Tax Season 101An OppLoans Explainer E-book

OppLoans.com

https://www.opploans.com/https://www.opploans.com/

Table of Contents

Introduction 3

Taxes: the basics 4Expert Advice 5

How do taxes work anyway? 6Expert Advice 7

Step 1: Preparing to file 8What you need to do your taxes 9Expert Advice

Step 2: Select your method of filing 10Expert Advice 10Self-preparation 11Expert Advice 11Make a robot do it (err… use tax preparation software) 12Hire a human 13How much will that tax preparation cost me 14

Step 3: Filing & receiving your return 15Maximize your return 15Expert Advice 17Receiving your tax return 18Average tax returns 19

Conclusion 20Glossary of terms you may encounter 21Tax FAQs 24

Expert Advice 26About the experts 27Works Cited 28

Introduction

If you’ve never filed your own taxes before, just the idea of it can seem scary and overwhelming. There are long, complicated forms to fill out and terms you may not have ever heard before. What’s a Form 1040? What do they mean by “a dependent”? What’s the IRS, and why do they get so much of my money?

Those are all good questions, and ones we’ll answer here. We’ll admit it—doing your taxes is a little bit of a headache. But like many things, it’s much easier with help. That’s why we’re here to explain the basics of how (and why) to do your taxes!

So whether you’re a first-time filer or just want to feel more confident walking into your accountant’s office, we’re here to help you tackle tax season 2017 with confidence.

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https://www.opploans.com/glossary/taxes/https://www.opploans.com/glossary/irs-financial-smarts-glossary/

Taxes: the basics

The United States uses income taxes to pay for various government programs—everything from highways to military equipment is supported by your tax dollars.1 That’s why we pay taxes. When the city fixes a pothole on your street, or a veteran receives healthcare benefits; those are your tax dollars at work.

Rather than paying all taxes at once at the end of the year, most people have small amounts of money taken from each paycheck to go toward any taxes they might owe.2 Then, in April, we file our “tax return” to make sure we’re square with the Internal Revenue Service (IRS)—the government agency responsible for collecting taxes.

So when we talk about “doing your taxes,” we really mean, “settling up with the IRS.” At the end of the year, sometimes you owe them a little. Sometimes they owe you a little. Filling out your tax return is how you figure out who owes whom, and how much.

It’s worth noting that a lot of people—about 45 percent of Americans in 20153—don’t earn enough money to owe any federal income tax. If that’s you, you still don’t get to relax completely when April rolls around. Even if you know for sure you won’t owe any taxes, you still need to fill out and submit a tax return.4

In addition to filing a federal tax return, you may also need to file tax returns in any states where you earned money. Fortunately, the mechanics of doing your state taxes are very similar to doing your federal taxes, so although we’ll mostly be talking about federal taxes here, much of this advice also applies to state taxes.

While you probably already know this, it’s worth repeating: You really, really want to settle up with the IRS and your state’s department of revenue. Not paying your taxes might cause your wages to be garnished, or in a worst-case scenario, land you in prison.5 Yikes.

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https://www.irs.gov/

Larry Ludwig, Founder and Editor in Chief of Investor Junkie

“If you don’t file your taxes on time or at all, the IRS can levy hefty fines and in severe cases, criminal charges. An IRS audit is definitely an unpleasant experience and you can help avoid one by filing your taxes accurately and on time each year. If you make less than $200,000 a year, however, your audit risk is about 1 percent.”

Aaron Lesher, CPA with Hurdlr

“Doing your taxes” is a broad term that means completing and filing your tax return and sending it to the government. A tax return, in a basic sense, is a form that states how much money you earned during the year from your job, business or side gigs. It also lists all the expenses you incurred during the year that you can “deduct” from your income. Since taxes are only calculated on your income minus any eligible deductions, it’s advantageous to take as many deductions as you can to reduce your tax bill, whether you’re an individual or business.”

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Expert Advice

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How do taxes work anyway?

How much you pay in taxes is determined by how much money you make. Generally speaking, the higher your income, the more tax you pay.6 But the IRS doesn’t simply add up how much you make in a year and call it a day.

The IRS calculates your tax liability (how much you owe) by looking at your earnings and what are called “tax deductions.” You get deductions for things like donating to charity, paying interest on a mortgage, and covering the costs of health care.7 Essentially, your taxable income minus your deductions determines how much money you’ll owe the government at the end of the year.

