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What is a tax bracket?

Written By: by Hilary L

The Federal income tax became a permanent fixture in the United States in 1913 with the enactment of the 16th Amendment. At the time, it consisted of seven graduated tax brackets – from one to seven percent – and applied equally to singles, married couples and families. These days, the situation is a bit more complicated.

Purpose of income tax brackets

The purpose of income tax brackets has migrated from one of simple revenue capture to one where redistribution of wealth is expected. As the taxpayer increases their earnings, the income tax brackets ensure that they pay more and more of the money that they have earned. This may seem a reasonable scheme to the bureaucrats in Washington D.C. but this penalization of success is certainly unwarranted. In short, the more successful members of society are simply having some of their wealth confiscated and given over to their less productive neighbors. The fairness of tax brackets has been hotly debated since its inception, but it does seem to have done the country and its people a fair amount of good over the years.

Determining status

Here is a quick rundown of the latest (2015) tax brackets and how to determine a taxpayer’s status:

Filing category – Currently, the U.S tax code recognizes four separate tax categories for individuals, that is, non-corporate entities: single, married filing jointly, married filing separately and head of household. These categories have a significant impact on how much a taxpayer will ultimately pay in income tax. In addition, the taxpayer must differentiate between earnings made while working versus income derived from other sources.

Earnings vs. incomeAs initially envisioned, there are still seven tax brackets: 10 percent, 15 percent, 28 percent, 33 percent, 35 percent and 39.6 percent, but they now focus on income rather than simple earnings. Depending on the taxpayer’s status, as mentioned above, these rates kick in at various income levels. For example, a married couple filing jointly will pay 10 percent on an income up to $18,450, 15 percent thereafter on income up to $74,900, 25 percent on income up to $151,200, 28 percent on income up to $230,450, 33 percent on income up to $411,500 and a further 39.6 percent on any income over that threshold.

Deductions – To mitigate some of these taxes, the Federal government allows taxpayers to reduce their tax liability with a variety of exemptions. In particular, each person in the household lowers the tax (the personal tax exemption runs from $6,300 to $12,600) as do mortgage payments and itemized deductions, for such things as medical expenses. The Federal government also gives credit for payments to other taxing authorities, like state and municipal governments.

Alternative minimum tax – In another attempt to ensure that everyone “pays their fair share,” the Congress of the United States has passed legislation known as the the alternative minimum tax (AMT). This law is designed to ensure that the richest Americans cannot use completely legal means to avoid paying taxes. In other words, they are penalized for using the very laws that they pay to see upheld, although those of lesser means are allowed to use those laws and exemptions to their fullest extent.

As one can see, the United States income tax code is a veritable labyrinth of rules and regulations – and a capricious one at that. It is no wonder that such companies as H&R Block and Jackson Hewitt as well as a substantial army of individual tax preparers – not to mention the online sites! – make a fortune at tax time in April. Still, knowing one’s tax bracket and the options available are essential for paying taxes in the most equitable fashion possible.

Free tax filing

Written By: Amanda Frank

Each year, people scramble to get their taxes filed before the deadline. There are a variety of ways to accomplish this task, but not all of them are simple or free. Major tax firms charge based on what type of income is being reported, how many forms are required and the amount of time taken on the client. Depending on the situation, some prices range from $150 all the way up to $600. Not every person filing taxes has the financial ability to cover the costs. Due to this growing issue there has been a shift to free filing options.

Neighborhood tax centers

Major cities like Houston have begun to take part in a seasonal program that offers free tax filing if an individual meets a certain income bracket. This program is sponsored by the United Way and in each city many local businesses also support the initiative and help to provide funding. In the Houston area, major chains like HEB, a local g
rocery store, have partnered to provide food and drinks during the tax preparation for waiting families. The tax centers can assist those who have an individual income of $50,000 or less and families with income no greater than $70,000. This resource is specifically intended for residents who have a more complicated return and need professional assistance to ensure that they are filing properly. Depending on circumstances such as marriage, children, buying a home or enrolling in school, most individuals are not aware of the specific forms they should use. Neighborhood tax centers are able to offer guidance and ensure that the resident is getting the return they deserve and avoiding any penalties. They offer a variety of tax-related services to local residents.

