Everything You Need To Know About Taxes

Now that the IRS is back to work; time to get back to filing taxes. The deadline to get it all done is typically April 15

*However, for 2021 it’s May 17, 2021. We get an extra month with two days since it falls on the weekend. 2020 was a different type of year. At least HSAs are still dope.

Try not to delay too long, evildoers are hard at work trying to file for you with the refund going back to them.

Trust me you don’t want these kinds of problems. “Run and file Asap”, Once you’ve been had; it will take upward to a year to get it corrected with the IRS. You won’t see a dime until it’s corrected.

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What if I decided not to pay taxes?

Ooh you mean you want to pull a Lauryn Hill. Acclaimed R&B singer and writer, Lauryn Hill learned the sweetest thing she ever has known was to plead guilty to tax evasion for failure to pay federal income taxes and served a three-month prison sentence in 2013.

Hill’s statement explained that she is still taking care of past taxes owed. She now performs to pay back Uncle Sam.

All of your side hustle money should also be added. Lottery winnings added. Olympic medals add that too. Athletes playing in multiple states, file taxes in multiple states. Translation: Run that.

Conclusions

The IRS kinda doesn’t care how you made your money; they want you to record it all and pay what you owe because they will find you.

IRS equals Maximum Petty

Before you donate to the next tax preparer’s VIP lifestyle

A lot of people never put in the effort to find out how easy doing your taxes yourself can be. Online web programs like TurboTax, walk you through the process seamlessly. And guess what, it is totally FREE before you file.

If you don’t want to take the risk of filing incorrectly; go with the process, see the number, and record your anticipated return.

You can go still go to your tax person and begin to analyze if they are running up your numbers, or cutting a bigger piece of your pie to fill their wallets. Turns out you are DEFINITELY liable if someone is lying on your behalf and you will be on the hook. Simplified, it is your fault.

Another thing to note is that the Internal Revenue Service (IRS) has the Volunteer Income Tax Assistance (VITA) Program available near you. VITA offers FREE tax help to people who generally make $55,000 or less, persons with disabilities, and limited English-speaking taxpayers who need assistance in preparing their own tax returns. IRS-certified volunteers provide free basic income tax return preparation with electronic filing to qualified individuals. VITA could save you real money.

Let’s say instead of paying the guy up the street $250 a year for your taxes; you invested $250 annually for 44 working years at the avg of 7% that’s $73,534.78. Compounding Math is a B@#$h ⇠ Perspective (check my math)

It really pays to have a good strategy.

Make it make sense…

For Example, the Tax Rate of 2019

What does it mean? In other words, on $100,000 in taxable income, a single taxpayer would pay:

10% of the first $9,700. Calculation ($9,700*.10 = $970)

12% of the amount greater than $9,700 up to $39,475.Calculation ($39,475-$9,701)*.12 = $3,572.88)

22% of the amount greater than $39,475, up to $84,200. Calculation ($84,200-$39,476)*.22 = $9,839.28)

24% of the amount in excess of $84,200. Calculation ($100,000-$84,201)*.24 = $3,791.76)

If you add up all of the numbers in parentheses, you’ll see that this hypothetical taxpayer would owe a federal income tax of $18,173.92 for 2019. This translates to about 18% of their taxable income — not the 24% marginal tax rate.

Nerdy Details: The Tax rate is Progressive?

A progressive tax is a tax in which the average tax rate (taxes paid ÷ personal income) increases as the taxable amount increases. The term “progressive” refers to the way the tax rate progresses from low to high, with the result that a taxpayer’s average tax rate is less than the person’s marginal tax rate.

“3 Examples and I promise you that your reading if over”

Example #1: Jay Jonas makes $45,500 a year working as an assistant manager. He puts 5% in the company 401k for the matching rate of 5%.

As a single guy, he falls into the 22% tax bracket. Salary ($45,500) minus 5% 401k ($2,275) = $43,225. Minus std deduction of $12,000 for being human, $43,225-$12,000 = $31,225 (taxable income).

The tax on $31,225 places him into the 12% range so ($31,225-$9,701)*12% + $970 (for the 10%) = $3,552.88 Tax Owed

401k plus matching (at 5%) equals $4,550 in savings.

Example #2: Micheal Jonas (Jay’s older brother) makes $67,500 a year working as a physician assistant. He puts 10% in the company 401k for the matching rate of 5%. HSA at $3,500 and IRA at $5,500. Other tax exemptions of $6,500

As a single guy, he falls into the 22% tax bracket. Salary ($67,500) minus 10% 401k ($6,750) = $60,750. Minus itemized deduction of $14,000 for HSA, IRA, and other exemptions, $60,750-$15,500 = $45,250 (taxable income).

The tax on $45,250 places him into the 22% range so ($42,250-$39,476)*22% + $3,572.88 (for the 12%) + $970 (for the 10%) = $5,153.16 Tax Owed

401k plus matching (at 5%) equals $10,125+ HSA at $3,500 + (Traditional) IRA at $5,500. Total $19,125 in savings.

Example #3: Erica Jonas, a teacher (Jay and Micheal’s older sister) filing married makes a combined $90,500 a year with her husband, the accountant. They put 10% in both of their company’s 401k for the matching rate of 5%. HSA at $6,750 and IRA at $11,000. Other tax exemptions of $10,500 ⇠ Net/Max Financial Planners

As a married couple, they fall into the 22% tax bracket. Salary ($90,500) minus 10% 401k ($9,050) = $81,450. Minus itemized deduction of $28,250 for HSA, IRA, and other exemptions, $81,450-$28,250 = $53,200 (taxable income).

The tax on $53,200 places them into the 12% range so ($42,250-$19,401)*12% + $1940 (for the 10%: married) = $4,681.88 Tax Owed

401k plus matching (at 10%) equals $18,100+ HSA at $6,750 + (Traditional) IRA at $11,000. Total $35,850 in savings.

***Low key lesson: It pays to be married. Bonus: if you want to learn how to be a millionaire 🡨 check this article out. If you had enough, for now, save it for next week. No rush.