10 Most Common Questions About Taxes | Money Stuff - YouTube

Hi there, and welcome to Money Stuff, a quarterly video series in partnership

with the United Way and the SunTrust foundation, the creators of the

Money Game 2 app. It's that time of year again! Time to pay the tax piper.

"Everybody has to pay taxes." And while we can't decode the more than 4 million words the

US tax code, we can tackle the 10 most common questions about taxes. Let's do it!

"You're not familiar with the phrase, 'In this world, nothing is certain to death and taxes?'"

"...Well, I am now."

Question #1: Why do we pay taxes? What's the point?

Taxes raise money to help pay for programs and services authorized by

state and federal governments. Everything from national defense, welfare,

and social security to public schools

and basic infrastructure like highway maintenance.

Question #2: How can I reduce my taxes?

You're going to have to do your research on this one,

and see what works best for your specific situation,

but generally there are three ways to go about it:

#1: Withholding more money from your paycheck by lowering your exemptions on

your w-4 will give you a bigger return, but

keep in mind that you're basically giving the government an interest-free loan.

"Taxes! Taxes! Beautiful, lovely taxes! Haha!"

Taking injections and credits where you can also pads you return.

Did your doctor prescribe a a work out? Well, then your gym membership could be deductible.

Another way to reduce your taxes is to hire a professional tax preparer,

something you definitely want to do if you claim unusual deductions, your a

small business owner, or you have investments like real estate holdings.

Question #3: What happens if I don't file by the April 18th deadline for 2016?

...Die your hair, head for the mountains,

and use several disposable phones...

Or take the less dramatic step of filing for an extension.

The IRS charges two different kinds of late fees:

"Failure to file" and "failure to pay"

The "failure to file" penalty is much higher than the "failure to pay."

We're talking 5% of unpaid taxes per month vs 0.5% per month.

Now, an extension requires that you still pay 90% of your estimated taxes by the original deadline.

The difference is that you have six months to work out the specifics and file the final paperwork.

It's good to know that you have some wiggle room if you need it, but

ultimately you're just creating a headache for yourself if you don't pay on time.

Question #4: What if I stop paying my taxes... forever?

You would be considered a tax protester.

The extra penalty for tax fraud its 75% of taxes owed,

And tax evasion can land you in prison.

"Grandma, you didn't pay your taxes?"

"I would have, but I didn't have any money."

So, unless you live off the grid, make an infinitesimal amount of money, or barter with goods and services,

you're probably going to have to pay at some point.

Question #5: What are the chances that I'll get audited?

In 2010, just 1.1% people who filed a 1040 were audited, but for those

earning one million or plus, the percentage climbed to 12.5%.

"Oh, you almost had me...

But you cannot declare off-shore investment losses against future capital gains...

Any child knows that." (maniacal laugh)

There are usually three circumstances that cause the IRS to take a closer look at your return:

#1: Forgetting income #2: Claiming eyebrow-raising business expenses

#3: Making huge charitable contributions.

Question #6: Should I file jointly or separately?

Well, there is no easy answer to this one since it depends on what the types of

deductions you and your partner might claim, medical deductions you might have,

and your income levels.

For instance, you don't have to file jointly to claim the

child tax credit, but the $1000 credit begins to phase out at

$110,000 for joint filers and only $55,000 for separate filers.

Question #7: I didn't make much money this year... Do I still have to file?

You don't have to file an income tax return if you make less than the minimum income

requirements for the tax year. The minimum is different for those 65 and older,

those who file jointly or separately, and those who are claimed as a dependent.

Speaking of...

Question #8: Who qualifies as a dependent?

This gets a little squirrelly, but the short answer is:

A dependent is anyone who lives with you, other than your spouse, for whom you are providing more than

half of their financial support. Children are the most common dependents,

but elderly parents and other relatives can qualify,

and even unemployed friends crashing on your couch.

Question #9: What are tax brackets?

The idea behind tax brackets is that if you fall

within a certain earnings amount, you're taxed at a specific rate. For instance,

someone who makes $50,000 would fall in the 25% tax bracket, but that is not the whole story.

For someone earning $50,000 only the money

greater than $37250 is taxed at 25%. The rest is taxed at 15% and 10%.

Question #10: Why do some really rich people pay less taxes than regular folks?

Good question. It comes down to how the money was earned.

"Investment income" vs "Regular income"

People who make money from money (investors), well they pay lower effective taxes

than folks who make money from, say, a job.

That's because investment income is taxed up to 20% for people earning more than $400,000.

Regular income from a job, on the other hand, is taxed at 25% for people

earning $36,250, and the rates only go up from there.

So, is it fair?

After all, money is money no matter how it earned, but if it's being taxed at a lesser rate

for someone who has enough money to create investment opportunities that

yield a significant return, there is clearly an advantage for the wealthy.

Something billionaire investor Warren Buffett points out in his New York Times op-ed piece:

"Stop coddling the super rich."

In summary, take a minute to assess your financial profile.

Are you a joint filer or a separate filer?

Do you have valid deductions and credits that you can go after?

And for the procrastinators, rejoice!

This year, you can file on April 18th

rather than the traditional deadline of April 15.

For more tips on financial information, make sure to check out the Money Game 2 app

powered by The United Way and the SunTrust Foundation.

(singing) "We need the IRS to stay alive..."