State vs. Federal Income Tax Relief
When filing annual taxes it is common to combine federal and state taxes. More often than not, many have assumed that because of this, that they are one in the same. Thanks to efficient tax preparers and do-it-yourself tax preparing software, it is easy to file a state and federal filing together.
Even though it’s quite simple to file both state and federal taxes, it is important to be able to distinguish the difference between the two. This way, you will be well equipped in answering any questions the Internal Revenue Service (IRS) may have should there be any filing issues. Furthermore, it gives you the knowledge to be able to distinguish if you are paying too much or too little.
Federal taxes are what most taxpayers are familiar with. It can often be a long, drawn-out process to determine how much taxable income a household has.
As required by law, every United States (US) citizen, with exception of children, are subject to paying taxes every year. The amount owed to the US government is determined by an individual’s taxable income.
Taxable income is based on the amount of money that you earn for a calendar year. It not only includes wages, but bonuses, commissions, tips, and money earned from any side jobs or entrepreneurship endeavors. It also includes interest, dividends, royalties, lottery, and contest winnings. In short, taxable income is any money that you have claimed as your own that hasn’t been taxed, thereby making it “taxable.”
The amount of state taxes a taxpayer owes depends on the state in which you live. Investopedia.com reports that IRS federal tax rates have seven brackets ranging from 0 – 39.6% while state taxes have a greater range of variation. While some states like Florida, Texas, South Dakota, Wyoming and Alaska have no income tax, New Hampshire and Tennessee reportedly tax only interest and dividends while Massachusetts doesn’t have any sales tax. In short, state taxes are separate from federal but are enforced by the IRS.
Paying taxes can go two ways: A taxpayer can arrange to have a percentage of money taken from their wages that will go directly to the IRS or they can withhold their money and choose to pay during tax season. For some, it’s easier just to have a percentage taken from their wages. By the time tax season arrives, their tax preparer can inform them if they need to pay a little more or if, in fact a refund is owed to them.
Entrepreneurs, free-lancers and anyone who is receiving money but not getting a W2 or 1099 Form may have to consult with their tax preparer to determine first how much taxable income they have earned. This can take a little more time for businesses since certain paperwork is involved. At any rate, however you choose to pay your federal taxes, just make sure that they are accurately filed and that if there’s a balance to be paid, take care of it!
Learning More about Your State and Federal Taxes
If you are interested in learning more about how you can possibly benefit from any tax laws regarding federal and also within your residential state, contact the experts at Success Tax Relief. We specialize in resolving tax issues, audits, tax preparation services and more. Call us today at 877-825-1179, email us, or use our online form to schedule a consultation meeting now.