By Abdel Jimenez
Taxes are a language only a few speak. Like French, some words have one consonant and with others the ending of a word isn’t pronounced. But when it comes together it sounds beautifully. In the same way learning how to talk taxes can make you astute by conducting a strategic tax plan.
I filed my own taxes last year after I moved out from my parent’s home.
It terrified me receiving my W-2 Form, a document that shows the total amount of taxes taken out of your paychecks for the year. That year, I received three different W-2 Forms from previous employers where I worked at a dine-in movie theater, a restaurant and a bank. Before the new tax law that was passed in December 2017, I was able to use the old tax rates to determine my total tax liability.
I received a refund from the state and federal government that year.
My parents don’t know how to file their own taxes. When I was 16-years-old, I remember going with them to the tax accountant they trusted the most. It wasn’t a HR Block or TurboTax. My parents went to a firm called Rubi Services. I had no choice but to watch them talk to a tax consultant, who advised them on effective tax planning. It was the most boring part of my day. No teen wants to learn how to reduce taxes because it simply doesn’t apply to them. Yet, the lessons I learned from the tax accountant about reducing, shifting and deferring taxes to a legally low level as possible helped me several years later gain a tax return.
I took a class on personal finance management the semester prior to filing my first taxes. The class taught me valuable lessons about managing money, use credit and consumer loans, and investing in the securities market. Throughout the class, I learned how how other investments can be added as a deduction to minimize your tax liability. Adults who own homes, have retirement accounts and receive dividends from stocks can maximize their deductions to lower their tax liability. I did not own a home or had a retirement account, but I did dable with stock investments through a 401(k) account set up from job at the bank. What I used to lower my tax liability was the tuition deduction form I could use from my university. If I had not used that form, my tax return would have been about $800, but as I calculated my taxes with tuition deduction I gained $200 more that put my return for the year at $1,000.
Paying taxes is not like by many. Instead, people want to find a way to minimize their tax liability. Effective tax planning is legal as far as it is tax avoidance instead of tax evasion. People can and should use different vehicles to reduce their taxes, but it is illegal to inaccurately report taxes and/or deductions, or pay taxes altogether. I used my tuition costs to lower my tax liability.
Seeing the process of filing my own taxes helped understand more about how the U.S. economy works. It reframed my thoughts of buying a home, which is used in most cases as a tax shelter. My knowledge was challenge a year later when lawmakers passed a sweeping tax reform bill that change much of the information I learned from my outdated class. And that is the beauty of taxes… they always change.
Abdel Jimenez is a student at Arizona State University.