Nesteggg Accounting

  • Home
  • Services
    • Nesteggg Accounting
      • Payroll Services
      • Cannabis Accounting
    • Egggsact Tax, Inc.
    • Forms
      • Free Accounting Analysis
      • Business Services Agreement
      • New Corporation/LLC Request
      • New Account Setup
  • Contact Us

Why it’s important for taxpayers to know their filing status

Filing Status

When a taxpayer files their tax return, they need to know their filing status. What folks should remember is that a taxpayer’s status could change during the year. So, any time is a good a time for a taxpayer to learn about the different filing statuses and which one is best for them.

Knowing the correct filing status can help taxpayers determine several things about filing their tax return:

  • Is the taxpayer required to file a federal tax return or should they file to receive a refund?
  • What is their standard deduction amount?
  • Is the taxpayer eligibility for certain credits?
  • How much tax they should pay?

The taxpayer’s filing status generally depends on whether they are single or married on Dec. 31 and that is their status for the whole year.

Here’s a list of filing statuses and a description of who claims them:

  • Single. Normally this status is for taxpayers who are unmarried, divorced or legally separated under a divorce or separate maintenance decree governed by state law.
  • Married filing jointly. If a taxpayer is married, they can file a joint tax return with their spouse. When a spouse passes away, the widowed spouse can usually file a joint return for that year.
  • Married filing separately. Alternatively, married couples can choose to file separate tax returns. It may result in less tax owed than filing a joint tax return.
  • Head of household. Unmarried taxpayers may be able file using this status, but special rules apply. For example, the taxpayer must have paid more than half the cost of keeping up a home for themselves and a qualifying person living in the home for half the year. Taxpayers should check the rules to make sure they qualify.
  • Qualifying widow(er) with dependent child. This status may apply to a taxpayer if their spouse died during one of the previous two years and they have a dependent child. Other conditions also apply.

More than one filing status may apply and taxpayers can generally choose the filing status the allows them to pay the least amount of tax.

A few things that are good to know…

Tax Filing Status

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

Recent Posts

  • Economy Opening… Stop… Start…
  • Road Map to Opening
  • Tried Calling?
  • Free Credit Reports
  • CA License Extensions for Cannabis Business
  • What Are Libraries Doing Now
  • Cannabis Markup to Remain the 80%
  • Time to Retire?

Archives

  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • January 2020
  • December 2019
  • November 2019
  • October 2019
  • September 2019
  • August 2019
  • July 2019
  • June 2019
  • May 2019
  • April 2019
  • March 2019
  • February 2019
  • January 2019
  • December 2018
  • November 2018
  • October 2018
  • September 2018
  • August 2018
  • July 2018
  • June 2018
  • May 2018
  • April 2018
  • March 2018
  • February 2018
  • January 2018

Categories

  • Cannabis Compliant Accounting + Tax
  • NestEggg's Small Business HELP
  • News
  • Uncategorized

Stay Connected

Nesteggg Facebook

The Nesteggg Group ©2019
All Rights Reserved

Get in Touch

1127 St. Paul Ave
Tacoma WA 98421

1-(888) 987-NEST

accounting@nesteggg.com

Web Design & Maintenance by AquaZebra

constant contact

Copyright © 2023 · Executive Pro Theme on Genesis Framework · WordPress · Log in