All You Need to Know About Taxes

Taxes are an integral part of personal finance, yet usually the part that people dislike most. While it's rare that anyone enjoys giving away their hard-earned dollars to the government, a lot of the disdain surrounding taxes stems from a lack of understanding.

Each year, Americans file taxes in order to report their income and pay additional taxes if necessary, or receive money back in the form of a tax refund if they paid too many taxes throughout the year. Filing taxes ensures you've paid your fair share and get back any money you are owed by the government.

When filing taxes, it's important to know which portion of your earnings is taxable and how you are required to report it. For instance, in addition to your normal hourly wage or salary, you must also pay taxes on things like investment income, inheritance -- even lottery winnings -- and list it all on the correct tax form with appropriate documentation. Just as importantly, though, you should also understand the different tax write-offs you are allowed to claim so you reduce your overall tax liability and chance to be audited.

Tax deductions are a type of write-off that reduce the total amount of income you're expected to pay taxes on. Things like charitable donations, moving and job hunting expenses, as well as child care costs and mortgage interest are all types of tax deductions you may be able to claim if you qualify.

Tax credits are also considered tax write-offs that lower the amount you end up paying, or in some cases, increase the amount you are returned each year. Unlike tax deductions, however, which reduce your taxable income, tax credits lower the total amount of taxes owed.

State governments, as well as the federal government, offer tax credits as incentives - for instance, the Cash for Clunkers program provided a credit of up to $4,500 to anyone who traded in an older vehicle for a newer one, in order to encourage taxpayers to drive more fuel-efficient cars.

Gaining a better understanding of how taxes work will allow you to plan your finances throughout the year in a way that ensures you aren't hit with a huge bill from the IRS in April. Taxes don't have to be a bad thing; you can use tax credits and deductions to actually earn money back each year -- just be sure you're honest on your tax return!

Best Personal Finance Rates

Most Read Taxes Articles

7 Things You Need to Know About Tax-Loss Harvesting

Find out how to save money on your tax bill by using this savvy tax strategy before the end of 2015.

7 Hidden Tax Breaks for Retirees

Why pay more taxes when you don't have to? Don’t overlook these seven tax breaks.

5 Tax Law Changes for 2016 You Need to Know

Learn more about the laws that will affect your federal tax return.

Read More »

World Animal Day: Animal Charity Donations, Tax Deductions and You

Help an animal charity and save yourself some money by donating.

Read More »

5 Money-Saving Tax Loopholes About to Disappear

Tax loopholes are wonderful when you can take advantage of them legally and completely. But they can and do go away. Learn about some helpfu...

5 Moves to Make If You Missed the Tax Filing Deadline

Here's your guide to getting your tax return in and paid. See what you need to do here >>

Guide to Tax Day Post Office Hours for Last-Minute Filers

Procrastinator? Find post offices near you that offer extended Tax Day hours.

These responses are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser's responsibility to ensure all posts and/or questions are answered.


Featured In: