The idea about taxes is not fun for anybody as reliable information about tax basics is hard to find and quite complicated to understand. But knowing these basics are a must for all responsible citizens of any country so that they can partake in their country’s economic development and receive the perks allotted for diligent taxpayers. Knowing about tax basics can help you tremendously at the time of tax filing and prepare you regarding what to expect at that time. It is shocking that students are not taught enough about taxes and how to do their tax filing when the time comes.
For this reason, we have listed 10 useful facts about tax basics that people should know but were not taught in school:
- The foreword of tax basics is covering the types of taxes existing in any country. People should be aware of the different kinds of taxes that their government is obliged to collect from their citizens. Income, payroll, property, and sales taxes are some of the most common ones to be collected.
- To proceed with understanding tax basics, one should first figure what does the government considers as taxable. There is a list of income that are taxable such as an employee’s salary, interest on bank accounts, compensation for the unemployed, lottery winnings, gambling gains, even royalties.
- Identifying the non-taxable sources of income is also crucial so that one does not get mislead by any third party. Returns from invested capital, gifts received from people, child support, money received as repayment for a loan, etc. are non-taxable under all circumstances in countries like the US.
- There are countless people who wish to decrease their taxable income but do not know how to do it. The best way to reduce taxes is to start adjustments. By adjustments, we mean tax breaks that allow you to subtract a significant amount of taxes from your income. But before one sets out to do tax adjustments by themselves, it’s recommended to take help and advice from a professional.
- Taxpayers can also reduce their taxable income by contributing to a retirement fund that qualifies so that their annual income has a lowered amount when it is time to pay the taxes. Other charitable contributions also work in the same way for taxpayers but it requires proper paperwork. People who have one or more investment account can deduct their losses before paying taxes as a rule.
- Instead of paying a lot of money to someone for filing your taxes, you should learn how to do it online. There are tons of helpful resources that guide people in a step-by-step format to go through the process without depending on accountants or tax software. You could also benefit from free filing tools.
- First-timers should ensure that they understand every term commonly used in the case of tax basics such as Capital gain, credit, adjusted basis, deduction, itemisation, evasion, constructive receipt, gross income, depreciation, standard deduction, etc. Preferably read an online glossary about tax basics to guide you properly.
- Most governments in the world have a different rule of levying taxes upon individuals who are under age. For example, in the US, if a person is under 24 years of age, they can consult with their parents who could be claiming them as a dependent. Usually, people who have finished college and started working must file their own tax filing.
- The term standard deduction is quite popular when it comes to tax basics in the US. It is a predetermined amount fixed by the government to reduce taxes on the income of certain qualifying taxpayers. You can find more information regarding standard deduction on the website of the Internal Revenue Service (IRS).
- Whenever you reach a life event milestone, make sure to consider the tax implications to avoid legal troubles later on. For example, after registering a marriage or having your first child, the tax return procedures change considerably. One must notify officials regarding their name. People who have recently become parents must add their children to their existing plan by claiming as a dependent to follow procedure.