How to File Your Income Taxes for 2021

Publication 17 (Pub 17) is divided into six parts each covering certain sections and procedures involved in filing a tax return. 

Part One: Filing Tax Returns 

This section generally covers the information on how to file one's returns, how to include details such as the marital status and exemptions that one can make while filing the returns. It also includes information on the forms used to file tax returns by different people such as forms 1040, 1040A, and 1040EZ. It covers chapter one through four. 

Chapter One: Filing Tax Returns 

The first chapter discusses filing information regarding income tax returns. Generally, the chapter has information on who should file returns, the forms used while filing returns, how to file the returns using electronic means, the procedures of filing the returns and when and where to do so, and how to change returns that are filed already. According to the Internal Revenue Service (IRS) (n.d), individuals who reside in the United States (US) or Puerto Rico and have attained the age of nineteen are obliged to file tax returns for each fiscal year. Puerto Ricans are obliged to file tax returns if their income is from employment in the US or US-based agencies. Aliens, self-employed persons and dependents are also required to file their tax returns. All eligible citizens must file their returns whether they owe taxes or not. Couples can file their tax returns separately or jointly. Tax returns are filed using the gross income by the resident in a given year, for example, 2016. There are three forms that are used for filing tax returns; forms 1040EZ, 1040A and 1040 (IRS, n.d). 

Chapter Two: Filing Statuses 

Chapter two discusses the marital or household roles of the person filing their tax returns. One can file the returns as single, married jointly, married separately, widow or widower with dependents and as household heads (Whittenburg et al, 2014). It is important for a person to know their statuses as they determine their eligibility to file returns and if they qualify for certain deductions and exemptions. A person in considered single if they are not legally married or have legally separated or divorced. A single person can file returns using form 1040 if their earning are more than $100 000, form 1040A if they earn less than $100 000 and form 1040EZ if they are under 65 years old, have no dependents and are not blind (IRS, n.d). Those filing as married jointly must be legally married and agree to file that way. Filing as married jointly attracts lesser taxes as compared to when filing as married separately. Qualifying widows or widowers can file returns as married jointly for the year in which their spouses die. They also qualify for having a dependent child if the birth or death of the child happens that year. 

Chapter Three: Personal Dependents and Exemptions 

Chapter three of Pub 17 is about personal exemptions and dependents. There are several situations under which a person can claim an exemption from paying taxes. Exemptions can be personal (one takes an exemption for themselves or for their spouses) or exemptions for dependents. Each of the forms 1040, 1040A and 1040EZ can be used to claim exemptions. One has to fill the appropriate sections while filing their returns. According to the IRS (n.d), the amount that a person can claim for exemption is $4050 as of 2016. There are limits to claiming the exemptions by any person. For example, it is not possible for one to file an exemption if there is a possibility for another person to refer to them as dependents. Another form of exemption is for the dependents which are mainly qualifying children and relatives. However, it is not possible for a person to claim another as their dependents yet they are can still be claimed as dependents as well (IRS, n.d). A child is considered dependent if they are aged less than nineteen or have ages lower than the person filing the returns or their spouses. 

Chapter Four: Tax Withholding and Estimated Tax 

This chapter discusses ways in which a person pays their taxes as they earn from their activities or employment. The two main ways are withholding the tax and estimated tax. In withholding the tax, a person's employer holds onto one's tax form their monthly pay. The employer then submits the withheld taxes to the IRS in the name of the employees. Other types of pay from which the taxes can be deducted and withheld include pensions, commissions, and winnings from gambling. On the other hand, a person can pay their taxes in form of estimated tax. Estimated tax applies to the people who do not pay taxes via withholding. Usually, self-employed persons pay their taxes using this method. People who receive earnings such as dividends, rents, interests, royalties and related forms of pay also pay their remit their taxes via this method. One can pay their taxes via phone, online, through credit cards, checks or by direct transfer from their bank accounts. 

Part Two: Income 

This section of the publication covers various forms of income that a person can earn during a tax year. It also has information on which kinds of incomes are taxed and which ones are not. Part two cover chapter 5 through 12. 

