So you want to file your taxes, but you don’t know where to start. You’ve been told this isn’t rocket science and should be easy once you get the hang of it. But, the terms trouble you, and you find yourself at square one once you get into it.
Don’t stress over it; this guide is specifically for you. It will help you understand taxation and how to file your returns while extracting maximum benefits. However, before we get into the specifics, we must clarify what tax is.
In essence, tax is an individual’s payment to the government for the smooth functioning of a state. It allows governments to generate the necessary fiscal space for expenditures like public healthcare schemes, salaries, pensions of government employees, projects for infrastructural development, and more.
Without fiscal balance, governments cannot operate, nor can they deliver the services they’re tasked with, thus handicapping a state’s ability to progress. On the contrary, the smooth execution of the said projects carries the potential of steering the state towards economic growth.
This is important because, within the paradigm of a liberal international system, a state’s power is determined by its economic strength. So, to bring it all together, your taxes are directly proportional to the state’s global standing. This, however, is conditional to the proper usage of these funds.
Sadly, taxation is not conventionally taught; rather, it’s considered part of social education. We, however, aim to fill this void by listing before you ten things everyone should know about taxes.
1. Taxation is a social responsibility:
As mentioned above, taxation is a social responsibility, and every adult within a state is liable to pay taxes. It doesn’t take a person to pursue a tax llm online to understand this. This is a must because of the people being in a social contract with the government due to their state citizenship. The more people recognize this, the more it promotes the culture of filing returns, and the more it leads to the accountability of public funds.
2. Taxes depend on your income:
One’s taxes depend on their income. Those who make less than the top 1 percent don’t have to pay the same percentage. The Internal Revenue Service (IRS) released new tax slabs for the tax year 2022, according to which the lowest tax rate is 10 percent. This tax slab caters to individuals with income less than $10,275 and married couples with income less than $20,550.
3. Tax credits can help you:
Tax credits are essentially translated into the amount you can deduct from your returns. These are incentives given by the government to taxpayers. A particular example of this is the stimulus payment given in advance on the year’s taxes in 2020. They were deducted from the tax payments rather than adding up to a person’s income.
4. Learn about deductions:
Taxes are prone to deductions if the money is channeled into some domains. Itemizing deductions can help you create a list of things you can claim deductions on. Eventually, the tax you’re going to pay will be on the adjusted gross income, which is inclusive of deductible expenditures. So, learn about the things you can claim deductions on. Some of these include student loans and charitable spending.
5. File your returns even if you can’t pay:
This needs to be emphasized a lot since many people who don’t have money to pay their taxes tend to refrain from filing. You don’t want to risk penalties that come with late filings. Oftentimes it’s wiser to use credit cards to pay your estimated dues and seek an extension in the deadline for filing your return. It’s less costly than getting fined for being late.
6. There can be repercussions:
You’re essentially in a contract with the government, and you owe them money. They’re not going to sit silent and watch you delay their payments. The IRS has a strong system to force you to comply with their regulations. They can not only seize your passport, but they can impose a levy, which would ultimately curtail your finances. One example of this is that you won’t be able to sell any property. The IRS means business.
7. Tax brackets are prone to change:
As with most government policies, these things depend on the administration’s approach to fiscal balance. So, if you’re calculating your taxes based on income slabs you paid through last year, we’d urge you to reconsider. Nothing is permanent, and you need to stay ahead of the curve to file the right taxes and to avail the right benefits.
8. Prefer e-filing your taxes:
The earth is currently undergoing a climate emergency, and we all need to play our due role in this. Ideally, you should be helping in planting trees, but many of us are limited by our urban settings, the least we can do is avoid wasting paper. File your taxes electronically to save paper, which in turn saves trees, thus contributing less to environmental degradation. E-filing is environment-friendly.
9. Don’t stress over an audit:
If there are some discrepancies in your tax returns, you might be subject to an audit. Don’t stress over it. Those gaps in your returns probably raised some red flags in the IRS system. Ideally, you should cautiously do your taxes, but if you’re subjected to an audit, help address those gaps. In simple words, understand your finances and explain them in a similar tone.
10. It’s okay to use some help:
You can seek an experienced friend or colleague’s help in filing your taxes. If things still feel complicated, there are many good lawyers out there who can do this for you. All you need to do is provide them with the correct details of your finances, and they’ll help you navigate the system while guiding you about all the right moves.
Take a note of these tips, and go through them before you file your taxes this year. It shouldn’t be complicated, and you can do it. One last bit of advice is to keep track of your money and explore all avenues to help you make the most out of your returns. Good luck!