Federal Tax-Filing Status
Choosing the wrong tax-filing status can mean incorrect tax calculations and potentially missing out on valuable credits and deductions. Here are some tips to avoid this mistake:- Familiarize yourself with the different filing statuses (single, married filing jointly, etc.).
- Ensure you meet the criteria for the filing status you choose. For example, to file as head of household, you must have a qualifying person and pay more than half the cost of maintaining a home for them.
- The IRS website offers tools like the Interactive Tax Assistant to help you determine the correct filing status.
Can You Claim Yourself as a Dependent?
You can’t claim yourself as a dependent. A tax-dependent is someone who you have supported at least 50 percent, like a child or another relative. A dependent is typically a qualifying child or relative who relies on you for financial support. Since you cannot be both the provider and the recipient of support in this context, you cannot claim yourself.Must We Pay Taxes on Our Unemployment Benefits?
Unemployment benefits are subject to federal income taxes and taxable in some states. You should receive Form 1099-G from your state unemployment agency, which shows the total amount of unemployment compensation paid to you and any federal income tax withheld.Child Tax Credit
For the 2024 tax year, the Child Tax Credit (CTC) is worth up to $2,000 per qualifying child. The refundable portion, known as the Additional Child Tax Credit, is up to $1,700. Here are the key eligibility requirements:- The child must be under 17 years old at the end of the year.
- The child must be your son, daughter, stepchild, eligible foster child, brother, sister, stepbrother, stepsister, half-brother, half-sister, or a descendant of one of these (e.g., grandchild, niece, nephew).
- The child must not provide more than half of their own financial support during the year.
- The child must have lived with you for more than half the year.
- You must properly claim the child as your dependent on your tax return.
- The child must be a U.S. citizen, U.S. national, or U.S. resident alien.
- The full credit is available if your annual income is below $200,000 (or $400,000 for joint filers). The credit amount begins to phase out above these thresholds.
- To claim the Child Tax Credit, you'll need to enter your children and other dependents on Form 1040 and attach a completed Schedule 8812, Credits for Qualifying Children and Other Dependents.
Difference Between Child Tax Credit and Dependent Care Credit
The Child Tax Credit (CTC) and the Dependent Care Credit (DCC) serve different purposes and have different eligibility criteria. The purpose of the CTC is to provide financial support to families with children under 17 years old. (See above for details).In summary, the CTC provides a direct credit for each qualifying child, while the DCC helps cover childcare expenses to enable parents to work. Both credits can provide significant financial relief but serve different needs.
The DCC purpose is to help working parents offset the cost of childcare for children under 13 years old while they work or look for work.
- Up to 35 percent of qualifying expenses, depending on your income.
- The expenses must be incurred to enable you to work or look for work, and the care provider must be a qualifying individual (e.g., a daycare center, babysitter).
- The percentage of qualifying expenses you can claim decreases as your income increases, with a minimum of 20 percent for higher incomes.
Savers Tax Credit
To qualify for the Savers Tax Credit, you need to meet criteria listed below. The credit amount you can receive depends on your income level and the amount you contribute to your retirement account. The maximum credit is $1,000 ($2,000 married filing jointly):- You must be at least 18 years old by the end of the tax year.
- You cannot be claimed as a dependent on another person’s tax return.
- You must not be a full-time student during the tax year.
- You must make eligible contributions to a retirement account, such as a Roth IRA, a 401(k), or a SIMPLE IRA.
- Your adjusted gross income must fall below certain thresholds. For 2024, the income limits are $38,250 or less for single filers, $57,375 or less for head of household, and $76,500 or less for married couples filing jointly.
Venmo Taxes
For those with a business selling on a platform such as Etsy. Will also apply to your gigs and side hustles for which you are paid in cash via Venmo or other third-party apps (Zelle, PayPal), along with those who receive payments from credit cards, debit cards, or gift cards you may receive a tax document called a Form 1099-K.
Form 1099-K reports payments from payment apps or online marketplaces and from credit, debit or stored-value cards. Use it to help figure and report your correct income on your tax return.Bonuses and Taxes
Bonuses are considered supplemental wages and are taxed differently than regular wages. Here’s how they are typically taxed: employers usually use one of two methods to withhold federal taxes on bonuses:- Percentage method: This is the most common method whereby a flat 22 percent is withheld from the bonus amount. If the bonus exceeds $1 million, the first $1 million is taxed at 22 percent, and any amount more than $1 million is taxed at 37 percent.
- If the bonus is combined with regular wages in a single paycheck, the total amount is taxed at the regular withholding rate applied to your paycheck.
- Bonuses are also subject to state income taxes, and the withholding rate varies by state. Check your state’s tax regulations for specific details.
- Bonuses are subject to Social Security and Medicare taxes, just like regular wages. The Social Security tax is limited to the first $168,600 of wages for 2024.
- Depending on your total income, bonuses can push you into a higher tax bracket, increasing your overall tax liability.
Common Mistakes Made Filing Federal Taxes
Common mistakes made filing taxes include:- math errors
- incorrect Social Security numbers
- misspelled names
- wrong filing status
- missing deductions and/or credits
- unsigned forms
- incorrect bank account numbers
- filing too early
- disreputable tax preparers
Here Are Some of the Best Tax Software Packages for 2024
- TurboTax: Most popular and probably the best overall, easy to use.
- H&R Block: This software supports those who are likely to need assistance.
- FreeTaxUSA: This one is free! At least for your federal return, but there’s a charge for your state return.
- TaxAct: While not free, it is quite cheap compared to most tax software, and with good features, it will work for those with a modest budget.
Summary
Filing federal income taxes can be a tough task, but with knowledge, understanding, and a few good tips, it doesn’t have to be all that difficult. While no filing software is bulletproof, most have become largely foolproof, detecting errors as you go and suggesting alternative treatment when encountering anything the software detects as unclear or ambiguous.
The Epoch Times copyright © 2024. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.