Chapter Five: Personal Earnings 

The chapter discusses a person's earnings as compensation for the services offered as an employee. Such earnings include salaries, wages, and other benefits received from an employer. Benefits can be bonuses, rewards, and amounts received as sickness and injury benefits. It is important to understand these sources of income because there are some that are included in one's gross pay and are taxable while others are not. Sickness and injury benefits are usually not taxed and so are the payments made to a person's family regarding a death of a family member. Other payments received and are not related to one's health have to be included in one's gross income and are classified as taxable incomes. Employees are also entitled to except amounts that are given by the employer to support their academic or educational programs. Religious persons are also entitled to file their tax returns for incomes from masses and services, funerals, weddings and other church functions except the contributions offered to the church institution (IRS, n.d). It is also important for one to include all information for foreign exchange income - income received from overseas for services offered or for goods sold. 

Chapter Six: Incomes 

This chapter discusses the tip incomes received by employees during a fiscal year. Tips are classified as taxable income and should be included in one's gross pay while filing their tax returns. It should be noted that the tips can be in forms of cash or noncash compensations such as items of value. To report the exact amount received in form of tips, one has to be careful and keep a record of the same. Daily records for tips received are important as they help one determine the total about to include in their gross income. One can also maintain a record by reporting the tips received to the employer such that they can retrieve the amount when filing the returns. Keeping the records for tips is important as the information can be used as proof of one's tip income as included in tax returns. Tax deductions from the tips received can be paid in the form of withholding by the employer. One can report information about the tips in forms 1040, 1040A or 1040EZ while filing their tax returns. 

Chapter Seven: Interest Income 

The chapter discusses interest income and such incomes that are taxable and those that are not. It is a general rule for a person to include information received from their services or goods in their total income. Any amounts that are paid to one's account as interest and can be withdrawn are taxable. It may be challenging for a person to determine all the interest received in a year and so, there is a need for them to keep a record of the same throughout the year. This is done by recording the information somewhere for oneself and safely keeping any forms showing interests earned for the year. Interest from bank accounts, loans advanced to others and dividends are examples of taxable interest income. However, interests from savings made for a child is exempted from one's taxable interest income. The tax will be applied to the child's taxable interest income. Furthermore, interests for properties and other investments that have been transferred to a child is not included in one's taxable income. 

Chapter Eight: Dividends and Other Distributions 

The discussion in this chapter is about dividends and other forms of distributions through which a person gets payments. Dividends are defined as monetary, stock or property distributions made to a person by corporations, mutual funds, trusts, estates, partnerships, and other associations taxed as corporations. Dividends paid by corporations or by mutual funds are called ordinary dividends. Taxable dividends must qualify for the maximum rates of 0%, 15% or 20% as appropriate (IRS, n.d). Individuals who file tax returns are also required to include dividends obtained from international corporations. There are dividends that do not qualify to be taxed. They include capital gains, dividends paid on deposits for mutual savings, dividends for tax-exempt corporations, and others. Other distributions that are not considered as taxable dividends include exempt-interest dividends, insurance policy dividends, veterans' insurance dividends, patronage dividends, among others. 

Chapter Nine: Rental Income and Expenses 

Amounts received as rent (payment for use or occupation of property) is included in one's gross income when filing the tax returns. Advance rent amounts paid by a tenant to cancel a lease, expenses paid by tenants, property, and services by tenants are all included in tax returns as rent. There are instances that necessitate one to deduct certain amounts from rental income while filing their tax returns. They are mostly expenses incurred on the rental property prior to leasing hem, during tenants stay or use of the property by the owners. Some of such expenses include personal use, part interest, pre-rental expenses, uncollected rent, depreciation, vacant property, maintenance and improvement costs and insurance and other legal fees paid by the owner of the property. 

Chapter Ten: Pensions, Annuities and Retirement Benefits 

This chapter discusses annuities, pensions and retirement plans that should be included in the income tax returns. There are several forms of payment that fall under these types of distributions. The payments include pensions and annuities from qualifies plans, payments from disability retirement and commercial annuity purchased by a person. Persons who retired because of disability are required to include disability retirement payments made by the employer in their taxable income. The payments are filed as wages until the persons attain the retirement age, after which the payments are then filed as pension or annuity. There are several disability benefits that are not included in one's taxable income, such benefits include payments made as a result of injury incurred during a terrorist attack on the US or its allies and payments by the government to retired security officers to cater for their health, injury and disability. Taxes from annuities and pensions are mostly paid by the employer via the withholding method. They deduct the taxes from the qualified sections and submit them to the IRS in the retired employee's name. There are qualified plans for individuals who are not formally employed by an organization or corporations. The self-employed individuals can have schemes such as purchased annuities. 

