Filing Decisions

pdf

School

CUNY Borough of Manhattan Community College *

*We aren’t endorsed by this school

Course

330

Subject

Accounting

Date

Nov 24, 2024

Type

pdf

Pages

Uploaded by fifoeliverta

11/19/23, 7:14 PM Intuit Academy https://intuit.docebosaas.com/ia/learn/course/6789/play/22655/intuit-academy-tax-level-1-filing-status-and-qualifying-dependents-oics6718;lp=518 1/3 Not everyone is required to file an income tax return each year. The amount of income the taxpayer can earn before they are required to file a tax return also depends on the type of income, age, and filing status. Generally, if the taxpayer's total annual income does not exceed certain thresholds, they do not need to file a federal tax return. Gross Income Threshold Under 65 Most taxpayers are eligible to take the standard deduction. The taxpayer's age and filing status are the primary factors that determine the standard tax deduction amounts. The government sets these amounts before the tax filing season and generally increases for inflation each year. The standard deduction and other available deductions reduce the taxpayer's income to determine how much of the taxpayer's income is taxable. As long as the taxpayer does not have a type of income that requires them to file a return for other reasons, like self-employment income, generally, they do not need to file a return as long as their income is less than their standard deduction. For example, in 2020, taxpayers do not need to file a tax return if all of the following are true: Under age 65 Single Do not have any special circumstances that require the taxpayer to file (like self-employment income) Earn less than $12,400 (which is the 2020 standard deduction for a single taxpayer) Gross Income Threshold Over 65 If the taxpayer is at least 65 years old, they get an increase in the standard deduction. Taxpayers also get an increased standard deduction if: They are blind Or their spouse is also at least 65 Or if their spouse is blind The most significant standard deduction would be for a married couple who is both blind and over 65 years old. A larger standard deduction can allow the taxpayer to have more income than someone under age 65 and still not have to file a return.

11/19/23, 7:14 PM Intuit Academy https://intuit.docebosaas.com/ia/learn/course/6789/play/22655/intuit-academy-tax-level-1-filing-status-and-qualifying-dependents-oics6718;lp=518 2/3 Qualifying Dependent Tax Return Taxpayers claimed as a dependent on someone's tax return are subject to different IRS filing requirements, regardless of whether they are children or adults. A tax return is necessary when their earned income exceeds their standard deduction. The standard deduction for single dependents who are under age 65 and not blind is the greater of the following: $1,100 in 2020 The sum of $350 + the person's earned income, up to the standard deduction for an unclaimed single taxpayer, totaling $12,400 in 2020. A dependent's income can be "unearned" from sources such as dividends and interest. When a dependent's unearned income exceeded $1,100 in 2020, the dependent must file a tax return. Submit a Tax Return for a Tax Refund There are years when the taxpayer might not be required to file a tax return but may choose to file. If the taxpayer has federal taxes withheld from their paycheck, they can only receive a tax refund on excessive withholdings if they file a tax return. Suppose they are a single taxpayer who earns $2,500 during the year, with $300 withheld for federal tax. In that case, the taxpayer is entitled to a tax refund of $300 since they earned less than the standard deduction. The IRS does not automatically issue refunds without a tax return; taxpayers must file a tax return to claim any tax refund. Social Security In most cases, if the taxpayer only receives Social Security benefits, they would not have any taxable income and would not need to file a tax return. One catch with Social Security benefits is if the taxpayer is married but files a separate tax return from their spouse with whom they lived during the year. Then the taxpayer must include at least some of their Social Security benefits in their taxable income to see if it is greater than the standard deduction. Taxable Social Security When determining whether the taxpayer needs to file a return and they received Social Security benefits, the taxpayer needs to consider tax-exempt income because it can cause benefits to be taxable even without any other taxable income. Here is an example of where the taxpayer may need to file, even with tax-exempt income:

11/19/23, 7:14 PM Intuit Academy https://intuit.docebosaas.com/ia/learn/course/6789/play/22655/intuit-academy-tax-level-1-filing-status-and-qualifying-dependents-oics6718;lp=518 3/3 The taxpayer is under age 65 and receives $30,000 in Social Security benefits and another $31,000 in tax-exempt interest. $14,700 of the Social Security benefits will be considered taxable income. This is greater than the standard deduction ($12,400 for a single taxpayer in 2020), and you would need to file a tax return. To figure out if the taxpayer's Social Security benefits are taxable: Add one-half of the Social Security income to all other income, including tax-exempt interest. Then compare that amount to the taxpayer's filing status base. Some of the taxpayer's benefits may be taxable if the total is more than the base amount.

Your preview ends here

Eager to read complete document? Join bartleby learn and gain access to the full version