"There's no crying in taxes," appears to be the response to many Americans who still feel that the U.S. tax system continues to be complicated. Those were the words of Ted Jenkin, the CEO and co-founder of oXYGen Financial who said taxpayers should realize that much more of their sources of income are taxable than they may think.
Jenkin says to remember that pensions "are considered taxable income," as is Social Security income in many cases — depending upon if you're filing as an individual or as a married couple. "If you make more than $32,000 as a married couple up to 85% of your Social Security is taxable," Jenkin said.
Many often wonder if they should itemize deductions or claim the standard deduction on their taxes, and it really depends on whichever one yields a better return.
The standard deduction rate last year was $13,850 for an individual, and $27,700 for a married couple.
Jenkin says around 90% of tax payers are going to end up using the standard deduction.
And that rate seems to be increasing in recent years.
In 2016, Tax Foundation reported that 68.5% of households chose to take the standard deduction. In 2019, American Progress reported that 81.6% of tax filers claimed the standard deduction.
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Jenkin said, "The big thing people forget is that we're in a progressive tax system — the tax rates start at ten [percent], and go to 12, to 22, all the way up to 37." As a result, just a small amount of extra income could put Social Security earners into a higher tax bracket.
One retiree told Scripps News that after 45 years of work, she entered retirement and worked around six to eight weeks in a short-term job, and ended up owing state and federal taxes.
Jenkin said he also advises couples who are married to file jointly, and said that in his many years of working in the tax industry he has hardly ever seen a scenario in which being married and filing separately "makes sense." Jenkin said, "The tax code generally encourages that you file jointly; however you may be getting divorced, you might be separated, but not divorced yet. But, sometimes you may be worried about your partner doing shenanigans on the tax return, and you could be responsible for that criminal liability if you actually sign on the tax return."
Unexpected medical expenses or student loans might change this guidance for some, but it's not all that often that it happens, Jenkin said.