Chapter Eleven: Social Security and Equivalent Railroad Retirement Benefits 

The chapter discusses the Social Security and Equivalent Railroad Retirement Benefits as required by the federal government. Understanding one's benefits are important as it helps a person determine whether the benefits are taxable or not. There are three main forms of social security benefits. They include monthly retirement, survivor and disability benefits. All the three forms of social security funds are taxable. The main railroad benefits are the Equivalent tier 1 railroad retirement benefits that are provided for an employee or a beneficiary (IRS, n.d). The benefits would otherwise have been provided as social security funds. Benefits are important incomes for an individual or for families and one is supposed to keep a track record of them throughout the financial years. Such records help one determine the amount payable as the tax. Also, benefits' records can be used by people who are still working to project what their income from the same will be in future. People who are married can file the benefits returns personally or jointly. Also, individuals are advised to deduct the repayments made for benefits while compiling their reports for annual returns. Other than the repayments, legal fees and disability payments are not included in the total taxable income. The payments for the benefits are made via estimated tax or through employer withholding. 

Chapter 12: Other Income 

Generally, people are required to include all payments made to them in form of money, services, and property in their taxable income. These payments, however, do not include those which the law exempts from taxation. Both taxable and no taxable income have to be recorded while filing the returns. The property and services received in barter trade have to be included in taxable income (in monetary values). Other incomes that have to be included in taxable income include canceled debts, mortgage reliefs and canceled or forgiven stockholder debts and any form of payment made to a person because of hosting an event. Royalties amounts received from patents, copyrights, and oil, gas, and mineral properties are classified under the taxable income (IRS, n.d). There are also incomes that are not included in the gross amount that is considered taxable. For example, if a person receives life insurance proceeds for the death of a relative or family member, the amount is not considered as taxable. Survivor benefits are not taxable and may also be excluded from the taxable income. Another form of income that is not taxable is the income from partnerships, welfare, and related public assistance benefits. 

Part Three: Gains and Losses 

This part covers the gains and losses that a person can make during a tax year from their investments. Generally, gains are deductible whereas losses are not always deductible. There is also a discussion on the sale of personal properties and how the proceeds from the sale are handled by for taxation. It covers chapters 13, 14, 15 and 16. 

Chapter Thirteen: Basis of Property 

In this chapter, the discussion is mainly on the three basis of property which is the cost basis, adjusted basis and basis other than the cost. A basis is defined as the amount by a person invested in property for taxation purposes. Individuals use the basis to determine whether they make gains or losses on the property if they sell, exchange, or dispose of it as well as determining depreciation, amortizations, and losses through casualty or depletion. Adjustment of the basis may increase or decrease the original basis. For example, improvements on the property increase the basis whereas depreciation reduces it. The cost of a property is the amount paid in cash, through debts, other property or services to obtain the property (Hariharan, 2009). The cost is then affected by factors that reduce of increase the value of the property, leading to an adjusted cost. While determining the gains from a given property, a person is supposed to factor in the adjusted costs. The non-cost basis includes property transfer from a person to another. For example, property transferred from a spouse or from a parent to a child and those received as gifts. 

Chapter Fourteen: Sale of Property 

This chapter discusses the sale of property within and outside the borders of the United States. The proceeds from the sale of such property must be reported when filing the tax returns (Hariharan, 2009). Properties can be sold for money (sale) or for another property (trade), and the proceeds need to be reported in monetary values. It should be noted that when a person redeems stocks for monetary purposes, the transaction is considered a sale of the property. The same is also applied to the sale of bonds and shares owned. Gains are a result of selling or exchanging a property to amounts higher that the adjusted costs. On the other hand, one is considered to have made a loss if the total proceeds from the sale of a property are less than the adjusted cost of the property. Gains are added to one's gross income and are taxable whereas losses are deducted from the gross income and are not taxable. 

