Too often we have situations where we have others take care of our paperwork and when we have to go and sign it we have no idea what that paperwork is talking about and essentially, we have no idea what we are signing. This is very true for those of us that file our taxes. You should always know what youre signing and have at least a general idea about what you are reading. We are going to start with some terms that are beneficial to know when filing your taxes.
Basis: This is a value or asset that is used for calculating a loss or gain when the asset is sold. Here is an example, if you have bought stock in a company over 5 years ago and you just sold the stock this year, you need to know its value (basis), or what you paid for it at the start and this will be how you establish the loss or gain on the sale for your tax purposes.
Capital Gain: If you get rid of a capital asset like a bond, real estate or stock and you receive a profit because of this, which is your capital gain. You will need to pay taxes on the amount that you gained from the sale which will be fifteen percent for the average tax payer and those that are in the higher bracket will have to pay twenty percent.
Dependent: A person that is not yourself or your spouse and you can claim them on your taxes. For a person to be your dependent you must take care of them financially at least 50% of the time and this can be your child or a qualified relative that does not have to be child.
Exemption: An exemption is the amount that the taxpayer can claim for a spouse, dependent, and themselves. The total amount that you receive for your exemption is taken from your adjusted gross income before taxes are figured on the remaining taxable income.
Standard Deductions: Those that choose to not have itemized deductions on their returns should choose the standard deductions because those are the only options. Standard deductions are a set of dollar amounts that vary based on if you are single, married and filing jointly or head of household.
If any of these situations scare you don’t be affraid to reach out to a personal accountant to have them help you understand how to deal with your particular issue and get the most tax benefits possible for your business.