A few days before the October extension deadline, I was on a call with my friend and collaborator Bulus, who lives in Nigeria. He said he'd heard taxes are a really big deal in America, mostly from movies where people joke about the IRS. So I explained how it all works, and realized the explanation might help other people too, whether you're new to the U.S., newly self-employed, or just someone who freezes up every spring.
Income tax: once a year, for last year
Federal income tax is filed once a year, covering the previous calendar year. The return I was finishing in October 2026 was for tax year 2025. For most people the normal due date is April 15.
If you work a regular job, your employer withholds tax from each paycheck and sends you a W-2 at the start of the year showing what you earned and what was already paid. For many employees, filing is mostly reporting that form. It gets more involved when you own a home, get married (your filing status changes), sell investments, or run a business.
Extensions: more time to file, not more time to pay
You can request an automatic six-month extension (Form 4868), which moves the filing deadline from April 15 to October 15. That's what I did. The catch many people miss: the extension gives you more time to file, not more time to pay. If you expect to owe, the IRS expects an estimated payment by April, and interest and penalties can apply to unpaid balances.
Running a business: income minus expenses
When clients pay my business, nobody withholds tax. So I'm responsible for it. In simple terms, you start with what the business earned, subtract ordinary and necessary business expenses (these are called deductions; I said "deductibles" on the call, which is actually an insurance word), and owe tax on what's left.
My example to Bulus: if a business earns $1,000 but had to buy a $1,000 computer to earn it, the profit can come out close to zero. The real rules are more nuanced (big purchases like equipment are sometimes deducted over several years, though there are elections that let small businesses deduct them sooner), but the idea holds: you're taxed on profit, not on revenue.
Self-employed people also owe self-employment tax (Social Security and Medicare) on net earnings, and usually need to make quarterly estimated payments during the year instead of waiting until April. A business loss in one year can sometimes offset other income or carry forward, but the rules depend on your situation.
Investments: capital gains
When you sell something you own, like stock, for more than you paid, the profit is a capital gain, and it's taxed differently from wages. I wrote a separate explainer on that: What are capital gains?
Other taxes you'll meet
- Sales tax is added when you buy things. It's set by states and local governments, not the federal government, so the rate depends on where you shop (a few states have no statewide sales tax).
- Property tax is paid by people who own real estate, based on the assessed value of the property and set locally, so two identical houses in different towns can owe very different amounts. Renters don't pay it directly, though it's usually built into rent.
- State income tax exists in most states on top of federal tax, with its own forms and deadlines.
What an audit actually is
An IRS audit is a review of your return to confirm the numbers are accurate. Instead of taking your word for it, they ask for proof: receipts, statements, records. Most audits are handled by mail. That's why records matter. The IRS generally recommends keeping supporting records for at least three years after filing, and longer in some cases.
Software like TurboTax
I use TurboTax. It doesn't do your taxes for you so much as walk you through them: it asks questions, imports documents, connects to accounts like a brokerage to pull in your trades, and fills out the official forms. Anyone can file without it if they know the steps, and some people qualify for free filing through the IRS Free File program.
What I'd tell my past self
- Keep a simple ledger as you go. Reconstructing twelve months of transactions at the last minute is where most of the stress comes from.
- Use a separate bank account and card for the business so categorizing takes minutes, not days.
- File the extension and pay an estimate by April if you're not ready.
- Get a CPA or enrolled agent once your situation gets complicated. It's often cheaper than the mistakes.
- Breathe first. A few minutes of breathwork before you open the forms helps. Stress makes paperwork feel bigger than it is.
If money stress is the thing blocking you, that's exactly the kind of overwhelm meditation coaching helps with. See meditation sessions. (I can't do your taxes, but I can help you sit down and start them.)