Chapter Fifteen: Sale of a Home 

The chapter discusses how to handle proceeds acquired from selling a person's home. It is generally a rule for people who sell their main homes (where they live most) to deduct the gains from taxable income if the total amounts do not go beyond $250 000 or $500 000 if a home is jointly owned. Other than that, any amounts exceeding the limits are included in the taxable income and must be reported while filing tax returns. There are exemptions on what can be excluded when filing tax returns regarding one's home. They include the sale of the land but not the home and the sale of the main home. Before reporting a gain or a loss on the sale of a home, they should first know the selling prize, the amount realized, and the home's adjusted cost. Whatever a person receives for selling their home is referred to as the selling prize. To get the amount realized, they have to deduct the expenses incurred during the selling process. Such expense includes advertisement, commissions and legal fees used during the process. To determine a gain or a loss subtracts the adjusted cost from the amount realized. 

Chapter Sixteen: Reporting Gains and Losses 

The chapter discusses how to report gains and losses that may be realized from the sale, exchange or disposal of a property or a home. Individuals are required to use from 8949 to report any gains or losses made from the sale of a property or a home. For capital gains filed in form 8949, their gains are reported using forms 1040 (Schedule D). Form 1040 can also be used to report other gains that cannot be reported in form 8949. An individual is exempted from reporting using the two forms if they have made losses from the sale of the property or homes and if their only capital gains are those from distributions from 1099-DIV. another important means of reporting a gain or a loss is through the use of form 1099-B when the sales are made through a broker (IRS, n.d). Gains from the sale of property are termed short term if the property is gained and sold within a year. On the other hand, gains and losses are considered long term if the property is acquired and sold after a year. 

Part Four: Adjustments to Income 

This chapter discusses the changes made to one's income through payments towards various personal or legal plans. The qualified payments are always deducted from the taxable income when filing a tax return. The part covers chapters 17, 18, and 19. 

Chapter Seventeen: Individual Retirement Arrangements 

This chapter discusses the Traditional Individual Retirement Arrangements (IRAs). A person may have an individual plan by saving for the future (Bankman, Griffith, & Pratt, 2008). Once they are retired, they start getting retirement benefits from the organization with which they saved. Such savings are usually made by people who are formally employed or those who self-employed. Mostly, the people who are eligible for IRA include those who are self-employed and those who receive the nontaxable combat pay. However, there are incomes that cannot be reported as benefits. They include earnings and property from the property, pension, received deferred compensation, income from partnerships where one does not provide services and any amounts received. IRAs can be opened at any time of the year and with any relevant account such as a bank, a financial institution, a life insurance company, a stockbroker or a mutual fund. Individuals get the benefits according to the saving plans they had earlier on. Like the retirement benefit plans from an employer, IRAs are taxable incomes. 

Chapter Eighteen: Alimony 

Alimony is defined as the payment that one makes to or gets from a spouse or former spouse during a separation or a divorce (Bankman, Griffith, & Pratt, 2008). The payment is strictly the amount legally determined under a separation or divorce instrument and does not include amounts offered voluntarily. For the person paying the alimony, the amount is deducted from their taxable income whereas the recipient has to include it in the taxable income. There are other expenses incurred during the separation or divorce that cannot be considered as alimony. Such expenses include monetary support provide towards a child, property settlements, payments used to keep a payer's property and amounts transferred to a spouse as part of their community income. On the other hand, payments for a home maintenance, life insurance premiums, and payments to third parties that are agreed to under the separation or divorce terms can be considered as alimony and are deducted by the payer from their income tax. 

Chapter Nineteen: Education Related Adjustment 

This chapter discusses education related adjustment amounts that can be deducted from the taxable income. Usually, education related payments include all expenses incurred to cover tuition and other fees paid within a year. Other than the fees paid by a person for tuition and other education-related expenses, a student can also deduct the loans that they get from non-relatives to solely fund academic activities (Bankman, Griffith, & Pratt, 2008; Lieuallen, 2008). Other than the tuition fee, other expenses include hostel and boarding fees, books and other materials or equipment, transportation, and educational trips. The amount deductible also includes interests paid on the educational loans. Students who qualify for loans must also be registered students of an institution of higher learning such as the vocational schools, colleges, universities, and any relevant post-secondary schools. Other relevant institutions include those offering internship and residency programs that are used during one's course and whose services lead to a degree or certificate. Such institutions include hospitals, schools, national laboratories and institutions offering postgraduate educational programs. An individual can deduct amounts used for educationally related purposes for payments made for themselves, their spouses or dependents such as children and other relatives. 

