Author Topic: "Doing your taxes"  (Read 3657 times)

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perpetua

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"Doing your taxes"
« on: May 31, 2014, 04:22:45 AM »
OK, here's something that's always puzzled me: Ordinary citizens having to 'do their taxes'. What does this entail? Why do you have to do it?

In the UK, your tax is deducted from wages before you even get them. Your 'take-home pay' is the figure you take home each month with your tax and national insurance deducted.

Self-employed people and businesses have to do 'tax returns' - because they're not paid salary and having their taxes deducted at source, I presume - but as far as I'm aware ordinary working people don't need to 'do their taxes' here.

How does it work? Who has to do it? Everyone? Just business owners? Do you get a bill for the year that you then have to pay? Do you have to pay it in one lump? Enquiring minds need to know :)

PastryGoddess

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Re: "Doing your taxes"
« Reply #1 on: May 31, 2014, 05:38:21 AM »
Here in the US, everyone has to file a tax return.  Both businesses and private citizens.  The US tax code is very very complicated.  Depending on your marital status, age, income, etc. You may qualify for various deductions to reduce your tax bill.

So taxes are taken out of any income paid to an individual or business, but every year the tax burden may change depending on your circumstances.  Most people, not everyone, has the government take out more than they actually owe throughout the year.  This way they'll get a refund when they file their tax returns.


It's much easier on ones peace of mind  to have the government pay YOU back for what they took, than to OWE them money. 


I own a business as a sole proprietor, so every quarter I send the government a check based on my income for the previous quarter.  I do this because I don't want to owe a whopping amount at the beginning of the year.  Most years I pay too much, but there have been some years when I have owed the gov't more money.   ::)
« Last Edit: May 31, 2014, 05:42:58 AM by PastryGoddess »

tjika

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Re: "Doing your taxes"
« Reply #2 on: May 31, 2014, 05:46:51 AM »
Here in the US, everyone has to file a tax return.  Both businesses and private citizens.  The US tax code is very very complicated.  Depending on your marital status, age, income, etc. You may qualify for various deductions to reduce your tax bill.

So taxes are taken out of any income paid to an individual or business, but every year the tax burden may change depending on your circumstances.  Most people, not everyone, has the government take out more than they actually owe throughout the year.  This way they'll get a refund when they file their tax returns.

Pretty much the same in the netherlands.

AvidReader

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Re: "Doing your taxes"
« Reply #3 on: May 31, 2014, 07:29:42 AM »
POD to PastryGoddess.  In addition all but a handful of the states also have an income tax for which residents must prepare a return.  Much of the information for the state return is based on the federal return.  I don't think there are too many people who still prepare their returns manually.  Most use: 1) one of many commercially available software programs (my household), or 2) pay to have a tax preparation service or an accountant prepare the returns, or 3) many banks offer free online tax preparation software for their customers (DS's preferred method).

I'm old enough to pre-date tax prep software and I well remember spending days and days completing forms and calculating the ways we were legitimately allowed to lower our taxes.  Now with the software, if one uses the same (but updated) program from year to year, one just plugs in the numbers, downloads and imports whatever investment income there might be, and a couple of hours later uploads (files) the return with the Internal Revenue Service.  Our state has chronically mishandled uploaded tax returns, especially when money is owed and a check must be sent separately through the mail, so we print them and file by mail.

Another "back in the day" story.  For many years, tax forms were available in the post office then public libraries.  Towards mid-April (federal taxes are due on April 15), we'd get busy in the public library with people racing in to get forms and use the copy machines.  One April 15, after we pushed the last library patron out the door at 9 pm, we filled a box with all the remaining forms we had (it was a considerable stack of paper) and placed it outside the door.  In the morning, all the forms were gone as was the box.   That kind of activity doesn't really happen much anymore.
« Last Edit: May 31, 2014, 07:31:22 AM by AvidReader »

bloo

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Re: "Doing your taxes"
« Reply #4 on: May 31, 2014, 07:34:00 AM »
Pastry Goddess covered it quite well I just wanted to add that there's a due date for filing the return. I live in a US state that has state tax and both state and federal returns are due by April 15th. Corporate returns are due March 15th. You can file for extensions if you need more time but if you owe the government money, you'll be paying interest on it. Accountants are very busy in the first quarter of the year.

