23.05.2016

Income Taxes in USA

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US tax formIn the majority of countries around the globe, income tax is collected by the government. In the United States, the IRS (Internal Revenue Service) deals with all of the tax needs and financial requirements of the country. No matter where you live, if you are inside of the United States then you are required to pay Federal Income Tax. There is no way to get out of paying Federal Income Taxes, although there are deductions which will allow your taxable income to be lowered.

So before we get too in depth in taxes, let's start with some of the basics and most asked questions.

What are taxes used for? Taxes are used for a variety of things which are chosen by the government. These things range from educational costs, such as building reparations or staff increases, to funding civil servants (e.g. funding fire departments, police departments, and hospitals). Taxes are used on a variety of things.

Filing taxes sooner rather than later. At the end of each tax year (usually January 1st till December 30th, although may differ depending on the state you live in), you are required to file your tax returns. You have up until the 15th of April to file your taxes, and with that in mind some people leave them until the last moment to file them, whereas some get them filed as soon as possible. This arises the question, are there any benefits to filing your taxes earlier? The answer is yes. If you file your taxes soon rather than later, you will be able to deal with any issues that come your way sooner and have more time to deal with it. On top of that, you will receive your tax refund back sooner than if you were to file your taxes at the last minute.

I'm married, although my partner and I like to keep our finances separate. While there are different tax rates for single filing and marriage filing, you are under no obligation to file your taxes with your partner. You are allowed to file your taxes separately without running into any issues along the way.

Now that we've covered some of the basics, let's get more into taxing.

W-4 Form

When you are first hired by your employer, they will ask that you take the time to fill out a W-4 form which provides them with the information they need to not only pay you, but calculate the tax and deductions that they make when filing their own taxes. While the form itself can be confusing, you are able to receive help in order to complete it.

Filing Your Taxes

Filing your taxes for the first time can be a daunting and length task to take on. After the first time of filing their own taxes, a lot of people decide that it is far easier to pay an accountant to take care of it for them.

However, let's assume that this is the first time you are filing your taxes. When the time comes you are able to retrieve the necessary tax forms from most public buildings such as libraries or post offices, although if they aren't available at those places, you are indefinitely able to get them from a bank. After you have received those forms, follow each section and fill out each space as directed. If you do not file your taxes properly, the forms may be sent back to you with further instructions to sort out whatever you hadn’t done properly beforehand. If you own and run your own business, it is recommended that you use a Certified Public Accountant to file your taxes in order to ensure that they are done properly and accordingly.

Tax Deductions

A tax deduction is an amount of your income which can be taken out of your salary and remain untaxed and is therefore tax free. While there are standard deductions which everyone is entitled to, there are many tax deductions available, although the deductions that are available to you are dependent on your circumstances.

For example, if you are a United States citizen and you have children below the age of 17 (and are therefore considered as minors), you are entitled to "child credit". Child credit allows for your federal income tax to be reduced by up to $1,000 for each minor child that you have. In order for child credit to be received, there must be family relations between you and the child. The current relations accepted by the IRS are:

  • Son
  • Daughter
  • Stepchild
  • Foster Child
  • Brother
  • Sister
  • Stepbrother
  • Stepsister
  • Descendant of a relative (including grandchildren, nieces, or nephews)

With that in mind, any adopted children may fall into these categories. If you are unsure about the relation between you and the child due to other circumstances, contact the IRS and explain your situation to them.

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