Podcast: Obermeyer Wood's Dollars and Sense - Episode Four

Obermeyer Wood’s Dollars and Sense Podcast - Episode Four

In this episode, we provide an overview of personal taxes and how we can go about filing our own taxes.

Dan:
I don't care who the IRS sends, I am not paying taxes.

Effie:
Don't be that guy. He's probably in jail. Pay your taxes.

Effie:
Oh, you don't really know what those are?

Effie:
Well, have I got the episode for you? Obermeyer Wood Investment Counsel presents, Dollars and Sense, a podcast where we talk about our dollars in a way that makes sense. Ever wonder why nobody likes the acronym, IRS, or why everybody makes a big deal about April 15th? Well, if you haven't guessed it by now, we're talking about taxes.

Kimbo:
Part of the social contract that everybody who earns a paycheck in our country, is that they pay taxes.

Effie:
A part of being a resident of the United States, means contributing to the overall welfare of the country. And whether you like it or not, paying taxes is our individual responsibility. So we might as well learn how it works, so we can be good citizens, or at least so we can avoid getting in trouble with the government. Because trust me, you do not want that smoke. So where do these taxes go?

Brian:
The tax revenue that's collected by those different levels of government, are used to fund operations and programs that most of us use every day.

Kimbo:
Roads and schools.

Brian:
Infrastructure, so the roads we drive on, things like public school systems, which many of us have attended at one point or another in our lives.

Kimbo:
Social security and Medicare.

Brian:
The salaries of the people that run local state and federal government offices.

Effie:
So the taxes we pay go towards a lot of different things, and the people that determine those are lawmakers on the national and local level. Voting is one way we can influence where our tax dollars go.

Brian:
Just about everybody will pay taxes at the federal level, they'll pay taxes at the state level, and then a lot of times, they'll pay taxes at the local level.

Effie:
Federal taxes are those imposed by the IRS. Those apply to everyone living in the United States. State taxes, as the name implies, only applies to residents of a particular state. There are also more localized taxes, and these are determined by entities, such as...

Kimbo:
Counties, city, district.

Effie:
There are different categories of taxes that fall into maybe one or two or three of these levels. Some you may be familiar with, and some you may not be.

Brian:
Taxes are usually paid on your income or your wealth.

Kimbo:
Income taxes are based on the income that you make in any given year.

Effie:
A percentage of your income in any given year is taken out for income taxes.

Brian:
An example of income tax is your salary, right? If you look at a pay stub that you're given from your employer, you'll usually see on there, an income tax has been deducted from your take home pay.

Kimbo:
On your paycheck, you'll see a federal deduction and a state deduction.

Effie:
And that's because you pay income tax on a federal, as well as the state level.

Brian:
Usually pay taxes on your property.

Effie:
Property taxes are paid by homeowners and it's based on the value of their home.

Brian:
And then you pay taxes on goods and services. You're probably really familiar with sales tax, and that's a flat tax that's usually applied to anything you buy.

Effie:
If you live in a state that has sales tax, you see that being taken out every time you're at a checkout, and you realize your $1 bag of chips isn't really $1. As I mentioned previously, states, counties, municipalities, and cities get to decide where they want the money from their sales tax or income tax to go towards.

Kimbo:
In Aspen for example, for part of the sales tax, there's a sales tax that goes to childcare and housing.

Brian:
Another thing that we're really familiar with at Obermeyer Wood, is a thing called Capital Gains Tax. Capital Gains Tax usually applies to investments or the sale of investments, whether that be a traditional stock or bond, or whether that's property that you've bought and sold.

Effie:
I'm sure you've gathered by now that there are a lot of different types of taxes, but if you're anything like me, I just want to know what I need to do, so I'm not in trouble with the IRS. When people talk about doing their taxes, oftentimes they're referring to the required filing of taxes on April 15th.

Brian:
The annual tax filing date is usually in April of every year. And you're paying the taxes then, from the calendar year before.

Effie:
You have a few ways to go about doing that. You could always do your own taxes, that might take a little bit more effort, but certainly an option, or you could do use a software or a person to help you file your taxes.

Brian:
Yes. So we definitely don't want you going to jail because you have not paid your taxes. The good news is, is that there are a ton of resources out there that will tell you when and how to pay, make sure that your taxes are paid, and that you're settled with the government on an annual basis. Most of your taxes, as it relates to income taxes, will be pulled automatically out of your paychecks by your employer and your payroll services at your employer. But you will fill out tax filings and you have a few different options as to how you can pay your taxes. You can do it yourself. The IRS's website offers worksheets and instructions on how to fill out those worksheets and ultimately file taxes yourself.

Effie:
Honestly, big props to you if you decide to fill out your own taxes, but for the rest of us, rest assured that there are other ways.

Brian:
One would be, is to work with a tax professional. So there are CPAs or accountants that will do your taxes for you, so to speak. You're still going to have to meet with them and they're going to ask you to collect a lot of documents for them. There are a few different software options right now that act as your virtual accountant, where you input data, and then the software will file and fill out your taxes for you.

Effie:
TurboTax, TaxAct, and H&R Block are a few companies that offer these softwares. A lot of times, using these softwares are a great way for young people, especially if their finances aren't that complicated, to file their taxes in a quick and efficient way.

Kimbo:
Your life gets a little more complicated, then it's probably worth, at some point, figuring out, talking to a CPA.

Effie:
So regardless on which method you decide to use, you are going to get together some documents that have important information in order to properly fill out those taxes. Here are a few of those documents. Some useful things to have on hand are your social security number, your W2, your 1099, any educational expenses you had in the past year, you made any charitable donations, any assets you sold within the year, any dividends that were paid out. And there's certainly more to that list depending on your situation. So, I encourage you to do your own research.

Brian:
But yeah, everybody has a different tax situation, right? Some people's, usually people who are right out of college, maybe have one job, they don't own a lot of investments or property yet, they have a very straightforward tax situation.

Effie:
So after I file my taxes, what next?

Brian:
In most cases, when you finish filling out your taxes, if you're a younger person, you're likely to receive what's called a tax refund. And basically what that is, is you fill out your tax documents, you submit them to the government and what they do on their end is they reconcile the amount of money that they've already taken out of your paychecks and such, throughout the year, with what your tax obligation is. And in a lot of cases, younger people are going to get a tax refund, and that will come in the form of a check or a direct deposit to your bank account.

Effie:
So I know taxes are one of those things that are so easy to procrastinate on, but once you get them done, you'll feel a lot better. And regardless if you get them done earlier or right before the deadline, just make sure to do them.

Brian:
Definitely pay your taxes.

Effie:
The Obermeyer Wood's Dollars And Sense podcast is created by Obermeyer Wood Investment Council, an SCC registered investment advisor. The information provided is for informational and educational purposes only, and does not constitute financial investment, tax or legal advice. Statements by individuals reflect only their views and not those of Obermeyer Wood Investment Council, LLLP. The information in this podcast is not intended as investment recommendation or financial planning advice, and should not be used to make investment decisions. For more information about Obermeyer Wood Investment Council and its services, please visit us on the web at www.obermeyerwood.com.