Guide to Understanding Your 2016 Tax Forms

Though it may seem like a daunting task, doing taxes is not necessarily a frightening activity. With a little preparation, you can easily figure out taxes on your own and get your federal and state taxes prepared. Let’s go over the tax documents that you will need in order to file your taxes.

W-2s

Most people who work will receive either a W-2 or a 1099 form. A W-2 form is used for most workers who are considered employees. If you are a W-2 worker, chances are you were having taxes taken out of your check while you were working. With one form of income and a W-2, you can fill out a 1040EZ form to complete your taxes.

1099s

If you are a 1099 worker, or an independent contractor, you will be considered self-employed. You will need to declare all of your income from each 1099 form, along with your business expenses and losses. Business loses can be money that you were not paid; business expenses include travel and the materials required to perform your job. If you work from home, you may also deduct your home office space on taxes.  You can choose to itemize your deductions or select the standard deduction. Be aware that self-employed persons are charged a much higher tax rate than employees, so you need to keep track of your taxes and make estimated tax payments throughout the year to avoid being penalized.

Conclusion

Taxes for the average person will be rather straightforward. If you find yourself with too much information – i.e. investment accounts, real estate, and other forms – you may want to obtain the services an accountant.

Image credit: Bradley Gordon