Not sure how income tax works?

The following section explains basic tax terminology, concepts and procedures currently being used by the IRS.

Deductible Taxes

What taxes are deductible?

State, local, and foreign income taxes withheld from your wages during the year appear on your Form W-2 and are deductible.

You can elect to deduct state and local general sales taxes instead of state and local income taxes, but not both. If you choose to deduct state and local general sales taxes, you can use either your actual expenses or the optional sales tax tables. 

Foreign income taxes imposed on you by a foreign country, or a United States possession are generally deductible either as a deduction or a tax credit. As an employee, you can also deduct mandatory contributions to state benefit funds that provide protection against the loss of wages.

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Deductible real estate taxes include any state, local, or foreign taxes on real property levied for the general public welfare, which are charged uniformly against all real property in the jurisdiction at a like rate. However, taxes for local benefit taxes for improvements to property, such as assessments for streets, sidewalks, and sewer lines, are not deductible. Nevertheless, you can increase the cost basis of your property by the amount of the assessment. Local benefits taxes become deductible if they are for maintenance or repair, or for interest charges related to those benefits.

If a portion of your monthly mortgage payment goes into an escrow account, and periodically the lender pays your real estate taxes out of the account to the local government, do not deduct the amount paid into the escrow account. Only deduct the amount actually paid out of the escrow account during the year to the taxing authority.

Deductible personal property taxes are those based only on the value of personal property such as a boat or car, charged yearly, regardless of the frequency of collection.

Some taxes and fees you cannot deduct on Schedule A include federal income taxes, social security taxes, transfer taxes (or stamp taxes) on the sale of property, homeowner’s association fees, estate and inheritance taxes, and service charges for water, sewer, etc.

To ensure you properly claim deductible taxes, consider hiring a professional. Contact us today at 888-557-4020. 

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tax deductions you may be eligible for with our informative guid
Calculate Your Estimated Tax Payments

Estimated Taxes

What is Estimated Tax?

Estimated tax refers to the method used by individuals, businesses, and other entities to pay taxes on income that is not subject to withholding tax. This typically includes income from sources such as self-employment, interest, dividends, rents, and gains from the sale of assets.

Self-employed taxpayers are generally required to make estimated tax payments to the government throughout the year, typically on a quarterly basis. These payments are intended to cover the individual’s or entity’s tax liability for the year, thus ensuring that they do not owe a large amount of tax when they file their annual tax return

The penalty for not making properly estimated tax payments varies depending on the tax laws of the jurisdiction and the circumstances of the taxpayer. However, in the United States, the Internal Revenue Service (IRS) imposes penalties for underpayment of estimated tax.

The penalty typically applies if you fail to make sufficient estimated tax payments throughout the year, or if you fail to pay the required amount by the quarterly due dates. The penalty is calculated based on the amount of underpayment and the interest rate set by the IRS.

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To avoid the underpayment penalty, the general rule is that you must pay either 90% of your current year’s tax liability or 100% of the previous year’s tax liability (110% if your adjusted gross income exceeds a certain threshold), whichever is smaller, through estimated tax payments or withholding.

It’s essential to accurately estimate your tax liability and make timely estimated tax payments to avoid penalties. If you find that you’ve underpaid, you should work to rectify the situation as soon as possible to minimize penalties and interest charges.

To better understand your liabilities and find a solution to break the never-ending cycle of owing, consider discussing your options with a professional. Contact us today at 888-557-4020.

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How to Figure Estimated Tax

Calculating estimated tax involves estimating your total income for the year, determining your expected deductions and credits, and then calculating the tax owed based on those estimates. Here’s a general process for figuring estimated tax:

  • Estimate Your Income: Project your total income for the year from all sources, including self-employment income, interest, dividends, rental income, and any other taxable income.
  • Estimate Deductions and Credits: Estimate your deductions and credits for the year. This can include standard deductions, itemized deductions (such as mortgage interest, state and local taxes, and charitable contributions), and any tax credits you expect to claim.
  • Determine Taxable Income: Subtract your deductions and credits from your income to calculate your estimated taxable income.
  • Calculate Estimated Tax Liability: Use the estimated taxable income to determine your estimated tax liability. This can be done using the tax rates and brackets for your filing status.

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  • Consider Withholding and Payments: Take into account any taxes withheld from your paychecks, as well as any other tax payments you’ve made during the year, such as quarterly estimated tax payments or withholding on other income sources.
  • Make Quarterly Payments: Pay estimated taxes quarterly, typically by April 15th, June 15th, September 15th, and January 15th of the following year, unless the due date falls on a weekend or holiday.
  • File and Reconcile: When you file your annual tax return, reconcile your estimated tax payments with your actual tax liability. You may receive a refund if you overpaid or owe additional taxes if you underpaid. If you owe money to the taxing authorities, your refund will be applied to your past tax obligations.

