Common Tax Questions Roundup

December 26, 2017 : Mike Slack

For your convenience, here are five basic tax questions The Tax Institute and our tax professionals have been asked this year about tax preparation – with answers for you!

 

1 – “Am I withholding enough from my paycheck?”

We can’t tell you what you should claim, as this varies based on a number of factors. Luckily, we offer a handy tax withholding calculator  and the IRS website offers a handy tool to help determine the proper withholding.

Remember: it’s important to revisit your withholding as your life changes. If your circumstances changes – like the birth of a child, a marriage, or a divorce – it’s up to you to change your withholdings on a W-4.  Many employees neglect to take this step, resulting in withholding a number that is too low or high.

If your withholding is too high, you’re pretty much giving the government an interest-free loan. Sure you’ll get a bigger refund, but you might be better off using that money throughout the year.

Withholding too little can result in you owing substantial amounts with your tax return. It might be nice to have that money throughout the year, but you’re only going to end up paying it to the IRS the next year, and possibly be subject to stiff underpayment penalties.

 

2 – “I’m not married, but I have a child, how should I file?”

Even though you may be single (parent), it may be more advantageous to file as head of household. This filing status is available to individuals who maintain their homes for more than half of the year for either a qualifying child or certain relatives who are claimed as that person’s dependent. Head of household is more favorable than filing as single as it provides higher income thresholds that result in paying lower taxes.

If you want to claim this status, your child generally must be someone who:

  • Lives in your home for over half the year,
  • Is your child, stepchild, adopted child, or foster child, or your sibling or step-sibling (or a descendant of any of these),
  • Is under 19 years old (or a student under 24), and
  • Does not provide over half of his or her own support for the year.

If a child’s parents are divorced, the child will qualify if they meet these tests for the custodial parent even if that parent released his or her right to a dependency exemption for the child to the noncustodial parent.) A person is not considered a qualifying child if they are married or is not a U.S. citizen or resident. Special tie-breaking rules apply if the individual can be a qualifying child of (and is claimed as such by) more than one taxpayer.

 

3 – “What is the penalty amount if I didn’t have health insurance in 2017?”

If you did not have health insurance in 2017, and don’t otherwise qualify for an exemption, you’ll pay the greater of these two amounts:

  • 5% of your yearly household income. Only the amount of income above the tax filing threshold  (around $10,400 for single filers, $20,800 for couples filing jointly, $13,400 for individuals filing as head of household) is used to calculate the penalty.
  • $695 per adult for the year and $347.50 if you are under 18. The maximum penalty per family using this method is $2,085.

Overall, the annual penalty is limited to the national average premium for a Bronze plan. For 2017, that is $3,264 for an individual and $16,320 per year for a family with five or more members.[SM1]

 

4 – “What is the difference between ordinary income and capital gain income?”

There are two sets of tax rates in America: one is imposed on ordinary income, and the other on capital gain income.

Ordinary income is the most common type of income and includes for example wages, interest, and rental income. The ordinary income tax rates range 10% to 39.6% depending upon your total income.

Capital gain income typically is the result of selling property owned for a year or longer. When the sales price exceeds what you originally paid for the property that excess (i.e., the gain) is tax at the capital gains tax rates. These rates range from 0% to 20% also depending upon your total income.

On the other hand, gains from the sale of property owned for less than a year, or sales that result in losses, are treated as ordinary income.

 

5 – “Should I use a tax professional or prepare my taxes on my own taxes?“

The answer to this question depends upon your level of comfort. It is inevitable that as you advance through your life and career, your taxes will get more complex. What may be a single-page Form 1040-EZ one year can easily become a daunting voluminous series of tax forms the next. This is where H&R Block is here to help as we have both options.

Should you feel overwhelmed this upcoming tax season, we have thousands of highly trained tax professionals ready to tackle your unique situation. Our tax professionals understand the complexities of the tax code and guarantee you get every credit and deduction you deserve.

[Still have tax questions? Find a tax office near you now.]

 

If you want to file on your own, we offer tax calculatorstax preparation software and online tax filing to for do-it-yourself taxes. Should you get stuck, our tax software and online filing options offer free unlimited taxes 101 advice from our tax experts.

A third option is our Tax Pro Review service. Here, you can file on your own taxes through our DIY software, then have a tax professional review your filing. With a DIY element and professional support to create confidence, Tax Pro Review has you covered. After preparing your own taxes, gain peace of mind knowing that an H&R Block tax expert has reviewed, corrected, signed and filed your tax return on your behalf.

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Hopefully this post provides the answer you need for basic tax questions. For more tax tips, head here.

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Mike Slack

Mike Slack

The Tax Institute, H&R Block

Mike Slack, JD, EA, is a senior tax research analyst at The Tax Institute. Mike leads research teams focused on business and investment tax issues.