  • Tax preparation
  • E-filing
  • Direct deposit of returns
  • Amend and prepare prior year returns
  • Reclaim returns from prior years that were done incorrectly
  • Walk-in availability all through tax season

Online filing

There are many online filing options that allow individuals to file at little to no cost to them. The benefit of this option is that it is simple, quick and free. The downside is that if the return has any complicated forms or requirements, some details can be overlooked in the process. Online filing is best for those who have a straightforward return with no changes from the previous year. The risk associated with using online filing is that if the return is done incorrectly the individual is the one who has to deal with the fines or penalties. An additional benefit of using the free online tool is that it allows users to file quickly and get their return quickly as well. With the online convenience many people opt for this free tool and many major sites are available to use.

  • E-file.com
  • Taxact.com
  • Turbotax.com
  • Freetaxusa.com
  • Freefile software (a service through the IRS directly for those with income under $60,000)

With online and in-person filing centers provided at no cost, more people are able to file their returns properly. This allows them to spend less time and money on getting it done right and frees up that saved money for what it is needed for most.

Turbotax Benefits

Written By: Amanda Frank

Most people have seen or heard ads for Turbotax by Intuit. The online-based tax program allows direct input from the user into their system with a simple, step-by-step style. All of the necessary questions are asked in order to get the user the maximum refund each year. They offer a wide range of services traditionally offered by larger physical firms with a no-hassle, online approach. They offer four different packages, as outlined below. For all of their filing options, filing state taxes does incur an additional cost.

Federal Free
This simple, affordable and quick process covers all of the basics that most people would need during tax filing season. This system automatically imports information from the user’s W-2 and prompts the user for any changes from the prior year, such as education, child birth, new jobs and home purchases. As the name suggests, this option is completely cost-free.

Deluxe
This option allows the user the same ease of use as the federal free version with some updated perks. It keeps track of prior year returns and information, gives them access to online and phone support for free, covers a wider expanse of tax deductions, and also includes filing options for mortgages and charitable donations. This package is a minimal $54.99.

Premier
For just $79.99, this option assists the user in claiming all rental properties and investments outside of traditional income. In addition to this and everything from the lower tier packages, Premier also includes filing for stocks and bonds, as well as other investments the user might have.

Home & Business
At the top of the cost tier, this option is the most extensive. The $104.99 price tag includes everything from previous options, but also has a focus on deductions for business taxes and helps properly account for expenses and earnings reporting.

Overview
All of the options that have a cost include the support via phone and online, as well as a 5 percent additional bonus onto their refund after filing. Outside of the packages, Turbotax offers a variety of services accessible by all users, even outside of tax season.

• Healthcare: Research the user’s eligibility for healthcare programs, and find out if their current coverage meets federal and state minimums.
• Benefit Assist: Based on the user’s responses to questions, determine whether they are eligible for any benefit programs supported by the government.
• Tax return tracking: Easy reporting and tracking to find out exactly what point of the process the return is at, and when they can expect to receive the return.

Turbo tax is one of the quickest and most reliable tax services available online. They stand behind their promise of getting users the maximum refund and they offer a double check tool that ensures the user’s return falls within federal and state guidelines. Another great reason to utilize their services is their Audit Defense add-on, which defends the user against an IRS audit in the event that something was incorrectly filed. This provides a peace of mind that online users can trust. In addition, with their simple and easy-to-understand payment options, users have the flexibility to pay up front, take it out of their return, or get their return sent to a pre-paid debit card at no extra cost. This gives the user options that fit whatever their needs are at the time and the freedom to do their taxes quickly and efficiently with no stress.

Tax day tips for small business owners

Written By: Ambrianna Freeze

Running a small business is a difficult endeavor. There are hundreds of things to remember every day, from paying the electricity bills to making sure that your employees are not haggling with clients for extra tips. Tax season is the last thing on a small business owner’s mind. Luckily, there are plenty of resources and tips available to help small business owners stay on top of their taxes as well as run their business efficiently.