The IRS lets you decide whether you want to itemize your deductions (meaning list out each individual deduction), or instead take what’s called the standard deduction ($6,300 for a single adult or $12,600 for married couples filing together). Whether you itemize or take the standard deduction will depend on factors like if you have children, own a home, or have major medical expenses.8

Ian Atkins, Analyst and staff writer at Fit Small Business.

“If you want to make sure you're getting the full refund you're entitled to, don't put off your taxes until the last minute. Before preparing your taxes (or preparing the documents for your tax professional), take a couple hours and review the year. If you're married, do this with your spouse as you'll undoubtedly remember different things. Donations, expenses, changes in income level/sources, major purchases, etc. If you want to make sure you're not leaving anything on the table, you need to make sure you're not forgetting any part of the story.”

Aaron Lesher, CPA with Hurdlr:

“Since taxes are only calculated on your income minus any eligible deductions, it’s advantageous to take as many deductions as you can to reduce your tax bill, whether you’re an individual or business.”

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Expert Advice

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Step 1: Preparing to file

There’s some light “housekeeping” you’ll need to do before you’re ready to file your taxes. So get out some file folders, fire up that printer, and get ready to organize your financial year. It may sound unpleasant, but it’s necessary. After all, you want to do your taxes correctly so you can get back the maximum amount you’re owed.

Think of this time spent as an investment. If done right, it will definitely pay off!

Your tax prep checklist:

q Your personal information like your Social Security number and birthdates for you, your spouse and any dependents.

q It will be helpful (but not required) to have last year’s tax returns on hand.

q Your bank account and routing number. If you want your tax return directly deposited into your account, you’ll need this information.

q Forms W-2 and/or 1099: If you are a full- or part-time employee, you should get a form called the W-2 from your employer. The W-2 shows how much you made in the previous year, and how much you’ve already paid toward your taxes.9 If you work as an independent contractor, you probably won’t receive a W-2, and will likely get a Form 1099 from each of your clients. Like the W-2, the Form 1099 helps you determine how much you made in the previous year.10

q Any forms that might help you determine your deductions, such as receipts from donating to charity or moving expenses.

q Information on any alimony received throughout the year.

q Any childcare cost info like your provider’s name, address and tax ID number.

q The appropriate tax form for you, either the Form 1040, Form 1040A, or Form 1040EZ. You can fill these forms out electronically or by hand—or hire someone else to take care of them for you (more on that below). 11 Which form you use depends on factors including your income and whether or not you have dependents (that’s IRS-speak for “kids and other family members you support financially”).12

q A calendar! Tax returns are typically due April 15. This year (2017), April 15th falls on a Sunday and Monday is Emancipation Day (a legal holiday observed in Washington DC). So this year, Tax Day is Tuesday, April 18.13

q A strong cup of coffee, if that’s your thing.

Dawn Brolin, Accountant-in-Resident at TheNeat Company

suggests using expense management software to better prepare for your tax filing. “Expense management software and applications let individuals use their smartphones to simply snap a photo of their important financial documents, like expense receipts and business invoices, before vital data points, like totals, purchase dates and vendor names, are seamlessly uploaded to the cloud, or even accounting software, like QuickBooks Online or SageOne. Using expense management software eliminates the monotonous and time consuming data-entry process, while putting all of your financial information in one place, where it is easy to review.”

Micah Fraim, Certified Public Accountant atMicah Fraim, CPA

“Before you file, one of the most important steps is to look at your return from the previous year. This will serve as a reminder of your situation and what documents you should be expecting. It's also a great sanity check to compare to the current year's return and make sure that there aren't unexpected disparities year over year.”

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Expert Advice

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Step 2: Select your method of filing

Some of us are tech wizards, and some of us prefer a good old-fashioned pen and paper. Some of us like to talk things through with others, and some of us prefer to solve problems on our own. Whatever your style, there’s a way to do your taxes that will work for you.

How you choose to do your taxes will depend on your budget, how busy you are, and how complicated your tax situation is. The three options we’ll discuss here are:

• Filing your taxes yourself

• Use tax preparation software

• Hire a professional to file your taxes

Expert Advice

Aaron Lesher, CPA with Hurdlr

“You can do your taxes a couple ways: yourself, with the help of online software, or in-person with a professional tax preparer. To do taxes yourself, you can use this [IRS] site to file for free or download fillable forms, depending on your income level. If you paid more taxes throughout the year than you owed, the government will send you a check for the difference, called a refund. In rare cases you might owe the IRS additional taxes at the end of the year, especially if you freelance or own your own business.”

https://www.irs.gov/uac/free-file-do-your-federal-taxes-for-free

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Larry Ludwig, Founder and editor inchief of Investor Junkie

“Taxes aren't that bad: If you have a W-2 or a 1099, or maybe one of each, you can complete your taxes on your own. In fact, I recommend you complete your taxes on your own. It's important to learn the basics of the tax code and this is possible when you use an online software like TurboTax or H&R Block because they actually educate you WHILE you are filling in the numbers. It's pretty awesome. That said, if you have a complicated situation at all—use a professional.”

