As a tax resolution and accounting firm, we get a lot of different questions about filing your federal tax return, the difference in deductions and credits and how to file when you’re married. Sometimes the answer depends on your situation and what types of income you have, while others are standard across the board answers. Here are some of our most frequently asked questions and their answers.
Are there any benefits to filing early? And what happens if I file after the deadline?
Absolutely! The IRS typically allows you to begin filing your return at the end of January following the close of another tax year. If you are due a refund, one of the biggest benefits to filing early is getting your refund quicker! Filing early can also help cut down on the threat of someone stealing your identity and getting your refund. If you aren’t able to file before the deadline, not to worry. The IRS does allow you to request an extension of time to file. If granted, this gives you an additional 6 months to get your tax return filed. You’ll want to keep in mind that the extension is only to file, not to pay. So if you do owe a balance and file after the April deadline, you will have some additional penalties and interest.
What’s the difference between an exemption, credit and deduction?
An exemption is something that will reduce your taxable income at the end of the year. The amount of exemptions you receive is dependent upon your household size and is also phased out after a certain income amount. These amounts can change year to year but for 2017, the personal exemption amount was $4,050. This is the amount by which you can lower your taxable income per person. Just keep in mind that this number can be phased out once the income threshold is met.
A credit is something that is very beneficial and reduces the taxes you owe directly. That means that after your taxes are calculated, if you are eligible for any credits, the amount of those credits will reduce the taxes owed. For example, if the tax amount due is $5,000 but you qualify for the full amount of the child and dependent care credit for one child ($3,000), you would be able to reduce the amount due to $2,000.
A deduction will typically come from some expenses that you have during the year and will reduce your taxable income. The IRS allows a standard deduction – for 2017 single and married filing separate filers it was $6,350 and for married filing joint filers, it was $12,700. This is something the IRS allows you to take without having to itemize your deductions/expenses. However, if you are willing to put in the effort of itemizing your deductions, you may get a higher deduction which will result in a lower tax amount due (or higher refund). Some popular deductions are student loan interest, mortgage interest, charitable donations, and medical expenses.
I’m married but I want to file my taxes as married filing separately, because my spouse and I like to keep our finances separate. Is that OK?
You absolutely can file separately! By doing so, if your spouse owes a balance, it keeps you protected from the IRS coming after you specifically for that balance. However, you’ll need to keep in mind that if your spouse owes a balance, anything that is held jointly between the two of you can be affected. For example, if both of your names are on your property, the IRS has the ability to file a lien against this property if either of you owe a balance. It does limit the amount of equity the IRS has the ability to seize since you are not technically attached to the liability but nevertheless, you could be affected by the lien. You could be affected even more if you have a joint bank account as the IRS could seize the funds in the account that has your spouse’s name on it. You will also want to keep in mind the tax effects of filing separately. When you file jointly, you automatically have a higher standard deduction you can claim. You also may have a better opportunity to claim credits you may not be able to when filing separate. Additionally, you have a higher income threshold taken into account when going through your deductions which all can result in a lower tax amount due (or higher refund). If your main goal is making sure you get your refund, there is another option out there for you. You can file an injured spouse claim along with your return to make sure you get your portion of the refund due, if any.
If you need help filing your tax return or knowing which deductions and credits to take, Polston Tax can help you! Our team of tax attorneys and accountants can help you file in the right status and make all the right deductions. Call us today at 844-841-9857 or click below to schedule your free consultation!