March 23, 2021 • 24 mins
Hello! and welcome to Everyday Finance and Economics with the Siglers! The podcast where we discuss what you need to know about personal finance and economics and give you practical advice on how to get started and be smart with your money.
This episode is an introduction to taxes, since tax day is coming up on May 17, 2021. We answer important questions such as how to prepare for taxes, how and what to file, and what tools are available to use. We will be doing another episode on taxes next week, filled with your listener questions because taxes can be quite complicated, and we want to share as much information as possible! So please email us (efespodcast@gmail.com) or dm us on instagram @efespodcast for your question to be featured on our next episode. Hope you'll join us!
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:04):
Yeah ,
Speaker 2 (00:20):
Welcome to everyday finance and economics with the
Sigler's the podcast where wediscuss what you need to know
about personal finance andeconomics and give you the
practical advice you need onhow to get started and be smart
with your money where your hostGlen and Christina Sigler. So
Christina, what's going on inthe economy this week,
Speaker 3 (00:41):
Soda what's going on in the economy this week is the
federal reserve, the bank thatkind of oversees the entire us
economy and making sure we'redoing okay. Staying on track
has decided to keep interestrates at zero until 2023 to
help the economic recovery ofthe United States. And also in
that same vein tax day hasmoved to May 17th this year
(01:06):
because of the COVID-19pandemic. So in the episode,
and normally every other year,it is April 15th. And in the
episode we say April 15th, butthis year for 2021 to file for
the year, the tax year of 2020,your taxes are due May 17th for
individuals
Speaker 2 (01:25):
And for our economic term of the episode, we have to
, and there are hints aboutwhat we're going to be talking
about today. A taxable incomeand deductions. So taxable
income is divided as the grossincome minus deductions, and
gross just means all incomefrom whatever source, all the
money that you get. Minusdeductions, exemptions and
(01:47):
personal exemptions anddeductions, they can vary.
There's three types standarditemized in business. A
standard deduction is areduction based on filing
status with no requirement ofrecords. And most people use
this type, an itemizeddeduction, X is expenses and
qualifying categories, and thatrequires some documentation of
(02:09):
the expense and businessdeductions are for small
business owners andcontractors, and it's money
that offsets against the incometo reduce the business income.
So taxable income is all yourincome minus deductions, which
, uh, which are things that youcan take off to reduce your
taxable income. So, all right,dad, I think it's tied with
(02:30):
that introduction to get intothis week's topic. What are we
talking about today? We'retalking about taxes and more
accurately income taxes, right?
So in the United States , uh,we have separate federal state
and local taxes and there'sdifferent types of tax , uh ,
sales tax, payroll, tax,property tax capital gains tax,
(02:51):
a state tax and income tax.
We're going to focus onindividual income tax because
that's, what's due on April15th. That's what tax day is
all about. Um, we also have inthe United States, what's
called graduated tax rates.
Meaning you get tax based onhow much money you make. The
lowest percentage is 10% ofyour income. And the highest,
if you make a lot of money is39.6% of your income. So dad,
(03:16):
our taxes in college differentthan regular taxes.
Speaker 4 (03:19):
Yeah. Taxes in college are not different, but
there are some considerationsthat you've got to take into
account as a college studentand the number one being how
much money did you earn,obviously on the graduated
Texas, there are differentthresholds based on how much
you earned and what kind ofmoney you receive , uh , during
the last year. And that, bythat, I mean earned income
(03:42):
versus unearned income earnedincome stuff that you've got
from salary wages, gig work ,uh, versus unearned income,
which is stuff that you gotfrom , uh, any investments
that, that, that you have.
Speaker 2 (03:56):
So just to reiterate earned income is stuff that you
worked for stuff that you wentand did to get money and
unearned income is stuff thatyou just passively, it's like
passive income versus activeincome, right?
Speaker 4 (04:07):
That is correct. Now there's two other things that
you need to take intoconsideration. First is your
filing status, single, married,divorced, widowed, what I'm
expecting. Most of the folksthat listen to this to be
single, if you're in collegeand folks in college are
single, there are some folksthat are married and in
college, but , uh, the otherone is a consideration, is your
(04:30):
status as a dependent. And bythat, I mean, can someone else
claim you as, as theirdependent , uh, are they paying
for more than 50% of yourannual living expenses? And for
most of you that, you know , um, that might be something that
you need to take into account.
Um, if your parent , if , ifyou go home, your parents are
(04:53):
paying for a lot of stuff. Wellthen they can still technically
claim as a dependent . If youare in college and your parents
claim as a dependent , you canstill file to get any refunds
that you're doing.
Speaker 2 (05:12):
All right. So what are some things that you can do
to prepare for taxes?
Speaker 4 (05:16):
Yes . Well, the steps are basically saying
you're going to gather all yourinformation , uh, the documents
, uh, reports, social securitytax, ID numbers, date of birth
for everybody on your return,income and investment
information, all your W2's. Ifyou worked three, four jobs,
you need three, four W2statements or income
(05:39):
statements, bank, or financialinstitution from all of them.
Um, and then any other things ,uh, for state refunds , uh,
and, and any, and all form 1090 nines. And those are really
, uh , for, for, for mostpeople, that's going to be
related to your investmentincome material,
(05:59):
self-employment records,medical record, medical
expenses, charitable donations.
