Money Management

Every April 15 taxes are due. (Almost) Everybody has to pay them. Doing your taxes can be easy or complicated, depending on various factors of your financial situation, but they don’t have to be!

First, let’s go over some basic tax information and terms:

As mentioned above, ‘tax day’ is always April 15 of the year following the date on your W-2 (ex.: taxes for the year 2020 are due to be filed by April 15, 2021)

Dependent on your gross income (money you made/had during the year that is taxable), you may or may not have to file, generally however, if you’re employed, you’ll have to file your taxes. Check with the IRS for more information.

Generally, scholarships are non-taxable, but if your scholarship is paid in compensation for teaching or some other form of work, like research, it is taxable.

W-2 Form: Wage/income forms that you get from your employer with your tax information on them. W-2 forms must be sent to the Internal Revenue Service (IRS) by employers no later than January 31^st, so employees get them in a timely manner.

Filing status: This tells the IRS whether you are filing your taxes singly (unmarried), jointly (married), and whether you are ‘head of household’. There several subcategories and ‘rules’ to indicate filing status as well; read about them here.

Standard Deduction: Also known as ‘tax write-offs’, a deduction is an expense paid during the year that can be subtracted from the gross income given on your tax form, lowering the amount you pay in taxes. The standard deduction is a ‘no questions asked’ fixed amount--based on your filing status--that you may choose to have taken off of your taxable income. The amount is set by the federal government for each tax year. If you choose the standard deduction, you are then not allowed to make itemized deductions.

Itemized Deductions: These are specific deductions taken from a list of expenses--again, created by the federal government—that you may choose to have taken off of your taxable income. For instance, charitable giving is listed as an itemized deduction (this is why they always ask you if you want a receipt when you donate at Goodwill!). Itemized deduction schedules can be somewhat different every year, and you can visit IRS.gov to see the schedule for your tax filing year.

Earned Income:  Any money that you make from working (including tips), taxable scholarships, and/or fellowship grants.

Unearned Income: unemployment benefits and any dividends from stocks, investments, and bank accounts.

Gross Income:  All of the income that you made/received during the year; money, goods, property, and services that are not exempt from taxation.

Exemptions:  A federal government determined amount that you are allowed to deduct from your taxable income for living expenses. If you are, or have, dependents, they can qualify as exemptions.

There are a number of well-known companies—as well as individual tax preparers and accountants-- who specialize in preparing and filing tax returns, so you don’t have to fill out and send in your tax forms yourself. But, many companies also have online services where you can fill out your tax forms on your own, getting help when you need it through chat boxes and/or live help.

There used to be three different types of forms to choose from when filing taxes: 1040EZ, 1040A, and the 1040. As of the 2019 (taxes filed for 2018) tax season, in order to simplify tax preparation and filing, the IRS did away with the 1040EZ and 1040A, and now there are only two forms: the 1040 and the 1040-SR. **If you are filing for tax years prior to 2018, you may still use a 1040EZ or 1040A form.

1040: This is the standard form that everyone who files taxes will fill (or their tax preparer will fill) out. With this form, you can itemize deductions, claim different sorts of income, aside from earned wages (like IRA dividends and retirement benefits), and claim tax credits.

1040-SR: This is an alternate filing form that people aged 65 and older may use instead of the 1040 form.

IRS.gov: Five Facts about the New Form 1040