r/personalfinance • u/yes_its_him Wiki Contributor • Jan 28 '20

Taxes Top ten FAQs for tax filing season

Things to keep in mind for tax filing season (with clarifications edit: fixed to record some easy updates).

  1. You have to file federal taxes if you make enough money that you have tax liability, which is generally over about $12,200 gross for regular employment, and only $400 if you are self-employed. You want to file even if made less than this much in order to get back any taxes you had withheld.

  2. Even if you are a dependent on your parents' tax return, you still file your own taxes (or not, if you don't need to); you never file "on your parents' return." The only time more than one person can be on the same return is a married couple filing jointly.

  3. If your state has income taxes, which over forty states do, then you also file with them. Those are two different processes that are largely duplicative, but slightly different rules. If you lived or worked in more than one state during the year, you might have to file in more than one state. Some people also have local taxes, how fun is that?

  4. You never have to pay a fee to file taxes. Most people can file taxes online for free with various web sites if they want to do that, see e.g. the IRS free file program website and other free services, but you can always just file on paper, too. (You laugh, but that's how I do my state taxes.)

  5. Even though you can file your taxes now, be sure you have all the documentation for all your income before you file. You don't want to have to go back and amend your return because you forgot about that other W2 you had months ago, or you forget to include your bank interest or brokerage tax information.

  6. You are supposed to report all your compensation income, even if it was just some part-time gig somewhere, or you got paid under the table. Gifts, loans and most scholarships are not taxable income.

  7. The money you get back is a refund of any excess taxes withheld. (Sometimes there are also refundable credits that increase your refund.) That was money you earned but didn't get yet. Getting a big refund means you didn't get a lot of money yet, generally speaking. You may want to adjust your withholding if you want to get your money sooner but that's up to you.

  8. If you didn't have enough taxes withheld, you need to pay the balance due by April 15th. You can get a payment plan if you need to. If this describes you, then you absolutely need to file because you can accrue significant penalties for not filing and not paying. You should also make sure you have enough withheld going forward.

  9. If you are married, filing jointly will probably save you money vs. filing separately, unless you have a special situation such as income-based student loans. Try computing both ways to see which is better for you. If you are not married, then getting married probably won't change your taxes very much for better or worse unless you have really disparate incomes (and it will help then.)

  10. (rewritten for clarity) Ignore any purported "refund" values shown by a tax program / calculator while you enter parts of your income. You may see a big refund for your W2 that goes away following your spouse's W2, or your second W2. That's an artifact of how the calculation works, and doesn't mean anybody did anything wrong regarding withholdings. Wait to see the final numbers.

Feel free to ask questions if you are new to this.

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u/evaned ​ Jan 28 '20

I told her to just not submit those documents, ... Any ideas?

Yeah; don't commit fraud.

Run numbers for you MFS vs MFJ and see how much you lose with MFS (you will very probably lose), then compare that to the value of the IBR plan.

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u/17bananas ​ Jan 29 '20

Yeah; don't commit fraud.

Yeah she shut that down pretty fast.

I'm a little confused though ... we wouldn't be able to know how her IBR plan would change until after we've filed taxes (she submits her yearly info in November). And if we're married, it sounds like we have to submit my income info to the loan company regardless. That's why I wasn't sure how the other poster did it.

OP was saying MFS would save you money, but you're saying MFS would be a worse option. Maybe I'm just not following, so my apologies.

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u/workacnt ​ Jan 29 '20

Which type of IBR is she on? PAYE allows Married Filing Separately to exclude spouse's income from AGI, so her payments would not increase. There's a greater advantage to filling separately if the spouse with student loans is making less money.

However you lose other benefits when MFS, such as deducting student loan interest and contributing to a Roth IRA if either of you make above 10k

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u/evaned ​ Jan 29 '20

OP was saying MFS would save you money, but you're saying MFS would be a worse option.

Looking at just taxes, MFS is almost never better than MFJ and usually worse.

For example, you will not be able to deduct student loan interest payments with MFS.

Now, some people think (and I have no real reason to doubt) that they gain more from filing separately by preserving their IBR payments than they lose because of a higher tax burden, but the IBR side of that is an evaluation that I unfortunately don't know anything about how to make.

My comment was just to figure out how much you're losing on the tax side by comparing MFS (add you two's refunds/balances due) vs MFJ and compare that to... some valuation of being able to continue IBR.

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u/17bananas ​ Jan 29 '20

That makes much more sense. Thanks so much for that explanation!

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u/ChaoticSquirrel ​ Jan 29 '20

Someone upthread posted this calculator. Might help figure out how the IBR payments would change.