I. Introduction

Tax filing can be a daunting task for many of us, and especially so if we are unsure of the minimum income requirement to file our taxes. Knowing the threshold for income taxes is crucial for a taxpayer because it can either exempt us from filing or help avoid hefty fines and penalties. This article will help you understand the tax filing threshold, and how taxable income, deductions, credits and changes in tax laws impact it. We also highlight why it is crucial to stay informed about changes in tax laws and provide an overview of all the different options to find professional assistance when filing your taxes.

II. Understanding the Tax Filing Threshold

The tax filing threshold refers to the minimum level of income beyond which an individual must file taxes with the Internal Revenue Service (IRS). Every year the Internal Revenue Service (IRS) establishes new income thresholds for filing based on inflation, considering the previous year’s tax brackets. Taxpayers whose income falls below this threshold are not required to file taxes, and if they do, they won’t have to pay any taxes.

Determining the taxable income for a taxpayer plays a crucial role in deciding whether they are required to file taxes. As a result of this, the minimum amount required for filing taxes is not a fixed sum, and it varies each year.

For the filing year 2020, the IRS has set the threshold at $12,400 for single filers, $18,650 for heads of households, and $24,800 for married couples filing jointly. However, if your income falls below this threshold and you’re a single filer aged 65 or above as of the last day of the tax year with an income of $14,050; $20,300 for purposes of filing as head of household with one qualifying person and over the age of 65; or, $27,000 for those married and jointly filing with one spouse over the age of 65 and $26,100 if both spouses are over 65, then you may still be required to file taxes. Having a dependent or being self-employed may also impact this threshold.

III. Different types of Income that are Taxable

It is essential to understand what taxable income entails if one wants a clear picture of the threshold for tax filing. Taxable income comprised wages and salaries, self-employment income, investment income and taxable social security benefits.

Wages and salaries: Income from any salary or wages earned through work is taxable and needs to be reported to the IRS. Various types of earnings make up this income, including regular pay, commissions, bonuses and tips.

Self-employment income: This is income earned by an individual working as a freelancer, hired contractor or starting a new business. Self-employment income can also include tips, ticket sales and rental income from property under a taxpayer’s name.

Investment income: When an individual earns interest income from a savings account or dividends from stock shares, this income is taxable and should be reported to the IRS. Real estate gains and losses should also follow this rule.

Taxable Social Security income: This specific income source may or may not be taxable, depending on the recipient’s overall income, such as earnings from wages or salaries, and other investment income.

IV. Tax Deductions and Credits

The standard tax deduction is the fixed amount of income that the IRS allows taxpayers to subtract from their adjusted gross income based on their filing status. Tax credits help to offset taxes owed by reducing the amount that an individual taxpayer owes to the IRS. Tax deductions and credits work differently from one another, and they can be used together to lower an individual’s taxable income.

For example, a single taxpayer with no children earning $25,000 in 2020 might reduce their taxable income to $18,600 with the help of a $1,650 single filer’s standard deduction, but only then claim an additional $5,000 in tax credits to take advantage of tax relief opportunities. This would result in a lower tax bill since the taxpayer’s taxable income would be $13,600 and the credit reduces taxable income by up to $5,000.

V. Consequences of not Filing Taxes

Not filing taxes or not paying any taxes owed would ultimately lead to owing back taxes and other penalties. Penalties typically include a late filing fee, which is a percentage of taxes owed, and interest charges due to late payments.

If an individual continues to fail to file their taxes, it could eventually lead to legal troubles with the IRS, including bank levies, wage garnishments or liens against their property. The consequences of not filing taxes can be severe, and it is vital that taxpayers file their taxes, even if the income earned falls below the minimum income threshold.

VI. How to File Taxes

Filing taxes can be done in three ways: online, by mail, or in-person. The IRS recommends filing online as it is convenient and error-free, although one must first determine their eligibility for such a program before they can file online.

When filing taxes online, the taxpayer will have to sign the documents electronically, and it is safer to do so using a registered IRS mandate. For individuals who prefer to file their taxes via mail, they must fill out the required tax forms and send the package to the post office so that it arrives on or before the filing deadline.

For taxpayers choosing to file their tax returns in-person, they must visit their preferred IRS office to complete their tax preparations with an IRS representative.

The tax filing deadline in the United States is April 15th of each year. Failure to file before this deadline can attract costly penalties and interest.

VII. Changes in Tax Laws

When tax laws change, it can impact the filing threshold, making it essential to stay up-to-date with any new regulation changes. Tax law revisions can lower or raise federal income tax rates, adjust credits and deductions, phase out or eliminate specific credits, and impact how to calculate taxable income.

For instance, the Tax Cuts and Jobs Act that was passed in 2017 resulted in a significant increase in the standard deductions, which reduced the tax liability of taxpayers with low enough taxable income to claim standard deductions.

It is essential to monitor changes to the tax laws to determine how they can impact tax filing thresholds.

VIII. Professional Assistance for Tax Filings

Professional assistance can be beneficial when filing taxes, particularly if one is unsure of the tax code or if the filing requirements are complex. Certified public accountants (CPAs) provide necessary guidance and help opportunities for tax savings.

Enrolling in a professional tax preparation service like H&R Block or TurboTax can be some of the best options for taxpayers, and they offer software and assistance to answer clients’ tax-related queries.

Taxpayers can also seek assistance from tax attorneys, who employ their knowledge of US tax code to help taxpayers all year round and evaluate potential tax consequences related to various financial transactions.

Engaging the services of a professional is useful when dealing with complex tax manoeuvres, but it’s crucial to find the right fit regarding specification and fees.

IX. Conclusion

Tax filing is often viewed as a complicated process, and taxpayers typically face anxiety during tax season. With the information provided in this article, we hope to bring clarity to understanding the tax filing threshold and the importance of calculating taxable income, and claiming deductions and credits. We’ve highlighted the significance of staying informed on tax regulations that impact income thresholds. With the right preparation and understanding of the tax laws, taxpayers can successfully file their taxes.

We encourage everyone to start their planning now and to reach out for professional assistance if necessary. Being proactive and informed is the key to avoiding tax-related stress in the future.