Navigating Your Taxes
There are many thing I wish I knew about taxes before I started filing on my own; here are a few you can start with!
Learn your state. Every state is different when it comes to income taxes (some states do not have income tax!) and there are plenty of things that you can Google on the topic. Having recently turned 31 with over a decade of experience in accounting and doing my own taxes, here are my top tips to minimize what you might owe at the end of the year while maximizing your paycheck throughout the year.
Take the time to understand what income bracket you will be in. Do the math or phone a friend, to make sure that your employer is withholding enough taxes from your paycheck. Even I hate doing this but this is especially important when you get married or receive a large raise/bonus and your income increases. That 12% to 22% tax jump can drain your bank account on April 15th in a hurry. When in doubt, use the single withholding rate, even if you are married and take 0 exemptions. This will make sure that the max amount of taxes are withheld and reduce the likelihood that you will owe at the end of the year.
Maximize “above the line” deductions. Above the line means that amount is subtracted directly from your gross income. Less gross income = less tax you have to pay. Some common ones are IRA (individual retirement account) contributions, HSA (health savings ac- count) contributions, and self- employment expenses. Yes, being your own boss to some degree is of benefit to you. :)
Some loan interest is your friend! Certain kinds of loan interest are considered above the line and can be deducted from your taxes. Mortgage and student loan interest are some of the most common but there are others out there.
Take advantage of the online tax software that is out there in 2021. Unless you have a really weird tax situation, save the money on paying someone to do your taxes. If you have to ask what a really weird tax situation is, you probably don’t have one. For most of us (I work full time, run a business, 1099 contract with two other organizations and still use TurboTax) the computer will walk you through doing your taxes for much cheaper, than a tax preparer. In some cases, it is even free!
With recent changes to tax laws and the standard deduction going WAY up, some things I’ve mentioned are more moot than in the past, but it can’t hurt to try, right?
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Jordan Ashley is the Director of Finance and IT at College Wesleyan in Marion, where he lives with his wife, Rachel, and their dogs!