Common Questions About U.S. Taxes

Should I see someone about my taxes?

Even if you’re itemizing your deductions, the majority of people that ask this question in /r/personalfinance are likely capable of filing their taxes themselves. Tax situations that may merit seeing a professional would be a small business, multiple state residencies/income, or overseas tax issues (foreign tax credit, foreign earned income exclusion). Tax preparation costs vary based on complexity and where you live, but most tax returns can be prepared by a professional for a few hundred dollars.

What tax software should I use?

TurboTax and TaxACT are the two most popular commercial suites. If your income is below $58,000 you can file your federal return for free directly with the IRS using freefile. Costs of state returns through the Turbotax and TaxACT cost $36.99 and $17.99, respectively. Both suites charge more for things like capital gains, rental income, etc.

I already filed my taxes. Can I still contribute to a Roth IRA?

Yes. Unless you’re eligible for the saver’s credit then your Roth contribution after you file your return but before the April 15 deadline will not affect your tax filing. Roth contributions are post-tax.

Why doesn’t the student loan interest deduction double for couples married filing jointly?

That’s just the way the tax code was written. The maximum you can deduct in student loan interest is $2,500 regardless of your filing status.

What’s the difference between a tax deduction and a tax credit?

Tax deductions reduce the amount of your income that is taxed, while tax credits reduce your tax burden directly. The amount your tax burden is reduced by a deduction is the amount of the deduction times your marginal tax rate. For example, a tax deduction of $1,000 for someone in the 25% tax bracket will save $250 on their overall tax burden. A tax credit of $1,000 will save $1,000 on their overall tax burden.

Can I claim so-and-so as a dependent?

Use this handy flow chart, fill out the IRS’s handy tool, or refer directly to IRS publication 501.

I screwed up a tax return for a previous tax year. What should I do?

You need to file an amended return, form 1040X. The IRS provides this guidance for filing amended returns. As the IRS notes, your state tax obligation may change based on your federal tax obligation. You may need to file an amended state return as well.

What to do if never filed Taxes?

I’ve never filed a (federal) tax return before. Do I need to file now? If so, how do I do that?

You must file a federal tax return if you owe federal income taxes, and you should file if you had taxes withheld (since you might get some or all of them refunded). How do you know if this applies to you?

If you were paid with regular paychecks (so-called W2 income) with taxes taken out, you should file, regardless of how much you made, or whether your parents claim you as a dependent. Filing will not affect their ability to claim you. You must file if your income as a single person was over $10,300. If your earned income was less than the standard deduction, then you would not be required to file. Usually it’s a first full time job out of high school or college in which you will earn more than the standard deduction. If you are a standard wage earner and you properly filled out your W-4’s where ever you worked, then you probably were due a small refund at the end of the year. If you haven’t filed in a number of years, then any refund due to you will be lost because the IRS will only allow you to go back 3 years in claiming a refund. The IRS however can come after you for any years you did not file a tax return. Failure to file is a criminal offense. You should go back and file your prior taxes even if you were due a refund and know that the IRS will not be refunding it.

If you were paid without any taxes taken out, e.g. in cash or otherwise as a so-called 1099 employee, you need to file and pay taxes if you made at least $400. These “self-employment” taxes are more complicated, so be prepared to learn how those work. Once you are in compliance with filing all of the delinquent tax returns, the tax professional can determine how much you owe, including penalty and interest and then analyze your particular situation to determine an appropriate resolution. There are 3 primary methods of resolving collection cases: Offer-in-Compromise; installment agreement and Currently not Collectible, commonly referred to as hardship. An experienced tax professional who specializes in collection matters will explore all options and be able to recommend a solution to your tax case. You can get more information from my website.

To file your taxes, you have a few options: you can pay someone to do it for you (probably $100+), you can do it yourself using the paper forms, you can use an online site, or you can download tax prep software. Some of these options can be free, especially if you have only typical income levels and “tax situations”, e.g. no dependents, and only W2 income. Take a look at the links above in the help section for some pointers for how to get started. You will want to have your W2/1099. It should take less than an hour. Good luck!

(This covers only federal taxes. If you are in one of the 43 states with a state income tax, you will also need to look into those. That’s every state except Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming.)

Avoiding IRS Tax Scams

If it sounds too good to be true, it probably is! In recent years, thousands of people have lost millions of dollars and their personal information to tax scams and fake IRS communication. This page looks at the scams affecting individuals, businesses, and tax professionals and what do if you if you spot a tax scam.  The IRS saw an approximate 400 percent surge in phishing and malware incidents in the 2016 tax season. Scam emails are designed to trick taxpayers into thinking these are official communications from the IRS or others in the tax industry, including tax software companies. These phishing schemes can ask taxpayers about a wide range of topics. Emails can seek information related to refunds, filing status, confirming personal information, ordering transcripts and verifying PIN information.

  • Scammers make unsolicited calls.  Thieves call taxpayers claiming to be IRS officials. They demand that the victim pay a bogus tax bill. They con the victim into sending cash, usually through a prepaid debit card or wire transfer. They may also leave “urgent” callback requests through phone “robo-calls,” or via phishing email.
  • Callers try to scare their victims.  Many phone scams use threats to intimidate and bully a victim into paying. They may even threaten to arrest, deport or revoke the license of their victim if they don’t get the money.
  • Scams use caller ID spoofing.  Scammers often alter caller ID to make it look like the IRS or another agency is calling. The callers use IRS titles and fake badge numbers to appear legitimate. They may use the victim’s name, address and other personal information to make the call sound official.
  • Cons try new tricks all the time.  Some schemes provide an actual IRS address where they tell the victim to mail a receipt for the payment they make. Others use emails that contain a fake IRS document with a phone number or an email address for a reply. These scams often use official IRS letterhead in emails or regular mail that they send to their victims. They try these ploys to make the ruse look official.
  • Scams cost victims over $23 million.  The Treasury Inspector General for Tax Administration, or TIGTA, has received reports of about 736,000 scam contacts since October 2013. Nearly 4,550 victims have collectively paid over $23 million as a result of the scam


The IRS Will Never Ask:

  • Call to demand immediate payment using a specific payment method such as a prepaid debit card, gift card or wire transfer. Generally, the IRS will first mail you a bill if you owe any taxes.
  • Threaten to immediately bring in local police or other law-enforcement groups to have you arrested for not paying.
  • Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe.
  • Ask for credit or debit card numbers over the phone.

Also, the IRS never ever sues you. It has no need. The IRS is an agency of the Federal government that is entitled (and required, by law) to assess your tax liability. Once it assesses your tax liability, unless you sue them in the US Tax Court within 90 days, the assessment is final and is the same as a court order.


How will the IRS contact me?

Taxpayers should remember their first contact with the IRS will not be a call from out of the blue, but through official correspondence sent through the mail. A big red flag for these scams are angry, threatening calls from people who say they are from the IRS and urging immediate payment.


What to do if called by IRS Scammer?

If you get called by a scammer, consider collecting their stated name, phone number they are calling from, and number you are directed to call and reporting it to TIGTA and/or the Federal Trade Commission (with “IRS Telephone Scam” in the notes). DO NOT GIVE OUT ANY PERSONAL INFORMATION. I highly recommend that those of us with elderly parents or family members share the word. The elderly are some of the most vulnerable when it comes to online or telephone scams.