Tax deductions for small businesses

The more deductions a business qualifies for, the fewer taxes the business has to pay. There are quite a few deductions that a small business can claim on their tax forms. They are enticing, and most of them will apply to a small business, but being overzealous is sometimes dangerous; a run-in with the IRS is never good for a small business.

Auto expenses

It may be a hassle to keep up with automobile expenses all year long, but expenses related to a private vehicle used for work can be deducted. This is great for businesses that go to their clients’ homes or spend a lot of time on the road marketing.

Bad debts

Depending on what the small business deals in, a poor investment in a client can be deductible. This does not apply to businesses that offer services.

Business entertaining

Fifty percent of business entertaining, like taking a group out for dinner or catering lunch, can be deducted as long as the entertainment was strictly and directly related to business.

Travel

Lots of travel-related expenses can be written off for small businesses. Things like plane fare, meals and even tips can be deducted at the end of the year, as long as the travel was mostly for business.

Moving expenses

Business owners that move because of their job, or business, can deduct some of their moving costs. The move would have to be over 50 miles from the person’s previous home.

Tax resources for small businesses

When running a business, it is very important that a small business owner know exactly what needs to happen before April 15th. There are three fantastic resources for small business owners that are completely free.

The IRS has a fantastic online toolbox for company owners who are a little out of their depth. There are answers to nearly every question out there.

This website is a cheap and easy way to print W2 and 1099 forms. It is simple to use and very, very cheap. Plus, the forms are filed with the IRS electronically.

This service acts like a dating site for accountants and bus
iness owners. It sets up the meetings and the data sharing is secure.

Filing taxes as a small business owner does not have to be scary. With these tools and resources, tax day can be a little less frightening and maybe even less stressful. Maybe. Either way, with the appropriate deductions and some excellent help, any small business owner can find the help they need to file their taxes like a professional.

Federal income tax return amendment in relation to state taxes

Written By: Martina James

For the amendment of a federal income tax return, the IRS provides Form 1040X, Amended Individual U.S. Income Tax Return. A federal income tax return can be amended due to errors or omissions on the originally filed return. For example, an individual had several jobs in one year and received more than one W-2 Form. He files his income tax return and two weeks later receives a W-2 Form in the mail from an employer he had forgotten about because he only worked for this particular employer for a short time period. The additional income from this W-2 Form will change the amount of income and the amount of taxes owed or the refund due to him on his return. It is advisable to amend the previously filed return due to the changes caused by the omitted W-2. An amendment may also be necessary for other reasons, such as change in filing status, number of dependents and forgotten or overlooked credits and deductions.

After filing an amended federal income tax return for reasons such as the ones mentioned above, or for other reasons, the question of whether it is necessary to amend the state income tax return as well presents itself. If errors and omissions are discovered on a previously filed federal income tax return before the state income tax return is filed, Form 1040X, Amended Individual U. S. Income Tax Return should be filed, and after all corrections are made, the state income tax return can be filed as usual with the amended federal return in hand. If errors and omissions are discovered on a previously filed return after the state income tax return has been filed, it is recommended to amend the state tax return as well for reasons that will be discussed below.

Although all states have different forms and schedules for filing state income tax returns, the starting point for most state tax forms is the Federal Adjusted Gross Income (AGI). If the AGI changes on an amended federal income tax return, it also changes on the state income tax return. Therefore, it is necessary to amend the state income tax return as well. However, even if the amount of the Federal Adjusted Gross Income does not change on an amended federal income tax return, as it could be the case in an amendment due to a change in the number of dependents or a change in filing status, the state income tax return should be amended regardless. Any change on an amended federal income tax return may change the amounts on state-specific forms for credits and deductions on a state income tax return in the taxpayer’s favor.

No matter what the reason for filing Form 1040X, Amended U.S. Individual Income Tax Return may be, it is good practice to amend the state income tax return for the same year as well. It will take about 8 to 12 weeks to receive an additional refund check because amended returns can only be filed by mail and are processed manually.

