The income tax submission dates are near, and you must know how to calculate your tax in 2020. It is important to keep an eye on the small changes that are going to affect the tax returns this year. This guide about income tax returns 2020 is going to discuss all the important factors that you need to know about tax refund estimations.
You need to dig deeper into this article if you want to know what to do in case you have missed the deadline or could not pay the amount that you owe? We know that you cannot navigate through hundreds of pages on the IRS website, that’s why we have simplified things for you.
The Basics of Income Tax
Either you are bound to file a return with the IRS or not depend upon your yearly income and filing status. To avoid any future inconvenience, we suggest submitting the tax returns, even if you are not a filer. As per the tax year 2019, an independent adult under the age of 65 with $12,200 gross income during one year must file a return.
If you don’t pay attention to your filing procedure, you may have to pay more than you owe. If you have paid more than the tax amount, you can use the tax refund calculator 2020 to know more about a tax refund.
If you know how to use all the privileges, you are good to maximize the tax refund and some credits; you can even reduce the actual tax amount that you owe. Here are some basic ideas that you need to understand to get started with the calculation of tax refunds and when to expect the tax refund.
Calculate gross income
If you are planning on filing the tax returns on your own, you need to start by figuring out your gross income. GI is the total amount of money that you have generated within a year from all resources and income streams. If you want to use the tax refund estimator, first of all, you need to know the GI income in every case. Professionals can handle the tax returns for you, but still, you have a clear idea of how much you have made.
Calculate adjust gross income
Once you have calculated the gross income, the next step is to determine filing status for your tax forms. Your family and marital status determine the filing status. These statuses will help you to determine the standard deduction that you can deduct from gross income. After the subtraction of the standard deduction, you will get adjusted gross income.
What is nontaxable income?
There are some income sources that are exempted from the tax laws. The given sources of income are not taxable in general:
• Gifts and inheritances
• Welfare benefits
• Payments for the child support
• Cash rebates
• Awards of damage from illness
There are some rare sources of income where the income is generally nontaxable except some special cases:
1. Most of the time, insurance payouts are not taxable. Your income is taxable in case of early withdrawal
2. Scholarship payments are taxable, but the payments that are used for the room are taxable
What happens if I file late?
If you have missed the deadline for filing the tax returns, you will have to pay penalties. If the government owes you tax refunds, you will not be fined for the late filing of the returns. In general, there are two types of penalties:
Penalty for filing late
For filing late, you will be fined 5% of the tax amount that you owe, and it will keep going higher with each month that you keep delaying. If you have not filed the tax returns until 60 days, the penalty will be $435 or equal to 100% of the tax amount that you owe.
Penalty for paying late
The fine for paying late is 0.5% of the due tax amount. If you don’t pay the tax amount within the ten years of the notice, the penalty can increase to 1%.
What to do if you cannot pay the taxes?
Always try to file the taxes as soon as possible. Try to file the taxes even if you cannot pay what you owe. If you keep delaying, your penalty will keep increasing. In case you cannot manage to pay on time, you can apply for the time extension with FORM 1127 and explain the scenario that paying the full tax can cause undue hardship. You need to provide valid reasons for the approval of the time extension.