Tax terms cheat sheet
There are a ton of terms, forms and acronyms related to taxes that may seem like a bunch of mumbo jumbo right now. We’re here to help you understand them (or at least the basics of what they mean), tell you where you’ll see them and explain how to learn more. Tax newbies rejoice!
What is a W-2?
It’s a form you receive from your employer that reports what you earned in 2017 and how much was withheld from your paychecks for taxes. The information comes from your paychecks and the W-4 you filled out when you started your job. You’ll use the info from your W-2, or from multiple W-2s, if you had several jobs, to find your taxable income and to fill out your individual income tax return. Watch the video below for a more in-depth introduction to the form.
Is all the money I made taxable income?
Probably. Taxable income is basically any income you earn, like wages, salaries, bonuses, commissions or tips. It also includes casino winnings, interest income and a lot of other ways you could have earned money. See the full list of what is considered taxable income by the IRS.
Your taxable income minus your deductions is used to determine your tax bracket. So the more deductions you have, the lower you could fall on the tax bracket.
So, what are tax deductions exactly?
There are two types of deductions, standard and itemized. Standard is just what it sounds like: basic. It’s a standard amount set by the IRS annually. See this year’s deduction amounts here. It’s simpler but it’s not always the right choice, especially if you have a lot of items you could deduct like medical expenses or charitable donations. That’s where itemized deductions, come in. To take advantage of itemized deductions you need to have kept careful records and held on to the receipts for whatever you want to deduct. Learn more about what you can and can’t deduct.
Wait, what’s a tax bracket and how do I find mine?
Your tax bracket is found on a chart that is created annually by the government and shows how much tax you need to pay on each portion of your taxable income. It’s important to know that each portion of your income is taxed separately based on the bracket it falls into, it’s not all taxed at the highest bracket. So if you're filing taxes for 2019, the first $9,700 of your income would be taxed at 10%, and the next amount of income you make above that would be taxed separately in the next tax bracket which is 12%. Here’s a great blog that breaks it down, and a glimpse at the 2019 rates below.
*Note that this bracket is for individual taxpayers — click here for married and other statuses.
Once you have all of this information, you’re ready to fill out your individual tax return.
And how do I file my individual income tax return?
You have options! The so-called “short form” is the 1040EZ. It is known for being simple to fill out, but that means you can only use it if your taxes are simple too. You must file as single or joint with no dependents, an income of only wages, salaries, tips and taxable interest (under $1,500), and you have to claim the standard deduction (see above for more on what that is). You cannot have income from being self-employed or rentals, or if you have capital gains or losses (like if you sold a property or lost money on an investment).
If you think the 1040EZ might not be right for you, or if you’re claiming an education credit (more on that on the blog tomorrow), you may need the 1040 or the 1040A. Check out your full list of options here.
Or, if you think you were made for the 1040EZ, watch this video on how to fill out the form.
Do you feel a little more prepared to file your taxes now? Don’t worry if you still have questions, we have more answers! Later this week on the blog, we’re covering what taxes mean for your student loans, deductions and credits you might qualify for, and everything you need to know about your refund or what to do if you owe.
Each person’s tax situation depends upon individual circumstances. Therefore, the information in this article is intended to serve as introductory tax information. Tax professionals should be consulted for personalized tax advice.