And if any of you own a houseit's things related to your
home ownership in terms ofinterest payments.
Speaker 2 (06:12):
So back to the first thing you said, you're going to
need , um, identificationinformation for everybody on
your tax record. That's onlygoing to be if you have like
dependents or a spouse, right?
Speaker 4 (06:25):
Correct. So if it's just, you, you just need your
name, address, social securitynumber, and then your date of
birth. That's, that's the bestpersonal information that you
need.
Speaker 2 (06:36):
Okay. So how do I know what type of taxes I
should file
Speaker 4 (06:41):
For , um, for individual income taxes, the
tax cut and job act that waspassed a couple of years ago,
simplified things. So there'sreally the 10 40 for federal
federal tax forms. Uh, Statesmay or may not have , uh,
income taxes. So depending onwhich state you reside in, or
(07:02):
is your permanent record state,you may or may not have to file
income taxes. And that getbecomes a little more
complicated. If you're going toschool and earning money in one
state, yet you reside inanother state, you'll have to
look up the specifics of yourstate to find out , uh , find
out what , what you may have todo because there's 50 different
(07:25):
rules. So,
Speaker 2 (07:26):
So there's, there's a possibility that you're going
to have to file a federal taxesand then two more documents for
state taxes.
Speaker 4 (07:34):
That's correct. But for most people that file state
taxes, it's , it's theirfederal tax and their state
tax. There's, you know, there'svery few people that, you know
, earn money multiple, but youknow , that does happen.
Speaker 2 (07:47):
Okay, okay. If I don't make that much money, why
should I file taxes? If I'mlike working a minimum wage job
or something?
Speaker 4 (07:54):
Well, if you don't make a lot of money, it's
likely you can get a refund forsome, or all of the taxes
withheld from your pay. AndI'll say , may we'll help you
with any stimulus funds thatyou qualify for. I know filing
taxes, isn't fun, but you havea financial incentive getting a
refund and getting potentiallyhundreds of dollars back that
(08:17):
that w was withheld from youfor , for taxes.
Speaker 2 (08:20):
And then also stimulus checks, because we
know that's very relevant rightabout now.
Speaker 4 (08:25):
Absolutely.
Absolutely.
Speaker 2 (08:28):
All right. So what happens if I don't file taxes,
though? What happens if I don'tpay?
Speaker 4 (08:34):
So for those of you who are dependents, whose
parents are filing taxes andare below income threshold, you
don't have to, you don't haveto file your file income taxes
around, but you're leavingmoney on the table. But if
you're independent and yourincome above the threshold,
there are penalties for notfiling your, for being late,
(08:56):
but filing your taxes for notfiling your taxes. And there's
no , uh, there's no time limitfrom the IRS on late filing a
late filing. So,
Speaker 2 (09:06):
So they can come get you forever. Huh?
Speaker 4 (09:09):
Uh, that's the way the rules are written. Um,
there , there is no statute oflimitations filing for taxes.
Um, and they're going to chargeyou penalty and interest , you
know, back from when you shouldhave filed and paid those
taxes. And that's, if you owenow, if you're due a refund,
(09:30):
you've got three years, you'vegot three years to file those
taxes to get your money back.
Um, no , that doesn't seemfair, but that's the way the
rules are written. Uh, as it'spointed out before, late filing
can end up costing you money infees, late fees and interest
costs. That actually is a lotmore than any, any amount that
(09:52):
you owe. Um, and so, you know,if , if you run into trouble
with that, work out anarrangement with the IRS, and
if you think that you're goingto have a problem just filing
on time, you can qualify for anextension a six month
extension, and they'll give itto you. No questions asked,
Hey, I need a six monthextension. You fill out this
(10:14):
form, you send it in, you gotyour six month extension. I
have done that on more than oneoccasion when I've been super
busy around the time of , uh,of tax season or a flood , I
needed some more time to workit out. The challenge with that
is even though you've got sixextra months to send the forms
(10:36):
in the payments are due April15th. And so if you, if you,
you can, you can make anestimate of, okay. I think I
owe a hundred dollars, sendthat money in on April, on
April 15th or else you'll gethit with penalties and interest
charges for, for , for latepayment .
Speaker 2 (10:58):
And if you send, if you accidentally like send less
money than you actually owe,then
Speaker 4 (11:04):
We're going to get, you're still going to get hit
with, Hey, you, you said ahundred dollars. You said it
said $150. There's going to bean interest charge and penalty
for sending $50 less. Well, Ican't say it . Look, try to
work that out.
Speaker 2 (11:21):
So if we're talking, if you have to estimate
overestimation is the thing ,
Speaker 4 (11:28):
Um, you want to be as accurate or close as
possible. And so if you're offby 20 or $30, they might hit
you with a fine or someinterest. And it, it, it won't
be that much, but you gotta tryto be close. You gotta have a
good day .
Speaker 2 (11:41):
Okay. So what, what do I use to complete my taxes?
Speaker 4 (11:47):
So there's three basic ways to do it. Uh, one is
to go to the website,www.irs.gov and download the
forms. You need 10 , you know,all the forms that the IRS has,
you can get access throughtheir website. So the forms are
(12:07):
there. The instructions on howthe fill out the forms are
there. And they even provideyou time estimates on how long
it should take you to do. Um,you know, but it's up to you to
interpret those things. So, youknow, the other thing you might
need is a calculator , uh, or ,or your laptop to figure out
some stuff. The next method isusing software online tools.
