It’s the most wonderful time of the year! Well… maybe for accountants. With 2015 in full swing, tax season is now upon us. For some of you, this is the first time that you are filing a tax return. The task may seem a little scary, but I think that it is mostly a fear of the unknown. My goal for today’s post is to explain how income taxes work, discuss what documents you need before you can file your taxes, and discuss how to go about filing them before the April 15th deadline.
Why do I have to do this?
When you receive your paycheck, you probably notice that the amount of money you received was significantly less than what you were told you would be paid. The reason for this is taxes. The government wants to be sure that they receive their money, so a percentage of your income is withheld by your employer.
The amount of money withheld from your paycheck is based on two things: your estimated total income for the year and how many allowances that you will claim on tax forms. Allowances are reasons for your employer to withhold less money. Allowances include you, your spouse, your dependent(s), and other child tax credits. When you start a new job, you fill out a W-4 form. This form assists your employer in having the most accurate estimates for your withholding.
After the year ends, your employer provides you with information regarding your true income for the year in a W-2 form. With this information, you file our taxes for the previous year. In doing this, you compare the amount of taxes withheld from your paychecks to the amount you should have paid. If what was withheld is more than you are supposed to pay, you receive a refund. If what was withheld is less, you have to pay the difference that you still owe.
How do they work?
The United States Federal Income Tax system is based on the idea of tax brackets. Each bracket has a designated tax rate, and as you make more money, you are exposed to higher levels of tax. Below is a breakdown of the tax brackets for 2014:

A common misconception about tax brackets is that your entire taxable income is taxed at the rate of the highest tax bracket that you fall into. For example, if your total taxable income puts you in the 25% tax bracket, some believe that all of your taxable income would be taxed at the 25% rate. This is not true.
I like to think of each tax bracket as a bucket. You start by filling the first bucket (10% bracket). If your taxable income exceeds what the bucket can hold ($9,075), it flows into the next bucket. You repeat this process until all of your taxable income is accounted for. Let’s say, for example, your taxable income is $50,000. The first $9,075 would be taxed at 10%, the next $27,825 would be taxed at 15%, and the remaining $13,100 would be taxed at 25%.
So what is considered taxable income? There are the obvious answers such as wages, bonuses, tips, and commission, but some answers might surprise you – gambling winnings and embezzled money just to name a few. For a more extensive list, you can check here.
What do I need to file my taxes?
Depending on how many avenues you receive income from, this could be a very simple question or one that is rather complex. An exhaustive list of documents and information needed to file can be found here. Below, I will provide a summary of more common forms for someone who has recently graduated:
Basics:
- Birth date for you and all dependents
- Your social security number
- Last year’s tax return (if you filed)
- Bank account information (if you get a refund, it can be deposited directly to your account)
Income:
- W-2 form (wages and salary)
- 1099-INT (interest)
- 1099-SA (MSA or HSA distributions)
Things you paid for:
- 1098-E (student loan interest)
- 1098-T (tuition)
Records and receipts:
- Charitable donations
- Contributions to retirement plans
- Moving expenses for a new job
It is important to note that a lot of the forms listed provided to you by other sources. Here is a chart listing when those forms should be made available to you. If you have not received them by the following deadlines, you will need to reach out to the appropriate resource to make sure you can receive them in time to file.

Now what do I do?
Once you have all of your information available to you, it is time to actually file. While you do have the option to complete everything by hand and mail your forms to the IRS, I strongly recommend using an online service or software to accomplish this for you.
There are many benefits to filing online including:
- The ability to import electronic versions of tax forms which means less work for you
- Ensures that you file your taxes utilizing the correct tax filing form
- Ensures that you are maximizing deductions
- Thorough questioning makes sure that all your bases are covered, and you didn’t forget to include information
- Receiving your return faster
The service that you use is ultimately up to you. I have filed using TurboTax, and have had no issues with it. However, I anticipate that most credible online services are on par with one another.
If you are really set on filing the forms yourself, here is a link that can help guide you on which sort of tax filing form you should be using.
This wraps up our discussion about taxes. There is nothing to be afraid of. You can do it! Remember that you must file your taxes by April 15th! As always, if you have any questions, comments, or feedback, leave a line below! Go make mom proud!

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