Minimizing your taxes
Why do we have to pay taxes?
Imagine a day where all goods and services provided by the government stop.
First, all public agencies including public schools would close. Your teachers, principals, clerks, and custodians would not be there. The subway, trains and buses would not run, water would not be pumped, garbage would go uncollected, airport security would not be on duty, planes would not take off, police and fire departments would not show up and daily life as it is known would shut down. These goods and services and many more, provided by federal, state and local governments, are paid for by the taxes people and businesses pay on INCOME , WEALTH and CONSUMPTION .
Federal taxes pay for: defense and international security assistance; SOCIAL SECURITY ; MEDICARE and MEDICAID ; safety net programs and programs that assist low-and moderate-income working families; interest on the national debt; education; scientific research; cost of government.
- State and City taxes pay for law enforcement, fire departments, education, sanitation, city and state governments.
- Taxes are collected by state, local and federal (Internal Revenue Service) tax agencies.
Societies can debate whether the benefits of the goods and services provided by government are worth the reduction in income.
How tax collection works
Income is reduced by taxes — leaving less for our personal goods, services, savings and investment.
Taxes on income levied by federal, state and local taxing authorities are progressive meaning higher income groups are taxed at higher rates than low-income groups.
- The official income tax rate starts at 10 percent and goes all the way to 37 percent.
- It’s important to understand that moving into a higher tax bracket does not mean that all of your income will be taxed at a higher rate. Instead, only the money that you earn within a bracket is subject to that particular tax rate
The government begins taxing you based on the information you provide on your W-4 FORM when starting a job. The information you complete, instructs your employer how much to withhold from GROSS PAY based on your filing status i.e. Single; Married Filing Jointly; Head of Household.
| Single filing individual | Married filing jointly (& surviving spouses) | Head of household | |
|---|---|---|---|
| Tax rate | Taxable income | Taxable income | Taxable income |
| 10% | $0 — $9,525 | $0 — $19,050 | $0 — $13,600 |
| 12% | $9.525 — $38,700 | $19,050 — $77,400 | $13,600 — $51,800 |
| 22% | $38.700 — $82,500 | $77,400 — $165,000 | $51,800 — $82,500 |
| 24% | $82,500 — $157,500 | $165,000 — $315,000 | $82,500 — $157,500 |
| 32% | $157,500 — $200,000 | $315,000 — $400,000 | $157,500 — $200,000 |
| 35% | $200,000 — $500,000 | $400,000 — $600,000 | $200,000 — $500,000 |
| 37% | Over $500,000 | Over $600,000 | Over $500,000 |
By January 31 of each year, your employer/s will send you a W-2 FORM .
- This form includes total earnings before taxes for the prior year. Also, included on this form is the amount withheld for federal and state and local taxes and for FICA (Social Security and Medicare).
- If you receive a W-2 or 1099 FORM , you will need to complete federal/state/local TAX RETURN by April 15th.
- When completing the tax return, you will use information from the W-2 and will complete information for deductions and credits that may lower your tax liability.
- You might be entitled to a refund from the government, but if you underpaid taxes, you might owe money.
If you don’t owe federal taxes, you might still owe NYS and NYC taxes because the rules are different.
- NYS/NYC have different standard deductions, so different income thresholds for filing taxes.
Reducing tax liability
When filing your taxes depending on the amount of your income and the eligible deductible expenses you may have, you can choose either to claim the STANDARD DEDUCTION or, to ITEMIZE your deductions (eligible expenses).
If you choose the standard deduction depending on your filing status, the amounts in the chart are subtracted directly from your taxable income before income tax is calculated.
| Single filing status | Married filing jointly | Head of household |
|---|---|---|
| $12,000 if under age 65 | $24,000 if both spouses under age 65 | $18,000 if under age 65 |
| $13,600 if under age 65 | $25,300 if one spouse under age 65 and one age 65 or older | $19,600 if age 65 and older |
| $26,600 if both spouses age 65 or older |
You can consider itemizing your deductions if your eligible deductions exceed the standard deduction.
Some of the itemized deductions allowed by the IRS that are commonly used by taxpayers would include:
- Home mortgage interest.
- Charitable donations.
- State income taxes paid.
- Real estate taxes paid.
- Out-of-pocket medical and dental expenses.
In addition to deductions, taking TAX CREDITS are another way to lower the amount of taxes you will owe.
- Tax Credits provide a dollar-for dollar reduction of your income tax once the amount that you must pay has been calculated.
There are many important tax credits available for individuals and families who do not earn a high income. Some tax credits like the EARNED INCOME TAX CREDIT may even increase your refund or provide you with a refund even if you didn’t owe any taxes.
- In addition, there are Child and Dependent Care and Educational tax credits that will lower the amount of taxes you owe.
Resources to help you understand taxes
What's the best way to prepare your taxes?
- Don't pay for tax preparation services.
- Don't pay for quick refunds.
- Don't put your refund in someone else's pocket.
- Keep your money!
When you pay for a tax-preparer it can cost on average $150 dollars. If you want a quick refund (which is really a high interest loan), that will cost another $30-$100 dollars. Do you really want to spend your EITC this way? What other ways could you spend it?
Depending on your income, you may be able to use NYC Free Tax Prep Services. File you taxes safely and for free in-person at your local site. The tax filing date is April 15th.
FAQs about NYC Free Tax Prep
NYC Free Tax Prep sites are available throughout the city and offer different options:
Self-Prep with Help (or Assisted Self-Prep) is a safe and reliable online tax prep service. Do your own taxes with easy-to-use tax filing software but contact a volunteer preparer for help when needed.
Virtual Tax Prep — is a safe and reliable online tax prep service. An IRS certified Volunteer Income Tax Assistance (VITA)/Tax Counseling for the Elderly (TCE) volunteer preparer will:
help you file your 2020 tax return during a 60-90 minute virtual call; use a secure digital system to manage your tax documents; answer your tax questions.
Drop-off Service — Locations are limited this year, we encourage filers with internet access to consider the above online service options—Virtual Tax Prep and Self-Prep. At an NYC Free Tax Prep site for drop-off service, you can drop off your tax documents and pick up the completed return later. Filers must follow New York State health guidelines, including wearing a mask and practicing social distancing appropriately during visit. Sites may conduct screenings or have additional requirements. Open map to find your nearest NYC Free Tax Prep site.
In-Person Tax Prep — Locations are limited this year, we encourage filers with internet access to consider the above online service options—Virtual Tax Prep and Self-Prep. At an NYC Free Tax Prep site for in-person tax prep, knowledgeable IRS certified VITA/TCE volunteer preparers will sit down with you to complete an accurate tax return. Sessions take a minimum of 30 minutes. Filers must follow New York State health guidelines, including wearing a mask and social distancing appropriately during visit. Sites may conduct screenings or have additional requirements. Open map to find your nearest NYC Free Tax Prep site.
You can always fill out the forms yourself.
Instructions for completing tax forms include worksheets and tables. Get them for free from the post office, libraries and other locations, or call 1-800-TAX-FORM.