(12:29):
This is where things liketerrible tax H and R block TAC
at tax act, tax layer, youknow, a lot of online and
software tools that essentiallywalk, you allow you to walk
yourself through the tax formand they automatically
calculate the tax. They justsay, you know, did you get
married this year? Yes or no.
(12:51):
Did you do this? How much moneydo you plug in? You plug in
your data. And it calculatesthe , the, the answers for you
that, that, that is actually,you know, something that's very
useful and you can even do itin some cases, you can do it on
your phone. So that's cool. Butthe last method is just
collecting all your materialand handing it off to a
(13:13):
professional, you know, someonethat is experienced at doing,
doing taxes , uh, that onecosts the most. And I went from
least cost to the mostexpensive , uh , that one costs
the most. But, you know, theremight be someone in your family
that does taxes. You know , ifyou're just starting out,
getting a parent to help withyour taxes, that's something
(13:33):
you can do as well.
Speaker 2 (13:34):
So doing it yourself free, the software software has
free versions though, right?
Yeah.
Speaker 4 (13:41):
Well, there , there, there are free calculators. Uh,
the, the actual, you know, ifyou're going to buy the soft,
if you're going to do thesoftware, they're usually going
to say, Hey, it's going to costyou 2034 . It's going to cost
you something for the software.
Um, uh, now the, you can, youcan file for free. They allow
(14:04):
you to send your, your IRA,your, your completed tax form
to the IRS for free.
Speaker 2 (14:13):
Okay. And then the tax professional is expensive,
relatively
Speaker 4 (14:18):
Rattler . Yeah . In comparison. Now , now, for
some, if some of you that havebeen established for awhile
and, and, and, and have someincome, you know, this is a,
trade-off where you're going tospend a couple hundred dollars
at a time , but you're gonnaget the time back.
Speaker 2 (14:33):
All right . So what are the tax filing basics?
Speaker 4 (14:36):
So we've, we've discussed a lot of this already
collecting your information onincome and expenses, the
siding, how you're going tocomplete your taxes this year,
whether you're going to get theforms yourself, you're going to
use software tools, or are yougoing to go to professionals,
understanding F your filingstatus that when you should
know already understandingwhether you're in a file as a
(14:57):
dependent or not , uh, and thenthe issue of, Hey, am I going
to take a standard deductionversus itemize ?
Speaker 2 (15:04):
Okay. So how do you know whether you should itemize
or take a standard deduction?
Speaker 4 (15:09):
All right . So for, for folks that are not
dependence , you're in a you're, you're out there, you're,
you're working, you're recentcollege that you're working.
You can take the standarddeduction and it's worth
$12,400. So that reduces yourgross income by $12,400 to get
to your taxable income. If youhave expenses in those
(15:33):
categories that are, that isworth more than $12,400 or
$12,401, then you shoulditemize, if not, you're better
off taking the standarddeduction. And it's just that
simple. Now, people who aredependents can also take
(15:54):
standard deductions. Theirstandard deduction is a little
bit diff and, you know, becausethe expectation is that as a
dependent, you're , you know,you're not working a full time
job, so you're not going tohave a large salary. And so if
your under that, if you madelike under $12,400, you know ,
that are , is in standard , theregular standard. If you made
(16:17):
under that, and you're adependent, you can deduct your
standard deduction is worthyour total earned income, plus
$350. And what that effectivelydoes is reduce your taxable
income to zero. So you can getall your money back.
Speaker 2 (16:36):
Yeah . You can get all your money back. Yeah.
Speaker 4 (16:37):
Things, things will be very simple if you sustain
it.
Speaker 2 (16:41):
Okay. So how do I complete my taxes for my first
job in college?
Speaker 4 (16:47):
As we said, the steps are the same, collect
your information, decide whattools you're going to use, and
then walk yourself through theform forms like a questionnaire
with multiple parts. Part oneis your personal information,
name, address, date of birth,social security, that kind of
information. Part two is whereyou put your income and then
(17:10):
your deduction, whether it'sthe standard deduction, which
is pretty simple. Or if you'regoing to itemize it, we're
going to itemize, you're goingto need another form, but, you
know , w we'll talk, we cantalk about that in another
episode. Uh , and then you getthe, between those two, you get
your resulting taxable income,and then you're going to
calculate your tax based onthat taxable income. So if
(17:34):
using software it's alreadydone for you, if you're taking
it to professional, they'regoing to do that for you. If
you're doing the formsyourself, there's things called
schedules that say, Oh, I madethis much money between twenty
five thousand five hundred andfive thousand six hundred , the
taxes, this that's the numberthat you put on , on your, on
Speaker 2 (17:53):
Your form. It's like a chart, right?
Speaker 4 (17:56):
And then the next thing you do is you compare how
much was already withheld fromyour pay versus how much you
owe. And if w if the, theamount that's already been
withheld is more than what,what you owe . You get a
refund. If it's the other wayaround, if you still open more
than was withheld, you got tosend the IRS a little more
(18:17):
money. It's that simple, thensign and submit your docket .