Expert Advice

Self-preparation

You know what they say: If you want something done well, you have to do it yourself. That’s why some people choose to fill out their tax returns on their own. Everything you need is on the IRS website. You can download tax forms, print them, fill them out, mail them, and call it a day. If you make less than $64,000, you can file your tax returns electronically on the IRS website for free.14

If you make less than $100,000 a year and have no dependents, you may be able to use a special form called the Form 1040EZ (yes, like “easy”—someone at the IRS was having some fun that day). The Form 1040EZ is super quick and, well, easy.15 This might be the tax form of your dreams!

If you’re not eligible for the Form 1040 EZ, don’t worry. You’ll use either the Form 1040 A or the Form 1040. The IRS even provides a helpful little quiz to help you determine which form is right for you. All of these forms come with very detailed instructions on how to fill them out.16

Like the other options we’ve discussed, self-preparation has its pluses and minuses. Many people find it a little harder than using software or hiring a tax preparer, and for some, it might take more time. But it’s definitely a bargain!

https://www.irs.gov/https://www.irs.gov/uac/what-is-the-simplest-form-to-use-to-file-my-taxes

Make a robot do it (err… use tax preparation software)

Using tax preparation software is very popular, and a good option for people with pretty straightforward tax situations. If you have a full- or part-time job with a W-2, you didn’t win the lottery, you don’t own four mansions, and you have no offshore bank accounts in the Bahamas, tax preparation software might be just the thing for you.

Tax preparation software guides you through the process of filling out your tax return by asking lots of questions, like “Did you buy a house this year?” The software will have you to transfer information from your W-2 into the software to determine your income. (It can also provide guidance on whether it makes most sense for you to take the standard deduction or to itemize your deductions.) When you’re all done, many of these programs allow you to file your tax returns electronically.

Some options to consider include:

• Turbo Tax—Free option available, paid options range from: $34.99-$114.9917

• H&R Block—Free option available, paid options range from $34.99-$54.9918

• TaxAct—Free option available, paid options range from $15-$3019

• Tax Slayer—Free option available, paid options range from $17-$3520

• eSmart Tax—Free option available, paid options range from $14.95- $34.9521

Tax preparation software has its upsides and downsides. On the upside, it’s often quick and easy to use, provides lots of help and guidance, and allows you to file electronically. The downsides: It’ll take a little bit of your time and you may have to pay for the software. It’s also important to remember that your tax returns contain very sensitive personal information, such as your social security number. Hacking and security breaches are always a possibility. (You might remember, for instance, that TurboTax had a big security breach in 2015.)22

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https://www.turbotax.com/lp/ty16/ppc/temp_1.htm?znTL=w2az&znTR=fdf&znC3=social-carousel&srqs=null&cid=ppc_gg_b_stan_all_na_TurboTax_ty16-bu2-sb5&srid=CMH5wJ-RjtMCFQHRDQodMb4MuA&targetid=kwd-26897251&skw=turbotax&adid=186595234469&ven=gg&gclid=CMH5wJ-RjtMCFQHRDQodMb4MuA&gclsrc=dshttps://www.hrblock.com/lp/fy17/shared-classic.html?otppartnerid=9007&campaignid=ps_mcm_9007_0176&omnisource=GGL|CAMPS-B-Brand+TP-G-TP|ADGPH%2BR+Block|KWRDH%26r%20block&KeywordID=195953&gclid=CIjjwrqRjtMCFQIEaQodtlQAUg#/en/https://www.taxact.com/applications/file-taxes/?v=pszwu&d=i5p4&sc=1604264503001c&ad=25464530_183401963449&mpch=ads&utm_medium=cpc&utm_source=google&utm_campaign=1604264503001c&utm_term=tax%20act&promo=mktg2&gclid=CIe9pcSRjtMCFQqPaQod66UKCg&group=brandhttps://www.taxslayer.com/maximumrefund?kwid=p16348617724&cid=cpc%7cgoogle%7cbrand%7cNewCustomer%7cTopMarkets&gclid=CN2Vts2RjtMCFdy1wAod8WQDng&gclsrc=aw.dshttps://www.esmarttax.com/

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Hire a human

If you don’t want to entrust your taxes to a robot, you can always hire a human tax professional. Companies such as H&R Block and Jackson Hewitt are chock full of people who are ready and waiting to help you with your taxes. Although the cost varies from person to person, you can probably expect to pay somewhere in the neighborhood of $100-200 to have your return done at one of these large tax preparation offices.23

There are different types of tax professionals with different levels of training and experience.

