Let’s get one thing out in the open: no one enjoys paying taxes.
At every economic level, taxes are a burden. And to make matters worse, the actual process of paying taxes is hard just to comprehend, let alone to complete.
And yet, as every winter gives way to spring, every spring gives way to tax season. That’s why Benjamin Franklin famously mused, “In this world, nothing is certain except death and taxes.”
With ever-changing laws and codes, however, taxes can be very confusing — even to the people who legislate them.
In this brief article, we’re going to provide an overview of who files taxes, how to file them, and when to file them — along with a few tips to help expedite the process.
Who Needs to File Taxes
In most cases, every working American — whether a natural-born citizen or a recent immigrant — needs to pay their income taxes.
Of course, there are a few exceptions to the rule.
For one thing, if you’re under the age of 65 and make an annual income below $12,400, you do not need to file a federal tax return. If you’re married and are filing jointly with your spouse, the minimum is $24,800.
Or, if you’re over the age of 65 and earn under $14,050 (or $27,400 if married and filing jointly), you also do not need to partake in tax season.
Generally speaking, it’s good to file taxes even if the law doesn’t require it.
Here’s why: if you had any income tax withheld from your paychecks, or if you qualify for certain tax credits, you may be eligible to receive a tax refund.
How to File Taxes
Now we come to the fun part: the actual process of filing taxes.
There are three primary ways to get started:
- If you’re a green card holder, you can choose to manually complete and mail IRS Form 1040, the main document used for individual income tax. If you’re on a temporary visa, you can file your tax return using IRS Form 1040-NR (the “U.S. Nonresident Alien Income Tax Return”).
- Secondly, you can use tax software to file your taxes online. Click here to view a list of the top-rated tax software.
- Finally, you can hire a tax professional or CPA (Certified Public Accountant) to handle the entire process, typically for a fee.
You will need either your Social Security Number (SSN) or your Individual Taxpayer Identification Number (ITIN) to pay taxes in the United States.
Beyond your SSN and ITIN, there are many documents to keep track of throughout the process.
Whether you hire a tax preparer or choose to oversee the filing process yourself, you’ll still need to organize some or all of these forms, documents, and records:
- The W-2 form, which full-time workers typically receive at the end of January or early February of each year
- A 1099 form, which freelancers and independent contractors usually receive in January or February of each year
- Your retirement account contributions
- Any charitable donations you might have made
- Potential deductions and tax credits (i.e. student loan interest, mortgage interest, the Child Tax Credit)
- Form 2555 (“Foreign Earned Income”), which is for green card holders who earn income from any country outside of the United States
When to File Taxes
The pandemic temporarily changed last year’s tax schedule.
Now that many cities are gradually trying to reopen and we’re back in a rhythm, the Internal Revenue Service (IRS) has resumed their original schedule.
Starting January 31st, the IRS will begin accepting income tax returns.
Your taxes are officially due on Monday, April 18, 2022. However, if you receive an extension (by filing IRS Form 4868), they will be due six months later on October 15, 2022.
What Will Be Taxed
U.S. federal tax law is dictated by “tax brackets,” which essentially divides your income into separate chunks and taxes them individually.
For example, if you’re a single filer, the first $950 you make will be taxed at a rate of 10%.
Then, the money made between $9,951 to $40,525 will be taxed at a rate of 12%.
After that, any money made between $40,526 to $86,375 will be taxed at a rate of 22%.
This process increases to a maximum tax rate of 37% (for income at $523,601 or above).
For the sake of example, let’s say your income was $41,000.
Though you would technically fall into the 22% tax bracket, you won’t really be paying 22% in taxes. In fact, most of your income will be taxed at a rate of 12%. Only the $474 — the amount that pushed you into that higher tax bracket — will be taxed at a rate of 22%.
This is known as a “progressive tax system,” and it’s designed to shift the majority of the tax burden to the highest earners.
Click here to view the tax rates for 2021 federal income taxes (due in April or October 2022).
Note: these rates will change for 2023.
Ways to Make Filing Easier
Taxes are truly overwhelming.
That’s why it’s recommended to hire a tax professional, accountant, or financial planner to help you navigate these complicated waters.
During a period of high inflation and economic uncertainty, it’s extremely risky to file your taxes alone. You need someone who can help maximize your deductions, capitalize on available tax credits, and ensure you don’t pay a dollar more than you have to.
Such guidance will help increase your peace of mind, and hopefully, the size of your tax return.
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