The process of filing your taxes is a bizarre wonderland, where nothing seems to quite make
sense.
And even though you came into the process full-sized, soon you start feeling smaller
and smaller and.. smaller.
This video will not attempt to cover every type of tax form.
That would be, to use a technical governmental term, bananas.
But rather, the ones that most people will use.
Tax file requirements are different when you are employed by a company as an employee than
they are when you are employed by your own business (which is also known as being a freelancer
or a sole proprietor) In this video, we will focus on the filing requirements as an employee,
in next weeks video we will give you the key information on being self-employed.
This video will be divided into four parts.
1.
How to prepare to prepare to prepare your tax return 2.
How to prepare to prepare your tax return 3.
How to prepare your tax return, and 4.
In summation.
So to fully explain how employees pay taxes, lets do as Wonderlanders do: and begin at
the beginning.
Now to really understand how employee taxes work, we have to jump in the TARDIS and go
back in time, because you may not realise, you've been paying taxes all year long.
Before you start employment, your employer will require you to fill out a Federal and
State W-4.
The W-4 will ask you things like your marital status, and how many exemptions you would
like to claim.
What's an exemption?
Definition time!
Exemptions are things that lessen your tax burden, and pertain primarily to personal
independency status'.
The IRS has a great W-4 worksheet on their website, but for our purposes, I can safely
tell you that the fewer exemptions you claim, the more money will be taken out of your paycheck.
So anyway, the W-4 will be used by your employer to determine how much state and federal income
tax to withhold from your paycheck throughout the year.
Basically, they're trying to predict how much you owe, and have you pay it throughout the
year, rather than at one time.
Now you may find out eventually that you have paid too much throughout the year, in which
case you will achieve a tax refund.
And definition time!
A tax refund is a reimbursement on taxes when the tax burden (*liability) is actually less
than the taxes paid.
In other words: "Dude, you gave me too much, here it is.
Save it."
What I'm trying to say is that the W-4 is a superdupes important form, and it can prevent,
if properly completed, a very nasty surprise at the end of the year.
Okay, a couple quick notes before we move on.
1.
Your life circumstances may change year-to-year, so you should definitely at least review your
W-4 at the beginning of every year, and 2.
Although there are circumstances when it's actually kind of a smart thing to tweak your
W-4 so that they actually take more than you would technically owe on your income throughout
the year (Some people have the government take out more than they're actually owed,
simply because they want to treat their refund as a kind of savings account) we have thoughts
on this though, because there are actually a lot more effective ways to have your money
work for you, than to give the government an interest free loan throughout the year.
But, anyway.
'K, so a year has ended, you can see April 15th approaching with your prophecy powers,
Professor Trelawney, mm?
So to prepare to prepare your tax return, you're gonna need a few things: 1.
Your W-2.
Your employer is required by law to send you what is called a W-2 postmarked by January
31st.
The W-2 is sent to you and also to the IRS, and it gives you all the important information
to complete your tax return.
Definition time!
A tax return is a form on which a tax payer makes a statement annually on personal circumstances
and income, and it is used by tax authorities to assess the tax liability of said tax-payer.
Basically, you owe us this much money.
Possibly required equipment number 2: Other information forms.
In addition to your W-2 you may have other income information forms.
These may include a 1099 INT which is for interest income, a form 1099 DIV which is
for stock dividends, 1099 G which is for state income tax returns (*refunds) and also for
unemployment benefits and perhaps a 1098 T, if you have any education expenses.
Don't get freaked out by all the numbers and the letters, it will be okay, I promise.
We'll get to that in just a second.
Possibly required equipment number 3: A "schedule A".
If you itemise your deductions you should prepare this information on what is called
a "Schedule A".
And now, at long last, we are on part three of this video: How to prepare your tax return.
With e-filing as the predominant form of filing you will most likely use some kind of online
avenue or downloaded software to prepare and pay your taxes.
TurboTax is the most popular, and irs.gov supplies free software for anyone with income
up to $58,000 a year.
Whether you prepare your return manually or with software, irs.gov is actually a really
wonderful resource.
One of the great things about using software is that it will prepare your state and federal
taxes at the same time, which saves a lot of light work let me tell ya.
John: Hoooowww, boy!
Mike: Okay, so finally, this is what you've been waiting for, here is how to prepare your
tax return.
Step One: Choose the correct form.
All the available forms will be 1040s of some kind.
The 1040 EZ (pronounced "easy"), which is pretty much what you think it is, the 1040
A, which is also known as the short form, and the regular 1040 which is also known as
the long form.
When you input your personal information, W-2 information and any other return information
you might have, the tax software will tell you exactly what form is appropriate for you.
Step Two: If appropriate, put in the information for a "Schedule A".
Step Three: Pay those taxes!
By April 15th!
You will either be given the amount by your preparer or by your tax software.
If you can't possibly file by April 15th, you should fill out a form 4868 and get an
automatic six-month extension.
Please note though that this is only an extension to file your return, not to pay your taxes.
(On-screen text: "NOTE: This is kinda counterintuitive and confusing.
Link to fully explain it below") So, if you think that you owe something, then you have
to include that with the extension.
Most tax software for most people is going to be sufficient, it's gonna help you go through
every step in a pretty self-explanatory way.
But, if you would rather not prepare your own return, you would be best served to use
a licensed professional.
These people may be Certified Public Accountants, also known as CPAs, or they might be Enrolled
Agents, who are people who are licensed to practice by the IRS.
If you go to the website for the National Association of Enrolled Agents, you'll be
able to find the contact information for any Enrolled Agents who might be in your area.
Both of these kinds of professionals can represent you in front of the IRS or in front of State
Income Tax departments if your return is selected for a review, or an audit.
Definition time!
An audit is... "oh no!"
Although we don't endorse any specific business, you may also choose a preparer from one of
the national chains.
These include places like H and R Block or the one where the Statue of Liberty dances
in front of Arby's.
Now you may be in a situation where your great-uncle BoBo offers to do your taxes for you, but
I would give that second thoughts.
And third thoughts.
Here, in the most rudimentary sense, is what you should do.
Fill out your W-4 correctly, being sure to update it every year.
Gather all income information forms, including your W-2, and any kinds of 1099s that might
also apply to you.
Collect information on your expenses.
Ideally, you should do this throughout the year in a software such as quicken, but if
you can't, you should get all the documentation that you can such as bank account statements,
screenshots etc.
File your return, either by using a pencil and paper, which I think they still make,
software or a tax preparer, and send in your payment by April 15th.
And that is it!
Ho-ho-hooo.
We'll see you next week for more adventures in wonderland.