…so why don’t I know anything about how taxes work?
Its that time of year again! When we somehow figure out how to get our taxes done and then keep our fingers crossed we get a fat check! As I was preparing to “do my taxes” (aka answer some questions on TurboTax), it got me thinking: I have no idea how this works.
So I did a little research and here is what I found:
Your employer withholds money from your paycheck to pay your taxes. Your tax return is the difference between how much was withheld and how much you actually owe. It was always really your money; Uncle Sam is just giving it back.
Where do I get my taxes done?
In this day and age and at this point in our lives, filing online with websites like TurboTax and H&R Block is so insanely easy and cheap. However, if you make less than $62,000, the IRS offers a free filing system that you can find here.
What are tax deductions?
Tax deductions essentially reduce the amount of your taxable income. For example, if you make $50,000 and have $5,000 worth of deductions, the government views your taxable income as $45,000. Some of the most common tax deductions are:
- Interest paid on mortgage
- Interest paid on student loans
- Charitable donations
- Medical expenses associated with a diagnosis
Standard Vs. Itemized Deductions:
For 29 years, I had no idea what this meant until I consulted Google. Depending on what your situation and marital status is (thanks for the added pressure, IRS…), the government offers a standard deduction
For example, as a single person, my standard deduction is $6,300. There are a few exceptions in terms of people who aren’t eligible for the standard deduction:
- You are married, but filing separately and your spouse itemizes deduction
- You were considered a nonresident alien or dual-citizen
Itemized deductions involve adding up all those deductions listed above. If you don’t have any loans and donated like $20 last year, it’s probably in your best interest to go with the standardized deduction. However, if you’re like really grown, itemized might be your best approach. Essentially, if your deductions add up to be more than your standardized deduction, go for itemized. Make sense?