Well it is an interesting time here in the United States, a dreaded time. A time when people cringe and fear. It’s Tax Time! In the U.S. Tax Day is usually April 15th (and is moved around in the case of weekends, so this year it falls on the 18th). So I thought we would take a moment to tell you a few things about taxes!
“Tax Day” is a colloquial term used to designate the day on which individual income tax returns are due to the federal and state governments. Taxes are complicated and confusing and here in America, we often simply hire people to help you take care of filing properly. And yet, they serve and important role in the functioning of our society and tax policy is important to help foster economic growth at both the national and local level. It is the differences in option of HOW to leverage those tax dollars (and how much to collect and from whom!) that varies greatly based on your political affiliation and leaning.
Taxes can create incentives for certain types of behavior (charitable giving for example) or disincentives for unwanted behavior. Of course the most public display of tax discussion happens by politicians. They argue and run either campaigns on increasing or decreasing taxes.
So here are some commonly used tax terms to help you cut through all the jargon and understand what people are talking about and to help you file your taxes.
Tax Credits - After you calculate your tax bill, credits can help you decrease the amount of money you own. In this instance, credits are more valuable than deductions because they directly cut down the amount of money that you have to pay.
Tax Deductions - these are the expenses that you subtract from your adjusted gross income (AGI) to help you to the proper total amount of taxable money that you’ve made. In most cases, the lowers you income, the lower your tax bill
Types of deductions:
Standard Deductions - these are fixed dollar amounts that tax payers can subtract from their income.
Itemized Deductions - things such as mortgage interest, medical expenses and unreimbursed employee expenses. Items generally need to meet the IRS limits before they can be claimed.
Withholding - Often called a ‘pay as you earn’ tax policy, a withholding enables taxes to be taken out of your wages as you earn them, before you receive your paycheck. These taxes are deposited with the IRS and you are credited for them when you file your tax returns.
I won’t bore you anymore with tax jargon, but these are just a few of the terms often thrown around during this time of year, and as a non-native speaker, you might not know what they mean.
For more on taxes, follow us on Facebook and Twitter. What tax terms have you heard that you didn’t understand initially?