There was always a delicate balance between keeping enough income during the year and avoiding owing taxes. Many people here in Massachusetts and across the country got hit with unexpected bills for the 2018 tax year because they did not realize they needed to make adjustments in order to account for the new Tax Cuts and Jobs Act. Due to this, the IRS decided to waive the usual underpayment penalty for some individuals.
Many Boston residents are under the impression that the vast majority of people not paying taxes are rich or receiving government benefits. The general consensus is that these are the people who "cheat" the system and avoid paying the IRS. Well, it may surprise some people to learn that a large number of the nearly 44%, down from 47%, of people who do not always pay income taxes are far from rich or are not receiving government benefits.
Beginning with the 2018 tax season, taxpayers here in Massachusetts and across the country began encountering the changes in the Internal Revenue Code. This involved more than just the elimination of exemptions and deductions, and the increase in the standard deduction. The IRS also changed various forms.
After spending a lifetime working and preparing for retirement, people over the age of 65 -- here in Massachusetts and elsewhere -- often end up living on fixed incomes and others continue to work well after this birthday. Even so, many of them must still pay taxes on the income they do receive. The IRS recognizes their need to retain as much of their income as possible, so for the 2019 tax year, people within this age bracket can use a new tax form.
Even though the country is no longer in the midst of a recession, some Massachusetts families still struggle financially. Many of them work out deals with their creditors to reduce their debt, and that may include having some balances forgiven, which means that the company that extended credit for a home, car or other debt absolves the consumer of responsibility for a portion of the debt. The problem is that the IRS usually considers this forgiven debt as income and that could mean a hefty bill at tax time.
New laws often cause some measure of confusion in their first years. When the Tax Cuts and Jobs Act of 2017 went into effect, it was no exception. It created confusion for a lot of taxpayers, many here in Massachusetts included. Now, the IRS is advising taxpayers to make sure their withholding is correct in order to avoid problems during tax time, but getting it right could present a challenge.
Filling out a withholding form (the W-4) is the first step in paying taxes on income. The IRS recently released a new form it wants to use for withholding that complies with the changes of the Tax Cuts and Jobs Act. The public may comment on the new form through July 1.
Once Massachusetts residents file their tax returns, they may immediately put them out of their minds. Who can blame them? No one wants to pay taxes, and any dealing with the IRS can cause anxiety. While it is possible to move on and forget about taxes until the following year, records should still be kept -- just in case.
Paying taxes is something that nearly every Massachusetts resident must do. People who work as employees often have a certain amount of taxes taken out of their checks each pay period in order to help meet that obligation to the IRS and other applicable tax authorities. This often makes matters simple for them since they never see the money and do not have the responsibility of making sure those payments are made.
Summer is approaching, and many teenagers living here in Boston or elsewhere may begin thinking about getting a job to earn some extra money. Entering the workforce can provide a sense of freedom and independence, but it can also require a wakeup call to the responsibilities that adults tend to assume without much thought. For instance, the IRS expects teenagers to pay taxes and possibly even to file an income tax return.