Speaker 2 (18:23):
Right? Okay. So tax credits come after you
calculate your taxable incomeand deductions are what reduces
your taxable income. Right.
Speaker 4 (18:33):
Right. Right. And , and , and tax credits are a
dollar for dollar reductions inthe actual tax tax itself.
Speaker 2 (18:44):
Okay. So, yeah, that , um, that was a lot of
information. Uh, those are thebasics, the real, like basic
basics, but we will be doing, Iwill be putting chapter markers
with each of the questions thatI asked . So you can go back
and , um, relisten to hear someof the information. And then
(19:05):
also we're going to beintroducing a special episode,
1.5 , um, with just answeringyour listener questions. Cause
I know taxes are a lot and wecould basically do this whole
podcast on taxes and still havemore to say, but yeah. Send in
your questions to us , um, byemail, at [inaudible] or by
(19:26):
Instagram, at EFS podcast. Um,and yeah. Do you have any more
tips for our listeners, dad?
Speaker 4 (19:34):
So I'm just going to essentially tell you not to
make the mistakes that I wasfirst starting out with my
taxes is number one, startearly, your W2 start coming,
hitting your mailbox or comingto you in late February. So you
should, if you don't have them,you need to ask for them and
(19:55):
you need to start collectingall your stuff. You want to
start early and finish early togive yourself time to review
and make any changes.
Speaker 2 (20:03):
Yeah. Because what if I started my job in March?
Like what then?
Speaker 4 (20:08):
Uh , so, all right .
So remember taxes are for theprior year, you're going to the
taxes that we do now, or forall of 2020. And that's the tax
year is typically January 1stto December 31st. Now there are
ways you can, you can makeother arrangements, but that's
(20:29):
the standard for it .
Speaker 2 (20:30):
So have you started your job in 2021? You're not
filing on in April, April.
Okay. You're filing April 20,22. That's right . Oh, okay.
That makes a lot more sense.
Well, they don't tell you thatApril's not in beginning of the
year. So,
Speaker 4 (20:49):
So co you know , collector, collector , uh,
documents, keep your taxdocuments together. And did I
say review your filing againbefore you send it ? You got it
?
Speaker 2 (21:03):
I don't, yeah. I don't think you said it. Say it
one more time. Say it one moretime.
Speaker 4 (21:05):
Review your work again. This is just like,
checking your answers on thetest before you hand it in ,
uh, sign your document. That'susually not a problem for , um,
uh, for software or , or , oronline submission. Cause they
usually make sure that you dosome sort of electronic
signature and then keep recordsand schedules and supporting
documents and then make copies.
(21:27):
How long should you keep thecopies for them? A minimum
three years. Uh , most of thepublication say anywhere from
three to seven years , uh ,simple with simple taxes. It
three years should be enough.
Okay.
Speaker 2 (21:42):
Okay . And then also, how long did it take you
down when you were firststarting out like your first
job?
Speaker 4 (21:48):
Uh, so , uh , I was in the Navy man . That was my,
well, actually not that I did.
I D I did fill out taxes whileI was in college. And that took
me for , it took me forever,but I got all my money back.
That was that's where, but whenI, when I was in the Navy , um,
I waited till , uh, December,or excuse me, not December,
(22:11):
April 15th to fill out mytaxes. It took me about half an
hour. It took me, took me abouta half an hour to do, and then
I had to run around and tryingto make copies of it. So, you
know, what , what I did thenwas I made, I filled it out
twice. And so it took me halfan hour to do the first time.
And then , uh, you know, I I'dmade another copy for my
records. And then I sent it in,don't do that,
Speaker 2 (22:35):
Do it like half an hour, do the half an hour on
like April.
Speaker 4 (22:39):
Yeah. Give yourself some time to, to, to, to, to
look at it again. Oh , nowresources to , to, to help you.
Speaker 2 (22:48):
And you said irs.gov today.
Speaker 4 (22:52):
Now a lot of those software , uh, names that I've
mentioned , uh , have a lot ofonline tax calculation tools
that help you, that essentiallywalk you through it , uh, to
give you an estimate. It's not,it's not the complete version
of , uh, of , uh , of the taxform, but it gives you an
estimate and that's, that'sactually actually good to do ,
(23:14):
uh , before taxes . And thenYouTube has videos. You'd be
surprised at how many videosthere are. Yes, you can learn
to do anything on YouTube. Andthen there's, you know,
volunteers out there , uh , uh,volunteers and income tax
assistance , uh, make theeffort to educate yourself for
(23:34):
, uh, in, in , uh, in books andother publications. Um, and
talk with somebody, talk withsomebody, you know, and trust
about specific tax aspectsaspects. Hey, how do I do this?
This is my first time doing,how did you do that ? That ,
you know , it's gotta besomebody you trust, right ? You
know , you don't want to giveup your entire financial life
(23:58):
unless it's somebody that'salready knows your entire
financial life. But I expect, Iexpect to talk to you about
taxes, right ?
Speaker 2 (24:06):
I start filing taxes, which will be not this
year, at least.
Speaker 4 (24:12):
No. All right . I think that's it for our show. I
want to thank everyone forlistening, and I want you to be
sure to join us again next timewhere, you know, first we're
going to answer questions ontaxes, but then after that,
we're going to start discussingbudget .