To better understand how to estimate your tax payments, consider contacting a professional.

Contact us today at 888-557-4020.

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Figuring Out Taxes
Income Tax and Payroll Deductions Explained

Payroll Taxes and Federal Income Tax

Payroll taxes and federal income taxes are both types of taxes that individuals may encounter in the United States.

  • Payroll Taxes: These are taxes withheld from an employee’s wages or salary by their employer to fund various government programs. Payroll taxes typically include:

Federal Insurance Contributions Act (FICA) Taxes: This includes Social Security and Medicare taxes, which fund these social insurance programs. Social Security tax is a flat percentage of income up to a certain limit, while Medicare tax is also a percentage of income but without an income limit.

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Federal Unemployment Tax Act (FUTA) Tax: This tax funds unemployment benefits for workers who have lost their jobs. It’s paid by employers only, not employees.

  • Federal Income Taxes: These are taxes paid to the federal government on an individual’s income earned throughout the year. The amount of federal income tax owed depends on factors such as total income, filing status, deductions, and credits. Federal income taxes are typically withheld from an employee’s paycheck by their employer based on information provided on Form W-4. Employees may also need to make additional estimated tax payments throughout the year if their withholding is insufficient to cover their tax liability.

Contact us today at 888-557-4020. 

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An exemption on a tax return refers to an amount that taxpayers could deduct from their taxable income for themselves, their spouses, and eligible dependents, thereby reducing the overall taxable income. Each exemption reduced the amount of income subject to taxation.

Historically, exemptions were a significant component of the U.S. federal income tax system. Prior to the Tax Cuts and Jobs Act (TCJA) of 2017, taxpayers could claim a personal exemption for themselves, their spouses (if filing jointly), and each qualifying dependent. The value of the exemption was subtracted from the taxpayer’s gross income to arrive at their taxable income.

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However, the Tax Cuts and Jobs Act (TCJA), signed into law in December 2017, made significant changes to the U.S. tax code. One of the major changes was the elimination of personal exemptions for tax years 2018 through 2025. Instead, the standard deduction was substantially increased, and the Child Tax Credit was expanded, which was intended to offset the elimination of personal exemptions for many taxpayers.

Contact us today at 888-557-4020. 

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Understand Tax Exemptions and Save Money
Maximize Savings with Tax Credits Guide

 Tax Credits

The number of tax credits available to taxpayers varies depending on their jurisdiction (such as country or state) and their individual circumstances. Tax credits are incentives provided by governments to reduce the amount of tax owed by individuals or businesses. They can be refundable or non-refundable and may be targeted towards specific activities, such as education, childcare, energy efficiency, or research and development.

In the United States, for example, there are numerous tax credits available at the federal level, including but not limited to:

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  • Earned Income Tax Credit (EITC)
  • Child Tax Credit (CTC)
  • American Opportunity Tax Credit (AOTC)
  • Lifetime Learning Credit
  • Adoption Tax Credit
  • Child and Dependent Care Credit
  • Residential Energy Efficiency Property Credit
  • Foreign Tax Credit
  • Health Coverage Tax Credit (HCTC)
  • Saver’s Credit (Retirement Savings Contributions Credit)

In addition to federal tax credits, many states and local jurisdictions also offer their own tax credits, which can vary widely depending on local laws and policies.

To ensure you correctly claim your tax credits, consider contacting a professional. Contact us today at 888-557-4020.

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For tax preparation purposes, a dependent refers to an individual—usually a child or relative—who meets specific criteria set by the Internal Revenue Service (IRS), and whose support contributes to the taxpayer’s household expenses. Claiming dependents on a tax return can result in various tax benefits for the taxpayer, such as tax credits, deductions, and exemptions.

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To be considered a dependent for tax purposes, the individual must meet the following criteria:

  • Relationship: The individual must be a qualifying child or a qualifying relative. Qualifying children typically include biological or adopted children, stepchildren, foster children, siblings, or descendants of any of these individuals. Qualifying relatives can include parents, grandparents, siblings, aunts, uncles, nieces, nephews, or other relatives. Parents for example don’t need to live with the taxpayer to be claimed as dependents.
  • Residency: The dependent must have lived with the taxpayer for more than half of the tax year. Certain exceptions apply for temporary absences, such as for education, medical care, military service, or vacation.
  • Support: The taxpayer must have provided more than half of the dependent’s financial support during the tax year. This includes expenses for housing, food, clothing, education, medical care, and other necessities.
  • Citizenship or Residency Status: The dependent must be a U.S. citizen, U.S. national, U.S. resident alien, or a resident of Canada or Mexico for some part of the tax year.
  • Age: There are specific age requirements for qualifying children. Generally, a qualifying child must be under the age of 19 at the end of the tax year, or under the age of 24 if a full-time student for at least five months of the year. There is no age limit for qualifying relatives.

