Updated June 2018
Do you go the easy route when it comes to filing your federal taxes? Complicating things may not seem like the way you want to go considering it might mean you can’t file on your own. However, the “complex” part actually is all about you keeping more of your hard earned money.
Which parts of my income are taxable?
The government receives the majority of its income through individual’s income taxes. The parts which you should report include:
- unemployment benefits
- sick pay
- some non-cash fringe benefits
Other types of income you may receive which are also subject to income tax include:
- profit from the sale of assets
- business and farm income
- gambling winnings
You can reduce your taxable income by contributing to a retirement account like a 401(k) or an IRA. If you open a Roth IRA, these contributions do not qualify as a tax deduction – only taxed dollars may be contributed, however your distributions when you reach the age of 59 ½ are not taxed as long as you’ve held the account for five years.
You may also deduct any state and local taxes, mortgage interest, some medical expenses, and charitable contributions up to a certain amount (often can be up to 50% of your gross income, but in some cases will only be 20-30%. Read the rules about charitable deductions here.
Social Security + Medicare – 7.65% combined
This is part of the same form, but is technically separate from your income taxes. Social security accounts for 6.2% and you will stop being charged for this once your income reaches a certain amount – $118,500 in 2016 – but medicare (1.45%) will continue indefinitely. Once you make over $200k annually as an individual ($250k for a married couple filing jointly), you will begin contributing 0.9% more for medicare.
Which federal tax form should I use?
There are three different forms which can be used, depending on your income level and situation.
This is the easiest form to fill out, can only be used for people earning $100k or less annually, and allows for no deductions. If you want your taxes to be as simple as possible, fill this one out, but if you like to save money, keep reading!
This form is also only for individuals earning less than $100k/year, and allows for certain deductions (eg. retirement contributions, education expenses, student loan interest). Do NOT use this if you want to itemize any deductions.
This form allows for everything including itemized deductions, and any income level, but is a necessity for those making more than $100k/year. Click here for more specifics about each form.
This is a basic view of what federal taxes look like for the average person, and depending on your personal or family set-up, and the more money you are looking to save, things can get complicated. To have your questions answered once and for all, of if you’re looking for a personal accountant, feel free to contact D&M Accounting and we will be glad to help out!