Taxes 101: What Every Individual Needs to Know (Without the Jargon)
Whether you’re filing for the first time or you’ve been doing it for years, taxes can feel confusing, overwhelming, or downright frustrating. But understanding the basics of how taxes work—and what your responsibilities are—can make a big difference in how confident and prepared you feel each year. This post breaks down what individual taxes are, why we pay them, and what you need to know to stay compliant and make the most of your situation.
What Are Taxes?
In the simplest terms, taxes are mandatory payments that individuals and businesses make to the government. These funds are used to pay for public services like roads, education, healthcare, national defense, and more. Taxes are collected at the federal, state, and sometimes local levels, depending on where you live and work.
Types of Taxes You Might Encounter
As an individual, here are the main types of taxes you’re likely to come across:
1. Income Tax
This is the most common type of tax and what most people are referring to when they say they’re “doing their taxes.” It’s a tax on the money you earn—whether from a job (W-2), freelance work (1099), investments, rental properties, or retirement distributions.
In the U.S., income tax is progressive, meaning the more you earn, the higher your tax rate will be on that additional income.
2. Payroll Taxes
If you're employed, you’ll notice Social Security and Medicare taxes being withheld from your paycheck. These are called FICA taxes, and your employer matches what you pay.
3. Self-Employment Tax
If you’re a freelancer, contractor, or small business owner, you pay self-employment tax instead of payroll tax to cover Social Security and Medicare. This is often a surprise for new entrepreneurs.
4. Sales Tax
Every time you buy a product or service, you may be paying sales tax, depending on your state or local laws. You don’t file this—it’s included in the price you pay and collected by the business.
5. Property Tax
If you own a home or land, you’ll pay property tax to your local government, usually through your mortgage escrow or directly to the county.
6. Capital Gains Tax
When you sell investments like stocks, real estate, or crypto for a profit, you may owe capital gains tax on those earnings.
Who Has to File Taxes?
Most individuals must file a tax return annually with the IRS (Internal Revenue Service) and their state tax authority (if applicable). Filing requirements depend on your:
Income level
Filing status (single, married, head of household, etc.)
Type of income (wages, self-employment, investments)
If you earned over a certain amount or had taxes withheld from your paycheck, you probably need to file. Even if you’re not required to, you may want to file anyway to claim a refund or credit.
What Happens When You File?
When you file your tax return (Form 1040 for most individuals), you’re reporting:
How much money you made
How much tax you already paid (or had withheld)
What deductions or credits you're eligible for
The IRS then calculates whether you owe more taxes or get a refund based on that information.
What Are Deductions and Credits?
These are tools that help reduce how much tax you owe.
Deductions reduce your taxable income (e.g., student loan interest, retirement contributions, mortgage interest, charitable donations).
Credits reduce your actual tax bill (e.g., Child Tax Credit, Earned Income Credit, education credits).
Understanding and using deductions and credits correctly can significantly impact your tax outcome.
When Are Taxes Due?
The standard due date for federal tax returns is April 15, unless it falls on a weekend or holiday. You can file earlier if you have all your documents and may be able to request a six-month extension, but remember: an extension to file is not an extension to pay.
What If You Don’t File?
Failing to file or pay your taxes can lead to:
Penalties and interest
Delayed refunds
Wage garnishment
Legal action from the IRS
It’s always better to file—even if you can’t pay the full amount. The IRS offers payment plans and relief options.
How Can You Make Tax Season Easier?
Stay organized: Keep copies of all income forms, receipts, and expenses throughout the year.
Use a tax professional: Especially if you have self-employment income, investments, or life changes (marriage, kids, home purchase).
Plan ahead: Don’t wait until April to think about taxes. Strategic planning can help reduce what you owe next year.
Review your withholding: Too much withheld = smaller paychecks. Too little = unexpected tax bill.
Final Thoughts
Taxes can be complex, but understanding the basics gives you control. Whether you're an employee, freelancer, or investor, being proactive with your taxes is one of the smartest financial decisions you can make. If you’re unsure where to start or how to optimize your situation, working with a professional can save time, stress, and money.
Need help with your taxes? Ajazi Tax offers personalized, reliable support for individuals at every stage of life. Let’s simplify your tax season—starting today.