Federal income tax return amendment in relation to state taxes

Written By: Martina James

For the amendment of a federal income tax return, the IRS provides Form 1040X, Amended Individual U.S. Income Tax Return. A federal income tax return can be amended due to errors or omissions on the originally filed return. For example, an individual had several jobs in one year and received more than one W-2 Form. He files his income tax return and two weeks later receives a W-2 Form in the mail from an employer he had forgotten about because he only worked for this particular employer for a short time period. The additional income from this W-2 Form will change the amount of income and the amount of taxes owed or the refund due to him on his return. It is advisable to amend the previously filed return due to the changes caused by the omitted W-2. An amendment may also be necessary for other reasons, such as change in filing status, number of dependents and forgotten or overlooked credits and deductions.

After filing an amended federal income tax return for reasons such as the ones mentioned above, or for other reasons, the question of whether it is necessary to amend the state income tax return as well presents itself. If errors and omissions are discovered on a previously filed federal income tax return before the state income tax return is filed, Form 1040X, Amended Individual U. S. Income Tax Return should be filed, and after all corrections are made, the state income tax return can be filed as usual with the amended federal return in hand. If errors and omissions are discovered on a previously filed return after the state income tax return has been filed, it is recommended to amend the state tax return as well for reasons that will be discussed below.

Although all states have different forms and schedules for filing state income tax returns, the starting point for most state tax forms is the Federal Adjusted Gross Income (AGI). If the AGI changes on an amended federal income tax return, it also changes on the state income tax return. Therefore, it is necessary to amend the state income tax return as well. However, even if the amount of the Federal Adjusted Gross Income does not change on an amended federal income tax return, as it could be the case in an amendment due to a change in the number of dependents or a change in filing status, the state income tax return should be amended regardless. Any change on an amended federal income tax return may change the amounts on state-specific forms for credits and deductions on a state income tax return in the taxpayer’s favor.

No matter what the reason for filing Form 1040X, Amended U.S. Individual Income Tax Return may be, it is good practice to amend the state income tax return for the same year as well. It will take about 8 to 12 weeks to receive an additional refund check because amended returns can only be filed by mail and are processed manually.

Federal income tax return amendment in relation to state taxes

Written By: Martina James

For the amendment of a federal income tax return, the IRS provides Form 1040X, Amended Individual U.S. Income Tax Return. A federal income tax return can be amended due to errors or omissions on the originally filed return. For example, an individual had several jobs in one year and received more than one W-2 Form. He files his income tax return and two weeks later receives a W-2 Form in the mail from an employer he had forgotten about because he only worked for this particular employer for a short time period. The additional income from this W-2 Form will change the amount of income and the amount of taxes owed or the refund due to him on his return. It is advisable to amend the previously filed return due to the changes caused by the omitted W-2. An amendment may also be necessary for other reasons, such as change in filing status, number of dependents and forgotten or overlooked credits and deductions.

After filing an amended federal income tax return for reasons such as the ones mentioned above, or for other reasons, the question of whether it is necessary to amend the state income tax return as well presents itself. If errors and omissions are discovered on a previously filed federal income tax return before the state income tax return is filed, Form 1040X, Amended Individual U. S. Income Tax Return should be filed, and after all corrections are made, the state income tax return can be filed as usual with the amended federal return in hand. If errors and omissions are discovered on a previously filed return after the state income tax return has been filed, it is recommended to amend the state tax return as well for reasons that will be discussed below.

Although all states have different forms and schedules for filing state income tax returns, the starting point for most state tax forms is the Federal Adjusted Gross Income (AGI). If the AGI changes on an amended federal income tax return, it also changes on the state income tax return. Therefore, it is necessary to amend the state income tax return as well. However, even if the amount of the Federal Adjusted Gross Income does not change on an amended federal income tax return, as it could be the case in an amendment due to a change in the number of dependents or a change in filing status, the state income tax return should be amended regardless. Any change on an amended federal income tax return may change the amounts on state-specific forms for credits and deductions on a state income tax return in the taxpayer’s favor.

No matter what the reason for filing Form 1040X, Amended U.S. Individual Income Tax Return may be, it is good practice to amend the state income tax return for the same year as well. It will take about 8 to 12 weeks to receive an additional refund check because amended returns can only be filed by mail and are processed manually.