The more training and experience a tax professional has, the more their services will cost you.

Different types of tax professionals include:

Tax preparers: Tax preparers are the most inexpensive tax professionals. This is because they may not have a lot of training. In most states, they are not required to be licensed. However, if your tax situation isn’t too complicated, a tax preparer can probably handle your taxes just fine.

Enrolled agents (EAs): Enrolled Agents are tax professionals who must be licensed by the IRS. They are allowed to represent you in the event of a tax audit.

Certified public accountants (CPAs): CPAs have significant training and specialized expertise. Their services can cost you around $100/hour.

Tax attorneys: Tax attorneys are the top-of-the-pile tax professionals. If you have a complicated tax problem (maybe you do own four mansions and have offshore accounts in the Bahamas) you might need their services, but it’ll cost you $200-300/hour. Fortunately, hiring a tax attorney isn’t necessary for most of us.24

There are some pros and cons to hiring someone else to do your taxes. An experienced tax professional may find ways to save you money, and will certainly save you some time. Of course, you have to pay for their services, and you can’t always be sure they have much more experience with taxes than you do.

https://www.hrblock.com/#/en/https://www.jacksonhewitt.com/https://www.jacksonhewitt.com/

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How much will tax preparation cost me?

Wondering how much you can expect to pay a professional CPA to prepare your taxes? Here’s a handy breakdown of average income tax preparation fees by region assembled by CouponBox.

(Average Income Tax Preparation Fees by Region. (2017, March 16). Retrieved March 30, 2017, from https://www.couponbox.com/us/blog/average-income-tax-preparation-fees-region/)

https://www.couponbox.com/us/

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Step 3: Filing & receiving your tax return

Maximize your return

You took a deep breath, gathered your tax information and documents, selected a method of filing and now you’re ready to get it done. Great!

But let’s not forget, filing your taxes isn’t just a legal requirement—it’s also a process which will likely deliver you a “tax refund”—or check—once the process is over. You definitely want a refund, but how much can you expect to get back? Well that depends on you and how you file.

If you want to maximize your tax refund (and, let’s be honest, who doesn’t?), then follow these steps to make sure you’re getting the most from your tax refund check. Leave no dollar behind!

1. Increase withholding throughout the year: Here’s something you can do all year long to get a bigger refund check after you file. Whenever you take a new job, you’ll be asked to fill out a W-4 form. The way you fill this out will determine how many allowances (for yourself and your family), you’ll claim. (An allowance is an amount deducted from your taxable income). When you fill this out, drop an allowance to withhold more income. It will increase the amount held from each paycheck (which will mean smaller paychecks throughout the year) but potentially a much larger tax refund in the spring.25 You can use a withholding calculator to determine which allowance to claim.

2. Choose to Itemize instead of standard deduction: The standard IRS deduction ($6,300 for singles, $12,600 for married couples filing jointly) will lower your taxes. But selecting to itemize your deductions will likely increase your tax refund. When you choose to itemize, look for items like job search expenses, unreimbursed business expenses and more to increase your refund.26

3. Understand which exemptions and deductions you are eligible for. Speaking of itemizing your deductions, there are a surprising number of items you might not know that you are eligible for. For instance, you can deduct the costs associated with childcare, elderly parent care, even friends you are financially supporting (though we don’t recommend financially supporting your friends). Especially in the case of supporting elderly parents, they must receive more than half of their financial support from you.27

4. Be charitable. Here’s an easy one: give stuff away! Whether it’s clothes or food, or even big-ticket items like electronics and vehicles, when you give to qualified charities, those charitable gifts are tax deductible—making you eligible for a larger refund! You get to feel good and collect a bigger refund. Win!28

https://turbotax.intuit.com/tax-tools/tax-tips/General-Tax-Tips/Ways-To-Increase-Your-Tax-Refund-You-Never-Thought-About/INF26327.html

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5. Deduct your home office expenses. Do you work from home? Do you have a home office? If so, those home office expenses can bededucted! Here’s how:

The IRS offers two methods of calculating home office expenses: The Standard Method and the Actual Method.

