By Brady Sloane
It’s beginning to look a lot like… tax time. Don’t let this year’s tax deadline catch you off guard after the holidays. This glossary of basic tax terms, as well as tips for how to prepare throughout the year, can make the season bright. Or, at least, less stressful.
Tax: a sum of money demanded by a government for its support or for specific facilities or services, levied upon incomes, property, sales,etc.
Deduction (sometimes called a write-off): An amount that is or may be deducted from something, especially from taxable income or tax to be paid.
Dependent: a qualifying child or qualifying relative, other than the taxpayer or spouse, who entitles the taxpayer to claim a dependency exemption.
Exemptions: amount that taxpayers can claim for themselves, their spouses, and eligible dependents. There are two types of exemptions-personal and dependency. Each exemption reduces the income subject to tax. While each is worth the same amount, different rules apply to each.
Withholding: money, for example, that employers withhold from employees paychecks. This money is deposited for the government. (It will be credited against the employee’s’ tax liability when they file their returns.) Employers withhold money for federal income taxes, Social Security taxes and state and local income taxes in some states and localities.
Refund: money owed to taxpayers when their total tax payments are greater than the total tax. Refunds are received from the government.
Keep those receipts.
One giant shoe box under the bed is helpful but can be daunting when tax time rolls around. Sort, label and store your receipts as you get them for an expedited process at tax time. Organize where you will use it. Road Warrior? Slip an accordion envelope in the glove box or in the pocket behind the passenger seat of your car. That way you can easily store receipts for food, lodging, other travel expenses, as well as a mileage log as you receive them.Any office store will have printed mileage log notebooks to use and free printables are often available on Pinterest.
Keep a storage folio (I’m partial to the smaller accordion ones) on your desk at work as well as at home. That way your receipts go into the closest area and not in the depths of your (possibly seasonal) purse.
As you obtain receipts, write along the top of them what they were for. If you are on top of things, highlight the total amount and date with a highlighter for easy reference. If you are really on top of things, enter these receipts into a spreadsheet each month or scan into a software or app. Speaking of which, many easy to use apps have been created that scan your receipts and keep them (virtually) in one place. Most require a monthly payment, but freelancers and contract workers will truly benefit. Different sites/programs include Shoeboxed.com and Neat.com.
File online or on your smartphone.
Online filing programs have been around forever but are better and better every year. Search online to find which program is best for you.
If you have a pretty simple tax situation (1040EZ or 1040A), you may be able to file directly from your smartphone when you download an app. These aps are designed to take you through a series of questions and fill out your forms without you zooming in or trying to see the entire document on a 5 inch screen.
Make the most of donations.
Donating (money and goods) is a wonderful way to help the world, and can really maximise your deductions as well.
- If you donate more than $500 in goods, you will need to attach Form 8283 with your taxes. The IRS website has an easily downloadable PDF.
- Donating money? Make sure they are a qualified organization if you are wishing to deduct from your taxes. You can ask to see their letter from the IRS.
- Save all receipts.
- You have to itemize your deductions for monetary charitable donations to count.
- Donations to individuals (specific people, homeless, friend in need) are not acceptable for tax deductions.
- There are limits on the amount of charitable donations you can deduct. Check the IRS website.
Did you know that you can write off mileage en route to and from volunteering? Be sure to notate your miles in your log or calendar.
Miscellaneous best practices:
- Don’t be afraid to ask for help, but ask a professional. Even if you have to pay, it is worth avoiding a costly issue down the line.
- Use programs designed to help you with taxes.
- If you file for an extension, or pay quarterly, or have ANY other calendar needs besides April 15, set MULTIPLE reminders in your calendar, phone, Outlook, whatever (and maybe multiple places) to avoid penalties, fees and more.
- Be up to date. A few months out, search tax updates and articles to learn of any changes.
- Keep your receipts. And keep ‘em organized.
Check out IRS.gov for more information, including videos, to help you understand what’s what.
Sources: Dictionary.com and IRS.gov.