Whether you are preparing your own taxes or you have personal tax planning services manage the job for you, you will still run into certain tax questions that will undoubtedly make you feel quite puzzled. You may have heard of these particular taxes, but without really knowing what they are, you may have a hard time answering the questions regarding those taxes. To help you out, here are some of the "heard of, not sure of" taxes, what they are, and how to respond to the IRS's questions on the tax forms.
Alternative Minimum Tax
The alternative minimum tax, or AMT, is an additional flat-rate tax charged to businesses and individuals whose income and/or profits exceed the levels set by federal law. Unless you make a substantial amount of income that places you in the upper-middle-class tax bracket, it is not likely that you will have to pay this tax at all. The questions for this tax are often triggered when you are filing business and personal taxes together because you operate a business out of your own home. Until you fall into that much higher tax bracket, however, you simply have to answer the qualifying (or in your case, disqualifying) questions.
Estate Tax and Inheritance Tax
An estate tax is something that many states attach to liquid assets that you have inherited. The federal government really does not care that you have inherited money or property, and there is not even a question on the federal form where you can fill in the amount or value of what you have inherited. The states, however, may have an estate tax and an inheritance tax.
Only six states have an inheritance tax, so if you live in one of those six states, you will have to reveal that to your state department of revenue and pay an inheritance tax on it. The estate tax is an additional tax what you have gained from an inheritance. Only the states wherein the estate tax applies will expect its residents to pay the tax, and even then, your inheritance has to be in the millions. In short, if you live outside the six states that charge an inheritance tax, you will not pay the inheritance tax, and it is unlikely that you will pay the estate tax either.
Capital Gains Tax
You will not have to pay capital gains taxes unless you cashed out an IRA, bonds, securities, etc. The capital gains taxes come from liquidating investment assets. It also includes early withdrawal of money from a retirement plan, pension, or 401K, even if you did not take all of the money out of these investments. If you have none of these financial products, or if you did not take money from them, you simply answer "0" in the respective boxes.Share