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Improve Your 2019 Tax Return: Answers to 12 Common Tax Questions

By Stephen Sellner | Citizens Bank Staff

(*Editor's note: On March 20, 2020, the IRS announced that the income tax filing deadline was delayed from April 15, 2020, to July 15, 2020 as a result of COVID-19. It remains unclear how this delay will impact filing for an extension. This article will be updated as more information becomes available.)

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 2019 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.

1. What is the capital gains tax rate?

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:

2019 Long-Term Capital Gains Tax Rates

Filing Status

0% tax rate

15% tax rate

20% tax rate

Single

Up to $39,375

Between $39,376 and $434,550

More than $434,550

Head of Household

Up to $52,750

Between $52,751 and $461,700

More than $461,700

Married Filing Jointly

Up to $78,750

Between $78,751 and $488,850

More than $488,850

Married Filing Separately

Up to $39,375

Between $39,376 and $434,550

More than $434,550

Source: IRS

2. When can I file taxes for 2019?

You can file your taxes for the year 2019 as soon as you receive all of your tax-related documents, which should be in early February 2020. Generally speaking, tax forms are supposed to be mailed — physically or electronically — to you by the end of January.

July 15, 2020* is the tax filing deadline, unless you file for an extension.

3. How is self-employment tax calculated?

The self-employment federal tax rate is 15.3% for 2019. 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.

4. How long should you keep tax records?

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:

  1. Keep records for three years (unless situations D, E, or F apply to you).
  2. If you file a claim for a credit or refund after filing your return, keep records for three years from the date you filed for your original return or two years from the date you paid the tax, whichever is later.
  3. Keep records for seven years if you file a claim for a loss from worthless securities or bad debt deduction.
  4. Keep records for six years if you don’t report income that you should report, and it is more than 25% of the gross income shown on your return.
  5. Keep records indefinitely if you do not file a return.
  6. Keep records indefinitely if you file a fraudulent return.
  7. Keep employment tax records for at least four years after the date that the tax becomes due or is paid, whichever is later.

5. What is the Child Tax Credit?

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 2019, 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 2019, a portion of those credits could turn into a refund.

RELATED: 4 Ways to Pay Off Your Large Tax Bill

6. What is the federal income tax rate?

The federal income tax rate for 2019 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%

$9,700 or less

$19,400 or less

12%

Between $9,701 and $39,474

Between $19,401 and $78,949

22%

Between $39,475 and $84,199

Between $78,950 and $168,399

24%

Between $84,200 and $160,724

Between $168,400 and $321,449

32%

Between $160,725 and $204,099

Between $321,450 and $408,199

35%

Between $204,100 and $510,299

Between $408,200 and $612,349

37%

$510,300 or more

$612,350 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 first $9,700 is taxed at 10%
  • The next $39,474 is taxed at 12%
  • The remaining $50,826 is taxed at 22%

7. What forms do I need to file my taxes?

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:

  • W-2: earnings for the year and the amount withheld for taxes.
  • Form 1098-E: interest paid on any student loans.
  • Form 5498: contributions made to an Individual Retirement Account (IRA).
  • Form 1098: amount of interest and related expenses paid on your mortgage.
  • Form 1099: income received from self-employment earnings, interest and dividends, government payments, and more. There are several types of 1099s.
  • Form 1095: health insurance coverage forms. The type of 1095 you receive depends on the type of health insurance you’re enrolled in.
  • SSA-1099: any Social Security benefits you received.
  • Charitable donation receipts: if you plan on filing for a tax deduction on any donations made to charity during the year.
  • Property tax receipts: if you plan on writing off this as an itemized deduction.
  • Last year’s state refund amount: if you itemize your deductions, your state tax refund from the prior year is considered income.

Source: TaxSlayer, 2019

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?

8. What is estate tax?

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.

9. What does tax exempt mean?

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.

10. What moving expenses are tax deductible?

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

11. What is an amended tax return?

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.

12. What is an inheritance tax?

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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