With the standard method, you can deduct auto mileage with the following formula:

57.5 cents per business mile plus parking and tolls. You can calculate the expense of a home office at $5 per square foot (at a maximum of 300 per square feet).

The Actual Method is a bit more detail oriented, but it could result in a somewhat higher tax refund.

Using the actual method, for auto-related expenses, add up all your car expenses (including gas, maintenance, and insurance) and then multiply by your business percentage (business miles divided by total miles for the year).

For example, $10,000 in vehicle expenses / 25,000 miles driven in 2016=40.Take that percent and multiply it by the amount of relevant expenses you had that year ($10,000), so: $10,00 x .40= $4,000.29

Calculate your home office deduction using the Actual Method by adding your home expenses and multiplying it by your home office square footage divided by total home square footage.30

6. Deduct medical expenses and use a Flexible Spending Account (FSA) for medical costs. Did you know you can deduct unreimbursed medical and dental expenses? And not only that, but also the mileage to and from your care.31 It’s true! So get that nagging toothache checked out, your mouth—and your wallet—will thank you.

7. Refinance your mortgage—Interest on your mortgage is deductible. If you refinance, you’ll get a tax break. But you should also refinance to get a better interest rate.32

8. Contribute to a 401K—When you pay into a 401K, those payments are “shielded”, meaning you can deduct those payments from your taxable income. Double win! You pay more into your retirement and stand to receive a larger tax refund.

9. Talk to a pro—When you do your taxes, you want to make sure you’re doing them right and getting back the most cash you can. After all, you worked hard for that money. If you’re worried that you’re leaving money on the table, it might be worth it to speak with a professional. They aren’t free, but you’ll might get peace of mind that you wouldn’t otherwise.

Dave Du Val, Chief Customer AdvocacyOfficer at TaxAudit.com

As you’re filing, always be double checking for errors. As expert Dave Du Val from TaxAudit.com reminds us, these common tax filing errors are easy mistakes to make (and avoid).

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Expert Advice

• Wrong or missing Social Security numbers (SSN): Verify all SSNs using each person’s Social Security card.

• Wrong names: The names on the return must match each person’s Social Security card,including all dependents. Do not use nicknames or married names unless you have previously changed the name with the Social Security Administration office.

• Filing status errors: Check your filing status, especially Head of Household.Most tax software asks questions to help you determine your status. You can also go to the Interactive Tax Assistant.

• Math errors: There is a benefit to using tax software—the math is done for you. If you aredoing the return by hand, double check all computations on a calculator with a paper tape. Keep your receipts with a tape showing the name of the deduction for reference in case you are contacted by the IRS for any reason, as any tax return can be audited even if it is 100% complete and accurate.

• Credit and deduction errors: Be very careful in calculating the Earned Income Credit,Child Income Credit, and the Child and Dependent Care Credit. Follow the directions, and review the rules for Qualifying Child, Qualifying Relative, and Qualifying Expenses. Another problem area is the Standard Deduction for those who do not itemize. If you are over 65 and\or blind, there is an additional standard deduction amount to add to your Standard Deduction.

• Bank accounts for refunds: The IRS and most state tax agencies offer direct deposit of refunds. This is the fastest and safest way to receive your refunds, but only if you verify the bank account information. You certainly don’t want YOUR refund going to MY bank account.

• Forms not signed or dated: An unsigned return is not valid, especially for married couples where both must sign the forms. This can delay processing while the IRS sends a form for correct signatures.

• Electronic filing PIN numbers: E-filed returns must have a PIN number in lieu of asignature. If you e-filed last year, use the same PIN number. If you can’t remember it, you will need your 2015 adjusted gross income as originally filed—not as amended orcorrected by the IRS.

• Remember, the Affordable Care Act is alive and well as of today. Make sure your 2016return reflects all the requirements needed under the ACA (such as having minimum essential coverage) to show that you have the required health insurance and to avoid the shared responsibility penalty. Regardless of what Congress does tomorrow or next month, it will not change what’s required on your 2016 return.