Tax brackets for singles in 2014

Written By: Doreen Martel

Those who are salaried employees, hourly employees and those who are self-employed know that as the year wraps up, tax time will soon descend upon them. Some preparation for the filing due in April of 2015 may be necessary, especially for those in very low or very high tax brackets. It is typically helpful to understand what the taxable rates are well before preparing an annual tax return.

Single filer tax brackets

Single taxpayers often have to face steeper taxes than their married counterparts. For the tax year ending in December of 2014, single taxpayers can expect the following tax brackets.

  • Earnings up to $9,075 – tax bracket is 10%
  • Earnings between $9,076 and $36,900 – tax bracket is 15%
  • Earnings between $36,901 and $89,350 – tax bracket is 25%
  • Earnings between $89,351 and $186,350 – tax bracket is 28%
  • Earnings between $136,351 and $398,350 – tax bracket is 33%
  • Earnings between $398,351 and $400,000 – tax bracket is 35%
  • Earnings over $400.001 – tax bracket is 39.6%

According to the Internal Revenue Service, a person who is married during 2014, even if it is the last day, has the legal right to file as married which can reduce their overall tax burden. 

Difference for head of household

The Internal Revenue Service allows a single person to qualify as a head of household if they are financially responsible for a “qualifying person.” Under the rules, qualifying persons are persons for whom the taxpayer may claim a deduction and can include:

  • Children – whether a person was married or not, if they maintained a home for at least six months out of the tax year and have a child they may qualify for head of household. This includes children born during the year (through December 31) provided the person may claim the child as a dependent. There is an important note to this as well: If a child has been kidnapped and remains missing for the entire year, they may still be claimed by the parent for tax purposes. 
  • Parents – if a child is caring for a parent and may claim that parent as a dependent provided they are paying for more than one-half of their upkeep. Support may include paying for nursing home care or other long-term care of the parent provided the parent is not filing their own tax return and/or can be claimed as a dependent on the return of another taxpayer.
  • Other – siblings, adopted children, foster children, grandparents, nieces and nephews and even in-laws can be considered a qualifying person provided the support requirements are met.

There is a significant difference in tax brackets for those filing head of household versus single. The income differences are:

  • Single person at a 10% tax bracket could earn a maximum of $9,075 while a head of household filer could earn $12,950
  • Single person at 15% tax bracket could earn a maximum of $36,900 while a head of household filer could earn $49,400 
  • Single person at 25% tax bracket could earn a maximum of $89,350 while a head of household filer could earn $127,550
  • Single person at 28% tax bracket could earn a maximum of $186,350 while a head of household filer could earn $206,600
  • Single person at 33% tax bracket could earn a maximum of $405,100 while a head of household filer could earn up to $405,100
  • Single person at 35% tax bracket could earn a maximum of $406,750 while a head of household filer could earn up to $432,200

During this year, there have been a number of changes to the tax code. In addition to potentially saving money by filing head of household, taxpayers should be certain they do not miss any important deductions or personal exemptions offered through the tax code. 

Tax brackets now and then

Written By: Martina James

The US tax code is an extensive and complex document with over 1 million words. However, the US tax code only includes the statutes that have been passed by Congress. Since the IRS is the appointed agency that has to set up the rules to implement the statutes that have been passed by Congress, the IRS tax code is an even more extensive document with about 4 million words and it is only getting longer each year. One of the most important rules contained in the tax code is the rule about how much of an individual’s income is taxable and at what rate. This is where tax brackets come in.

The US uses a progressive tax system, which means that the more income an individual taxpayer has, the higher his overall taxes are. Tax brackets are used to show individuals at what percentage rate their income is taxed. This also depends on the filing status that is being used. Tax brackets change frequently. In 2014, the following tax brackets will be used for taxes due April 15, 2015.

