Individual Taxation US Citizens



Preparing your own income tax returns can be a task that leaves you with more questions than answers. According to a study released by the US Government's General Accounting Office last year, most taxpayers (77% of 71 million) believe they benefited from using a professional tax preparer.

Whether we like it or not, today's tax laws are so complicated that filing a relatively simple return can be confusing. It is just too easy to overlook deductions and credits to which you are entitled. Even if you use a computer software program there's no substitute for the assistance of an experienced tax professional.

Individual American Taxes

Individuals who are citizens or residents of the U.S. are taxed on their income from all sources, from within and outside of the US.  IRC §61 indicates “except as otherwise provided in this subtitle gross income means all income from whatever source derived".  In another words, all income, including worldwide income” Form 1040 (U.S. Individual Income Tax Return) must be filed with the Internal Revenue Service each year by April 15, for the prior calendar year.  Extensions of the due to October 15 are available, but any amount of tax owed on April 15 must be paid with the extension.   Due dates and penalties and interest are discussed below.

US citizen(s) or resident(s) may file a Form 1040 as an individual (single), married (MFJ), married filing separately (MFS), or head of household (HOH).  US Income tax rates are graduated, and different rate schedules are used for returns with different filing status. 

Call our American Tax Specialist in Vancouver Canada - let us help you comply with the complex US tax law.
Who must file a return?  Generally, a U.S. citizen or green card holder living anywhere in the world, must file a US tax return if the minimum income indicated for the filing status below is met in 2014: 


Exemptions for Dependents

Every taxpayer can claim one personal exemption for himself, unless he qualifies as a dependent of another taxpayer.  An individual who qualifies as another taxpayer’s dependent cannot claim an exemption for himself even if the person entitled to claim the exemption does not claim it or gets no tax benefit from the exemption.  Taxpayers can also claim an exemption for each of their dependents.  There are other additional dependent exemptions for Head of Household and the death of a spouse.

You are allowed one exemption for each person you can claim as a dependent. You can claim an exemption for a dependent even if your dependent files a return.

The term “dependent” means:

  • A qualifying child, or
  • A qualifying relative.

The terms “qualifying child” and “qualifying relative” are complex.  Please call for further explanation.

An exemption is worth $3,950 for each dependent for 2014.  There is also a phase-out of personal exemptions based on filing status and adjusted gross income AGI.


Income included on a Form 1040 tax return includes wages, salaries, tips, taxable refunds, IRA distributions, pension and annuities, social security benefits, unemployment benefits, interest, dividends, and broker transactions.  The majority of this income is determined by form(s) sent by your employers, banks, insurance companies, federal and state governments, and brokerage houses.

Capital Gains and Dividend tax rates

For 2014, the long-term capital gains tax rates are 0%, 15%, 20%, 25%, or 28%.

28% rate.  The 28% maximum rate applies to gain from the sale of (1) collectibles held more than one year, and (2) Section 1202 qualified small business stock held more than five years (the portion of the gain that is not excluded from income).  To the extent a taxpayer is in a tax bracket below 28%, the low tax rate applies.

25% rate.  The 25% maximum tax rate applies to unrecaptured Section 1250 gain on sale of property held more than one year.  To the extent a taxpayer is in a tax bracket below 25%, the lower tax rate applies.

20%, 15%, or 0% rates.  Long-term capital gains not taxed at the 28% or 25% rate are taxed at a lower rate, depending on the ordinary tax rate that would otherwise apply if the gain were taxed as ordinary income.

Schedule A—Itemized deductions

Individuals filing as U.S. residents must choose whether to claim the standard deduction, or whether to itemize deductions.  Itemized deductions include such items as medical expenses (less 10% of Adjusted Gross Income - AGI), mortgage interest, property taxes, state and local taxes, charitable contributions, investment expenses, and miscellaneous deductions such as unreimbursed employee expenses (less 2% of AGI).

In 2014, itemized deductions are further reduced by 3% of AGI over $254,200 (single), $305,050 (married filing jointly), $152,525 (married filing separately) and $279,650 (head of household).  Itemized deductions are reduced by the lesser of, 3% of the excess of AGI over the threshold amounts show above or 80% of the itemized deductions subject to the limit and otherwise allowable for the tax year.

