One of my goals regarding the blog was to turn it into a resource and part of the conversation on being a modern woman. One of the hardest topics to talk about is money, but you will never have control of your own life if you don’t control your money.
So, let’s get into one of those money talks – taxes.
People tend to be one of two different breeds when it comes to filing their taxes. Either they are super keen and excited to pay it and do so as soon as possible OR they freak out and have no idea. Filing taxes has this incredible power to make otherwise perfectly competent adults freak out and doubt all of their ability to handle this yearly task. I am always amazed at how often friends of mine will have their parents file their taxes.
Real talk time: if you have a career and make your own money, you need to file your own taxes. It is one of steps in overseeing your finances. On the bright side, it is probably much easier than you think!
The reason people tend to get so freaked out is because we are constantly fed this idea that filing taxes is all about finding secret tips and tricks to getting the most money back. But refunds are straight forward. You overpay on your taxes during out the year, you get money back in the form of a refund.
Step One: Get your stuff together. Literally, get your forms together. Most 20 and early 30 somethings will have the following forms:
- W2: this is the one that your job will send you. Look at it. A lot of us don’t even realize how much money we make. Is everything accurate?
- 1099 : you would receive this if you are a contractor. This would include if you made money from driving Uber, Etsy, etc.
- 1099-INT: this will be from you bank and will tell you how much interest you paid this year.
- 1095-A: if you got insurance through Healthcare.gov, you will get this form.
- 1098-E: If you have student loans, you pay interest on those loans. Currently you can deduct up to $2500 of that interest from your taxes.
Once you have all the forms, be sure to save them. You never know when you might need them again.
Step Two: Decide if you can pay your own or if you need to outsource it. Z. and I use turbotax every year, but there are a host of services that you can use for little to no money. There is really no reason to hire a CPA or accountant unless you are a small business owner, self employed or you have some crazy, weird complicated story. However, most people have a relatively simple return.
Step Three: decide how you want to get your refund. I always have our money sent to our bank account because it is a lot faster. However, if you are willing to wait, the government will send you a check. It just takes a while longer.
Now some basic terms to understand.
- Deduction: if you get a deduction, it is subtracted from the amount of income you are taxed on. For instance, if you make $50,000 and have $6,000 deduction, you are only taxed on $44,000. Most people will take the standardized deduction, which you get for being alive. However, if you have a high mortgage and pay a lot of state taxes, it may be worth your time to itemize your deductions. This means instead of taking the standard deduction, you list out individual deductions. This is only worthwhile if you have more than the standard deduction, which is $6,350 for individuals and $12,700 for married couples.
- Credit: this is money you get back. Here is the list of the most common credits. https://www.cnbc.com/2016/04/11/the-top-10-tax-credits-that-should-be-on-your-radar.html
What are your other questions? Drop them in the comment section and we will do our best to address them.