Taxation refers to the imposition of compulsory levies by governments to its people and entities. Taxes are mainly levied with the main aim of raising revenues which can be used to fund government expenditures. As citizen you are expected to file for all taxes that you are eligible for, failure to which you may risk a fine, prosecution or both.
Importance of paying taxes
Without taxes, it can difficult for governments to meet their needs. When the government collects taxes it can use them in financing projects such as:
Education is one of the sectors of the economy which deserve to be funded by the taxpayers’ money. Education and human capital are very vital in diving development in any country.
Governance plays an important role in running the affairs of a country. Good governance will ensure that all the taxes which are collected will be used in the best way possible which will benefit all the citizens of a country. Tax money can be used to pay the postal system and civil servants. Also, money can be used for environmental protection, scientific research and security.
Taxation is aimed at achieving full employment. Since the employment level depends on demand, then any country which desires to achieve full employment, it must minimize the level of taxes. When this is done, the disposable income will increase, thereby leading to the rise in demand for goods and services. Increased demand will accelerate the rate of investment this leading to a rise in employment and income.
Taxation can also be used in ensuring price stability. Many countries use taxes in controlling the rate of inflation. For instance, if direct taxes are raised, private spending will be minimized and the pressure on the commodity market will decline. However indirect taxes which are imposed on commodities due to fuel inflation. When the prices of the commodity are high, they can discourage consumption and encourage savings.
Process of filing for taxes
The new law about tax has changed many things such as deductions, credits and form which you may have used a few years ago in filing taxes. In case you wish to file taxes today or in future, then you can following the following guide.
i) Gather all your forms which include:
· W-2 form for every employer
· Documents proofing the coverage of health insurance
· Receipts for business expenses, medical and charitable donations.
· Interest and earning statements such as 1099 INT forms.
ii) Select your filing status- The filing status will be determined by your marital status and the percentage of the amount of money that you pay for your household expenses.
iii) Confirm if you qualify for tax deductions and tax-free returns. The IRS offers a tax-free program to individuals who have limited English, seniors, people with disabilities, military members and their families and low-income earners.
iv) Determine how you wish to file the taxes- For you to achieve the most accurate and easiest returns, the IRS records that you must use a tax preparation software. You can also decide to hire a tax return expert to file taxes for you. Also, you can use paid or free programs in calculating and filing your taxes online. If you are unable to do all these, you can get all your documents and mail them to IRS so that they can do it for you.
v) Calculate your deductions, credits and taxes
Make sure you get the sum of all the sources your income which includes, salary, retirement or pension benefits, investment and interest earnings.
Check if you can qualify for deductions such as charitable donations and mortgage interests. Deductions and credit can reduce the amount of taxable income.