Ian Atkins, Analyst and staff writer at Fit SmallBusiness

“Plan ahead. As with anything in life, if you want the best results possible, you need to plan ahead. Wealthy individuals and families do not wait until the last minute (or even until tax season) to start tax planning. They know that with professional guidance and time to enact a plan, they can save a ton of money. Everyone should be thinking this way. Your CPA or tax professional is not a magician, even if it sometimes feels that way. Do them, and yourself, a favor: talk to them about what you expect for the following year (changes to income, dependents, major purchases, work arrangements, etc) and let them help you plan for the coming year. Effective planning will increase your tax refund more than any trick.”

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Receiving your tax return

Okay, so you’ve taken the plunge and “done” your taxes. If you’re like 83% of Americans who filed returns, you qualify for a “tax refund.”33 Rather than owing the IRS more money, the IRS actually owes you. That’s a good thing!

So how exactly will you collect that tax return?

Whether you’ve filed on your own, used an app, or gone with a professional, there are several different ways you can select to receive your return.

When you file, you can choose one of the following methods to receive your refund:

1. Direct deposit

This is the easiest option for receiving your refund. All you need to do is provide the account and routing number for your bank account when you file your return. You can even have them split the refund between multiple accounts. Once your refund is processed, the IRS will electronically deposit your funds. That’s it! If you file your return electronically, using direct deposit can usually get your refund back in 21 days or less. Direct deposit is also available for folks who file paper returns or who use a tax preparation service.

2. A prepaid debit card

This option should really only be used by people who do not have a bank account. Having the IRS load your refund onto a prepaid, reloadable debit card can be better than having them issue a check due to the high fees charged by many check-cashing businesses. (Also, just like direct deposit, this option is much faster than a paper check.) However, many of the prepaid cards that are offered for tax refunds come with high fees as well, so be careful and make sure that the card you’re choosing is the best one available to you. A lot of cards are offered by tax preparation services specifically for these purposes, but folks who already have a prepaid debit card can have their refund deposited on that card by providing the account and routing numbers on their return.

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Average tax refundSo how much are you getting? Well, that definitely depends. But we can tell you that the national tax average is $2,860. Check out this breakdown of average Federal Tax Returns by state courtesy of Couponbox.

(Average Income Tax Preparation Fees by Region. (2017, March 16). Retrieved March 30, 2017, from https://www.couponbox.com/us/blog/average-income-tax-preparation-fees-region/)

3. Paper check

For those who like to do things old-school, you can always have the IRS cut you a paper check, which they then mail to you. Some of the issues with this option include the check getting lost in the mail or the check getting lost, stolen or destroyed once you’ve received it. In addition to those risks, this method is also much slower than direct deposit or using a prepaid debit card. With those other options, it usually takes 21 days or less for your refund to arrive. With a paper check, it can take between 4-6 weeks. However, if you have a bank account and do not want to do direct deposit, paper checks are a better option than a prepaid card, due to the fact that no fees will be involved with the check.

4. Purchase US savings bonds

This is the least-known tax refund option. It’s also fairly new, having only been around since 2010. By filling out IRS Form 8888, you can use your refund to purchase up to $5,000 in US savings bonds. These are low-risk products designed for long-term investment—maturing after 30 years. You can use any portion of your tax refund to purchase a savings bond, so long as it is in an increment of $50. Any amount that is left over will then be sent to you via paper check or direct deposited into your bank account.

https://www.irs.gov/pub/irs-pdf/f8888.pdfhttps://www.couponbox.com/us/

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Conclusion

Whichever method of tax preparation you choose, know that it’s important to get your taxes done. If you have a single source of income and no dependents, then your taxes might be simple enough to complete on your own. If you’ve never “done” your taxes before, maybe a face to face session with a professional is right for you.

If you need more help, though, you’re not alone.

Many public libraries offer classes and other kinds of tax preparation assistance. There’s also tons of help online: Tax preparation companies like H&R Block and Turbo Tax put plenty of information and advice on their sites. And although it’s not as exciting a read as Fifty Shades of Grey, the IRS website does have all the tax information you could ever desire.

Finally, don’t forget: April 18 is the big day. Good luck and happy taxing!

http://blogs.hrblock.com/http://blog.turbotax.intuit.com/https://www.irs.gov/

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Glossary of terms you may encounter

Filing Status— Your filing status really describes your marital status, and it impacts everything from the type of form you’ll need to fill out to the tax credits and deductions you’ll be eligible for to the rate at which you’ll be taxed.34 There are five different filing statuses, as outlined below:

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Tax Brackets— If you’ve ever filled out an income questionnaire, survey or census, you’ve likely ticked a box next to your salary range to indicate your annual income. Marginal tax brackets (usually just shortened to “tax brackets”) are a very similar concept.

