Top 10 things you don’t know about taxes
Do taxes leave you feeling confused and intimidated? Do you wish you understood taxes better?
How about a crash course right here, right now?
The top 10 things you don’t know about taxes:
If you get money back when you file your taxes it's called a “refund”, not a “return”. 💰 A “return” is the form you file, a “refund” is money you get back. These terms are not interchangeable.
Comparing your tax refund amount to someone else’s is pointless. A refund amount doesn’t tell you how much someone’s tax LIABILITY was for the year, how much withholding they had, how much they benefited from tax strategies they put in place, or how much they OVERPAID by NOT **putting tax strategies in place.
If a strategy can magically 🪄 avoid tax and tax pros don’t know about it - either it doesn’t work at all or it’s an abusive tax shelter that the IRS is (eventually) coming after.
Tax benefits do not grow on trees. 🌳Tax-saving strategies typically require that you have a sufficiently-complicated financial situation, have assets such as cash or real estate that you can easily part with to generate a tax benefit, and enough attention span to actually execute the plan.
The US is one of only 2 countries to tax its citizens on their worldwide income regardless of where that citizen lives. 🌎 Wanna get out of paying US taxes? You’ll have to renounce your US citizenship and (maybe) get rid of your US assets/income.
Contractors receive 1099s. Employees receive W-2s. There is no such thing as a “1099 employee”.
Internal Revenue Code Section 121 is YOUR. BEST. FRIEND. This federal tax law allows you to - usually - sell your principal residence 🏡 without paying tax on the gain. But you can easily mess this up by doing things like not meeting the residency requirements, failing to maintain adequate records, or shudders gifting the house to your kids.
For the most part, the IRS doesn't make tax rules. 📜 CONGRESS makes the rules while the IRS enforces and sometimes interprets those rules.
SO IMPORTANT. Taxes often function less like algebra and more like chemistry. 🧪 2 + 2 doesn’t always equal 4 in taxes. Ex #1: Adding one more dollar of income could cause you to completely lose a valuable tax credit. Ex #2: Married couples merging their tax situations can get a wildly different result than looking at each spouse’s set of facts on its own. This is one reason why the answer to a tax question is often “it depends.”
Always file your return timely. ⏰ Even if you can't pay. Installment payment plans and even balance due reductions could be a possibility. But the IRS expects you to file BEFORE you can unlock these options.