Individual Income Tax (including taxes paid by the self-employed)
Individuals earning income pay a percentage of their earnings to the Internal Revenue Service (IRS) as individual income taxes. These individuals include the self-employed and sole proprietorships in the United States. The amount due is calculated according to the amount earned. The tax is levied on salaries, wages, interest, dividends, investments, and other income earned throughout the year. The District of Columbia and 41 States also collect individual income tax from these entrepreneurs. These taxes pay for public services performed by the government, such as the building and maintaining of infrastructure, defense of the country and the provision of assistance programs. These taxes also pay for benefits for the self-employed, such as Medicare and Social Security.
Some individuals do not have to pay taxes (rules for 2020):
- Single, under the age of 65, with an annual income of less than $12,400
- Married couple, each under the age of 65, filing jointly, earning less than $24,800
- Heads of households, earning less than $18, 650 (under 65) or $20,300 (65 and older)
- Single, over the age of 65, with an annual income of less than $14,050
- Married couple, each over the age of 65, filing jointly, earning less than $27,400
- Qualifying widow(er), over the age of 65, with an annual income of less than $26,100
- Self-employed earning less than $400
Refunds and Credits for Individual Income Tax
All individuals must file a federal income tax return to receive any refunds of any federal income tax withheld from their paychecks. Individuals, including the self-employed, qualifying for the following credits may also receive a refund:
- Additional child tax credit
- Premium tax credit
- American opportunity credit
- Health coverage tax credit
- Credit for federal tax on fuels
- Recovery rebate credit
- Earned income credits
- Credits for sick and family leave
Obligations of Self-Employed: pay individual income tax
Taxpayers, including the self-employed, must file their individual income tax return by April 15, 2021. If they do not, they will incur interest and penalties in addition to the taxes already owed, if any. Taxpayers can request an extension; however, paying federal and state income taxes on time will prevent additional amounts, such as interest on the amount owed. Taxpayers living outside of the United States must also pay taxes as well as some resident aliens living here in the United States.
For taxpayers working as self-employed, there are additional deductions that may be claimed but also additional rules that must be followed. For example, a self-employed taxpayer can claim a tax deduction for the portion of their home that they use for their business, but not for their entire home. Additionally, a self-employed individual or an individual working for a company can claim a deduction for meals and travel, but ONLY if the meal and travel was related to the work. Tax experts can determine what expenses can qualify as deductions. Claiming deductions that are not allowed can trigger an audit or add to your tax amount owed.
Tax Experts and Individual Income Tax
Tax experts can assist self-employed individuals in determining tax filing options. They can also determine whether couples should file as individuals or as a couple. The rules for income tax returns can be very complicated. A mistake or misstep can be very costly and involve endless time in “correcting” the mistake.
Tax experts are also very knowledgeable in navigating the complex rules regarding the filing of individual income tax returns. They can find the best deductions for each individual’s situation and help save them time and money and perhaps even get a bigger tax refund. Marking the wrong boxes, forgetting to report certain income, transposing numbers or making a simple subtraction or addition error can trigger an audit. This will involve even more time and money to resolve.
Update
In response to the COVID-19 pandemic, the federal government has issued refunds to individuals who have filed their federal income taxes. However, if an individual has not filed a tax return, they will not receive a refund unless they do file an individual tax return. The tax return may indicate a zero payment of taxes due; however, the IRS recognizes the individual as qualifying for a refund since the taxpayer has filed a tax return.
Next Steps:
Before consulting a tax expert, gather all documents, including receipts, regarding your income and deductions. Be prepared to answer any questions that the tax expert may have regarding any of the documents. Call us today so we can help you file an accurate and complete individual tax return. Visit our tax resolution page for more services.
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