You can think of tax brackets as a series of income “buckets.” The bucket your annual income falls into—combined with your filing status (married filing jointly, single or head of household) determines the percentage, or tax rate, at which you’ll be taxed.

If your salary falls into the lowest tax bracket, you’ll be taxed at the lowest tax rate; if you fall into the highest tax bracket, theoretically, you’ll be charged at the highest tax rate. And if your annual income falls below a certain amount (depending on your filing status) you’ll be exempted from paying any taxes at all—though you’ll still have to fill out and submit your tax forms to the IRS.35 According to the IRS, the 2016 tax brackets break down as follows:36

http://www.investopedia.com/terms/t/taxrate.asp

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Tax Season—Traditionally, tax season— the time of year when business and individuals are required to complete and submit their previous year’s tax returns to the Internal Revenue Service, or IRS—falls between January 1st and April 15th of each year.37 In 2017, tax season began on January 23rd and ends on April 18th—the official deadline for submitting your tax return.38

Personal Tax Exemption—Like a standard tax deduction, a personal tax exemption is a fixed amount you can claim to lower your taxable income. For 2016, the personal exemption amount is $4,050.39

A good way to think about exemptions is “number of people you’re supporting financially”—what the IRS calls a “dependent.” The first dependent you should claim? Yourself! If no one else can claim you as a dependent on their tax returns, then US Tax Codes allow you to claim yourself.

Additionally, you can claim your children, grandchildren, stepchildren, foster children and, if you’re filing a joint return, your spouse. It’s important to note that each of these individuals must meet qualifying criteria, including age, and, if they are working, income level, but this list is a great starting place to look for additional savings.

Tax Liability—“Tax liability” is just another way of saying “how much you owe in taxes.” You could think of your tax liability as…

https://www.irs.gov/uac/about-irs

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Tax FAQs

Q: What’s the difference between Federal Income Taxes and State Income Taxes?A: US law dictates that both individuals and businesses must pay annual taxes on earned income to the federal government. In 2016, the federal government received $3.13 trillion dollars in revenues, $1.3 trillion of which came come individual income taxes—the largest single source of this revenue.40 These tax dollars are used to support a wide variety of government programs and initiatives—everything from the military and federal and welfare programs to highways and disaster relief.41

State taxes are a little bit of a different story. Since state taxes are governed by the states themselves, they vary from state to state. And while many states follow a model that looks quite similar to federal taxes, some states really go their own way. Pennsylvania, for example, imposes a flat tax—meaning everyone pays the same amount, instead of being taxed according to income—while some states impose no state taxes at all!42

Q: What’s the difference between “taxable income and “non-taxable income”?A: Generally, you can assume all income is taxable unless it’s explicitly designated as tax-exempt by the IRS. Taxable income includes all the usual suspects—all wages, tips, bonuses, investment income—but also a few surprises. For example, even bartering—what the IRS defines as “an exchange of property or services” (that is, a non-monetary exchange) is considered taxable income.43 If you’re not sure, check out the IRS taxable income page for more information.

Non-taxable income, then, would be items like inheritances, cash rebates, received welfare and child support payments.44

https://www.irs.gov/uac/newsroom/taxable-and-nontaxable-incomehttps://www.irs.gov/uac/newsroom/taxable-and-nontaxable-income

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Q: What is the difference in a “tax credit” and “tax deduction?”A: Both tax credits and tax deductions can help you reduce your overall tax liability (the amount you owe in taxes), but they work a little differently.

According to the IRS, a tax credit “provide[s] a dollar-for-dollar reduction of your income tax liability.”

By comparison, a tax deduction lowers your taxable income by allowing you to deduct a percentage of qualifying expenditures you made during the previous year. Donating to a charity, paying interest on a mortgage, or healthcare costs that exceed 10% of your AGI (adjusted gross income) are all qualifying tax deductions.

So what’s the difference? A tax deduction is affected by your tax rate. This means that you’ll only be able to subtract a percentage of the overall deduction (the same percentage at which all your income is taxed) from your overall tax liability. Here’s the example the IRS gives: if you fall into the 25% tax bracket, a $1,000 tax deduction will only net you $250 dollars in savings, while a $1,000 tax credit means $1,000 saved. For a complete list of qualifying deductions, visit the IRS website.

OK—so what’s the difference between a “tax deduction” and a “standard deduction?”

