Tax season can certainly bring some stress, and we understand why. While some people know that they will be receiving a return, for others, this may be far from the case. If you are stressing about tax season, read on to see if we can answer some of the most commonly asked questions about tax law. Here are some of the top questions people like you are trying to find answers for.
Who doesn’t file income taxes?
Sometimes, there is no reason to file an income tax return. If your income is below a certain threshold, then it’s likely that you won’t have to file taxes. However, there are a few rules and boundaries about this, so make sure to do your research first. When it doubt, just file! The IRS may even entitle you to a refund for excess holdings for for the earned income tax credit. There is no harm in filing even if you are below the threshold.
Do I have to pay income tax in my state if I earned out-of-state income?
Some people pick up a job remotely from another state. Others have small side jobs throughout the year to supplement their income. Regardless, it can be hard to know which state your taxes came from. Make sure to find out where the business is located. If you live in Illinois, but you do business with a company in California, it is likely that you will owe California income tax. However, you will not owe Illinois income tax on that same income.
Do I need to pay taxes for winning a contest or a game show?
While this prize might feel like a gift or free money, it can certainly be taxed for its value. Even Ken Jennings, the man who won $2.5 million playing Jeopardy, had to give almost half of this amount to the IRS. This money or prize value counts as gambling income. Winning anything of value, from a trip to a new car, counts as taxable income and needs to be reported to the IRS.
Can I deduct child support on my taxes?
When it comes to federal taxes, the child support you pay to the other parent of your child is not deductible. Also, those of you who are receiving child support payments do not need to report this money as income. However, be cautious about who claims the child as a dependent! That can lead to some tax messes in the case of separated parents.
Do I need to pay taxes on my inheritance?
While the house you were passed from your parents probably doesn’t feel like income, it might be in the federal government’s eyes. They view any property given away during a person’s life or after their death to be considered taxable. The estate taxes apply every time, regardless of where you live. However, this tax doesn’t typically apply to any smaller transfers. Recent legislation has ruled that estates worth less than $1 million were exempted from estate tax. However, some states have imposed inheritance and estate taxes, so it’s always good to check.
What is a tax haven?
We’ve all heard of those special, hidden, offshore bank accounts that shady rich people are rumored to have to avoid taxes, but do these actually work? There have been many people who have created bank accounts in countries where they do not charge taxes on the money being held in the country. However, this is not a wise idea. This is considered tax evasion, and tax evasion is a crime that is not taken lightly.
What are the penalties for filing taxes late?
The IRS keeps a penalty system in place to discourage people from filing their taxes late, or neglecting to file at all. Depending on your situation, you could be facing some serious fines! In fact, failing to file your taxes usually yields a harsher punishment than failing to pay the taxes. The typical late filing penalty is about five percent of the tax owed for each month that your return is late. While this may not sound like much, the IRS can charge you this fee for up to five months, meaning your extra fees would be an additional 25 percent of your unpaid taxes.
To avoid penalties, don’t hesitate to reach out to the IRS if you think you will have an issue filing or paying your taxes on time. They can often extend your due date without penalties, and you can be put on a payment plan if necessary.
Tax Law Offices
If you have any questions about our answers here, feel free to reach out with your tax issues! The tax attorneys at Tax Law Offices have years of experience with tax law and know how to help you understand your situation. Contact us today and schedule your consultation to tell us what’s going on with your taxes.