Tax Planning for Beginners
The tax system in the United States is complex and can be confusing for many taxpayers. It is important to understand the basics of the tax system to ensure that you are paying the correct amount of taxes.
The federal government collects taxes on income, property, and goods and services. The Internal Revenue Service (IRS) is the agency responsible for collecting federal taxes.
State and local governments also collect taxes, which can be in addition to federal taxes. These taxes can include income taxes, sales taxes, and property taxes.
The amount of taxes that you owe is determined by your taxable income, which is your income minus any deductions and exemptions. Tax deductions are expenses that can be subtracted from your income, such as charitable donations or mortgage interest. Exemptions are deductions that can be taken for yourself, your spouse, and any dependents.
There are also tax credits that can be applied to reduce the amount of taxes that you owe. Tax credits are subtracted directly from the amount of taxes that you owe, and can include credits for child care expenses, education expenses, and energy-efficient home improvements.
In addition to determining your taxable income, you must also determine your filing status and file the appropriate tax forms. Your filing status is determined by your marital status and whether or not you have dependents. The most common filing statuses are single, married filing jointly, married filing separately, and head of household.
The IRS offers various resources to help taxpayers understand the tax system, including publications, online resources, and tax professionals. It is important to stay informed about changes to the tax system and to seek professional advice if needed.
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