The IRS gives you a choice between itemizing (adding up) your list of tax deductions from the previous year, or taking a standard deduction.

A standard deduction is a deduction amount that’s pre-set each year by the IRS; standard deductions vary based on filing status and tax bracket. It’s important to note that you can’t claim both a standard deduction and your itemized list of deductions, so you’ll want to pick the option that saves you the most money. For many people, the standard deduction is the higher amount. However, if you’ve had large medical bills or made large contributions to tax-deductible organizations, for example, you might come out better itemizing your deductions.45

https://www.irs.gov/taxtopics/tc500.html

Ian Atkins, Analyst and staff writer at Fit SmallBusiness

“Is it more effective to itemize or accept the standard deductions? The answer to that depends. It helps to start by seeing what the standard deductions will be (see below for 2016). If you have a lot of mortgage interest, make significant charitable contributions, have significant out of pocket medical expenses, have qualified job expenses that weren't reimbursed to you, or have significant state & local income or sales tax you may want to consider itemized deductions.”

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Expert Advice

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About The Experts

Ian Atkins (@FitSmallBiz) is an analyst and staff writer for Fit Small Business. He covers small business finance with a focus on traditional and alternative small business lending. Ian has over 9 years working in personal and small business finance.

Dawn Brolin (@dawnbrolin) Accountant-in-Residence at The Neat Company, In addition to her roll at Neat, Dawn is a CPA and the CEO of Powerful Accounting, an accounting firm that uses a tech-first approach to better serve their clients.

Steve Cuffari (@Couponbox) is a writer and researcher born and raised in NYC, who currently lives in Berlin. He now works at Couponbox.com, a website dedicated to savings, where you can see his articles and infographics on the blog and press page. His work has been featured on Forbes, GoDaddy and Foxsports. He can also be found roaming Twitter and his fiction site.

Dave Duval, Chief Customer Advocacy Officer at TaxAudit.com. Dave is a taxpayer advocate, tax expert, and a tax educator as he travels around the country helping educate tax professionals. He also serves as a source for tax writers at publications like CNN, CNBC, MotleyFool, FoxBusiness, and many more.

Micah Fraim (@MFraim89) Micah Fraim, CPA owns an award-winning accounting practice, has an Amazon bestselling book, and experience as a business analyst in the marketing department of a Fortune 500 company. As such, he brings a broader perspective than most any other accountant. For years he's helped my clients find money that others have missed and helped them make maneuvers others had not thought of. He's been featured on Forbes, MarketWatch, Time and you can learn more about his work at FraimCPA.com.

Aaron Lesher, CPA. Aaron is a part of the Customer Success and Growth team at Hurdlr. He's passionate about helping entrepreneurs achieve more financial success. Before joining Hurdlr, Aaron audited Fortune 500 clients at a Big 4 accounting firm. To make sure you know exactly how much in business taxes you owe and maximize your deductions, download Hurdlr today.

Larry Ludwig (@IvestorJunkie) founder and editor in chief of Investor Junkie. He graduated from Clemson University with a bachelor of science in computers and a minor in business. Back in the ’90s, he helped create some of the first financial websites for firms like Chase, T. Rowe Price, and ING Bank, and later went on to work for Nomura Securities. He’s had a passion about investing since he was 20 years old and has owned multiple businesses for over 15 years.

https://twitter.com/FitSmallBizhttps://twitter.com/dawnbrolinhttp://www.neat.com/http://www.neat.com/http://powerfulaccounting.com/https://twitter.com/couponbox_cahttps://www.couponbox.com/us/https://www.couponbox.com/us/blog/author/steve-cuffari/https://www.couponbox.com/us/press/author/steve-cuffari/https://www.forbes.com/sites/kellyphillipserb/2017/03/06/how-does-your-tax-refund-compare/#1a2566dd36eahttps://www.godaddy.com/garage/smallbusiness/market/what-every-small-business-should-know-about-creating-discounts/http://www.foxsports.com/mlb/story/phillies-rank-19th-on-new-mlb-stadium-index-091516https://twitter.com/IThinkUpDemonshttp://stevencuffari.com/https://www.taxaudit.com/https://twitter.com/MFraim89http://www.fraimcpa.com/http://www.fraimcpa.com/https://hurdlr.com/https://hurdlr.com/https://twitter.com/InvestorJunkiehttps://investorjunkie.com/https://investorjunkie.com/

Works Cited

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TaxActtax rateGoDaddy