As a teen, (or young adult as the case may be), you might not earn enough money to pay taxes. However, as you reach that stage, navigating the tax world can be quite difficult. Tax liability refers to the amount of tax you owe. A combination of tax liabilities (i.e. income taxes, capital gains tax, etc) create your total tax liability, or the amount of taxes in total you must pay to the IRS (Internal Revenue Service).
Tax liabilities can be heavy if you don’t deduct some of your necessary expenses. There two types of deductions: standard and itemized.
Standard deduction allows you to subtract a certain dollar amount from your income before paying income tax. The amount may vary year by year. For 2020, single people and married couples filing separately can deduct $12,400. Married couples and filing jointly can deduct a total of $24,800. If you are the head of a household, you can subtract $18,650.
Itemized deductions are a bit more complex. They are certain eligible expenses you can claim on your tax return to reduce the amount of taxable income you have. There are a variety of deductions.
Some types include but are not limited to home mortgage interest; property, state, and local income taxes; investment interest expenses, medical expenses, charitable contributions, and miscellaneous deductions. Miscellaneous deductions can vary, and to find out more, you can visit this website.
Which One Should You Choose:
Generally speaking, there is no right choice or not. Many taxpayers choose the deduction that will benefit them the most. Some taxpayers have more expenses than the standard deduction amount, thus they itemize their deductions instead. Choose whichever one works best for you and your situation.
Written by Allie Chang