1.1 Overview of Individual Income Tax

1. The Formula for Individual Income Tax

1) Taxable Income

2) Gross Income (GI) - inclusions / Nontaxable Income - exclusions

3) Deductions

2. Form 1040: Individual Income Tax Return

1) Above the Line Deductions (Adjustments)

2) Below the Line Deductions
(1) Itemized Deductions or Standard Deduction
(2) Qualified Business Income Deductions

3. Filing

1) Filing Requirements

(1) General Rule
A taxpayer must file a return if his or her gross income is equal to or greater than the sum of:
a) The regular standard deduction (except for married filing separately) plus
b) The additional standard deduction for taxpayers age 65 or over or blind (except for married filing separately).

If a taxpayer has a gross income of less than the standard deductions and has withholding tax taken out of his/her pay, he/she needs to file a return in order to receive a tax refund, but there are no filing requirements.

(2) Exceptions
Certain individuals must file income tax returns even if their gross income is lower than the "general rule" requirement.
a) Individuals whose net earnings from self-employment are $400 or more must file.
b) Individuals who can be claimed as dependents on another taxpayer's return, have unearned income, and gross income of $1,100 (2019) or more must file.

2) Taxable Year

Annual accounting periods are used to measure taxable income. The taxable year maybe a calendar year or a fiscal year under certain restrictions.

3) When to File?

(1) Due Date: April 15
Individual taxpayers must file on or before the fifteenth day of the fourth month following the close of the taxpayer's taxable year which is April 15.

(2) Extension
An automatic six-month extension (until October 15) is available for those taxpayers who are unable to file on the April 15 due date. Although granted automatically, the six-month extension must be requested by the taxpayer by filing Form 4868 by April 15.
(!) The automatic six-month extension is not an extension for the payment of any taxes owed. The due date for payment of the taxes remains April 15. If the tax liability is not paid by this date, penalties will be imposed for late payment (failure-to-pay penalty).

4. Penalties Imposed on Taxpayer

(1) Failure-to-File (Late Filing) Penalty
The Penalty is 5% of the amount of tax due for each month (or any fraction thereof) the return is not filed. The penalty cannot exceed a maximum of 25% of the amount of tax due.

(2) Failure-to-Pay (Late Payment) Penalty
The penalty is 0.5% per month (or fraction of month) up to a maximum of 25% of the unpaid tax. (tax delinquency penalty)

* Interest on Penalties
Interest, compounded daily, is charged on any unpaid tax from the tax return due date until the date of payment (federal short-term interest).