If you earn a steady income or even an inconsistent one, you're likely paying taxes or on the hook for them. Employers withhold taxes each pay period from their employees' paychecks, sending them to the IRS and your relevant state and local governments.
But that's only the first step in the process of handling your taxes. You’ll need to consider tax deductions and credits as well when looking to lower your taxable income. The last thing you want to do is wait until tax season rolls around and then find yourself scrambling to figure out how to do your taxes on your own.
If you have enough income, the IRS looks to tax in one year to exceed the standard deduction for your filing status. Then it's time for you to do your taxes on your own and file that return with the appropriate government agency. If not, you might still consider filing a tax return.
To prepare your taxes on your own, you'll need to assemble the correct paperwork. That includes all of those forms that have been coming in from various sources:-Form W-2: Wage and Tax Statement- Form 1099-NEC: Nonemployee Compensation- Form 1099-MISC: Miscellaneous Income
Not to mention the paperwork related to your situation or small business. Things like:- payment invoices- receipts for deductible expenses- detailed expenses related to your trade or business- contributions to non-profit organizations or charitable donationsThe list goes on and on. If you plan to take a specific deduction that requires documentation, make sure to hold onto anything and everything if the IRS looks for supporting paperwork.
This progressive system means for higher levels of taxable income, you pay a commensurately higher effective tax rate. For example, if you earned $100,000 of taxable income as a single taxpayer, you'd fall into the 24% tax bracket.
If you work as an employee, your employer will send you a Form W-2 in the mail and possibly electronically. This documents all the details related to your pay, deductions, and other elections made during the tax year.
If you're self-employed, you should expect to receive 1099-NECs from any company that paid you $600 or more during the tax year. Once you gather all of this information, you'll also need to track all of your receipts and other documents substantiating your costs of doing business.
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