What Are Taxes?
In 1913 the 16th Amendment (an addition) to the U.S. Constitution was approved. This created the modern U.S. income tax system. Each year residents of the United States are required to file an income tax form based on their income during the year. One type of income is called wages. Most taxpayers are employees and earn a money in exchange for their work. Taxes are taken out of their pay check. At the end of the year they are sent a form stating how much they earned for the year and how much taxes were with held. Calculations on a tax form is done to see if the taxes with held during the year was enough or too much. If it was too much then you get a refund of the taxes you over paid or if you didn’t pay enough then you would owe the extra.
There are many factors used to calculate your taxes including credits, dependents, filing status, and deductions. Depending on the above factors the government has set up what is called a standard deduction that is taken off of the income you earned during the year and what is left is your taxable income.
Certain kinds of deductions are called itemized deductions. If you have enough of them to beat the standard deduction, it is usually a good idea to itemize. For most taxpayers, owning a home makes itemizing worthwhile. To deduct expenses of owning a home, you must file Form 1040 and itemize your deductions on Schedule A. There are three primary areas: real estate taxes, home mortgage interest, and mortgage insurance premiums. Generally, your real estate taxes, home mortgage interest, and mortgage insurance premiums are included in your house payment.
If you have investment property other items can be added to the above list. Advertising, utilities, repairs, maintenance, supplies, and professional fees. All of which can be used to make your deductions higher therefore lower your taxable income.
There are also credits which the government gives you a certain amount of money to take off your income before it is taxed. Energy credits are one of these. You can claim a credit for energy-saving home improvements made for the cost of skylights, outside doors, windows, pigmented roofs and high-efficiency furnaces, water heaters and central air conditioners installed this year in a primary home. This is usually not what you paid for the improvement but a standard deduction for what type of improvement. I look for other items to be added each tax year.