Taxes have never been the easiest subject for people to understand. Information can be written in a very technical way for accountants and tax preparers, leaving the average person befuddled. Throw in the new Tax Cuts and Jobs Act and other new tax laws that change each year and it makes even more sense why people are confused.
Before you file for the 2020 tax season, take a look at this list of common tax questions (and answers) that people have this time of year so you can file on your own with confidence.
The capital gains tax is what you pay when you incur a profit from selling real estate, an investment, or other financial asset.
Short-term capital gains — when you own an asset for a year or less — are taxed as regular income and therefore follow your income tax bracket.
The long-term capital gains tax rate, however, is applied on assets owned for more than a year. That tax rate can range from 0% all the way up to 20%, depending on your filing status and the amount you gain from the transaction. The chart below outlines the long-term capital gains tax rates:
2020 Long-Term Capital Gains Tax Rates |
|||
Filing Status |
0% tax rate |
15% tax rate |
20% tax rate |
Single |
Up to $40,000 |
Between $40,001 and $441,450 |
More than $441,451 |
Head of Household |
Up to $53,600 |
Between $53,601 and $469,050 |
More than $469,051 |
Married Filing Jointly |
Up to $80,000 |
Between $80,001 and $496,600 |
More than $496,601 |
Married Filing Separately |
Up to $40,000 |
Between $40,001 and $248,300 |
More than $248,301 |
Source: Nerd Wallet
You can file your taxes for the year 2020 as soon as you receive all of your tax-related documents, which should be in early February 2021. Generally speaking, tax forms are supposed to be mailed — physically or electronically — to you by the end of January.
May 17, 2021* is the tax filing deadline, unless you file for an extension.
The self-employment federal tax rate is 15.3% for 2020. That number is inclusive of 12.4% for Social Security and 2.9% for Medicare, according to the IRS.
Generally speaking, the self-employment tax applies to 92.35% of your business or trade’s net earnings. Your net earnings are the difference between your gross income and any ordinary or necessary expenses relating to self employment.
In most cases, you should keep all tax information and records for three years. However, the IRS lists these rules to consider based on a number of different scenarios:
The Child Tax Credit (CTC) is $2,000 per qualifying child and applies if your child is younger than 17 years old at the end of 2020, is claimed as a dependent, and lives with you for more than six months of the year. The child must also have a Social Security Number issued before the due date of your tax return — July 15, 2020*.
Up to $1,400 of that tax credit may be refundable per qualifying child. So if the Child Tax Credits you’ve incurred for the year exceed the taxes you owe for 2020, a portion of those credits could turn into a refund.
The federal income tax rate for 2020 is broken into seven different tiers. They are:
Federal Income Tax Rate |
Income Range for Single Taxpayers |
Income Range for Married Couples Filing Jointly |
10% |
$9,950 or less |
$19,900 or less |
12% |
Between $9,951 and $40,524 |
Between $19,901 and $81,049 |
22% |
Between $40,525 and $86,374 |
Between $81,050 and $172,749 |
24% |
Between $86,375 and $164,924 |
Between $172,750 and $329,849 |
32% |
Between $164,925 and $209,424 |
Between $329,850 and $418,849 |
35% |
Between $209,425 and $523,599 |
Between $418,850 and $628,299 |
37% |
$523,600 or more |
$628,300 or more |
Source: IRS
And remember: Your entire income isn’t taxed at one rate. It’s a phased approach. For example, if you’re single and your income is $100,000, that entire $100,000 isn’t taxed at the 24% rate listed above. Instead, it’d work like this:
The complete list of forms you need to file your taxes varies from one person to the next. A married business owner with a home, for instance, will have a far different list of forms needed to file their taxes than someone who’s single with an office job.
Here’s a sample of the forms you’ll need to file your taxes:
Source: TaxSlayer, 2021
Again, the list of forms you’ll need could be longer or shorter than the one above. Talk to a tax professional to find out exactly which forms you’ll need to properly file your taxes.
Related: Should you use your tax refund on your student loans?
According to the IRS, estate tax is a tax on your “right to transfer property at your death.”
Estate tax encompasses all assets owned at the time of death, such as cash, securities, real estate, insurance, trusts, annuities, business interests, and more. The fair market value of the estate at the time of death is used to calculate this tax.
When income or a transaction is deemed “tax exempt,” it means it’s free of tax obligations at the federal, state, or local level. Tax-exempt income or transactions are not used in any tax calculations made when you file your return.
Tax deductions for moving expenses have been suspended for tax years 2018 through 2025 for nonmilitary taxpayers, according to the IRS. Furthermore, any reimbursements you receive for moving expenses need to be included in the gross income you file to the IRS.
Related: 10 smart ways to use your tax refund
Did you make an error on a tax return you filed from a previous year? Then you’ll want to file an amended tax return.
A change in filing status, income, deductions, or credits would require an amended return. Mathematical errors made on your tax return would not prompt an amended return since the IRS corrects such errors when processing your return.
You can file an amended return up to three years after a return was submitted. To file an amended return, complete Form 1040X.
Inheritance tax is applied when you’re the beneficiary of money or property from a deceased loved one’s estate.
Inheritance tax is only applied at the state level, and only a few impose it — Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. State tax laws can change, so if you receive an inheritance, contact your state’s tax agency to make sure you have the most up-to-date information.
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Disclaimer: The information contained herein is for informational purposes only as a service to the public and is not legal advice or a substitute for legal counsel. You should do your own research and/or contact your own legal or tax advisor for assistance with questions you may have on the information contained herein.