What makes you owe money or get money when you do your taxes?

Question

My understanding is as follows: If you report every penny you make, then you will owe nothing and get nothing when filing your taxes. But what happens if you just recieve a check not related to work and deposit it directly into the bank? Should that additional money be reported?

Answer 1

If you report every penny you make - there are still taxes due.

You will owe if you didn't send in enough.  You'll get some back if too much was sent in.  If you work for an employer - taxes are withheld from your paycheck, and sent into the IRS for you.  Your tax return reports income and deductions, calculates tax...then if withholding is more than that - refund. If less than that  - you owe.

If are self-employed, you have to send in your tax payments yourself throughout the year.

A check you receive not related to work may be taxable or not.

If it's earned income (you provided a service, and someone paid you for it, for example), it's taxable.  If it's a buddy paying you back money you loaned him, it's not taxable.  If it's someone giving you child support for a kid who lives with you - it's not taxable.  If it's from gambling at the racetrack, and you won the trifecta, it's taxable. If someone gave you a gift, it's not taxable (to you, at least).

So you need to know what's taxable income, and what's not.  If it's taxable income, you report it.  If it's not, you don't.

Answer 2

Your understanding is incorrect.  You report money you earn, either by wages, investments, home sales, etc. etc. and pay taxes accordingly.  There are deductions and exemptions that reduce what you owe - too complicated to go into here - but reporting everything you make does not mean you will owe nothing - not sure where you got that idea.  You don't have to report a gift unless it's above a certain amount - not sure what that is, but it's in the thousands.