Self-Employment Taxation—Schedule C

Persons carrying on an unincorporated business as a sole proprietor in the US are subject to income tax on their gross income less allowable deductions attributable to that income, and must file Schedule C with their tax return for each business, each year. Complex rules involving the amount of investment "at risk", the degree of "material participation" in the venture, and the nature of the business are used to determine the extent of and the timing of the deduction of losses from self-employment activities.
Self-employed persons are also subject to the Self Employment Tax, which amounts to 15.3% of self-employment income on the first $117,000 and 2.9% thereafter, and is imposed in addition to any income taxes payable.  The Self Employment Tax is used to fund social security system.  One half of self-employment tax is deductible from income prior to the calculation of tax liability.
Self-employed persons may, depending on their income in any given year, be required to pay quarterly installments of income tax in advance for the next taxation year. The required installments are normally calculated on the basis of income reported in the current year on Form 1040.

Schedule E

This schedule is for income received from rents, royalties, rental property income and expense, Partnership income, S Corporation income, and passive activities.  This includes K-1’s.

Net Investment Income Tax--NIIT

A new Net Investment Income Tax (NIIT) of 3.8% will be payable on investment income in excess of the following filing thresholds. This new tax will be reported on form 8960 and will affect U.S. citizens and residents only, where income exceeds $200,000 (single/HOH), $250,000 (married filing jointly) or $125,000 (married filing separately).

Net investment income will include gains from property held for investment, such as stocks, bonds, mutual funds, etc., including gains on the sale of a principal residence in excess of the exemption amount, less expenses related to investments. For NIIT purposes, net losses from property dispositions cannot be less than zero (and therefore cannot offset other investment income), and are not available for carry forward to future periods.

Medicare Tax on Earnings

Wages and compensation as well as self-employment (SE) income received in 2014 are subject to a 0.9% additional Medicare tax to the extent they exceed certain thresholds.  Generally, employers are required to withhold the additional tax from pay exceeding $200,000 (single/HOH/QW), $250,000 (married/joint), and $125,000 (married/separate) per year.  The thresholds are the same for self-employed individuals.


Tax Rates for 2014

The United States federal government taxes personal income using graduated scale. Income tax rates begin at 10% and gradually increase to 15%, then 25%, then 28%, then 33%, then 35%, and finally reaching a top rate of 39.6%. Each tax rate applies to a specific range of income. This range is called a tax bracket. Where each tax bracket begins and ends varies depending on a person's filing status.  Tax rates can also vary depending on the type of income a person has. Ordinary tax rates apply to most types of income.  Capital gains and dividends are taxed at different rates, see the Capital gains and dividend tax rates.

New for 2014—Affordable Care Act (ACA) Tax Provisions

The Affordable Care Act requires you and everyone on your return to report health care coverage or claim an exemption or make a payment with your return. For those who purchased coverage through the Marketplace, you may be eligible for the premium tax credit.  These provisions of the health care law will result in important changes, including how individuals and families file their taxes. 

The individual shared responsibility provision requires you and each member of your family to have basic health insurance coverage (also known as minimum essential coverage), qualify for an exemption, or make an individual shared responsibility payment when you file your federal income tax return.

You will claim or report coverage exemptions on Form 8965, Health Coverage Exemptions, and attach it to Form 1040, Form 1040A, or Form 1040EZ. These forms can all be filed electronically. For any month that you or your dependents do not have coverage or qualify for an exemption, you will have to make a shared responsibility payment. How you get a coverage exemption depends on the type of exemption. You can obtain some exemptions only from the Marketplace while others may be claimed when you file your tax return.  Some exemptions can be obtained from the Marketplace or claimed on your tax return.  

Due Date of Tax Return

The due date for Form 1040 is April 15, but you get an extension to file your tax return until October 15. If you owe taxes, and fail to pay the estimated taxes by April 15th, you will be subject to interest and penalties for that underpayment. However, those penalties are not as severe as those imposed for failing to file your tax return in a timely manner. It is therefore advisable to always file an extension if you are going to file your return later than April 15th, even if you do not have the money to pay your estimated taxes at the time.

Avoiding Penalty and Interest on Tax Due

If you file a timely extension to October 15th, be aware that interest and underpayment penalties are charged as of April 15th. Further, the IRS can assess underpayment penalty (and interest) if the tax due is not paid by April 15th, but no (or insufficient) estimated tax payments or withholding were made prior to paying the balance due on April 15th. This is because the tax law requires sufficient regular payment or withholding (or combination) to be done through-out the tax year in order to avoid underpayment penalties.

Contact Our Firm

Our US tax accountants specialize in US taxation, we can help you file your US tax returns. Call (604) 281-3318