I remember hearing 10 years ago that it was a hell of a lot of work to figure out how much taxes you had to pay to IRS, and that for filing your taxes, you often needed a lawyer or sth like that.
And then they changed it and implemented sth like “direct tax” or sth, and that means that they take your taxes from you automatically, without your intervention. Is that accurate?
To add on to the other explanations: The thing you heard about 10 years ago was likely Trump’s tax bill that increased the standard deduction - a set amount that you can deduct instead of having to do a lot of math - and took a way a lot of deductions.
A deduction just means “you don’t pay taxes on that money.”
The big deductions that hurt was removing deductions for items people bought for work. The idea is that the employer should be providing that stuff, but that’s not always realistic.
Without a doctor’s note, lots of businesses aren’t going to buy an employee an ergonomic chair because it costs 10 times as much as the Amazon special. They also aren’t going to buy you a wardrobe of business suits that you’ll only use for meetings. Being able to write that stuff off was huge for some of us.
I had to convince my side gig (teaching scuba and underwater photography) to change me from employee to contractor because I suddenly couldn’t write off my gear.
Tell me about it. I’d been fully remote for about three years before that took effect, and I could take a pretty hefty deduction for my home office because of how it was calculated
It’s pretty straightforward for most people if you’re filing for yourself. It only gets complicated if you do itemized deductions which only makes sense if your total deductions are greater than the “standard deduction” (which I think is like $12,500 or something? The tax app does it for you).
You decide how much withholding that your job will do when you are hired (you can have it changed if you want). You can choose to have them estimate based on how many dependents you have and deduct that from each paycheck. It will usually be slightly more than you actually owe, so you get a return when you file once a year. Or you can choose to not have them deduct anything, and then pay the IRS the total amount when you file.
The latter is probably the smarter way to do it in that you’re not essentially loaning money to the IRS, but in a country where most people live paycheck to paycheck, people don’t like the idea of having to write the government a 4 to 5-figure check every year.
We have taxes taken out every paycheck that is kind of like an estimate of what you actually owe. At the end of the year, you file complicated paperwork to determine what you actually owe. Big tax companies lobby hard to keep it this way.
For anything more complicated than a very basic life, people often use a tax company (like TurboTax or HR block) for help, which costs money. For even more complicated ones, people may use an accountant.
It’s a ridiculous system and the lobbyists keep it like that
Its both. Your taxes are deducted from your paycheck then from January to April you have to “file taxes” often with the assistance of a tax service or accountant then either pay extra or wait several weeks to get the amount you paid “too much” into.
How does the american tax system work?
I remember hearing 10 years ago that it was a hell of a lot of work to figure out how much taxes you had to pay to IRS, and that for filing your taxes, you often needed a lawyer or sth like that.
And then they changed it and implemented sth like “direct tax” or sth, and that means that they take your taxes from you automatically, without your intervention. Is that accurate?
To add on to the other explanations: The thing you heard about 10 years ago was likely Trump’s tax bill that increased the standard deduction - a set amount that you can deduct instead of having to do a lot of math - and took a way a lot of deductions.
A deduction just means “you don’t pay taxes on that money.”
The big deductions that hurt was removing deductions for items people bought for work. The idea is that the employer should be providing that stuff, but that’s not always realistic.
Without a doctor’s note, lots of businesses aren’t going to buy an employee an ergonomic chair because it costs 10 times as much as the Amazon special. They also aren’t going to buy you a wardrobe of business suits that you’ll only use for meetings. Being able to write that stuff off was huge for some of us.
I had to convince my side gig (teaching scuba and underwater photography) to change me from employee to contractor because I suddenly couldn’t write off my gear.
Tell me about it. I’d been fully remote for about three years before that took effect, and I could take a pretty hefty deduction for my home office because of how it was calculated
It’s pretty straightforward for most people if you’re filing for yourself. It only gets complicated if you do itemized deductions which only makes sense if your total deductions are greater than the “standard deduction” (which I think is like $12,500 or something? The tax app does it for you).
You decide how much withholding that your job will do when you are hired (you can have it changed if you want). You can choose to have them estimate based on how many dependents you have and deduct that from each paycheck. It will usually be slightly more than you actually owe, so you get a return when you file once a year. Or you can choose to not have them deduct anything, and then pay the IRS the total amount when you file.
The latter is probably the smarter way to do it in that you’re not essentially loaning money to the IRS, but in a country where most people live paycheck to paycheck, people don’t like the idea of having to write the government a 4 to 5-figure check every year.
I’m self employed. My taxes are about six forms that cross-reference each other, a pita for sure. Also I pay a higher tax rate than billionaires.
There are dangers with that.
No, not entirely.
We have taxes taken out every paycheck that is kind of like an estimate of what you actually owe. At the end of the year, you file complicated paperwork to determine what you actually owe. Big tax companies lobby hard to keep it this way.
For anything more complicated than a very basic life, people often use a tax company (like TurboTax or HR block) for help, which costs money. For even more complicated ones, people may use an accountant.
It’s a ridiculous system and the lobbyists keep it like that
Its both. Your taxes are deducted from your paycheck then from January to April you have to “file taxes” often with the assistance of a tax service or accountant then either pay extra or wait several weeks to get the amount you paid “too much” into.