Taxes. Nobody likes em but you have to pay them. If you don’t, you could pay a fine, have your property seized, or end up in jail.
The government takes a cut out of your paycheck to gradually pay your tax bill. If they didn’t there would be very few people responsible enough to set money aside to pay their share at the end of the year.
Listen on your platform of choice!
My guest is Shane Mason, a CPA and CFP in Brooklyn, New York.
If you don’t have your s*** together before April 15, you’ll need to file an extension. You can request an extension for an extra six months FOR FREE. Keep in mind this extension is only an extension to file your return, not pay the tax you owe. If you think you might owe make a down payment on your tax bill by April 15th to avoid any penalties. You can estimate that here.
You can also get a free wage and income transcript if you need to determine your income for this year or previous ones. You get that right from the IRS.
Interested in tax history? This website is dope. The 16th amendment introduced the progressive income tax in 1913 and World War 1 solidified it. There had been a brief flat tax and terrifies on imports in the 19th century to finance a few wars. If you’re a tax nerd you might enjoy seeing what a 1040 form looked like in 1913. It’s pretty close to the one we use in 2017.
Credits and Filing
A tax credit is a dollar for dollar reduction in a tax bill. Which is awesome. That’s different from a deduction, which simply reduces the amount of income your tax bill is calculated from. Here’s some additional reading.
In the US we don’t have a flat income tax. It’s graduated, which is also known as progressive or marginal tax. It’s a little confusing, so just listen to the episode. There’s also something called the effective tax rate, which is closer to the rate you actually pay. Linking to this AGAIN, because it’s really really helpful.
United Way has great resources for free or low-cost tax prep. April 15 will be here any moment. ARGH! Many states and cities offer a free file service for lower income earners. In New York City, the threshold is an income of $64,000.
Shane recommends QuickBooks Self-Employed for keeping track of your expenses.
Time to look at ye olde 1040 form. This the thing that known as a tax return. Here is a
super easy 1040 breakdown from the New York Times.
Also, you can file your taxes for free, directly with the IRS, if you meet certain requirements.
This is just federal tax, you also have to pay state taxes, and often city taxes. There are states that don’t have income tax, which is nice.
Haven’t paid your tax bill in a few years? Yeeeesh. But don’t worry, it’s not the end of the world!
The gift tax is super confusing. You can give away $14,000 (that’s the amount for 2017) to as many individuals as you like in one year without filing anything. If you give over $14,000 you have to file a gift tax return (form 709), which chips away at the 5.4-ish million dollars a single person is allowed to give away in a lifetime before paying a gift tax. The gift tax is basically for really rich people. Read this for more info.
Non Money Minute
Micronations! Sealand is a small platform in the middle of he North Sea. It was home to one family but basically operates as a nation state. Check out one of my favorite podcasts of all time, 99% Invisible, for more. You can buy a Sealand passport and even buy your way into the royal family.
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