What Everyone Should Know About Taxes
The modern world is much different than anyone could have guessed a few centuries ago. We now have centralized governments and technology everywhere. While that inevitable evolution brought with it plenty of benefits that have significantly improved people’s lives, unfortunately, it also brought along something that most people dread: taxes. They’ve always been a topic of controversy in just about every country. How much should you pay? Who should pay more?
Those and a million other questions have been asked, and there is always an answer. These are some things that everybody should know about taxes.
They’re for your own good
It might seem like a given, but over the years, a lot of people have actually forgotten why they pay taxes. Truth is, you pay them for many of the services you regularly get. First of all, taxes pay the salaries of government employees who help you do a million things, from sending letters through postal services to issuing a driver’s license. More importantly, your tax money pays for public services and resources that everybody needs and uses like police and firefighting services. Even the roads you drive on every day are maintained by your tax dollars. There are also recreational facilities that you get to enjoy because of taxes like public parks and libraries. In short, taxes help you lead a better life.
You don’t necessarily need to file an income tax return
Believe it or not, not everybody pays income tax. A lot of people have to file a federal income tax return during the calendar year, but that doesn’t apply to everybody. Various factors play into this, like how much you earn per year and the source of that income. Even your age determines whether or not you have to file an income tax return, as well as your filing status. This is why you have to ask around and find out whether you are required to pay income taxes or not because you might just be exempted.
Timing is everything
When it comes to filing your tax returns, timing is everything, and you need to file yours on time and not a day after. Some people make the mistake of delaying the process because they cannot afford to pay the bill right now. What they don’t know is they are getting themselves into a lot more trouble by not filing them. Failing to file your tax returns means you will be hit with a much bigger penalty –– 5% of your unpaid taxes –– than if you had failed to pay, which, in that case, only incurs a 0.5% penalty. You can even set up a payment plan over months to pay, but that is only if you file the return on time.
You need to get it right
You don’t really want to file your tax returns with any errors in them. While minor mistakes aren’t catastrophic and won’t get you in much trouble with the IRS, major ones will. If there are major discrepancies, you might be audited by the IRS which could complicate things for you. That is why you need a significant figures calculator, this helpful tool that can help you understand the numbers behind your taxes much better, which is something you will have to do. People don’t only make mistakes with their numbers; they sometimes add incorrect information or misplace a detail here or there. These are all technicalities that could delay the process and complicate things for you.
You can lose your refunds
Sometimes, mistakes happen with tax returns, and the government owes you money. The thing is, though, you have to claim those returns. Some people with tight schedules ignore filing their tax returns because they have no time, and they know the government owes them anyway. On the one hand, there is no penalty when failing to file returns that are due a refund, but you can lose that money if you wait three years. So, if you are owed money on your returns, make sure you file them lest you forget and lose that money.
Estimated payments for self-employed individuals
Freelancing has been on the rise over the past few years, and a lot of people are shifting towards that world to enjoy the perks of working from home and at their own schedules. Unfortunately, with that freedom comes the complication that you have to file your own tax returns, unlike regular jobs where your employer withholds a part of your salary for the IRS. In cases like this when you’re self-employed, the government expects you to file your estimated tax returns. This applies to freelancers, self-employed individuals, and even investors. You need to pay those estimated taxes quarterly or else you might be subjected to a penalty.
Not all income is taxable
This is a very important piece of information that a lot of people don’t know. Not all income you get throughout the year is deductible. In the USA, for example, a person could receive financial gifts for up to $15,000 without tax deductions. If a wealthy relative of yours passed away and left you some money, that inheritance is also non-taxable. The same goes for life insurance benefits that you receive if someone names you as a beneficiary in their policy. These are just some examples of non-taxable income, and you should know them all to avoid any confusion.
Penalties aren’t the worst that could happen
If there’s one more thing that everyone should know, it’s the fact that not paying your taxes can incur more than penalties. The IRS can go to extreme measures to get people to pay what they owe, including levying your wages or bank account and even having your passport revoked. So, it’s always a good idea to pay your taxes.
People need to understand all they can about taxes and how they work. It might be a complicated system with a lot of details, but you need to thoroughly understand it so you can manage your taxes. The more you understand the system, the easier this process will be for you. More importantly, understanding how taxes work helps you save a lot of money in the long run.