The IRS is cracking down. So I feel obligated to help people learn how to stay out of debt. These are 5 terms you need to know to stay out of tax debt.
1. Taxable Income: This is highly important. Your taxable income is the money the IRS can claim taxes on. With few exceptions, this is all of your income. If you do not report your taxable income to the IRS, they'll make you pay later when you're in debt.
Heads up: Taxable income doesn't just include your wages from work. This also includes any large sums of cash you win as a prize, any large sum of money you make from selling things, the income from your side job, and even your unemployment benefits. So double check your earnings.
2. Deductions: This is your biggest IRS Advantage. So pay attention! This helps you pay less to the IRS. Let's say you have to pay $15,000 and your deductions are $5,000. Then you only have to pay $10,000.
Heads Up: The most common type of deductions are itemized deductions. These include medical expenses, theft losses, gambling losses, mortgage interest, and even other kinds of taxes (state, property, etc.) So do your research and save some money!
3. Voluntary Compliance: This means voluntarily complying with all the tax laws and being honest when filling out all your IRS statements.
Heads Up: This can work to your advantage. If you are already in debt to the IRS and you voluntarily comply with the IRS, they'll go easy on you. Just like sometimes the law is easier on those who turn themselves in. But really, you should always voluntarily comply with tax laws and stay out of trouble in the first place!
4. Withholding: This allows income to be taken out of your paycheck while you receive the income. Otherwise, you'd have to figure out the lump sum at the end of the year. The withheld taxes are deposited into your IRS account and credited for the amount you file.
Heads Up: This is an easy way to keep out of trouble. When the money you need to pay is automatically withheld, you're not tempted to go out and spend it. If your job is not offering this service to you, look into it!
5. AGI: AGI stands for Adjusted Gross Income. It's all the income you receive in one year.
Heads Up: This is the first step to calculating your income taxes, so make sure you get it right.
Final Tip: A lot of IRS policies are technical and hard to understand. Do your research well, and make sure you get everything right before you act. Your local library will have plenty of resources that can help you. And if you don't have time to file your taxes, seek a qualified Tax Professional that can help you do that.