Individual Income Tax Basics

Filing personal income taxes can be a daunting and overwhelming task and not everyone that goes it alone knows all of the basics regarding their rights and the structure of the IRS. Filing annual income tax returns are an essential piece of the puzzle that keeps America running. Taxes help to pay for national security, infrastructure, education, food and drug safety, social security and Medicare. Anyone that works for another employer will have their taxes deducted from each paycheck that they receive from their company of employment. If this is true, you more than likely won’t owe the government much money at tax time. Just make sure to file the tax forms with the government by the April 15 deadline or there will be penalties and fines to face. If for some reason you are not able to pay your taxes by the deadline the IRS does offer special payment plans but these plans will be laced with interest rates, ultimately raising the amount of money you will be paying the government each time you send in a payment.

Gross Income

Paying taxes is one of only a couple of certainties in a person’s life. No one goes without filing their taxes during their life span; at least no one goes without filing them legally. There are people who don’t file taxes or who haven’t filed taxes for a period of time because they either forgot to do so or felt that they don’t make enough money to file tax returns with the government. A tax lawyer would be able to help these people figure out what their situation really entails. Gross income is when a person is required to file federal returns if their income reaches a specified threshold. That threshold is all dependent on a variety of factors including marital status, age, and residency status. The term gross income is defined as all income from whatever source derived. Almost all forms of income are taxable unless they are excluded from the gross income category by the Tax Code.

Forms of Income

The various forms of income include compensation, interest, dividends, gains on the sale of assets, net rental income, net business income, income from partnerships, trusts, estates, forgiveness of indebtedness, gambling winnings, court awards or damages, alimony and miscellaneous payments for services of any kind. Once an individual’s gross income is determined, an adjusted gross income is then determined. An adjusted gross income can include student loan interest, retirement account contributions, medical saving account contributions, qualified moving expenses, self-employment tax, early withdrawal penalties and alimony paid.

Deductions and Exemptions

Along with gross income and adjusted gross income, people filing their taxes should understand what it means to file deductions and exemptions with the IRS. Some of the most common deductions include state and local income taxes, real property taxes, personal property taxes, home mortgage interest, investment interest and charitable contributions. Individual taxpayers are also permitted to claim a personal exemption amount for themselves plus the same amount for a spouse or a child, referred to as dependants. Any additional taxes that can be applied when filing income taxes are self-employment taxes, household employment taxes, the alternative minimum tax and tax on early distributions from retirement plans.

• Are you dealing with an individual tax problem? If so, contact an experienced Tax Attorney in your area today!