Money Musings 💭 the 😡 truth about taxes
Do you find doing your taxes super annoying? I’m with you.
It’s not only annoying, it’s complicated and confusing. I always feel like I’m making a mistake or doing something wrong.
So yes, I’m going to host a Q&A with some incredible accountants to demystify taxes but I first want to tell you why your taxes are so complicated to begin with.
Tax prep companies like TurboTax (owned by Intuit) and H&R Block lobby millions of dollars each year to keep our taxes complicated. Whaaaa??? 🤯
I know… I felt the same way. Because if filing your taxes was free and easy, you wouldn’t need to pay companies to help you do it.
Instead, how does this sound?
According to NBC, “for many taxpayers, the government already knows your income because your employer sends the IRS your W2's and 1099's. Instead of making you do all the leg work, calculating, writing and erasing, and scrambling to get to the post office on time, the IRS could just send you a prefilled tax form.”
This would save us 13 hours of time and $200 per year (that goes to tax prep companies), according to estimates by the office of Senator Elizabeth Warren.
Hopefully someday we get there, but for now, know that you can file your taxes for free (check out this link).
If you earn under $72K you can use a tax prep company for free. Didn’t know that either? Tax prep companies don’t want you to.
If you earn more than that and aren’t up for doing your taxes yourself, hire an accountant. Check out Accountants of Color's directory of BIPOC accountants.
Want to learn more about taxes? I'm so excited to be hosting a free Tax Prep Q&A with Accountants of Color on March 26th at 1 pm EST. I'll be asking Keila and Kelli the most frequently asked tax questions I hear from the Fiscal Femme community.
You are worth it.
Ashley
P.S. Our Closing the Gaps roundtable is tonight, Wednesday, March 10th at 6:30 pm EST. Join us to learn about the systemic issues that impact the financial goals of women and especially Black women and women of color. Cinneah and I will be joined by financial superstars @heyberna, @millennialindebt, @missbehelpful, @webravelygo and @thebrokeblackgirl.
P.P.S. On Thursday, March 18th at 7:00 pm EST we are hosting the We Choose FI/RE roundtable. Come learn about the FI/RE movement from our perspectives and talk about how women at different stages in their journeys are working towards goals of financial freedom.
MONEY MOVE OF THE WEEK
Calculate what you actually earn. When outlining our budgets, most of us think of our salary as what we earn. But, what actually hits our bank account is a very different number. 😩 Check your most recent pay stub or log into your checking account to see how much of your salary hits your account. You can also use a payroll calculator to see the breakdown.
If you’re an entrepreneur or freelancer, you’ll want to make sure to account for taxes. I like to transfer a percentage of each paycheck to a tax account. It’s helpful to look at the monthly breakdown as well as the annual total. To make this easier, use this budgeting spreadsheet. I made it for myself and use it with all of my clients!
YOU GOTTA SEE THIS
DEFINE: TAX CREDIT.
An amount of money that you can subtract from what you owe in taxes, dollar for dollar. So if you have a $1,500 tax bill and a $500 tax credit, you now owe $1,000 in taxes ($1,500 - $500). Here are some common tax credits.
Tax credits are often confused with tax deductions. Tax deductions decrease the income you are taxed on. So instead of coming dollar for dollar out of your taxes, they help on a percentage basis.
Example: If your taxable income is $75K and you’re taxed at 25% (to make things simple), you pay $18.75K in taxes. If you have $5K of deductions, you will now pay taxes on $70K ($75K-$5K), saving you $1.25K ($18.75K - $17.5K), and sometimes putting you in a lower tax bracket.
Fun fact: If your tax credits are larger than what you owe in taxes (or if you don’t owe any additional taxes), you’ll get a tax refund (money back)! 🎉
Use it in a sentence: “With my tax credit and deductions this year, I’ll get a refund on my taxes rather than having to pay. I don’t hate that.” 🔥