Pearl

Motivation Speaker

https://stashingcoins.com
Tax Filing Tips for Beginners Doing your own taxes for the first time can be a daunting task.  Whether you’re self-employed a full-time employee, part time employee, or a contracted employee, there are a few common tax filing tips and tricks worth knowing before getting started. You may think that in order to file your taxes you need to have a degree in accounting, or a seasoned business professional with a genius IQ.  Thankfully, these images associated with filing your taxes are not true, and actually suggest a reality that is quite opposite to the truth. The truth? Really anyone with basic math skills and a job can understand how taxes work and can even file their own taxes without previous experience! Consider this your ultimate guide to filing taxes for the first time. Tax Basics for Beginners - Understanding the Need for Taxes Ever wonder how local and national government organizations get money to operate? Or how about who pays for the construction and update of all the roads, highways and city parks? -  And the answer isn’t that they print their own money. State and local governments are funded by the taxes from its citizens.  Taxes such as income tax, sales tax and property taxes are just a few among many other ways that we all contribute to the funding and maintaining of our surrounding environment and governments. Every time we purchase groceries from the local supermarket, we pay a percentage of the sale in taxes.  That money is ultimately funneled up to the state and local governments to help fund current community projects and upkeep. Taxes pay for more than just new roads, highways and parks, they also go towards paying employees of public schools, local police officers, government officials, and many other publicly owned and operated organizations. Without taxes, we wouldn’t have funds needed to function as a community locally and nationally.  We wouldn’t have teachers to educate children and future generations, or even police officers to monitor and protect the community. How Current Tax Laws Work There are multiple different forms of taxes.  Some you may be familiar with are income taxes, sales taxes, and property taxes as mentioned above.  These are all different ways that we contribute to the funding and operating of our government and local communities. Income Tax Perhaps you have a part time or full-time job.  You receive a paycheck regularly and a pay stub showing your current pay along with the current deductions.  Among those deductions are state and federal taxes that are withheld which are then paid to state and federal governments.  This is called income tax and is withheld as a percentage of your gross income, or income before any deductions are taken out. Sales Tax A sales tax is charged to every type of retail purchase made.  In other words, it’s a tax that consumers pay when they make a retail purchase.  This money is set aside by the local business and passed on to its local state government. Sales tax is applied to nearly all purchases made at any retail store such as a grocery store, clothing stores, electronics stores and everything in between.  There are certain products that consumers are not required to pay taxes on, but these are few and far between. This is often done when local government entities want to encourage consumers to purchase certain items or when they want to help support and promote certain causes. Other Ways We Pay Taxes While there are a lot of ways that taxes are paid, some specific to certain jobs and industries, and others are generic to everyone, here are some of the most common miscellaneous taxes. Property tax – taxes paid each year on the real estate of your house.  This only applies to homeowners. Car taxes – taxes paid on your owned vehicle each year. Excise taxes – these are taxes paid on certain products such as gas, beer and cigarettes.  These types of taxes are often used to deter consumers away from products related to unhealthy behaviors. Basic Taxation Concepts – Common Terms & Definitions There may be some common terms you have heard when discussing taxes, that are not fully understood.  Grasping the definitions of the common tax terms below will take you from beginner to a well-informed consumer. Gross Income: This is your total income earned before any taxes or other deductions have been subtracted. If your paycheck is $1,500 before taxes and $1,300 after taxes are withheld, your gross income would be $1,500. Net Income: This is your total income after taxes and other qualified deductions have been subtracted. If your paycheck is $1,500 before taxes and $1,300 after taxes are withheld, your net income would be $1,300. Taxable Income: Your total income that is taxed after qualified tax deductions have been withdrawn.  If your total annual income is $50,000, and you qualify for $5,000 in deductions, your taxable income would be $45,000. Tax Deductions: Qualified expenses, as defined by the Internal Revenue Service (IRS), that are not required to be taxed. Tax Credit: Qualified expenses, or credits, that are deducted from your net tax bill.  If you owe $2,000 in taxes for the year, and you qualify for $500 in tax credits, then your tax bill owed drops to $1,500. IRS: This stands for “Internal Revenue Service” and is the organization that collects taxes and administers the tax laws nationally. Tariff: A tariff is a tax paid on the purchase of a product or service outsourced to another country.  For example, a clothing company may purchase their fabric from China, so they may pay a tariff on the purchase of fabric from China. Doing Your Own Taxes for The First Time - Tips for Beginners By now, you’re well brushed up on your tax jargon, and understand the basic concepts of how taxes work.  To take complete advantage of filing your taxes properly, there are definitely a few points worth mentioning to keep in mind. Max out your tax deductions and tax credits Tax deductions and tax credits are perhaps one of the most underutilized savings tactics that people miss when filing their taxes.  This especially applies to those who own small businesses or do contract work full time or part time. Some of the most common tax deductions and tax credits are: Tax Deductions:       Charitable contributions – payments made to charity are deductible from your taxable income.      Interest payments – you are allowed to deduct interest paid on certain loan types such as a mortgage or student loans.       Retirement contributions – if you are contributing to a traditional IRA or 401k, you can deduct your contributions made from your taxable income up to specified annual limits.       Home office – if you are self-employed or have a part time job working from home, you may be able to deduct the costs and space associated with running your business. Tax Credits:       Child tax credits – you can receive credits of up to $2,000 per dependent child and $500 for non-child dependents related expenses.       Lifetime learning credits – these are tax credits given for up to $2,000 for tuition, books, equipment and other related expenses to education from accredited institutions. Green purchases tax credits – these are tax credits given when environment friendly purchases are made like electric vehicles or solar energy.  You may receive up to 30% of the cost of solar energy systems or $7,500 in credits for purchasing an electric vehicle. Be sure to take advantage of all the tax deductions and tax credits possible, you could be missing out on a lot of money saved. Gather and keep track of required documentation A common mistake made when filing taxes, yourself for the first time is not having sufficient documentation.  Keeping a detailed and organized record of documents related to your taxes throughout the year will save you loads of time and headache come tax season. Don’t wait until the last minute Taxes are often a dreadful task we hope never comes.  Procrastinating until the last minute not only causes a bigger headache to look forward to but could also result in late filing fees and other potential penalties. Be aware of potential tax fraud Filing taxes for the first time could be an easy way to fall into a potential tax scam.  Fraudsters are on the lookout for taxpayers filing themselves, and they know what to look for to make sure they receive your tax return. When filing your taxes, make sure that you file directly on the IRS website, or through a trusted tax software such as TurboTax.  Always be careful who you give your personal information to when filing your taxes. Even a slightly different looking email address posing to be from the IRS, is an easily overlooked hunch. Contribute the maximum to your retirement accounts This has multiple benefits for both taxes and retirement planning.  If you are able to, contribute the maximum amount possible to your retirement accounts such as IRAs and 401k’s.  The maximum contribution limit is $6,000 per person per year for IRAs, and up to $18,500 for contributions made to a 401k. Not only will you pay less in taxes since contributions are deductible, you will also benefit from an abundant retirement nest egg in the long run. Applying these tax filing tips and tricks will save you money, time and headaches (not to mention an abundant retirement as we just discussed).  Furthermore, taking full advantage of your tax deductions and tax credits you will be miles ahead of everyone else filing their taxes for the first time.  
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