Filing your taxes can understandably be a tedious and perplexing process for most. Often, a lack of familiarity with terminology complicates the process even further. In this blog article, you will become familiar with the W2 form, what an adjusted gross income (AGI) is, standard deductions, the different filing statuses, and the 1098 forms. Hopefully by the end, some of these terms will make more sense to you and you will be on your way to conquering your taxes.
W2
If you ever had a job, chances are you have received a W2 form. This form contains basic information, such as income you earned from that employer, the amount of state and federal taxes withheld from your paycheck, health insurance benefits, and other important information. This form is critical for filing your tax return, so be sure to put this somewhere safe.
AGI
AGI stands for adjusted gross income, which is your taxable income minus certain deduction. In simple terms, a deduction is an amount that can be subtracted from your income to reduce your taxable income.
Standard Deduction and Itemized Deductions
You have two options for deductions: a standard deduction or itemized deductions. Standard deductions are based off your filing status and are typically adjusted each year. For the 2022 tax year, the standard deduction for “Single” and “Married filing separately” is $12,950; “Married filing jointly” is $25,900 and “Head of Household” is $18,800. Itemized deductions are used when your deductions are higher than the standard deduction.
Filing status
When filing your tax return, there are five options: single, married filing jointly, married filing separately, head of household, or qualifying widower with dependent child.
Single: When filing as a single, you must not be married. Unless you are married, you are considered single in the eyes of the U.S government.
Head of Household: If you are not married, but you paid for more than half of expenses in the household and have a dependent (a person you support financially who is a full-time student up to the age of 24), you would file as head of household.
Married: When married, you have two options: you can either file with your spouse, or file separately. This is a personal decision each couple must make on their own, thus being something that you discuss together.
Qualifying Widower with Dependent Child: If you were married, but your spouse passed away and you have a dependent, for two years after their death, the widower is allowed to use the married jointly tax rate. However, this only applies if you do not remarry.
1098T/E
HUECU offers both student and mortgage loans and uses the 1098T/E form. The 1098T form is given out by the college to report the expenses paid by the student towards their education. The student then uses this form to get an income adjustment or tax credit, which can sometimes take the form of a refund. The 1098E on the other hand, reports the amount of student loan interest paid. To receive a 1098E form, one must pay at least $600 in student loan interest.
The 1098 form is also used to report the amount of intertest one paid on their mortgage. Similarly, one must pay at least $600 in their mortgage loan interest in order to receive a 1098 form.
Understanding these few terms should assist you getting a grasp on the process of filing your taxes, but be sure to do your own research and learn more about anything you are unfamiliar with. Attaining more knowledge will greatly benefit you and your families on your financial journeys. Visit www.irs.gov for tax details.