Part Five: Standard Deduction and Itemized Deductions 

Part five discusses the deductions that can be made from the adjusted gross income. This part covers the standard and itemized deductions as well as limitations to itemized deductions. It contains ten chapters - from chapter 20 through 29. 

Chapter Twenty: Standard Deduction 

Standard deductions are defined as amounts of money that are reduced from one's taxable income (Ault & Arnold, 2004). There are several factors that make a person to be entitled to a deduction. Such factors include an age if 65 years and above, people who are blind, a married person whose spouse is aged at least 65 or they are blind and those filing taxes for a short tax year. Also, people who are partially blind beyond certain limits and a physician proves that their condition may not improve or that they have difficulties correcting the impairment are entitled to higher deductions. Claiming higher standard deductions is limited to a person or their spouses and they can't make a claim for any other person. To itemize standard deductions in one's returns, the total deductible amount should be greater than the standard deduction amounts. Furthermore, people who are not eligible by law but have spent large amounts of money on medical and dental bills, paid home interests and taxes, used a large amount to pay employees, spent a lot due to uninsured losses, contributed significant sums to charities, among others are entitled to deductions. 

Chapter Twenty-One: Medical and Dental Expenses 

Medical expenses can be defined as any significant amount of money or its equivalent spent on prevention, diagnosis, cure or treatment and mitigation of an illness that affects any body part or organ (IRS, n.d). Such expenses can be paid to for services offered by qualified and legal physicians, dentists, surgeons, eye experts, nutritionists, and any other qualified personnel offering health-related services. While determining medical expenses, one does not include amounts spent on improving general health but those that are aimed at alleviating or preventing physical and mental deterioration. Usually, one deducts medical expenses if it makes up more than 10% of the total adjusted gross income. People are also allowed to determine expenses incurred for medical and dental bills for spouses and dependents. Dependents include one's child, a relative whom one takes care of, a person permanently disabled at any age and an elderly. Medical expenses can be in form of insurance premiums paid for medical purposes, Medicare, accommodation, meals, transportation and car expenses and amount spent for one to stay in a nursing home. 

Chapter Twenty Two: Taxes 

An individual is allowed to deduct certain taxes from the gross adjusted income in a given year (Ault & Arnold, 2004). Such taxes include business taxes, state and local government (districts, county) taxes, taxes on general sales, Indian tribal government taxes, and taxes paid to foreign countries for income activities carried out there. For one to pay tax, they must prove that the tax was in imposed on them and that they are the ones that paid the taxes during that year. For example, it is only possible for one to deduct property taxes if they own the property. Individuals are also entitled to reduce their taxable income by the amount of income tax paid during that year. Other than the taxes paid during a tax year, an employee who is subjected to mandatory benefits schemes can deduct the amounts remitted during a year from their income. Such benefits include retirement, disability, and unemployment benefit schemes to which an employee contributes part of their wages or salaries. 

Chapter Twenty-Three: Interest Expense 

An interest is defined as the total amount that one pays for using borrowed money (Ault & Arnold, 2004). Money can be borrowed from banks, corporations, mutual funds, and individuals. The main types of interests that are deductible from one's gross income are the home mortgage and investment interests. A home mortgage interest is any interest paid on loans that have been secured for main and second homes. Such deductible amounts include the late payment charges, prepayment penalties, selling of a home, nontaxable house allowance for ministers and military persons, funds received for home construction, purchase or improvement due to emergencies, mortgage assistance payments, and redeemable ground rents. On the other hand, expenses incurred in the form of investment interests, dividends and annuities can also be deducted from a person's gross taxable income. 

Chapter Twenty Four: Contributions 

People who make significant charitable contributions to recognized institutions are entitled to deduct the amounts from their total income. They are required to keep records of their cash and noncash contributions so that they can use them to calculate deductible amounts when preparing their tax returns (Ault & Arnold, 2004. Such contributions are the donations or gifts in form of property or money made to organizations that offer charity services. Qualified organizations include those that are lawfully created for charity purposes, organizations for war veterans, several non-profit cemetery corporations and the US or any state. Churches, non-governmental organizations, non-profit educational organizations, non-profit hospital and research facilities, volunteer fire companies, and civil defense organizations. An individual can also deduct amounts made to foreign charitable organizations. It is important to note that the individuals who benefit from certain contributions can only deduct the amount contributed minus that which they receive. For example, if a person made a donation of $ 5000 and in return was given a property worth $ 1300, they deduct $ 3700 from their taxable income and not $ 5000. Other than the one-time contributions, members of charitable organizations who make periodic contributions are entitled to deduct the same from their gross income. 

