Personal Taxes 101: Know the Basics

August 17, 2020 by First Federal Bank

TaxesWhen it comes to the responsibilities of adulthood, independence and enjoying an American lifestyle, few obligations are as daunting as paying your taxes. To those who have never had to do so before, filing yearly tax forms, learning the terminology, sorting through mountains of paperwork, and tracking your refund can be an overwhelming task. If you fall into this category and aren’t sure where to start when it comes to taxes, consider this your introduction.

Understanding your filing status

The way American citizens pay their taxes depends on factors such as their age, income, marital status, and more. Recognizing these factors will help you figure out your tax filing status. Depending on how your individual factors combine with each other, the amount of money you are expected to pay to the IRS will change. For example, Investopedia reports citizens who are single or filing separately and have an annual income exceeding $9,875 will pay a 12-percent tax rate in 2020.

Sorting out tax forms

One of the most overwhelming aspects of filing taxes is the paperwork involved. Be sure to hold onto any tax-related papers you receive in the mail, as most are forms containing important information on things like your income and potential deductions. Next, make sure one of those forms is your W-2. This should come directly from your employer and list both the amount you earned and the amount of income tax withheld from your paychecks over the previous year. In addition to your W-2, there are a number of other forms to keep track of. Your 1099, for example, reports income from sources besides employers, and your 1095-A proves you have a qualifying health insurance plan. Keeping this information organized will make doing your taxes much easier.

Knowing how to file

When it comes to actually filing your taxes, you’ll have three options for how to do it. First, there’s e-filing, which is the fastest and easiest option. Filing electronically means there’s a smaller chance of mistakes slipping through, and the convenience is hard to top. Your second option is to fill out all the paper forms you received and mail them back to the IRS. This can take extra time and result in a six to eight-week processing time for your forms, but it’s certainly a viable option. Third, you can leave your filing in the hands of authorized tax professionals, such as accountants and volunteer services. These experts often have the authority to e-file for you, meaning most of the hard work could be out of your hands.

Filing by the deadline

The last important step is remembering and meeting your tax deadline. Typically, that deadline falls on April 15 of each year. This is the last day you can e-file or mail your tax forms before potential failure-to-file or failure-to-pay fines take effect. If you’re unable to submit your taxes by this deadline, you can request a six-month extension by submitting Form 4868 to the IRS. Keep in mind, however, a filing extension isn’t the same as a payment extension. According to the IRS’ website, the penalties for failing to file are greater than those for failing to pay. The best way to avoid fines is to submit your filing extension in a timely manner and make sure your taxes are at least 90-percent paid by April 15. This will save you from paying penalties and give you until October to pay the remaining 10 percent of what you owe.

Filing your taxes may seem like an intimidating challenge, but with these helpful tips and basic facts in mind, you’ll be prepared to meet that challenge with confidence.

Categories: Financial Education, Taxes

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