'Doing your taxes' could mean the act of sitting down and filling out the forms, using software, dropping all your information off to an accountant and they do the taxes.

In years' past when I say I'm 'doing my taxes' I'm including all the bookkeeping I've neglected over the past year just so I can get to the point of sitting down and, using software, actually do my taxes. DH would like me to have the taxes done by oh...say January 31st. Between his anxiety and my procrastinating it gets done late February at my house.  ::)

Katana_Geldar

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Re: "Doing your taxes"
« Reply #5 on: May 31, 2014, 07:40:36 AM »
Tax time is coming here soon in Australia, financial year ends June 30 and individuals have until October 31 to get their returns in.

For me and DH, it involves seeing our tax accountant with our payment summaries of how much we've earned and taxes we've paid as well as any deductions. Then we go have Mexican food. :)

The year we got married I did about five returns at once and got about $2000 back, it helped pay for the wedding.

HorseFreak

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Re: "Doing your taxes"
« Reply #6 on: May 31, 2014, 08:09:15 AM »
Also, state returns can be lots of fun. I used to live in a state where they merged the education and income tax accounts that they had to pay returns out of. The problem came when paying out of it and it wasn't allowed to drop below a certain figure leaving lots of people waiting for returns until others paid their bills and the balance was high enough again.

I tried to avoid that problem this year and filed as early as I could (beginning of February) which led to being caught up in an IRS computer glitch that flagged way too many returns as possibly fraudulent. I only had one deduction beyond the standard that everyone gets, yet had to wait an extra 6 weeks for my money back for someone to manually review it. Apparently people who are going to steal identities and file for others' returns do so very early. 

Ceallach

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Re: "Doing your taxes"
« Reply #7 on: May 31, 2014, 08:14:11 AM »
In New Zealand it's similar to the UK - you can file a tax return, and businesses do, but the majority of individuals are not required to do so nor would have any benefit from doing so.   It's something you just don't need to think about.  Tax is taken from your pay each pay period and that's that.

In Australia however, each person must file a tax return every year despite the fact that the tax is taken out each pay period.    It's basically an "evening out" of where things are at.  It could be that your income varied throughout the year so your overall tax liability was different, or you are eligible for special deductions, or you may a loss on an investment... basically your tax return is your full financial picture.  Based on it, you either owe more money to the tax department or you get a return which is a nice cash bonus.   I guess somebody who had very simple finances might be spot-on e.g. they've had the exact right amount of tax withheld and it's even, although that's speculation. 

I have lived between both countries over the years, and whilst I loathe the hassle every year in Australia, I also love getting tax money back (yay!) as there is always some deduction I'm eligible for.    Plus it forces us to take a good look at our finances each year and review the year that was.   So it's probably a good thing in the greater scheme of things.   It is a pain though.  I do mine and DH's online which is good, but it still takes time collecting up all of our paperwork and entering the data.   Many people pay accountants or specialist tax return services to assist them. 

I always find it interesting that although the tax withhelding from pay works the same in both countries (e.g. as an employee you don't notice the difference) the end of year financial processes are so different!   I ran payroll for a U.S. company for awhile and their system is a whole 'nother thing altogether.   Much more complicated!
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lady_disdain

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Re: "Doing your taxes"
« Reply #8 on: May 31, 2014, 08:23:02 AM »
Do ordinary people (those with a job that deduct taxes, a mortgage, retirement account and basic stuff) need an accountant to prepare their tax returns?

