Hey ladies! Welcome to the latest finance series brought to you by the CGS Team, the tax series! The tax series is a 6-part article series dedicated to all things taxes. We all know that we pay taxes, we file a tax return, and maybe we pay more taxes or get money back, but what about the purpose of it all? What about the detail of each tax form that the IRS reviews?
Do we really know all we need to about that? Do we know how to make the most of our tax return? The CGS Team is breaking down each of the Tax Schedules found in a normal tax return, as well as common forms that may apply to both of us. Get ready to learn about tax filing, in preparation for the April due date!
The History of Taxes
Did you know that America’s first citizens didn’t pay as many taxes as we all do today? One of the oldest form of taxes is the estate tax, which was adopted in 1797. This doesn’t apply to most of us, and if you are the unlucky few who have had to deal with it, let it serve as a learning lesson!
An estate tax is a large tax that is placed on estate’s that are valued higher than the IRS exclusion limit. Currently, that limit is $5.8 million. Basically, if there is no will and the person who passes away has an estate valued over $5.8 million, the IRS taxes all of the value over that amount.
Among other taxes that were adopted later include the federal income tax in 1913, the gift tax in 1924, and the alternative minimum tax in 1978. Taxes were implemented as a means of income for the United States government. Implementing taxes meant bringing in money to help offset federal dollars that were going out. All countries implement some form of taxes, even specific states have their own taxes. For example, Texas does not have an income tax, while California does. New Jersey doesn’t implement sales tax, while Florida does.
Why We File
The sole reason we file tax returns is to accurately account for the income we’ve made and ensure that the correct amount of taxes on that income has been paid. Depending on how much you make, you fall within a specific tax bracket that determines the amount you are required to pay in taxes.
The more you make, the more taxes you pay. The actual tax return is a set of forms that indicate what type of income you’ve made the prior year. If you earn a paycheck, as earn money from your own company, you have two different forms of income. If you receive gains from the sale of stock, that is considered a form of income. Your tax return gives a detailed account of all the income you’ve made, what you’ve already paid in taxes, and what potential credits you are able to get.
Why It’s Bad to Get Money Back
Did you need to read that twice?! It’s actually not a good thing to get money back from the IRS, because a refund means that you’ve actually paid too much in taxes during the year. Essentially, you were loaning the IRS money the entire year and you are getting that money back, without interest.
The extra money could have been used to pay off credit cards, or put into a savings account to accrue interest. Sometimes you may get money back thanks to credits, but if your money back is solely from income tax, you may need to consider the number of withholdings you claim.
The CGS Team has come up with quite a few articles on taxes in the past. Here are a few to look over when learning about taxes, how to file, and what types of credits and deductions you may be entitled to:
Are you a pro when it comes to filing taxes? How did you learn about taxes and how to file? What is your go-to when it comes to filing taxes? We want to hear the community’s experiences when it comes to taxes, so don’t be shy! Leave a comment below and let’s get a discussion started!