Posted by So many people say that income taxes are bewildering. That’s because they make too major errors. The first is that they think they have to understand the whole panoply of tax provisions or they will understand nothing. It’s like saying I can’t strip and repair a Tour de France racing bicycle, therefore I can’t learn to ride.
First things first: learn what applies to you and only that, then expand. For 90 percent of people, their tax return begins and ends with their W-2 – the statement of their wage income.
Let’s start with the simple case – which is about 30 percent of people (80 percent for people under 24). The only thing that matters is Box 1, or your wages, and Box 2, how much got withheld. That and your marital status will tell any of the free online software programs all it needs to know to calculate you tax.
Say you are single and make $19,000 in 2023 in wages (reported on Box 1). Unless you had things taken out of your paycheck for other purposes (we’ll talk about that later in “Don’t Be a Wimp!”), your Total Income (the total of all your income items) is 17,000 and your “Adjusted Gross Income” (Total Income minus adjustments, but you don’t have any) is $19,000. Your Standard Deduction (the amount you get to deduct for being alive) is $13,850. $19,000 minus $13,850 is $5,150. The tax rate at that level is 10 percent, so your tax is $515.
Say you had 24 pay periods and $50 was withheld each pay period, so the total is $1,200. So your refund (not your return, your refund) is $685. How hard was that?
Let’s suppose you had no withholding. You would get no refund and you would have to pay in $515.
But wait, you say, I’m married and my wife made $12,000 and her withholding was $600. Mazel Tov! You file as “Married Filing Joint”, your Total Income and Adjusted Gross Income is $31,000, the Standard Deduction is $27,700 (twice the Single amount) and your taxable income is $3,300 and your tax is $330. Withholding of $1,200 plus $600 is $1,800 minus the $330 of tax is a refund of $1,470.
But what about that $300 of clothing and household goods I gave to Goodwill. Very generous, but those are Itemized Deductions and if that’s it that’s your total. You get Itemized Deductions or the Standard Deduction, but not both. So do you want a deduction of $300 or $13,850 ($27,700 if married). Not a hard choice. (I’ll go into Itemized Deductions later, but for 91% of Americans the Standard Deduction is larger than the sum of the Itemized Deductions.)
But my neighbor got a $500 credit for making energy-saving improvements to her home. Do you own a home> Did you spend a bunch of money on energy-saving improvements? Unless the answer is “Yes” to both, fuhgeddaboudit! You’re just letting envy egg you on. Worry about your own problems before you go digging into someone else’s.
Death and Taxes 