Chapter Twenty-Five: Nonbusiness Casualty and Theft Losses 

These are personal casualties and losses incurred due to deposits, casualty or theft. A casualty is defined as the destruction of a property from an unanticipated and sudden or unusual cause. Such losses can result from accidents and natural calamities. Automobile accidents, fires, government-ordered demolitions, mine accidents, terrorist attacks, and shipwrecks are some of the casualties that result from human activities. On the other hand, floods, earthquakes, storms, drought, and landforms are causes of natural calamities. Usually, casualties resulting from human activities or natural causes are not preventable and may affect a single person or many people at the same time. Human causes are always debatable and if determined that one caused the casualty knowingly or due to negligence, the amounts cannot be deducted from the taxable income. It should also be noted that casualties are sudden and that any destruction of a product that results from a progressive process cannot be considered a casualty and thus is not deductible under the subcategory. There are several ways of theft through which one can lose their property. Such forms include embezzlement, burglary, extortion, blackmail, kidnap ransoms, robbery and false misrepresentation of amounts of money for personal gains. Any monetary or property losses through such means should be reported and the amounts are deductible as long as there is proof that indeed the loss occurred. 

Chapter Twenty-Six: Car Expenses and Other Employee Business Expenses 

Deductible expenses incurred for transportation, accommodation, entertainment gifts and food must be business related and not personal. These expenses should be accurately kept so as to be able to get the actual amounts one spent and deduct them from the taxable income for the year. Furthermore, the expenses must be categorized as necessary and not as an ordinary or common expense. Travel expenses include the costs incurred to while on a temporary stay away from home for business purposes. For example, an organization's human resource manager may incur travel, accommodation, entertainment and meal expenses while on a two-week training activity held mile from where they stay. The total accrued amount is deducted from their gross income. This deduction is limited to people who are not in any way funded by the federal government while away from home. For example, a member of the US army on a mission cannot deduct such expenses from their income because the expenses are usually catered for by the government. The deduction is also not applicable for individuals who accompany the person to the business trip except if they are an employee or have a significant business purpose. The deductions can be made in the form of mileage rates or determined actual car expenses if one uses their personal vehicle for the business trip. 

Chapter Twenty Seven: Tax Benefits for Work-Related Education 

Work-related education is an education that is required by one's employers or by law or one that improves a personal skill necessary for the work that a person is employed for at the moment. Any training to attain a minimum academic requirement for a job (including the current one) or to attain a requirement that qualifies one for another job is not considered as a work-related educational and thus is not deductible. However, work-related education expenses are deductible even if the education could lead to a degree, so long as it is qualified under this category. The education must be determined by law, by the employer, or by the standards of a profession. It should be noted that education is not limited to attending classes in schools. It can be online, through seminars or continuous professional development programs. Expenses incurred in order to meet the educational requirements are deductible from one's taxable income. They may include tuition fees, transportation, meals, and accommodation as well as expenses incurred when purchasing the materials, tools, and equipment to enhance the learning process. 

Chapter Twenty-Eight: Miscellaneous Deductions 

The miscellaneous deductions are those that have been limited to a maximum 2% deduction on taxable income. They include unreimbursed employee expenses, tax preparation fees, and any other small scale expenses. Unreimbursed employee expenses include the ordinary and necessary expenses, costs incurred in carrying out activities as an employee, and general expenses paid during the tax year. Unreimbursed employee expenses include amounts incurred for education, legal, debt settlement, licensure and regulation, insurance payments for malpractice, medical examinations, passports and tickets, travel, accommodation, and meals. All the expenses have to be business related and not one benefiting an individual. Other expenses that can be deducted from one's income include the initiation and monthly contributions to unions, costs for acquiring protective clothing at work, appraisal expenses, casualty and theft losses of an item at the workplace, and office rent. 

Chapter Twenty-Nine: Limit on Itemized Deductions 

Some itemized deductions are subject to limits the adjusted gross income is $311,300 for married filing jointly or filing as a widow or widower, $285,350 if one is filing their returns as a household head, $259,400 for those who as filing as single $ 155,650 for those who are married filing separately. Itemized deductions that are limited on one's tax include the taxes and interests paid by the person, gifts and donations given to a charity, and job expenses and the miscellaneous deductions. There are other itemized deductions that are not limited. They include costs incurred for medical and dental processes, investment interests paid, personal or income generating property lost as a result of a casualty or a theft, and losses incurred as a result of gambling. 

