Ik this is may be dumb, but how do taxes work? I’m 22 and have never “done my taxes” at least I don’t think I have. When do you “do taxes” and what does that mean? I am also starting a small business so what does that mean for my taxes? Is there anything extra I need to be doing?
I feel like I’m missing stuff and everyone around me seems so in tune with their finances and understands this world a lotttttt better than I do, I don’t even have a credit card yet. Idk I just feel a little lost when it comes to this.
Posted by New-Kaleidoscope-572
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Have you had a regular job in the past few years where you got a W2?
You should check out H&R Block. They really help first timers out good.
Are you located in the United States?
Bring any tax forms to HR Block & have them help.
Filing your taxes is easy for most W-2 employees. If you don’t own a business, it’d be smart to learn how to diy it.
All “doing your taxes” means is verifying you withheld the appropriate amount from your paychecks throughout the year to pay your whole years tax obligation for every income/tax generating action. If you over withhold, you get a refund. Under? You owe.
You have to pay taxes on your income. How much you pay depends on a variety of factors starting with how much you’re making. These taxes (you have to pay both the state tax agency and the IRS) are supposed to be paid by you throughout the year. Either directly, or through an employer who will do something called tax withholding which just means they send a part of your paycheck to the tax agencies on your behalf so you don’t have to do it. Thats usually the larger part of the difference between gross and net pay every time you get a paycheck.
Thing is, the tax agencies don’t fully know your circumstances. They don’t know if you have kids, if you have income they don’t know about, if you donate money to charity and so on. All of these can affect the actual amount of tax you were supposed to pay for the year. So every year, you’re supposed to prepare tax returns. A 1040 for the IRS and an equivalent for whatever state you live in (assuming your state has income tax – not all do). These forms are very complicated, but in a nutshell you’re just reporting your income, deductions and anything else that could affect your tax situation. The forms are used to calculate the total amount you should have paid in tax for the entire year. If you didn’t pay enough, you have to pay them the difference. If you paid too much, you get a refund.
If you’re starting a business, your tax situation gets much more complicated. The short version is you’ll need to track all of your income and expenses yourself and report them either on a separate tax return (in addition to your personal returns), or as an addition to your personal tax return. How that works is dependent on whether your business is a sole proprietorship or a corporation.
Thing is, though, you won’t be able to get enough knowledge from Reddit to accurately pay taxes and file tax returns. It’s just too much. So if you’re starting a business, expect to hire a CPA firm to help you with that side of things. At first you may be able to piece it together using, say, TurboTax to prepare your returns (they have a decent questionnaire to help you figure out what to report and what isn’t needed), but eventually if the business grows you’ll need actual help.
When you work a typical job, your employer withholds taxes from it. You can see this on your paystub, it’s usually labeled as ‘deductions’. That is you paying your taxes.
However, when people say they “do their taxes”, that means they are filing for a tax return. You see, our tax system is setup so that you pay your taxes to the government throughout the year, but for most people, they overpay and the government owes them money back. So when you do your taxes, you are sending in a request for that refund.
If you don’t “do your taxes”, you actually just gave the government more money than you owe them. Your job usually gives you a “W2” form, usually around January-February. You use the information on that form to fill out your tax return and submit it to the IRS by April 15th. The IRS then processes it and deposits whatever money is owed to you in your direct deposit account. You can do it yourself using resources like [freetaxusa.com](http://freetaxusa.com) (most recommended personally). It’s fairly simple and the website walks you through how to do it. You can also hire a tax person to do it, like from H&R block and others. Just google “tax services near me” or something. They usually take their fee out from your refund so you don’t have to pay them upfront.
That’s the simplified version of it. If you are planning to start your own small business, things get A LOT more complicated. I recommend really educating yourself on how taxes work BEFORE you start any business operations. Many people dive in to business ventures without understanding possible tax implications and get themselves in big trouble.
You can use Turbo tax for a simple tax return with just a W-2, walks you through it for free. If you open a small business, you are going to need to keep track of all your business expenses so you can write them off to lower your taxable income. I recommend using a software to do bookkeeping for your small business and keep track of all income and expenses you accrue. Then you can create an income sheet and balance sheet that is necessary for doing taxes. Most likely, you’re going to need to pay taxes at the end of the year. Unless you pay quite a bit extra via your regular W-2 job.