To ensure you correctly claim qualifying dependents, consider contacting a professional. Contact us today at 888-557-4020. 

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Claim Dependents and Reduce Tax Liability
Earned Interest? Understand Tax Obligations Now

Interest Income

Interest income is the charge for the use of borrowed money. In most cases, you will earn interest if you lend your money to others. Your money earns interest when deposited in accounts at banks, savings and loans, or credit unions, used to purchase certificates of deposit or bonds, or lent to another individual or business. Interest is considered unearned income because money, rather than a person, generates the income. Taxable interest income can be earned through savings and checking accounts, U.S. Savings Bonds, savings certificates (certificates of deposit or CDs), or money market certificates.

Tax-exempt interest income is earned from bonds issued by entities in states, cities, counties, or the District of Columbia, including port authorities, toll-road commissions, community redevelopment agencies, or qualified volunteer fire departments.

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Record Keeping for Tax Refunds Made Easy

Refund, Amount Due, and Record Keeping

Taxpayers receive refunds when their total tax payments exceed their total tax liabilities. Refunds can be issued either by check in the mail or via direct deposit. If a taxpayer owes back taxes, the IRS will retain any refunds and apply them towards the outstanding balance.

Taxpayers must pay an amount due when their total tax liability exceeds their total tax payments. Payment options include check, money order, credit card, or direct debit (for electronic filers only).

Maintaining accurate records is essential for taxpayers to properly prepare their tax returns and substantiate items reported on their tax returns.

Contact us today at 888-557-4020. 

Self-Employment Income/Self-Employment Tax

A business is defined as a continuous, regular activity with income or profit as its primary purpose. Independent contractors are considered self-employed individuals. Self-employed workers maintain control over the methods and means of performing services for others, in contrast to employers who direct or control the work of their employees.

Self-employment profit is the result of self-employment income exceeding self-employment expenses. Self-employment profit increases the taxable income. Conversely, self-employment loss occurs when self-employment income is less than self-employment expenses.

Similar to Social Security and Medicare taxes, self-employment tax is imposed on self-employed individuals.

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The current self-employment tax rate in the United States is 15.3%. This rate consists of two parts:

12.4% for Social Security tax on the first $147,000 of net self-employment income for the tax year. This includes both the employee and employer portions of Social Security tax.

2.9% for Medicare tax on all net self-employment income. This includes both the employee and employer portions of Medicare tax.

It’s important to note that the 12.4% Social Security portion of the self-employment tax only applies to net self-employment income up to the Social Security wage base, which is $147,000 for the tax year 2022.

However, tax rates and income thresholds may change over time due to legislative updates or changes in tax laws. Therefore, it’s advisable to consult with a professional regarding the most recent tax guidelines or the current self-employment tax rate.

Contact us today at 888-557-4020. 

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Self-Employment Taxes: A Comprehensive Guide
Effortlessly Transmit Your Tax Return Online Today

Tax Return Transmission

Tax return transmission refers to sending your tax return to the taxing authority. There are several ways to transmit your taxes:

By mail: You can send your tax return by mail. You can find your local office address inside the tax form or online.

Electronically: Tax returns can also be transmitted electronically through the following methods:

Via computer: Online, self-prepared.

Using an Authorized IRS e-file Provider/Tax Professional.

There are numerous benefits to having a professional prepare and transmit your tax returns. Key advantages include the confidence that your taxes are completed accurately and the speed at which you receive your refund.

Contact us today at 888-557-4020 to discuss your tax preparation needs.


The IRS recognizes several filing statuses, each with its own standard deduction amount. Here are the most common filing statuses and their corresponding standard deductions for the tax year 2023:

  • Single: This status is for individuals who are unmarried, divorced, or legally separated according to state law as of the last day of the tax year. The standard deduction for single filers in 2023 is $12,750.
  • Married Filing Jointly: This status is for married couples who choose to file one tax return together. The standard deduction for married couples filing jointly in 2023 is $25,500.

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  • Married Filing Separately: This status is for married couples who choose to file separate tax returns. The standard deduction for married individuals filing separately in 2023 is also $12,750.
  • Head of Household: This status is for unmarried individuals who provide a home for a qualifying dependent. The standard deduction for heads of household in 2023 is $19,125.
  • Qualifying Widow(er) with Dependent Child: This status is available to individuals who are widowed, have a dependent child, and meet certain other criteria. The standard deduction for qualifying widow(er)s in 2023 is $25,500.

It’s important to note that standard deduction amounts may vary from year to year due to inflation adjustments and changes in tax laws. Additionally, taxpayers may choose to itemize deductions instead of taking the standard deduction if it results in a larger tax benefit.

Make sure you choose the correct filing status and maximize your return by contacting us at 888-557-4020. 

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IRS Filing Statuses: A Quick Guide

If you have outstanding tax obligations, call Tax Help MD. We may be able to resolve your financial obligations for a fraction of the amount you owe.