Here in Brazil, if you are required to do a tax return (people with income below a certain threshold,  over a certain age and a few other situations aren't required), you use our IRS's software to plug in the numbers for income, dependents and deductions, as well as property that has to be declared (such as houses, investments, etc). It shows you how much taxes you have to pay under each way of filing (simple or detailed) and if you have tax returns to receive. You can then print out a copy for your records, save backups and send the return either online or in a bank with a pendrive.

The only people I know who use an accountant are either business owners, where it is legally required that an account go over the books, or someone with very complex investments. Oh, and doctors and other medical providers, since they have to itemize their income and it is a huge pain.

Ereine

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Re: "Doing your taxes"
« Reply #9 on: May 31, 2014, 08:52:45 AM »
In Finland you get a pre-filled tax document in the spring and if it's correct you don't have to do anything else (there are some automatic deductions and some that are supplied by banks and other institutions, like the interest of my student loan and trade union membership fees) but if you are eligible for other deductions you have to fill in them yourself. It may be things like going to work in another town or having work done at your home. Then you get the final tax decision in the summer and the possible refund will be paid in December (which is nice for Christmas). My income is so unpredictable that for the second year I owe the government money. I should have paid more taxes throughout the year.

What happens in the UK and similar places if someone makes more money than predicted during the year? Or is the tax rate the same for everyone?

oz diva

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Re: "Doing your taxes"
« Reply #10 on: May 31, 2014, 09:42:43 AM »
If you have a simple situation here in Australia there is an online form that you can fill out yourself and submit. If you do use an accountant their fees are tax deductible for the next financial year.

Victoria

Ceallach

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Re: "Doing your taxes"
« Reply #11 on: May 31, 2014, 10:04:30 AM »
If you have a simple situation here in Australia there is an online form that you can fill out yourself and submit. If you do use an accountant their fees are tax deductible for the next financial year.

Our tax situation is complex - overseas investments etc - but we still DIY ours.  I just have to install the australian government eTax software each year and follow the steps.  The hard part is gathering up the data and checking it all, actual submission is easy enough.
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camlan

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Re: "Doing your taxes"
« Reply #12 on: May 31, 2014, 10:05:49 AM »
It's basically that the deductions from your paycheck are standard deductions--you count yourself, and any dependents that you have, and they calculate the deductions based on that.

When you do your tax return, you can include other deductions, mortgage, gifts to charities, etc.

Unlike PastryGoddess, I don't have the government take out more than I owe. When you do that, the government gets to use your money interest free for months. I'd rather keep my money and owe the government a little bit at the end of the year. Usually, I owe less than $50. Occasionally, I might get a small refund of less than $50.

But some people do see taxes as a painless way of saving money. They have the government take out more than they owe every month, so they get a substantial refund every year. Then they use that lump sum for a major purchase, or something like that.
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cattlekid

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Re: "Doing your taxes"
« Reply #13 on: May 31, 2014, 10:19:31 AM »
We are in the US and my parents always used an accountant.   They did have investments and whatnot that made it useful for them to pay the accountant.  And you can deduct the cost of the accountant (just from the tax preparing time) as an expense that reduces your taxable income.

I have never used an accountant.  I have a degree in finance and a reasonably uncomplicated tax situation so I always did it on paper before the advent of tax software.  Now, I do both ours and my IL's because they used to pay a preparer and one year they asked me to look over the return that their preparer did and I told them it was a work of pure fiction (playing fast and loose with deductions).  They asked if I would take over and I've been doing it for the last five years or so. 

Do ordinary people (those with a job that deduct taxes, a mortgage, retirement account and basic stuff) need an accountant to prepare their tax returns?

Thipu1

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Re: "Doing your taxes"
« Reply #14 on: May 31, 2014, 11:16:24 AM »
In the USA your employer will send you a W2 form sometime in January.  This will state how much Federal and State tax has been deducted from your salary during the year.  You attach a copy of this to your tax return.  Your bank will also send a form stating how much interest you accrued.  They also report this information to the IRS. 

One year this was a problem.  The bank made a goof and reported the entire amount of my savings account as the amount of the interest.  As a result, I got audited.  It was only a post card audit but it wasn't fun.