Introduction and Overview of Income Taxes
Marissa Danley (00:00):
So today we’re gonna talk about taxes for the self-employed, including gig workers and independent contractors. Yes. If you are a gig worker or an independent contractor, you are technically self-employed for tax purposes. Hello. There we go. So again, my name is Marissa Danley. I own Inclusion tax Services. Here is my uh, website if you wanna go visit. There you are. Welcome to, and again, there’s my email, so go ahead and write it down if you want to. If not, you’ll have a copy of this presentation or you can get it from Dwayne. So just to recap, here’s what we’re gonna talk about. We’re gonna talk about how do income taxes work anyway, what is self-employment, some common deductions, a few odds and ends, and then couple covid provisions. They’re not completely over yet. So we’ll run through, um, a few of those as well.
Marissa Danley (00:57):
So first thing we’re gonna talk about is how do income taxes work anyway, I always figure if I’m gonna tell you why we’re do, I’m gonna tell you what we’re doing, I think you should know why we’re doing it. So I’m gonna give you an overview of income taxes and how they work. So in this country, we pay tax on all income unless it’s specifically excluded by law. So the default is if you make the money, it’s taxed unless Congress has come through and said, oh hey, we’re not gonna tax that. So what examples of things that are taxed are wages, interest, unemployment, and self-employment. All those things are considered taxable income. We also get deductions for certain things that are important to society. And so what what I mean by that is the tax code is really, uh, my fancy saying is the tax code is a snapshot of society’s values at any given point in time.
Marissa Danley (01:54):
And what that means is that we get deductions for certain things that society thinks are I is important. And so we’re gonna encourage people to do things through the tax code. So we’re gonna encourage thank people to buy homes. So we think that buying a house is potentially good for society. So we’re going to give you a deduction on your taxes. Same things with going to school, college, uh, potentially having kids taking care of elderly folks. So that is really what the tax goes does, is it brings in revenue for the country, but it also incentivizes people to do certain things. So lemme give you a little example of how taxes work. So let’s pretend that you’re not self-employed, okay? Let’s pretend that you’re working as an employee. You’re a single person, you go to work every day and you make $20,000 a year. So when you go to work as an employee, you make the $20,000 a year, um, and you get your paycheck and you go home and you don’t think about it. And then when you come and see me, I tell you, you’re either getting some money back or you might owe a little bit more. So what I’m
Marissa Danley (02:58):
Gonna explain to you right now is why that may happen. So you have your $20,000, you come and see me and I say, well, you’re not taxed on all that money. You’re not gonna be taxed on that $20,000. You get a standard deduction. And this is not a business deduction, this is just a personal deduction on the tax return. So you’re not taxed on the whole thing. Um, that varies every year and it changes based on your marital status and your age and a couple of other things. So you come and see me, you have your W2 with $20,000, I tell you, well, you’re not taxed on all of it. You’re gonna be taxed only on 7,500. So that’s what you’re gonna pay tax on. That’s your taxable income. Now, based on your income, I’m gonna tell you that you have a certain tax rate and tax rates are a little bit complicated.
Marissa Danley (03:46):
So I know this is being, uh, uh, videoed, but if it somehow ends up on YouTube, you know, just know this is a simplified explanation. And the 10, this may or may not be your tax rate. I’m making it up for illustrative purposes. There’s my disclaimer. Um, so 10% will be your tax rate. And what that means is, well, you’re responsible for 705 bucks. That is what we have decided that your tax rate is your tax liability, your portion of contributing society is $705. Now that doesn’t mean that that’s what I’m telling you that you owe when we do your tax return. That just means that that’s what you were responsible for during the year. Hopefully my next slide is going to, yes, okay, my next slide is working. So you have a $705 tax bill. How do you pay that? Well, hopefully you have prepaid it.
Marissa Danley (04:34):
So what I mean by that is, you know that form, that W four form that you get with the zeros and the ones and the twos and you never know how to fill out, well, that’s what you’re doing when you fill out that form is you’re estimating how much money they should take out of your paycheck in order to cover that $705 tax liability. So let’s say that you have them withhold $1,200 during the year, well, you only owed 705. So now I tell you when you come to see me that you get a refund, you’re gonna get some of your money back. I kind of like to use the example that, you know, I pay my water bill and let’s say that I got really crazy one year and I wanted to prepay my water bill and I sent them a thousand dollars. And then at the end of the year they say, well, hey Marissa, you only used $900 worth of water. We’re gonna send you a hundred bucks back. That’s the same thing we’re doing here. It’s your money that you are getting back. They withheld it and you paid too much. Now that’s what happens when you’re an employee, when you’re self-employed, if any of you have done self-employment taxes yet it is, uh, it gets a lot more complicated. There’s a lot more stuff going on there.