Let’s talk about… taxes… I just rolled my eyes. If you’re like me, tax day is quickly approaching and it’s just now on your radar. I put this stuff off like I used to wait to write term papers or study for finals. It’s not fun. Not only does it feel like homework, but if you’re self employed like me… you know you’re going to owe money.
As many of you know, I have my degree in Finance. Meaning… I’m fairly good with money talk. Whether it’s your first time filing your taxes, or you’re an old pro – everyone can use a few good tax tips. So I thought I’d share a rundown of “Taxes 101” for you guys.
How much am I getting taxed?
Surprise, surprise, not all of your income gets taxed. When you start your taxes, you’ll have to list most of your income. To figure out how much money you have to pay taxes on aka “taxable income”, follow these steps:
- Figure out your gross income – your total income before any taxes or deductions.
- Subtract above-the-line-deductions (here’s a list of all of them) – if you’re a student, this is where your student loan interest, tuition and fees come in! If you’re paying back school loans, you can deduct the interest you paid (bonus!) and if you’re still in school, you can deduct any of your tuition and fees that came up.
- Now you’ve figured out your AGI / Adjusted Gross Income
- Here’s where it get’s tricky… now you’ll subtract below-the-line- deductions. These are itemized deductions like medical or dental expenses that weren’t covered by your insurance, charitable donations, job expenses, etc. Most people go with a standard deduction. This is a value that the IRS comes up with. If you think your itemized deductions are a higher number than the standard deduction, you’ll want to go the itemized route (more details here).
- Subtract your exemption amount. Example: if your deduction is $6000, subtract that from your AGI. If you’re married, you can multiple that number by 2 and deduct $12,000 from your joint AGI.
Voila! You’ve got your magic # – Taxable Income! So much fun, right!?
This $ is what you use to figure out how much you owe.
What tax rate am I going to pay?
Here’s where things get tricky. The U.S. uses a progressive tax system. Basically, if you make less money, you pay less taxes. The amount of taxes you pay is based on something called “the marginal tax rate”. It’s a tiered system in which you pay a different % depending on the amount of money you make.
Here’s a breakdown of the different tax rates:
Don’t stress. If you work with an accountant or use a tax software, they will figure it out for you. It’s just good to know.
How much money am I getting!?
Depending on your tax bracket, you may get a tax refund. That means, the government sends you a check. Hooray! Kind of…
If you get money back, it just means that you overpaid throughout the year. If you owe money, you underpaid. It was your money to begin with, it just depends on how you claimed exceptions with your employer. Basically – the amount your boss withholds from your paycheck.
So, how do I get this show on the road and do my taxes?
Here’s what you’ll need:
- Proof of your income – this could be your W2 or W2’s if you had more than one job / 1099 forms if you’re an independent contractor
- Your Social Security Number / Date of Birth
- Your receipts – save all of your receipts! I use these folders to organize my receipts throughout the year. I also have one that I keep in my purse! This also includes any medical bills or business expenses.
- Medical & Dental Insurance Premium info
- Last years tax return
- Any of your charitable contributions (this includes clothing donations!)
- Loan statements
I personally use Quickbooks Self-Employed and it’s major game changer. Basically, it links up all of my bank accounts, credit cards & PayPal. Throughout the year, it tracks all of my transactions. I go in and categorize different transaction and then it automatically does it for me! That way, when I go to do my taxes, everything is organized. I can also use it to file my taxes / my estimated quarterly taxes. However, I have an accountant that I go to just to be extra safe since I own my own business.
You can get 50% off just by being friends with me! Yay! Money! More info here!
Another great option is to use TurboTax. You’ll still need all of the above info, but it makes the process almost painless.
You can also get 20% off on filing your Federal taxes here!
Ready!? I created an easy to follow checklist for you too! You can save the photo and print it out, crossing off items as you go!