Taxes and Twenty-somethings: Becoming Acquainted with the Basics
Ages ago, when I was a youngling in tennis camp, our instructors made us do a few basics drills whenever our playing would get sloppy. For instance, we’d repeatedly have to practice a swing; then we’d practice getting into position as the ball would drop; then we practiced painfully slow-paced groundstrokes until we were consistent; and only then could we go back to whacking the ball with all our might. They were tedious and frustrating drills that felt like an affront to our respective ability levels. However, the drills worked like magic. We’d suddenly undo the tiny things that would mess up our game by re-learning the proper techniques. Little did I know basics drills were actually a metaphor for improving life off the court, especially finances.
I’ve only recently developed some financial literacy, and I consider my personal finances still in the process of its makeover. The next big challenge I’m tackling is to understand taxes. I hated taxes so much that I used to beg ex-boyfriends to do it for me. (It made sense to do that, but I wasn’t sure why.) Over the past couple of years, I graduated to using online filing programs like H&R Block’s TaxCut and TurboTax, but I was simply answering questions the program would ask me. I always had a haunting suspicion that I was paying too much in taxes.
Rather than continue to fear what I did not understand, I decided to do some research about the fundamentals of taxes. Consider this a guide to understanding tax terms that will be used in all the tax advice we’ll be bombarded with this tax season. This is not tax advice. Please see a professional for that.
It may get pretty basic, but you may find that knowing the basics will help you out with the more complicated stuff later on, or perhaps even show you what you have been doing wrong. I wish I had known some of the basics earlier so that I could have gotten bigger tax returns back when I needed them more.
The Larger Picture
About.com has a great article called Taxes 101: Five Basic Ideas of Taxes. Here you get an idea of why we pay taxes, where the money goes, and what it’s used for. But more importantly, the whole tax system is simplified into five ideas that explain how you are taxed, how you get money back, and why we all pay such different amounts in taxes.
A Lesson in Taxes
Bankrate.com has an amazing interactive tutorial on tax basics. You’ll learn and get quizzed on everything about withholding; forms and filing; deductions; credits; life events and taxes; and the closing details. This one helped me the most to understand deductions.
Now that I understand all the tax terms, the strategies in the following links started to make more sense.
If you’re just beginning to file your own taxes, Kiplinger presents Taxes for Newbies. There’s a wealth of links to help you get prepared for filing, and links for money saving strategies concerning student loan interest, education credits, savers credits, moving costs and so on.
Businessweek has a similar but more up to date article called Smart Tax Strategies for Younger Workers. Organization principles are covered, but the strategies for your taxes in successive years are the real bonus here and what influenced me the most.
Knowledge in Motion
Whether you choose to file your taxes by paper, electronically or with a pro, hopefully the information above will help. It’s all about taxes right now in my favorite finance publications. With the help of these sites, I know just about everything they’re talking about. I can even make sense of IRS Publication 17, Your Federal Income Tax.
Happy filing. And if you want to show off all your new tax knowledge, hurry and enter in H&R Block’s Me and My Super Sweet Refund Video Contest for a chance to win $5,000, an Apple MacBook or a Sony HD Handycam. Deadline for submissions is February 21, 2007.