Q1. If I did not receive any income, do I still have to file a tax return?
If you are a U.S. citizen or resident alien, whether you must file a federal income tax return depends on your gross income, your filing status, your age, and whether you are a dependent. The filing requirements apply even if you don’t owe any taxes.
You may have to pay a penalty if you are required to file a return but fail to do so. If you willfully fail to file a return, you may be subject to criminal prosecution.
Q2. Do I have to file married on my tax return even if I have not been married the entire tax year?
Your filing status depends on the last day of that tax year. If you were married by December 31st of that tax year, your filing status will be married (jointly or separately). For example, if you are single and then get married on November 3rd before the last day of that tax year your filing status will be married. On the other hand, if you were married that tax year and were divorced prior to or on December 31st, then your filing status of that tax return year will be single.
Q3. What are the types of filing statuses?
- Married Filing Jointly (MFJ)
- Married Filing Separately (MFS)
- Head of Household (HOH)
- Qualifying Surviving Spouse
If more than one filing status applies to you, choose the one that will give you the greatest tax deduction which will lower your wages or income earned.
Q4. What is the difference between a credit vs deduction on my tax return?
Tax Credits and Deductions can change the amount of tax liability you may owe, so you pay less. Credits can reduce the amount of total tax liability you may owe, (example, child tax credit or earned income credit), whereas Deductions can reduce the amount of your income before you calculate the taxes, you may owe, (example, standard or itemized deduction).
Q5. How can I reduce my tax liabilities as a business owner?
One method to reduce your tax liabilities and receive tax deductions as well is by forming a Limited Liability Company (LLC) and apply to IRS to be taxed as an S-Corporation. As an LLC taxed as an S-Corporation you will have the ability to save up to 40% on your Social Security and Medicare Tax otherwise known as FICA. This is achieved by paying the owners or shareholders of the company dividends in lieu of high salaries. Dividends are not subjected to Social Security or Medicare taxes; only Federal taxes are required to be paid on dividends received.
Q6. How can I reduce my tax liability on my residential rental and/or commercial property?
One way you can reduce your tax liability is by taking advantage of depreciation for residential and/or commercial property which is categorized as an improvement to the property. For residential rental property you can depreciate any improvements made to the property for a period of 27.5 years. And you can depreciate for a period of 39 years on commercial property. For tax purposes, an improvement on a property is typically anything that is considered cosmetic in appearance, such as painting a room or exterior area of the property, or putting in new kitchen cabinets, etc.
Keep in mind, repairs are also a great way to reduce your tax liability but are considered tax deductible expenses only for that year of repair work done. For example, repairs are considered anything necessary for living purposes. Like replacing a hot water tank that was leaking water or repairing an electrical issue inside the property due to a lack of electrical power to the kitchen caused by a power surge to the main panel box.