Part Six: Figuring Your Taxes and Credits 

This chapter discusses how to determine one's taxes and the credits they can claim from the taxes. It has nine topics that also discuss how to determine a child's tax. 

Chapter Thirty: How to Figure Your Tax 

A person's income tax is calculated based on their taxable income. Taxable income if the total gross income that a person made in a tax year minus all the deductions of incurred costs or losses during that year. After calculating the tax, one has to subtract the tax credits and any taxes owed for that year in order to get their total tax (Lieuallen, 2008). The total tax is then compared with one's total payments to determine if they have made less or excessive payments. In case the payments are less than the total tax, one must make the payment of the balance to be cleared for that year. On the other hand, if the payment is more that the total tax they can claim the balance as an overpayment. Once the tax payments have been done and one is satisfied, they complete the form appropriate from (1040, 1040A, or 1040EZ) by filling in their details (and those of their spouses and dependents if any) and checking relevant boxes as required. The form is then saved and submitted to the Internal Revenue Service Center via mail. 

Chapter 31: Tax on Unearned Income of Certain Children 

There are several instances under which a child's unearned income can be filed for taxation by the parent. In cases where the parents are married and file their returns jointly, the joint return figure is used to calculate the child's tax on the unearned income. For parents who don't file a joint return, the one whose taxable income is greater is used to determine the tax for the child. In case the parents are married but live separately, the custodial parent's taxable income is used to determine the tax on a child's unearned income if the parent is considered unmarried. If they are still considered married but live separately, the child's tax is determined using the parent who earns more. Also, in cases where the parents are legally divorced, the taxable income to use is the one for the custodial parent (Lieuallen, 2008; ORS, n.d). A parent can also elect to report a child's interest and dividends if that child is aged below 19 (or 24 for a full-time student), the child's income is mainly from interests and dividends and their gross income for the year is less than $10500, and they are required to file a return and they do not do so jointly. The electing parent has to be the one whose taxable income is used when applying tax rules to children. For example, one who earns the greater income for married parents or the custodial parent for parents living separately. 

Chapter Thirty-Two: Child and Dependent Care Credit 

A person who pays another person or an institution to care for their dependents can claim credit for the tax year (Lieuallen, 2008). Credit claims only qualify for dependents who are less than 13 years old or a dependent or spouse who is not able to take care of themselves and have to be assisted in major life activities. The credit claim is only valid if the person paying them does so in order to look for work or to go to work. The credits claimed are calculated and up to 35% of the total incurred costs is excluded from the taxable income (IRS, n.d). Other than the credits claimed as a result of paying for dependents care, one can also exclude amounts of money received from an employer as dependent care benefits. Apart from children aged less than thirteen who are considered to be less mature and requiring assistance, a spouse or an older dependent must have physical or mental conditions that prevent them from doing the personal basic tasks. They must also have lived with the person claiming the credits for at least a half of the time in 2016. 

Chapter Thirty-Three: Credit for the Elderly or the Disabled 

A person may claim credit for the elderly if they are aged more than 65 years of age at the end of the tax years. Those who claim credit for disability must have been forced to retire due to permanent or total disability caused by work and have a taxable disability income (Lieuallen, 2008). The credit for elderly and disability is limited to the US citizens and resident aliens who lived in the country throughout the tax years. Non-resident aliens can be considered if they are married to a citizen or a resident alien of the US for the tax year. Those who are married can file their returns and claim elderly or disability credits jointly. One can also file and claim the credit as a household head and as a widow or widower. The age limit does not apply to the persons who retired permanently as a result of work-related injuries or complications. A person is considered permanently and totally disabled if they cannot engage in meaningful work to earn them a living. Such a disability has to be proven by a qualified physician and their statements should always be used as proof of the disability. 

