Tax Day 3: Time to Execute... Getting your Taxes Done!
Posted by LearnVest on April 15, 2010 at 9:42 PM
Time to Execute...
Getting your Taxes Done!
Whether doing taxes on your own or not, we recommend you understand these basic concepts:
•Progressive Tax System
The US has a progressive tax system. This has nothing to do with social and political views of people who work at the IRS. It simple means that you pay a progressively higher tax rate as you make more money.
|It is relatively easy to pin down your tax bracket: |
Currently, federal tax brackets range from 10% to 35% of taxable income. But your taxable income is not what’s in your weekly paycheck. It’s what’s left after exemptions, deductions, and credits are taken out.
2010 Tax Brackets
The minor complication is that your tax bracket is different from your tax rate. Your tax bracket is the rate you pay on the "last dollar" you earn whereas your tax rate is the percent of your income you pay to taxes. Luckily, your tax rate is usually substantially lower than your tax bracket.
Though April 15 is officially Tax Day, the truth is that taxes affect you all year long. You know how your gross paycheck is significantly lower than your salary? That’s because of a little thing called withholdings.
Withholding is the amount held back from each paycheck to pay your income and Social Security taxes for the year. Withholdings keep you from having to pay your taxes all at once when you file your return. The W-4 form you filled out when you started your job determines how much money is withheld from your paychecks.
You get a “refund” from the government if the tax you paid through your withholdings is more than what you actually owe and/or you are able to claim more refundable tax credits than what you owe in taxes.
In 2009, the IRS reports that the average refund was $2,683. While it may seem exciting to get a refund check from the government, you’ve essentially just given the government a long-term interest-free loan! It’s better to owe money at tax time than to get a hefty refund, because it means that you’re the one who’s gotten the loan. Better yet, you want to come out just about even at tax time, maybe owing a small amount. If you didn’t get it right this year, don’t worry. Just reevaluate your W-4 and amend it for the future. See LV’s, "I Want to Fill Out a W-4 Checklist" for help.
|Now that you have a better sense of this whole tax business (look who can define withholdings and refunds like a pro!), it’s time to pick your weapons and get started! No more procrastinating now that you know what you need to know! As a reminder...|
If you’re doing your taxes yourself...
Go through the LearnVest Checklist “Understand My Tax Deductions.” It will hold your hand through standard and itemized deductions, plus it will help you calculate your AGI (Adjusted Gross Income).
Go to the IRS website. Everyone’s doing it. In 2009, almost 200 million people visited IRS.gov. The IRS is actually the single best place to turn when you have a tax-related question. In addition to their comprehensive website, they offer both a recorded information service (1.800.829.4477) and a live assistance line (1.800.829.1040).
If you need a little help...
These are great tax programs that guide you through the process step-by-step:
Check out the table below for more info.
If you need even more help...
An accountant may make sense for you. It’s important that you trust your Accountant so that there is no shady business! (You don’t want your 2010 tax year to make front page headlines if you decide to run for political office one day!)
LearnVest's Checklist “I Need to Find an Accountant”
8 Tips to Help You Choose a Tax Preparer
If you encounter questions along your tax way, we like these resources:
What do I need to know about paying taxes if I’m in college?
What if I bought a new car in 2009?
What if I work freelance?
Click here to see common life events that can affect your taxes.
Want to receive Financial Resolution Bootcamp in your inbox?
Go to bootcamp.learnvest.com and sign up to recieve 20 days of daily tips and action items to get your finances in order for spring!
Help Us Improve...
The Bootcamp is a brand new product we're excited to roll out, but, we really need your feedback to make it the best it can be! Email Feedback@learnvest.com to tell us what you think!