Taxes don't have to be taxing

A simple guide to the basics.

As a new year begins, a familiar feeling often follows: the dread of tax season. For many of us, the process feels like a complicated test we are destined to fail. The jargon, the forms, and the fear of making a mistake can be completely overwhelming.

But what if we reframed it? Instead of a chore to be feared, what if tax time was an annual financial check-up? It is a rare opportunity to see your entire financial life on one page, understand where your money goes, and feel more in control.

Let’s demystify the process using an analogy we all know: the grocery store receipt.

A quick note for my international readers: While the specific terms here are based on the US tax system, the fundamental logic of starting with total income and systematically reducing it is common in many countries. The principles will likely help you understand the flow of your own tax return.

Your Tax Return as a Store Receipt

1. Gross Income is the Subtotal. When the cashier finishes scanning your items, the first number you see is the Subtotal. This is the full price of everything in your cart before any discounts. In tax terms, this is your Gross Income. It is your starting point, including every dollar you earned from your job, side hustles, investment gains, and any other source.

2. Adjusted Gross Income (AGI) is the Loyalty Discount. Imagine you get an automatic discount just for being a store loyalty member. It is applied right away, bringing your subtotal down. This is your Adjusted Gross Income (AGI). You get here by subtracting specific “above-the-line” deductions, like contributions to a traditional retirement account (IRA, 401k) or a Health Savings Account (HSA). It is a quick first reduction and a very important number, as many other calculations are based on it.

3. Deductions are Your Coupons (You Have to Choose). Now for the big decision. You have two ways to save, but you can only pick one:

• Use the store’s single, high-value coupon for “$20 off your entire purchase”.

• Use a handful of smaller coupons for specific items you bought: “$1 off cereal”, “50 cents off soup”, etc.

This is the choice between the Standard Deduction (the one big, simple coupon) and Itemized Deductions (the collection of smaller ones). Itemizing means adding up specific expenses like mortgage interest, state taxes, and significant charitable donations. Most people find the standard deduction is their best deal, but if you have high expenses in those specific categories, it is worth doing the math to see if itemizing saves you more.

4. Taxable Income is the Final Price. After you have applied your chosen deduction, you have a new, lower total. This is the final price of your goods before sales tax is calculated. In tax terms, this is your Taxable Income. It is the final, smaller amount of your income that the government will actually tax.

5. Tax Credits are Your Gift Card. Your final bill is calculated, including tax. But then you remember you have a $25 gift card. You hand it to the cashier, and it slashes $25 directly off what you owe. This is what Tax Credits do, and it is why they are so powerful. Unlike deductions, which reduce your taxable income, credits reduce your final tax bill dollar for dollar. A $1,000 tax credit means you pay exactly $1,000 less.

Self-Checkout or Expert Cashier?

Now that you understand what goes into the receipt, you need to decide if you want to handle the checkout yourself or ask for help. There are good reasons for both.

Hiring a tax professional is like going to the savviest cashier in the store. They know every rule and can be a huge help if your financial situation is complex (you own a business, have rental properties, etc.).

Preparing your own taxes with today’s software is like using the self-checkout lane. It forces you to engage with every line item, acting as an useful annual financial check-up. You see exactly how much you earned, how much you saved in retirement accounts, and where your money went. The biggest fear holding people back is making an error, but here is the key: tax filings are correctable. If you make a mistake, you can file an amended return. An error is not a catastrophe, it is a learning opportunity - perfectly aligned with a focus on progress, not perfection.

By understanding the tax basics, you can turn tax season from a source of anxiety into a moment of clarity and confidence.

Let’s Talk Money!

• Have you ever tried doing your own taxes? What is the biggest factor that holds you back or encourages you to try?

• How does thinking of tax preparation as an “annual financial check-up” change your perspective on the process?