Come April, Uncle Sam wants his cut – here are 3 essential concepts on tax preparation for beginners in an easy to understand video format.
This isn’t a taxes for dummies post, because honestly, you cannot be a dummy and file your income taxes properly (the real tax preparation for dummies is to pay someone to do it for you). But even if you’re using TurboTax or an accountant, knowing a bit of tax basics can help you understand why you pay what you pay to the federal government. Or, at the very least, it’ll save you some embarrassment around the water cooler this tax season. These three videos will take you just a few minutes to watch, but each one is a light bulb of revelation for the uninitiated.
How do tax brackets work?
If you make more money, you pay a higher tax rate. This is what people mean when they say they are in a “higher tax bracket.” But you won’t pay that higher tax rate on all of your income, you’ll only pay more on the portion of your income that is in that bracket. Say what? I know, it’s confusing. This video explains it all.
What is a tax deduction?
The term “tax-deductible” sounds better than it really is. A $10,000 tax deduction doesn’t mean you get a $10,000 discount on your tax bill. (That’s a tax credit.) When something is tax-deductible, it means it reduces your stated income. So, instead of paying taxes on $100,000 of income, you would pay taxes on $90,000 of income.
What is the marriage penalty?
Not to be confused with the marriage penalty box—wherein you have to sit out weekend debauchery with the boys because of domestic duties—the marriage penalty is a quirk with the “married filing jointly” tax status that makes some couples pay more income tax than they would if they were single and filing separately. The reason: the tax brackets are different for married couples, which means the sum of your parts won’t equal the whole of your income. On the bright side, if a couple’s combined income reaches the upper tax brackets and one earner makes significantly less than the other, you may pay less (aka the “marriage bonus”). The bad news: you can’t avoid the marriage penalty by filing separately.
Hopefully, these taxes for beginners lessons help you start to unravel the chaotic mess that is our federal income tax filing system. As you learn more, you’ll find that it’s easier to connect the dots, so feel free to dive into the rest of the free personal taxes tutorials over at Khan Academy.
