Tax Structure for Individuals in USA (Form 1040)

Working one's way through the tax requirements can be so complicated, considering how diverse the tax landscape is in the United States. Indeed, whether one be a resident or non-resident alien, or a U.S.-sourced income earner, fulfilling one's tax responsibilities is a crucial detail. The IRS sets these regulations, and close attention paid to their guidelines will be your key to compliance.

Filing taxes is very complicated because people must fill out different forms and schedules. Mastering your return and possible deductions in taxation is a proper way of handling your taxes efficiently. This will support you in overcoming all the challenges that U.S. tax laws present and staying compliant.

What is Tax Structure?

Tax Structure is a method to raise revenue via taxes by the government. Taxes can be collected from individuals and corporations. Taxes are levied on earned income, property taxes, business income, free lancing, royalties, dividends and any other income.

?

Tax Structure for Individuals in the USA.

The US federal government and state government impose taxes on a progressive tax bracket, which means that your income increases the rate at which it is taxed is also increased.

Due dates and other procedurals differ by jurisdiction. But 15th April is the final due date to file the income tax.

Internal Revenue Services (IRS) collect the federal tax income taxes in the United States.

Further, there will be discussion regarding who must file, filing status, certain comparison, what are the heads of income and any other relevant information.

?

Who must file?

To file the returns there are certain guidelines or conditions that need to be consider before filing the return. Generally, return US resident, your income is more than filing requirements, Net earnings is more than $400 from self-employment (independent work). This is important to ensure that you meet your tax obligations and avoid any penalties. You can also file the tax return voluntarily even if you are not obligated to file the same.

Income amounts at the end of 2024 that requires you to file if the age is under 65:

Income amounts at the end of 2024 that requires you to file if the age on or above 65:

Filing Status

Filing status describes how you are classified for the tax purpose also it has impact on the calculation of tax, affects the amount of deduction, determines allowance, credits. Here are the five filing statuses

?

·???????? Single Filing status: For a person on the last day of the year, is unmarried or legally divorced from your spouse and does not qualify under any of the following statuses.

·???????? Married Filing Jointly: When you are married, you and your spouse agree to file the return together.

·???????? Married Filing Separately: When you are married, you and your spouse agree not to file jointly.

·???????? Head of Household: For individuals who are unmarried but provide a home for a qualifying dependent.

·???????? Qualifying Widow(er) with dependent child: For widowers with a dependent child

?

Each status has different income thresholds and standards deductions, so it’s important to choose one that best fits your situation.

?

What is included in an Income for an Individuals?

As there are no specific heads of income in the USA tax structure. Income is generally categorized in different groups. Also, you must maintain all the documents and records and account for different groups of income.

Earned Income: Earned Income is an income earned by working for any other person or under any corporates which includes hourly wages, salaries, overtime pay, gratuities, bonus, incentives.

Business Income: A person engaged or working as freelancer, contracting business, having a sole proprietorship are all included in Business Income.?

Investment Income: Investment income means sale of investment. Tax is levied only on the gained portion of the investment, or any dividends received every year. ?Investment income can be from sale of stocks, cryptos, property,?

Rental Income: Rental income in general means leasing out the property whether residential or commercial. It is included in Schedule E of the Tax Return.

Retirement Income: Retirement income consists of various sources of funds that individuals receive after they retire, which include IRA & 401(k) distributions, social security benefits, pensions, Individual Retirement Accounts (IRAs).

Deductions: Deductions are standard amount which is deducted from the adjusted gross income to determine the individual taxable income. In USA, there are two types of deduction standard deduction and itemized deduction

Standard Deduction: A fixed amount which is directly deducted from the adjusted gross income depends upon the filing status of the individual. This deduction is given to every individual irrelevant to whether individual has more income than others. This helps to reduce the taxable income of an individual

Itemized Deduction: there are certain expenses that can take as a deduction instead of standard deduction.

Standard Deduction vs. Itemized deduction

Taxpayers can choose between taking the standard deduction or itemizing deductions.

1.?????? Standard Deduction: In 2024, the standard deduction for the individual has now been increase to $14600 for single filers, and $29200 for the couples filing jointly. Also, for the head of household $21900 is given as std deduction.

2.????? Itemized Deduction: If your eligible expenses exceed the standard deduction, you can choose to itemize. Common itemized deductions include mortgage interest, state and local taxes, medical expenses (over a certain threshold), and charitable contributions.

?

Tax Credits:

Tax Credit is the specific amount which are deducted after determining the tax of an individual (that is applying tax brackets to the taxable income). This are the certain tax credit available fir the individuals.

·???????? Earned Income tax Credit: Earned Income tax credit is helps families having low or moderate income to get certain relief from taxes.

·???????? Child Tax Credit: Child tax credit is available for the individual only if they have any dependent children in the house. Many countries give this type of credit and USA is one of them.

·???????? American Opportunity Credit: A person has done any expenses regarding qualified education for an eligible student can take this credit for the first four year of the education.

·???????? Lifetime Learning Credit: Lifetime Learning Credit is to offset the tuition cost or any related expenses. It is nonrefundable credit

?

Alternative Minimum Tax:?

There are individuals whose taxable income is more, but pay tax very less as compared to others as they take any itemized deduction instead of standard deduction, all types of credits legally. So, to recover the minimum amount of tax from this type of individual, Alternative Minimum Tax (AMT) has been introduced. This provision ensures that individuals pay a minimum amount of tax to the government. If the income exceeds certain thresholds limit, then individual must determine its final tax liability under both the provision Regular and AMT

?

Filing and Payment Deadlines:

Generally, the filing the Federal tax return is on 15th April. If any individual needs more time or missed the due date can apply for an extension which allows you to file, the return until October.?

A married couple can file jointly as there are several benefits such as:

In the USA there is an option of filing the return jointly if you and you spouse agree to file. As there are certain benefits of filing together that they can get double deduction, more room for tax brackets, saving on medical bills.

Tax Computation

Tax computation is the simple process of calculating the amount of tax a person owned for the particular year. It involves various steps which need to be considered to determine the tax.

Step 1: Is to Determine Gross Income. This can be done by clubbing all the income earned during the year (for e.g. Salary, wages, self-employment)

Step 2: After determining gross income apply adjustments which gives the Adjusted Gross Income for the individuals

Step 3: After getting adjusted gross income subtract the standard deduction or itemized deduction to get the Taxable Income.

Step 4: Apply Tax brackets

Step 5: Apply Tax Credits

·???????? Child Tax credits

·???????? New Market Tax credit

·???????? Other Tax credits

Step 6: Calculate Final Tax liability

Conclusion:

U.S. income tax structure involvers tax brackets, filing status, deductions, credits available for the individuals to determine the tax liability of an individual. Individuals need to be updated and informed about the taxation provision to make tax season less stressful and increase your financial benefits. For getting any specific advice consider consulting a tax professional which can help you to provide expert guidance.