Many people find filing their taxes to be a difficult or confusing process. There are lots of unfamiliar terms and forms. What’s more, everyone’s situation is different. To help get you started, we’ve answered just a few of the most commonly asked tax questions. Use this information to get a jump on filing your return and, hopefully, scoring a big refund.
1. How do I know if I need to file taxes?
Generally, whether you need to file a tax return this year will depend on your income, filing status, and age, among other factors. If you meet the minimum income level that corresponds to your age and filing status, you will probably need to file a return. If you’re unsure whether you need to file, the Internal Revenue Service’s website has a tool to help you find out. You can also speak to a financial advisor or tax professional about your situation.
2. What counts as income?
Many people aren’t fully aware of what counts as “income” when it comes to calculating our income and the taxes we owe. Most people need to report their earned income, which can include your salary, wages, tips, and any earnings from self-employment. Although income from investments does not count toward your earned income, it is subject to other taxes. If you’re looking into the Earned Income Tax Credit, keep in mind that child support, alimony, social security, unemployment benefits, and retirement income do NOT count as earned income.
3. What is a dependent?
In most cases, a dependent is someone in your life that you financially support, most often a child or other family member. If this person meets certain qualifications, you can claim them as a dependent on your tax return and reduce your tax responsibility. If you financially support a child, significant other, or family member, check to see if you can claim them when you prepare your tax return.
4. What if I’m a student?
There are some credits and deductions available for college students or those pursuing career training and certifications. If you’re a student, you may be able to save money (or increase your refund) with the American Opportunity Tax Credit or the Lifetime Learning Credit. These credits can be used to offset expenses like tuition, fees, and books. If you’re out of school and making payments on student loans, you may also be able to deduct some of the interest you have paid.
5. How long should I keep my tax records?
In most cases, it’s recommended that you hold on to your tax records for three years. That’s because if you are audited, the Internal Revenue Service will likely review your returns from the past three years. However, if you are suspected of underpayment or fraud, you might have to hand over your tax records from the past six or seven years.
*Although we hope these tips are helpful to you, Midland Credit Management does not offer financial advice. If you have questions or concerns about your personal finances, please speak to a financial advisor.