willink, crazy motions, and Karolina Grabowska

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