Introduction to Tax Time
The time has finally come. All year Uncle Sam has been dippin' in your checks, and now it's time to get back what's rightfully yours. Or,...
The time has finally come. All year Uncle Sam has been dippin' in your checks, and now it's time to get back what's rightfully yours. Or, unfortunately for some people, pay what you owe; and trust me, you’re gonna want to do that sooner rather than later. Don’t get Lauryn Hill’d or Wesley Snipes’d trying to finesse the IRS. Since the beginning of the year, folks have been waiting around the mailbox for their W-2's to come like a new iPhone or Supreme release; we're finally here. Your W-2's are in, and your tax return is so close that you can already taste the irresponsible spending. But, before you can get to that point, you have to file your taxes, and that's usually where people get confused. No worries, though, that's why we're here. Let's get it! Get’cha Paperwork Together W-2 A W-2 is a form that every employer must send to their employees and the IRS at the end of each year that shows the amount earned by an employee, as well as the amount of taxes taken out their check. It's the most common (and important) form to have when filing your taxes. A W-2 is to filing taxes what mac and cheese is to Sunday dinner. Your employer should send it to you automatically. 1099-MISC If you did freelance work, consultant work, or run a small business and received more than $600 in payments, you’ll receive one of these forms. If you earned less than $600, I'm going to pray it was just a side hustle and not what you relied on to keep the rent paid. 1098-T If you’re enrolled in higher education, you’ll receive this form from your college or university. It will show the amount you paid (or were billed for) in qualified educational expenses. Qualified educational expenses will include tuition, fees, required coursework material and other related costs required for enrollment. Room and board, transportation, student health fees, and similar personal living expenses are not included. 1098-E If Sallie Mae put on a ski mask and robbed you for more than $600 in interest on your student loan payments in the previous year, you’ll receive one of these forms from your loan provider(s). 1099-B You’ll receive this form if you made any stock transactions in the previous year. It should report the amount either gained or loss from the sale of stocks and should be sent to you automatically by your broker. There are lots of tax forms, but don’t let that make you feel overwhelmed. Focus on the form(s) that are relevant to you. You’ll be surprised how much less stressful life is when you mind your business. Even if you don’t receive a form for it, by law, you must report all your income, including tips. For freelance and service jobs this can get a lil’ tricky, but do your best to keep up with them. Deductions and Tax Credits In addition to the IRS forms you should automatically be receiving, you should also gather documentation for any charitable donations you made in the previous year, any relevant business expenses, and any relevant moving expenses. Deductions and tax credits are usually the parts of filing taxes that people know the least about—which causes a lot of people to forfeit free money. I won't speak for everybody, but I've never been a fan of missing out on free money. I plan to be a multi-millionaire still putting Sprite in my water cup at fast-food restaurants; some things are about the principle. Below are some common tax deductions that are commonly overlooked: Travel expenses A surprising amount of the miles you put on your car for work (whether you’re an employee or self-employed) are tax deductible. This goes along with drives to the doctor/hospital/pharmacy, driving during a move that’s deductible, or driving to a charity event. Here are the requirements for each: Business If you’re self-employed, you can get reimbursed 57.5 cents per mile you drive. It doesn’t matter if you’re driving to Follies in Atlanta to meet with a client (business is business, right?) or driving down the street to the local Staples for office supplies. It’s all deductible. If you’re not self-employed, specific qualifications must be met. Before you ask: no, your daily commute isn’t deductible. You can get 57.5 cents per mile for non-reimbursed business expenses—such as travel to conferences and trainings, client meetings, etc.—once it exceeds a certain amount. Moving If you’re relocating more than 50 miles for work, you can deduct 23 cents per mile of your move. You must have worked full-time in your new location for at least 39 weeks of the previous year. If you moved in the late-Spring or after, you gotta chalk this one up to the game; it's likely a no-go. Medical You can claim up to 19 cents per mile for trips to and from the hospital, doctor's office, and pharmacy. Health expenses have gotten so expensive that you damn near have to empty your life savings for the common cold—you might as well get back as much money as you can. Charity If you’re driving to volunteer at a non-profit, you can deduct those miles. You can receive 14 cents per mile. You must be volunteering yourself. You can’t just drive and drop somebody off like it’s AAU practice. While deducting miles can seem like a no-brainer, don’t get caught slippin’ claiming miles you can’t prove. If the IRS ever decides to pull up on you, you’re going to want to have a log that includes dates, destinations, and reasons for travel. It may sound like a pain in the ass to keep track of all of this, but it’s the 21st century, and you should know that there’s an app for everything—including this. Job Search As if being unemployed wasn’t bad enough, the costs associated with job searching can creep up on you like a thief in the night. Luckily for you, a good portion of these expenses are deductible. Including travel costs, employment agency fees, and more. Of course, there are exceptions: Job search must be in your current line of work You can’t be looking for your first job It can be a long gap between your last job and your job search Donations If you made charitable donations last year, itemize them and write it off. It’s a win-win situation. Education Certain qualified educational expenses can be deducted. Check out the American Opportunity Tax Credit here to learn more. Earned Income Tax Credit (EITC) If you're a lower-income worker, you may be eligible for the EITC. The EITC reduces the amount you owe in taxes and could add to your return. The max annual income to be eligible is as following: Single 0 dependents: $15,010 1 dependent: $39,617 2 dependents: $45,007 3+ dependents: $48,340 Married or Joint filing 0 dependents: $20,600 1 dependent: $45,207 2 dependents: $50,597 3+ dependents: $53,930 Dependency Exemptions If you had a dependent in the previous year, you can claim them on your taxes to deduct your taxable income by just over $4,000. For example, if you earned $40,000 last year, 2 dependents would make your taxable income roughly $32,000. Decide How You’re Gonna File After you’ve gathered all your paperwork, the next step is deciding how you plan to file. You have until April 15th to file. If you’re single, no dependents, don’t own a house, and only have a few forms, save yourself the trouble and money and use a free tax filing software (like TurboTax). Marriage, children, moving, homeownership, etc. make filing your taxes a lil’ bit more complicated, and at that point, you should consider just paying the fees (which probably aren't much when compared to your potential return) and going to a tax professional. Pros of using software/apps to file: Convenience Speed Cheaper It's recommended that you visit a professional if: You’re self-employed Married and have dependents Buying your home Plan to itemize your deductions (like the ones previously discussed) Fill Out, Review, File The hard part is over. You’ve got your files together, and you’ve filled out everything you needed to. Now all you have to do is review everything and file. If you owe the IRS money, your next step is to decide logistics for how you’re gonna pay them. If you’ll be receiving money back, all you can do at this point is wait for your coins. The IRS claims that 90% of returns filed are delivered within 21 days. Hopefully, you’re not the unlucky 10%. The Final Word Tax time can undoubtedly be confusing and seem overwhelming, but the key is to keep it as simple as possible and only focus on what’s relevant to you. Generally speaking, folks tend to make things more complicated than they have to be, and filing taxes is no exception. Keep it simple. It’ll make this process 10x easier. I will be including resources as an aid to this post, but in the meantime remember to drink more water, support local businesses and laugh a lil’ bit.
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