Chapter Thirty-Four: Child Tax Credit 

A person who is filing tax returns can claim a child tax credit if they are biological or legal custodians of the child, the child is aged less than seventeen years at the end of the tax year, the parent (s) provide more than half of the child's support, they lived with the child for at least six months of the tax year, the child is considered a dependent as filed with the claimant's return and if the child is a US Citizen or a resident of the US during the tax years (Lieuallen, 2008). The child tax credits have limits for any parent or couple claiming them. for example, the credits are limited to $110000 for the parents who file their returns as married jointly, $55000 for the ones married filing separately and $75000 for the single, widowed and the household heads (IRS, n.d). 

Chapter Thirty-Five: Education Credits 

One can claim an education credit if they attended educational programs during the tax year (Lieuallen, 2008). They can also claim the credit for expenses incurred as a result of spouses or dependents attending schools' academic periods during the financial year. An academic period is a time frame reasonably determined by an institution for academic programs. Such a period can be a semester, a term, trimester or even a quarter. Credit claimants must have attended or paid for people who attended qualified academic institutions. These institutions include postsecondary educational institutions, vocational training facilities, colleges, and universities. Institutions that offer postgraduate and internship educational services are also considered qualified institutions. There are filing statuses that cannot be used to claim for education credits for a dependent. They include those married filing differently and people who are or can be claimed by others as dependents. Also, one cannot claim education credits for a non-resident alien spouse who does not elect to be treated as resident alien. The expenses to be included are the tuition fee, material costs, accommodation costs, activity fee as required for admission to the academic course and any costs that cater for direct input into the academic course. 

Chapter Thirty-Six: Earned Income Credit (EIC) 

The Earned Income Credit is a tax credit provided mostly for people who work for generally less than $53505 in any given tax year. There are rules for the people who claim earned income credits. The presence of a child or children is also a factor in determining who is eligible for the EIC and who in not eligible. Those with three or more qualifying children are entitled if they earn less than $47,955 (or $53,505 for the married filing jointly). The parents who earn less than $14,880 ($20,430 for married filing jointly) are also eligible for the EIC. Parents filing claims for EIC must have valid social security numbers and cannot put the claim if they file their returns as married separately. They must also have been US citizens or resident aliens for the whole tax year and have an investment income of less than $3401. The persons filing the claim must have earned any form of income for the tax year (Lieuallen, 2008). 

Chapter Thirty-Seven: Premium Tax Credit (PTC) 

A Premium tax credit is defined as a tax credit for people who have enrolled or whose spouses and dependents have enrolled in a qualified health plan (Lieuallen, 2008). A person can take a PTC if a person from their family was enrolled in a qualified health plan for at least a month during the tax ear. The enrolled individual should not be eligible for the minimum essential coverage and the claimant (a tax payer) paid all or part of the payments to the insurance provider. If a person is not taking a PTC for themselves then the persons whom they take for must be members of their tax family. 

Chapter Thirty-Eight: Other Credits 

This chapter discusses the refundable and the non-refundable credits. The non-refundable credits are subtracted from one's tax when filing their returns. According to Lieuallen (2008), non-refundable credits include the adoption credits, alternative motor vehicle credit, alternative fuel vehicle refueling property credit, credit to holders of tax credit bonds, foreign tax credit, mortgage interest credit, nonrefundable credit for prior year minimum tax, plug-in electric drive motor vehicle credit, residential energy credits and retirement savings contributions credit (saver's credit). They are non-refundable credits as the amounts paid to by the person cannot be retrieved in any way. They include any governmental, legal, or institutional fees imposed to get services or products during the tax year. On the other hand, the refundable tax credits are the credits that are treated as taxes paid during the tax year. If the total of the refundable credits is more than one's total tax, the excess if refunded to them. They include the credit for tax on undistributed capital gain and health coverage tax credits. 

References ; 

Ault, H. J., & Arnold, B. J. (2004). Comparative income taxation: a structural analysis. Kluwer Law International. Print 

Bankman, J., Griffith, T. D., & Pratt, K. (2008). Federal Income Tax: Examples & Explanations . Aspen Publishers Online. Print 

Hariharan.(2009). Income Tax: Law & Practice 2E . Tata McGraw-Hill Education. Print 

Internal Revenue Service (n.d). Publication 17 (2016), Your Federal Income Tax. Retrieved June 4, 2017 from https://www.irs.gov/publications/p17/ 

Lieuallen, G. G. (2008). Basic federal income tax. Aspen Publishers Online. Print 

Whittenburg, G. E., Altus-Buller, M., & Gill, S. (2014). Income Tax Fundamentals 2015. Cengage Learning. Print