April 15th Again?! Your Federal income tax is due every year on April 15th. Your tax return must be postmarked by that date.
But how do I figure my taxes? Start with voodoo, add a calculator, and then go, “Wha…?” Really, you follow the appropriate tax form.
But how do I figure my taxes? The most basic form is the 1040EZ (get it?)
But how do I figure my taxes? In the U.S., we have a progressive income tax – the more you make, the greater percentage of your income you pay. It has marginal tax brackets. The different levels of your income get taxed at different rates. The higher the level (the bracket), the higher the rate.
But how do I figure my taxes? Moneychimp’s calculator
But how do I figure my taxes? To make things even more fun, your gross income (salaries, wages, tips, and commissions)is not your taxable income. Just because you brought home, say, $100,000 you don’t get taxed on that whole amount. You also get deductions and exemptions.
But how do I figure my taxes? Deduction Variable amounts you can subtract from your gross income. This includes interest paid on mortgages, money used towards paying for higher education, personal business expenses, charitable donations, and the like. You can always itemize these on your tax return, where all the possible deductions are listed out. 2/3 of taxpayers take the standard deduction, a set amount (around $10,000). This is because they didn’t keep track of itemizable deductions, don’t want to bother, or the standard deduction is simply more.
But how do I figure my taxes? Exemptions Set amounts you can subtract from your gross income, such as for dependents.
But how do I figure my taxes? So, your taxable income is what’s left after you subtract exemptions and deductions from your gross income. Starting in January every year, you’ll get documents from any employer for whom you worked the previous year and any investment firms you used. The employer form is the W-2. It lists the income it paid to you during the year as well as how much money was withheld during the year.
So you want to pay some taxes? We use pay-as-you-earn taxation What that means is that you have money withheld from your paycheck when you get it. When you get hired, you fill out a W-4. This says how many exemptions you plan to claim. The more you claim, the less money your employer will withhold for your check. The money your employer withholds is forwarded to the government.
So you want to pay some taxes? We use pay-as-you-earn taxation The withholding is done for three reasons. The government wants constant influx of money rather than a sudden influx once a year. The official reason is that it makes it easier for you than paying a lump sum in April… money you may not have available because you didn’t plan on how much you would need available to pay your estimated taxes. The other unofficial reason is that it psychologically hides from you how much you’re really paying in taxes. You never had the money in hand, so it’s hard to think of it as actually having been something you had to pay.
So you want to pay some taxes? When you file your tax return, you’ll compare the amount you owe to the total amount that has already been withheld from your paychecks over the year. If less has been withheld than what you owe, you will have to pay the IRS the difference. Let’s say you owe $10,000 and only $8,000 has been withheld over the year. You will need to write a check for $2,000 to the IRS. If more has been withheld than what you owe, then the IRS owes you a refund of the difference. Let’s say you owe $10,000 and $15,000 has been withheld over the year. The IRS will refund you $5,000.
So you want to pay some taxes? A refund? SWEET! Not really. A refund really isn’t that great. All it means is that you gave a short-term, no-interest loan to the government. It’s YOUR money, after all, and it was yours the entire time. You just lent it to The Man. To make things worse, you didn’t have money available to you to invest (thereby earning you interest or other capital gain) or to use in some other productive or desirable capacity. It’s a double-loss for you.
So you want to pay some taxes? So have nothing withheld and estimate my tax for the year, right? That would be nice, but it’s not an option. Also, if there’s more than a 10% difference between what was withheld and what you owe, the IRS will penalize you with a fine. I know this from personal experience and still think it’s ridiculous. Ideally, you would estimate your tax owed for the year and withhold at a level slightly below what’s necessary to meet your final obligation, while at the same time making sure to save what you estimate you’ll need in April. This way, you can invest that money and earn interest, etc., on it before turning it over The Man.
So, that’s it, right? I’m done? Not by a long shot, sucker. Fortunately, you live in Texas and don’t have a state income tax. Texas is only one of seven such states. Texas is also constitutionally prohibited from imposing an income tax. A state constitutional amendment would have to be passed, and the voters are unlikely to go for that, though some groups push for it. I’d argue the lack of an income tax makes the state more fiscally responsible since it doesn’t have such a large revenue source to draw from. The state also still gets money from elsewhere… it’s property taxes are higher than many other states, for example. In some places, even the city will have an income tax.
So, that’s it, right? I’m done? FICA – Who the heck is FICA and why is he taking money out of my paycheck? Federal Insurance Contributions Act This goes into Social Security and Medicare.
So, that’s it, right? I’m done? Social Security Meant as a retirement program, but has expanded to include some other groups too. 6.2% of your income is withheld for Social Security, up to $106,800 in income (meaning no one pays more than $6,621.60 for the year). Your employer also matches your contribution. So if you paid $4,000, so does your employer. If you’re self-employed or own your own business, you pay 12.4%. Social Security is currently headed towards dire straits and will be bankrupt by 2040. Congrats, seniors.
So, that’s it, right? I’m done? Medicare National Health Insurance program for those over 65. 1.45% of income, with no cap. This is also matched by your employer. If you’re self-employed or own your own business, you pay 2.9%.
Good lord, please tell me that’s all. As far as withholdings go, mostly. But there’s still other types of taxes, some paid you, some by businesses, and some paid only given certain circumstances.
Other Taxes Unemployment taxes Worker insurance policy. Your employer pays this to the federal government. If you lose your job through no fault of your own, you can collect unemployment compensation for a period of time.
Other Taxes Excise Taxes General revenue tax on the sale or manufacture of a good. Gasoline, cigs, alcohol, telephone, cable, and others.
Other Taxes Estate Taxes The “Death Tax” All the money, property, and assets of a person compose his estate. When you die, your estate is taxed. That’s right… even when you’re dead, you pay taxes. As of 2008, if your estate was worth $2 million or less, there was no tax. After that, it’s a progressive tax that can quickly get very expensive.
Other Taxes Estate Taxes To make things more fun, as of right now, the exemption in 2009 is raised to $3.5 million and in 2010, the estate tax goes away altogether. But then it will come back in 2011 with the exemption at only $1 million. All unless Congress changes things first. So the key is to die in 2010 to make sure you avoid the estate tax. Estate Tax Calculator