Understanding Income Tax Basics

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What is income tax?

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A tax imposed by the government on individuals' earnings.

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What is Form 1099 used for?

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Form 1099 is used by independent contractors to report income.

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What is Form W-2?

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Form W-2 is a form that employers send to employees to report annual wages and the amount of taxes withheld.

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What is Form W-4?

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Form W-4 is a form that employees fill out to indicate their tax situation to their employer.

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Why might someone file a tax return even if not required?

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To claim a refund of withheld taxes.

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What is a standard deduction?

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A fixed dollar amount that reduces the income on which you are taxed.

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What are itemized deductions?

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Expenses that taxpayers can claim on their tax returns to decrease their taxable income.

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What is one benefit of itemizing deductions?

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It can reduce your taxable income more than the standard deduction.

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What is a tax refund?

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Money returned to a taxpayer when they have overpaid their taxes.

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What is the purpose of filing a tax return?

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To report income, calculate taxes owed, and claim refunds.