Income limitation and filing

Comparison of standard deduction and itemized limitation

The standard deduction is a fixed amount that reduces your gross income. income. Itemized deductions allow you to deduct specific eligible expenses which also reduces your gross income. The most common itemized deductions are: medical expenses (subject to income limits), state and local income taxes, mortgage interest, and charitable contributions. See Form 1040 Schedule A.

Total income

• Less exclusions and deductions
• Less Adjustments to Gross Income

Adjusted gross income

• Less Higher of Standard or Itemized Deduction
• Taxable income
• Tax
• Liability per appropriate tax table or rate
• Less tax credits or prepayments of tax (withholding, estimated payments, and refundable credits)

Equals: Balance due or refund

Most taxpayers will choose the larger of either the standard deduction or itemized deduction. If one spouse uses the married filing separately filing status the other spouse’s standard deduction is zero ($0), however he/she can deduct all eligible itemized deductions, which is better than having no itemized deductions at all.

Required filing of a tax return

Taxpayers are REQUIRED to file a tax return if any of the following exist:

• Your income is more than your standard deduction based on your filing status.
• Your net income from self-employment is at least $400.
• You received advance payments of the Premium Tax Credit (Form 1095-A).
• You owe an excise tax on retirement plan assets.
• You owe Social Security and Medicare tax on tips that you did not report to your employer.
• Taxpayer is claimed as a dependent by another taxpayer and gross income is greater than his/her standard deduction or unearned income is greater than $1,250.
• Taxpayer owes 0.9% additional Medicare tax or 3.8% net investment tax.

Definitions

Foreign income

Gross income includes any income that can be included as foreign-earned income or as a foreign housing amount

Any U.S, citizen and resident aliens are taxed on their worldwide income. Generally, nonresident aliens are taxed only on U.S. source income. An exception to this rule is if a nonresident chooses to be a U. S. resident, e.g., in order to file a joint return with the spouse who is a citizen or resident alien.

Generally, any U.S. citizen, resident, or person who is doing business in the U.S. who has a foreign ownership interest in, signatory authority or other authority over a financial account in a foreign country with an aggregate value in excess of $10,000 at any time during the year must file a Form FinCEN Report 114 Report of Foreign and Bank Accounts (FBAR) of the subsequent year or the October 15th extension due date. Failure to file an FBAR is subject to both civil and criminal penalties.

Individuals living in the U.S. must use IRS Form 8938 to report specified foreign financial assets with an aggregate value greater than $50,000 at the last day of the year or more than $75,000 at any time during the tax year (the thresholds double for married individuals filing jointly).