                                                         Married Filing
                                Married Filing       Separately/        Head of
             Single              Jointly              Qualifying        Household
                                                           Widow(er)

10%    Up to $9,075     Up to $18,150     Up to $9,075     Up to $12,950

15%    $9,076 to          $18,151 to          $9,076 to          $12,951 to
           $36,900            $73,800              $36,900            $49,400

25%    $36,901 to        $73,801 to          $36,901 to        $49,401 to
           $89,350            $148,850            $74,425            $127,550

28%    $89,351 to        $148,851 to        $74,426 to        $127,551 to
           $186,350          $226,850            $113,425          $206,600

33%    $186,351 to      $226,851 to        $113,426 to      $206,601 to
           $405,100          $405,100            $202,550          $405,100

35%    $405,101 to      $405,101 to        $202,551 to      $405,101 to
           $406,750          $457,600           $228,800          $432,200

39.6% $406,751         $457,601            $228,801         $432,201 
           or more           or more              or more         &n
bsp; or more

Tax brackets have considerably changed over the course of history and in all likelihood will continue do so. The very first tax brackets in the United States became effective in 1862. There were two: the first one was 3% for income up to $10,000 and the second was 5% for income over $10,000. These tax brackets stayed in place until 1872, when the government did not need the money from the collected taxes anymore since the Civil War was over. The taxes were then nullified. It was not until the 16th amendment gave the federal government the right to levy income taxes that tax brackets were re-established in 1913, and they have been continuously effective since then.

It is evident from the history of tax brackets that their rates increase in times of crisis and economic hardship and they decrease when the economy is stable. In 1913, for instance, the tax brackets ranged from 1% to 7%. In 1916, they ranged from 2% to 15%. However, in 1917, the War Revenue Act increased tax brackets dramatically to a range between 2% and 67%. During the Roaring 1920s, the economy was doing extremely well and tax rates were cut, only to increase again during the Great Depression in the 1930s, when the lowest tax bracket was 4% and the highest 72%. World War II also brought an increase of tax rates. In 1944, tax brackets ranged between 23% and 94%. The number of tax brackets also has fluctuated over time. The highest number used was in place during the Great Depression, when there were 55 tax brackets. The Tax Reform Act of 1986 decreased taxes as well as the number of tax brackets from 15 used in 1986 to 7 used in 1987, the same number that will be used during th
e tax season in 2015.

Knowing the difference between federal taxes and state taxes

Written By: Martina James

Every year, individuals all over the United States file their income tax returns. It is an inevitable task that involves many forms, schedules and personal information. Some taxpayers have their return prepared by professionals in the tax field such as certified public accountants and tax preparation companies; others use tax preparation software that is readily available these days. Federal and state income tax returns are both filed, but the difference between the two is not always clear to taxpayers. However, in order to save money and time, it is important to understand what the differences are between them and how they correspond with each other. Nobody wants to over or underpay on his/her tax returns.

Every citizen and permanent resident of the United States is subject to federal income taxes. These taxes have to be paid on all income worldwide from whatever sources, unless such income is excluded from taxation by law. The most common forms used to file a federal tax return are Forms 1040, 1040A and 1040EZ. The tax system in the US is a progressive system, which means the more money is earned, the more money has to be paid in taxes. Social Security and Medicare taxes, as well as federal income tax, are withheld on every paycheck earned throughout the year. If, at the end of the year, not enough tax was withheld to meet tax liability, additional money is owed to the IRS. If too much was paid in taxes, the IRS owes money back to the taxpayer in the form of a federal income tax return. Federal tax laws are written and passed by Congress and the president. The IRS enforces the tax laws, collects taxes owed, issues refund checks and transfers the money collected to the US D!
epartment of the Treasury.

Taxes are also imposed on the state and local level. There are only seven states in the US that do not collect income tax and two additional states that only impose income tax on income from interest and dividends. Most people, therefore, have to file a state tax return along with their federal tax return. Each state’s government levies their own taxes, and each state’s tax forms are different. However, in most cases, the state return form will ask for the federal adjusted gross income as a starting point to calculate state taxable income after applying all state-specific deductions, credits and adjustments. Most states, like the federal government, use the progressive tax system, and forms used to file a state tax return look similar to federal forms. Some states impose a flat rate, which means that a certain amount is paid in taxes no matter how high an individual’s income is. In those states, the forms used to file a state tax return look very different.

While federal tax laws apply to every citizen and permanent resident of the United States in the same way, state tax laws are unique to the state in which a taxpayer resides. Both are important, and neither one should be neglected.