3 Tax Rules You Should Know by Heart
With this year's April 15 tax deadline rapidly approaching, many folks are desperately trying to gather their paperwork and hammer out their returns to avoid being late. If you're in that boat, here are a few important tax rules to be aware of.
1. It often pays to file a tax return -- even if you don't have to
If you're a low-enough earner, the IRS won't require you to file a tax return. But you may want to go through the process anyway. If you're entitled to enough refundable tax credits, the IRS could end up having to pay you. But if you don't file a return, you'll have no claim to that money.
There are two credits in particular to look out for. The first is the Earned Income Tax Credit, or EITC, which could be worth up to $6,431 depending on the number of children you have in your household. The EITC is fully refundable, which means that if you snag that max, you could get that entire amount from the IRS. The second credit to keep on your radar is the Child Tax Credit, which is worth up to $2,000 per child under the age of 17 in your household. Of that $2,000, $1,400 is refundable.
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Keep in mind that if your income is low enough that you're not required to submit a tax return, you get to file your taxes free. Therefore, you might as well go through the motions and see how things play out.
2. An extension won't give you more time to pay your taxes
If you're getting down to the wire on tax filing and aren't prepared with your return, you may be tempted to request a tax extension. You don't need a specific reason to ask for one; just file the right form and the IRS will grant it. But while that might seem like a good idea in theory, you should know that it won't get you out of paying your tax bill on time.
When you owe the IRS money on your taxes, there are two penalties you might face. The first is the failure-to-file penalty, which applies when you don't submit your return by the filing deadline. The second is the late-payment penalty, which applies when you don't pay your tax bill in full by the filing deadline. A tax extension will help you avoid the former penalty, but it won't get you out of the latter. Therefore, if you have reason to believe that you underpaid your 2018 taxes, do your best to estimate what you owe, and send the IRS that money by April 15 if you have it.
3. You don't need to itemize to claim certain deductions
Because the standard deduction increased substantially for the 2018 tax year, fewer filers are expected to itemize on their returns this year. But that doesn't mean you can't still claim certain deductions.
There are a number of deductions that don't require you to itemize, so be mindful of them when you file your return. These include educator expenses up to $250, IRA contributions (which you can make, up until the April 15 tax deadline for the previous year), student loan interest, and self-employment tax, if you're liable for it.
The tax code is clunky and complex, so knowing every single rule it contains is next to impossible. These three rules, however, are ones you should absolutely familiarize yourself with, as doing so could help you save or avoid losing serious money.
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