Who can file as “head of household”? You can, so long as you are not married, can claim one dependent, and have paid for more than 50% of your household expenses. That’s the basics, click here for details. There are other filing statuses, Single, Married, Married Filing Separately. Each has different criteria and different tax ramifications. Ask a tax professional if you are unsure how you should file.
What’s a “tax bracket”? We are talking Federal tax brackets here (your state will have its own), and these are always changing, and how calculated, also changing. But generally speaking a bracket is the range of income at which a certain percentage of that income is calculated as tax payable. There will be 7 tax brackets for taxes due April 2020. But this is not the whole story. Where you are during the year may not be where you end up after filling out your tax forms. It all depends on your deductions, your dependents, and circumstances that change over the year.
Which brings us to, the “adjusted gross income”. The adjusted gross income or AIG is the gross amount of your income (from work or other sources) minus the taxes that you have already paid. Then, as you are filling out your tax forms, if you have tax deductions that apply to you, these will bring down your AIG even more and that is the amount that determines your tax bracket.
What is a “tax deduction”? A tax deduction is the amount the IRS allows you to deduct from your AIG for certain expenses the IRS has decided (in that calendar year, and based on certain circumstances) you are allowed to deduct. There is the Standard deduction, a set dollar amount that you can deduct from your gross income depending on your filing status. Then there are Itemized deductions. Those are expenses deemed deductible by the IRS under certain circumstances.
What is a “tax credit” then? This is an amount that reduces your tax liability. So, if you owe $1000 but you earn a tax credit worth $200, then you will end up only owing $800. Tax credits are generally more beneficial because they reduce your tax liability by a larger amount than a deduction to your AIG.
What are the penalties for filing, and paying (if you owe) your taxes late? Well there are a few, and more than one can apply at a time.
There is the “failure to file” penalty can be assessed if you fail to file by the April 15th deadline or request an extension.
There is also a “failure to pay” penalty which can be assessed if you owe taxes at the time of the due date and do not pay them, or at least 90% of what is owed.
But wait, there is more to know. Penalties start accruing the day after taxes are due and will continue to accrue each month or partial month until your taxes are filed and paid in full.
And yes, unfortunately there is also interest applied to unpaid tax balances.
Click here for more information on penalties and fees.
So, while not filing by April 15th may sometimes be unavoidable,
- do file and extension
- do contact the IRS if you cannot pay to set up a payment plan
- ask a tax professional for help to avoid penalties and fees