Speaker 2 (24:27):
Yes. And if you have questions for us about this
episode, about anything relatedto personal finance or
economics, or just about atopic that you want us to
cover, you can emailus@efcspodcastatgmail.com and
follow our Instagram andTwitter, both at E F E S
podcast. Thank you so much forlistening
Speaker 4 (24:46):
Everybody.
Yeah ,
Speaker 2 (00:20):
Welcome to everyday finance and economics with the
Sigler's the podcast where wediscuss what you need to know
about personal finance andeconomics and give you the
practical advice you need onhow to get started and be smart
with your money where your hostGlen and Christina Sigler. So
Christina, what's going on inthe economy this week,
Speaker 3 (00:41):
Soda what's going on in the economy this week is the
federal reserve, the bank thatkind of oversees the entire us
economy and making sure we'redoing okay. Staying on track
has decided to keep interestrates at zero until 2023 to
help the economic recovery ofthe United States. And also in
that same vein tax day hasmoved to May 17th this year
(01:06):
because of the COVID-19pandemic. So in the episode,
and normally every other year,it is April 15th. And in the
episode we say April 15th, butthis year for 2021 to file for
the year, the tax year of 2020,your taxes are due May 17th for
individuals
Speaker 2 (01:25):
And for our economic term of the episode, we have to
, and there are hints aboutwhat we're going to be talking
about today. A taxable incomeand deductions. So taxable
income is divided as the grossincome minus deductions, and
gross just means all incomefrom whatever source, all the
money that you get. Minusdeductions, exemptions and
(01:47):
personal exemptions anddeductions, they can vary.
There's three types standarditemized in business. A
standard deduction is areduction based on filing
status with no requirement ofrecords. And most people use
this type, an itemizeddeduction, X is expenses and
qualifying categories, and thatrequires some documentation of
(02:09):
the expense and businessdeductions are for small
business owners andcontractors, and it's money
that offsets against the incometo reduce the business income.
So taxable income is all yourincome minus deductions, which
, uh, which are things that youcan take off to reduce your
taxable income. So, all right,dad, I think it's tied with
(02:30):
that introduction to get intothis week's topic. What are we
talking about today? We'retalking about taxes and more
accurately income taxes, right?
So in the United States , uh,we have separate federal state
and local taxes and there'sdifferent types of tax , uh ,
sales tax, payroll, tax,property tax capital gains tax,
(02:51):
a state tax and income tax.
We're going to focus onindividual income tax because
that's, what's due on April15th. That's what tax day is
all about. Um, we also have inthe United States, what's
called graduated tax rates.
Meaning you get tax based onhow much money you make. The
lowest percentage is 10% ofyour income. And the highest,
if you make a lot of money is39.6% of your income. So dad,
(03:16):
our taxes in college differentthan regular taxes.
Speaker 4 (03:19):
Yeah. Taxes in college are not different, but
there are some considerationsthat you've got to take into
account as a college studentand the number one being how
much money did you earn,obviously on the graduated
Texas, there are differentthresholds based on how much
you earned and what kind ofmoney you receive , uh , during
the last year. And that, bythat, I mean earned income
(03:42):
versus unearned income earnedincome stuff that you've got
from salary wages, gig work ,uh, versus unearned income,
which is stuff that you gotfrom , uh, any investments
that, that, that you have.
Speaker 2 (03:56):
So just to reiterate earned income is stuff that you
worked for stuff that you wentand did to get money and
unearned income is stuff thatyou just passively, it's like
passive income versus activeincome, right?
Speaker 4 (04:07):
That is correct. Now there's two other things that
you need to take intoconsideration. First is your
filing status, single, married,divorced, widowed, what I'm
expecting. Most of the folksthat listen to this to be
single, if you're in collegeand folks in college are
single, there are some folksthat are married and in
college, but , uh, the otherone is a consideration, is your
(04:30):
status as a dependent. And bythat, I mean, can someone else
claim you as, as theirdependent , uh, are they paying
for more than 50% of yourannual living expenses? And for
most of you that, you know , um, that might be something that
you need to take into account.
Um, if your parent , if , ifyou go home, your parents are
(04:53):
paying for a lot of stuff. Wellthen they can still technically
claim as a dependent . If youare in college and your parents
claim as a dependent , you canstill file to get any refunds
that you're doing.
Speaker 2 (05:12):
All right. So what are some things that you can do
to prepare for taxes?
Speaker 4 (05:16):
Yes . Well, the steps are basically saying
you're going to gather all yourinformation , uh, the documents
, uh, reports, social securitytax, ID numbers, date of birth
for everybody on your return,income and investment
information, all your W2's. Ifyou worked three, four jobs,
you need three, four W2statements or income
(05:39):
statements, bank, or financialinstitution from all of them.
Um, and then any other things ,uh, for state refunds , uh,
and, and any, and all form 1090 nines. And those are really
, uh , for, for, for mostpeople, that's going to be
related to your investmentincome material,
(05:59):
self-employment records,medical record, medical
expenses, charitable donations.
And if any of you own a houseit's things related to your
home ownership in terms ofinterest payments.
Speaker 2 (06:12):
So back to the first thing you said, you're going to
need , um, identificationinformation for everybody on
your tax record. That's onlygoing to be if you have like
dependents or a spouse, right?
