Taxes 101: I Know Nothing About Taxes—Where Do I Start?

If taxes feel like a completely different language, you’re not alone. Whether you’re starting your first job, earning money from a side hustle, opening a small business, or simply trying to understand your finances better, you have to start somewhere.

Here are five tax basics everyone should know.

1. Understand What Taxes Are

Simply put, when you earn income, you may owe taxes on it. If you’re an employee, your employer typically withholds taxes from your paycheck throughout the year.

If you’re self-employed or own a business, taxes usually aren’t automatically withheld from the money you receive. That means you may need to set money aside yourself and potentially make estimated tax payments during the year.

2. Know the Difference Between a W-2 and a 1099

This is one of the first distinctions to understand.

A W-2 generally means you’re an employee. Your employer reports your wages and the taxes withheld from your paycheck.

A 1099 can report several different types of income. For example, independent contractors may receive a 1099-NEC for nonemployee compensation. In these situations, taxes generally haven’t been withheld for you.

3. Learn Three Important Words

You don’t need to memorize the entire tax code, but understanding these three terms will give you a great foundation:

Income: Money you earn or receive that may be taxable.

Deductions: Certain eligible amounts that can reduce the income subject to tax.

Tax Credits: Amounts that can directly reduce your tax liability when you qualify.

4. Keep Your Tax Documents

If you receive something labeled W-2, 1099, 1098, 1095 or another tax document, don’t immediately toss it because you don’t understand it.

Keep your tax documents together until it’s time to prepare your return. If you’re running a business or side hustle, keeping accurate records of your income and eligible expenses throughout the year is especially important.

5. Ask Questions!

You are not expected to know everything about taxes.

What matters is learning the basics, keeping good records, and knowing when it’s time to ask a professional for help.

Taxes become much less intimidating once you understand what applies to your situation.

Start Simple.

Learn what income you have. Keep your documents. Pay attention to what is—or isn’t—being withheld. And ask questions when something doesn’t make sense.

No judgment. No “you should already know this.” Just answers.

BasicLee Bookkeeping — Making taxes a little easier to understand, one question at a time.