Speaker 4 (06:25):
Correct. So if it's just, you, you just need your
name, address, social securitynumber, and then your date of
birth. That's, that's the bestpersonal information that you
need.
Speaker 2 (06:36):
Okay. So how do I know what type of taxes I
should file
Speaker 4 (06:41):
For , um, for individual income taxes, the
tax cut and job act that waspassed a couple of years ago,
simplified things. So there'sreally the 10 40 for federal
federal tax forms. Uh, Statesmay or may not have , uh,
income taxes. So depending onwhich state you reside in, or
(07:02):
is your permanent record state,you may or may not have to file
income taxes. And that getbecomes a little more
complicated. If you're going toschool and earning money in one
state, yet you reside inanother state, you'll have to
look up the specifics of yourstate to find out , uh , find
out what , what you may have todo because there's 50 different
(07:25):
rules. So,
Speaker 2 (07:26):
So there's, there's a possibility that you're going
to have to file a federal taxesand then two more documents for
state taxes.
Speaker 4 (07:34):
That's correct. But for most people that file state
taxes, it's , it's theirfederal tax and their state
tax. There's, you know, there'svery few people that, you know
, earn money multiple, but youknow , that does happen.
Speaker 2 (07:47):
Okay, okay. If I don't make that much money, why
should I file taxes? If I'mlike working a minimum wage job
or something?
Speaker 4 (07:54):
Well, if you don't make a lot of money, it's
likely you can get a refund forsome, or all of the taxes
withheld from your pay. AndI'll say , may we'll help you
with any stimulus funds thatyou qualify for. I know filing
taxes, isn't fun, but you havea financial incentive getting a
refund and getting potentiallyhundreds of dollars back that
(08:17):
that w was withheld from youfor , for taxes.
Speaker 2 (08:20):
And then also stimulus checks, because we
know that's very relevant rightabout now.
Speaker 4 (08:25):
Absolutely.
Absolutely.
Speaker 2 (08:28):
All right. So what happens if I don't file taxes,
though? What happens if I don'tpay?
Speaker 4 (08:34):
So for those of you who are dependents, whose
parents are filing taxes andare below income threshold, you
don't have to, you don't haveto file your file income taxes
around, but you're leavingmoney on the table. But if
you're independent and yourincome above the threshold,
there are penalties for notfiling your, for being late,
(08:56):
but filing your taxes for notfiling your taxes. And there's
no , uh, there's no time limitfrom the IRS on late filing a
late filing. So,
Speaker 2 (09:06):
So they can come get you forever. Huh?
Speaker 4 (09:09):
Uh, that's the way the rules are written. Um,
there , there is no statute oflimitations filing for taxes.
Um, and they're going to chargeyou penalty and interest , you
know, back from when you shouldhave filed and paid those
taxes. And that's, if you owenow, if you're due a refund,
(09:30):
you've got three years, you'vegot three years to file those
taxes to get your money back.
Um, no , that doesn't seemfair, but that's the way the
rules are written. Uh, as it'spointed out before, late filing
can end up costing you money infees, late fees and interest
costs. That actually is a lotmore than any, any amount that
(09:52):
you owe. Um, and so, you know,if , if you run into trouble
with that, work out anarrangement with the IRS, and
if you think that you're goingto have a problem just filing
on time, you can qualify for anextension a six month
extension, and they'll give itto you. No questions asked,
Hey, I need a six monthextension. You fill out this
(10:14):
form, you send it in, you gotyour six month extension. I
have done that on more than oneoccasion when I've been super
busy around the time of , uh,of tax season or a flood , I
needed some more time to workit out. The challenge with that
is even though you've got sixextra months to send the forms
(10:36):
in the payments are due April15th. And so if you, if you,
you can, you can make anestimate of, okay. I think I
owe a hundred dollars, sendthat money in on April, on
April 15th or else you'll gethit with penalties and interest
charges for, for , for latepayment .
Speaker 2 (10:58):
And if you send, if you accidentally like send less
money than you actually owe,then
Speaker 4 (11:04):
We're going to get, you're still going to get hit
with, Hey, you, you said ahundred dollars. You said it
said $150. There's going to bean interest charge and penalty
for sending $50 less. Well, Ican't say it . Look, try to
work that out.
Speaker 2 (11:21):
So if we're talking, if you have to estimate
overestimation is the thing ,
Speaker 4 (11:28):
Um, you want to be as accurate or close as
possible. And so if you're offby 20 or $30, they might hit
you with a fine or someinterest. And it, it, it won't
be that much, but you gotta tryto be close. You gotta have a
good day .
Speaker 2 (11:41):
Okay. So what, what do I use to complete my taxes?
Speaker 4 (11:47):
So there's three basic ways to do it. Uh, one is
to go to the website,www.irs.gov and download the
forms. You need 10 , you know,all the forms that the IRS has,
you can get access throughtheir website. So the forms are
(12:07):
there. The instructions on howthe fill out the forms are
there. And they even provideyou time estimates on how long
it should take you to do. Um,you know, but it's up to you to
interpret those things. So, youknow, the other thing you might
need is a calculator , uh, or ,or your laptop to figure out
some stuff. The next method isusing software online tools.
(12:29):
This is where things liketerrible tax H and R block TAC
at tax act, tax layer, youknow, a lot of online and
software tools that essentiallywalk, you allow you to walk
yourself through the tax formand they automatically
calculate the tax. They justsay, you know, did you get
married this year? Yes or no.
(12:51):
Did you do this? How much moneydo you plug in? You plug in
your data. And it calculatesthe , the, the answers for you
that, that, that is actually,you know, something that's very
useful and you can even do itin some cases, you can do it on
your phone. So that's cool. Butthe last method is just
collecting all your materialand handing it off to a
(13:13):
professional, you know, someonethat is experienced at doing,
doing taxes , uh, that onecosts the most. And I went from
least cost to the mostexpensive , uh , that one costs
the most. But, you know, theremight be someone in your family
that does taxes. You know , ifyou're just starting out,
getting a parent to help withyour taxes, that's something
(13:33):
you can do as well.
Speaker 2 (13:34):
So doing it yourself free, the software software has
free versions though, right?
Yeah.
Speaker 4 (13:41):
Well, there , there, there are free calculators. Uh,
the, the actual, you know, ifyou're going to buy the soft,
if you're going to do thesoftware, they're usually going
to say, Hey, it's going to costyou 2034 . It's going to cost
you something for the software.
Um, uh, now the, you can, youcan file for free. They allow
(14:04):
you to send your, your IRA,your, your completed tax form
to the IRS for free.
Speaker 2 (14:13):
Okay. And then the tax professional is expensive,
relatively
Speaker 4 (14:18):
Rattler . Yeah . In comparison. Now , now, for
some, if some of you that havebeen established for awhile
and, and, and, and have someincome, you know, this is a,
trade-off where you're going tospend a couple hundred dollars
at a time , but you're gonnaget the time back.
Speaker 2 (14:33):
All right . So what are the tax filing basics?
Speaker 4 (14:36):
So we've, we've discussed a lot of this already
collecting your information onincome and expenses, the
siding, how you're going tocomplete your taxes this year,
whether you're going to get theforms yourself, you're going to
use software tools, or are yougoing to go to professionals,
understanding F your filingstatus that when you should
know already understandingwhether you're in a file as a
(14:57):
dependent or not , uh, and thenthe issue of, Hey, am I going
to take a standard deductionversus itemize ?
Speaker 2 (15:04):
Okay. So how do you know whether you should itemize
or take a standard deduction?
Speaker 4 (15:09):
All right . So for, for folks that are not
dependence , you're in a you're, you're out there, you're,
you're working, you're recentcollege that you're working.
You can take the standarddeduction and it's worth
$12,400. So that reduces yourgross income by $12,400 to get
to your taxable income. If youhave expenses in those
(15:33):
categories that are, that isworth more than $12,400 or
$12,401, then you shoulditemize, if not, you're better
off taking the standarddeduction. And it's just that
simple. Now, people who aredependents can also take
(15:54):
standard deductions. Theirstandard deduction is a little
bit diff and, you know, becausethe expectation is that as a
dependent, you're , you know,you're not working a full time
job, so you're not going tohave a large salary. And so if
your under that, if you madelike under $12,400, you know ,
that are , is in standard , theregular standard. If you made
(16:17):
under that, and you're adependent, you can deduct your
standard deduction is worthyour total earned income, plus
$350. And what that effectivelydoes is reduce your taxable
income to zero. So you can getall your money back.
Speaker 2 (16:36):
Yeah . You can get all your money back. Yeah.
Speaker 4 (16:37):
Things, things will be very simple if you sustain
it.
Speaker 2 (16:41):
Okay. So how do I complete my taxes for my first
job in college?
Speaker 4 (16:47):
As we said, the steps are the same, collect
your information, decide whattools you're going to use, and
then walk yourself through theform forms like a questionnaire
with multiple parts. Part oneis your personal information,
name, address, date of birth,social security, that kind of
information. Part two is whereyou put your income and then
(17:10):
your deduction, whether it'sthe standard deduction, which
is pretty simple. Or if you'regoing to itemize it, we're
going to itemize, you're goingto need another form, but, you
know , w we'll talk, we cantalk about that in another
episode. Uh , and then you getthe, between those two, you get
your resulting taxable income,and then you're going to
calculate your tax based onthat taxable income. So if
(17:34):
using software it's alreadydone for you, if you're taking
it to professional, they'regoing to do that for you. If
you're doing the formsyourself, there's things called
schedules that say, Oh, I madethis much money between twenty
five thousand five hundred andfive thousand six hundred , the
taxes, this that's the numberthat you put on , on your, on
Speaker 2 (17:53):
Your form. It's like a chart, right?
Speaker 4 (17:56):
And then the next thing you do is you compare how
much was already withheld fromyour pay versus how much you
owe. And if w if the, theamount that's already been
withheld is more than what,what you owe . You get a
refund. If it's the other wayaround, if you still open more
than was withheld, you got tosend the IRS a little more
(18:17):
money. It's that simple, thensign and submit your docket .
Speaker 2 (18:23):
Right? Okay. So tax credits come after you
calculate your taxable incomeand deductions are what reduces
your taxable income. Right.
Speaker 4 (18:33):
Right. Right. And , and , and tax credits are a
dollar for dollar reductions inthe actual tax tax itself.
Speaker 2 (18:44):
Okay. So, yeah, that , um, that was a lot of
information. Uh, those are thebasics, the real, like basic
basics, but we will be doing, Iwill be putting chapter markers
with each of the questions thatI asked . So you can go back
and , um, relisten to hear someof the information. And then
(19:05):
also we're going to beintroducing a special episode,
1.5 , um, with just answeringyour listener questions. Cause
I know taxes are a lot and wecould basically do this whole
podcast on taxes and still havemore to say, but yeah. Send in
your questions to us , um, byemail, at [inaudible] or by
(19:26):
Instagram, at EFS podcast. Um,and yeah. Do you have any more
tips for our listeners, dad?
Speaker 4 (19:34):
So I'm just going to essentially tell you not to
make the mistakes that I wasfirst starting out with my
taxes is number one, startearly, your W2 start coming,
hitting your mailbox or comingto you in late February. So you
should, if you don't have them,you need to ask for them and
(19:55):
you need to start collectingall your stuff. You want to
start early and finish early togive yourself time to review
and make any changes.
Speaker 2 (20:03):
Yeah. Because what if I started my job in March?
Like what then?
Speaker 4 (20:08):
Uh , so, all right .
So remember taxes are for theprior year, you're going to the
taxes that we do now, or forall of 2020. And that's the tax
year is typically January 1stto December 31st. Now there are
ways you can, you can makeother arrangements, but that's
(20:29):
the standard for it .
Speaker 2 (20:30):
So have you started your job in 2021? You're not
filing on in April, April.
Okay. You're filing April 20,22. That's right . Oh, okay.
That makes a lot more sense.
Well, they don't tell you thatApril's not in beginning of the
year. So,
Speaker 4 (20:49):
So co you know , collector, collector , uh,
documents, keep your taxdocuments together. And did I
say review your filing againbefore you send it ? You got it
?
Speaker 2 (21:03):
I don't, yeah. I don't think you said it. Say it
one more time. Say it one moretime.
Speaker 4 (21:05):
Review your work again. This is just like,
checking your answers on thetest before you hand it in ,
uh, sign your document. That'susually not a problem for , um,
uh, for software or , or , oronline submission. Cause they
usually make sure that you dosome sort of electronic
signature and then keep recordsand schedules and supporting
documents and then make copies.
(21:27):
How long should you keep thecopies for them? A minimum
three years. Uh , most of thepublication say anywhere from
three to seven years , uh ,simple with simple taxes. It
three years should be enough.
Okay.
Speaker 2 (21:42):
Okay . And then also, how long did it take you
down when you were firststarting out like your first
job?
Speaker 4 (21:48):
Uh, so , uh , I was in the Navy man . That was my,
well, actually not that I did.
I D I did fill out taxes whileI was in college. And that took
me for , it took me forever,but I got all my money back.
That was that's where, but whenI, when I was in the Navy , um,
I waited till , uh, December,or excuse me, not December,
(22:11):
April 15th to fill out mytaxes. It took me about half an
hour. It took me, took me abouta half an hour to do, and then
I had to run around and tryingto make copies of it. So, you
know, what , what I did thenwas I made, I filled it out
twice. And so it took me halfan hour to do the first time.
And then , uh, you know, I I'dmade another copy for my
records. And then I sent it in,don't do that,
Speaker 2 (22:35):
Do it like half an hour, do the half an hour on
like April.
Speaker 4 (22:39):
Yeah. Give yourself some time to, to, to, to, to
look at it again. Oh , nowresources to , to, to help you.
Speaker 2 (22:48):
And you said irs.gov today.
Speaker 4 (22:52):
Now a lot of those software , uh, names that I've
mentioned , uh , have a lot ofonline tax calculation tools
that help you, that essentiallywalk you through it , uh, to
give you an estimate. It's not,it's not the complete version
of , uh, of , uh , of the taxform, but it gives you an
estimate and that's, that'sactually actually good to do ,
(23:14):
uh , before taxes . And thenYouTube has videos. You'd be
surprised at how many videosthere are. Yes, you can learn
to do anything on YouTube. Andthen there's, you know,
volunteers out there , uh , uh,volunteers and income tax
assistance , uh, make theeffort to educate yourself for
(23:34):
, uh, in, in , uh, in books andother publications. Um, and
talk with somebody, talk withsomebody, you know, and trust
about specific tax aspectsaspects. Hey, how do I do this?
This is my first time doing,how did you do that ? That ,
you know , it's gotta besomebody you trust, right ? You
know , you don't want to giveup your entire financial life
(23:58):
unless it's somebody that'salready knows your entire
financial life. But I expect, Iexpect to talk to you about
taxes, right ?
Speaker 2 (24:06):
I start filing taxes, which will be not this
year, at least.
Speaker 4 (24:12):
No. All right . I think that's it for our show. I
want to thank everyone forlistening, and I want you to be
sure to join us again next timewhere, you know, first we're
going to answer questions ontaxes, but then after that,
we're going to start discussingbudget .
Speaker 2 (24:27):
Yes. And if you have questions for us about this
episode, about anything relatedto personal finance or
economics, or just about atopic that you want us to
cover, you can emailus@efcspodcastatgmail.com and
follow our Instagram andTwitter, both at E F E S
podcast. Thank you so much forlistening
Speaker 4 (24:46):
Everybody.
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