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Tax time may not be the most enjoyable time of the year. But it is important to get your taxes filed on time. At first glance, it can seem somewhat overwhelming to tackle this project on your own. Luckily, it doesn’t have to be! Once you know the basics, doing your own taxes will seem much more manageable.
Today we will take a closer look at how to do your own taxes.
Why should you consider doing your own taxes?
As you take control of your finances, doing your own taxes can feel like a natural next step. You are spending time improving your financial literacy, cleaning up any debt, or building your savings. That part of your personal finance journey is likely more difficult that filing your taxes will be. Since you’ve been able to tackle other areas of your personal finances with grace, and you are more in tune with your financial picture, tax time shouldn’t be overwhelming.
In addition to feeling more in control over your finances, filing your own taxes can help your wallet. In some cases, you may be able to file your taxes completely free for yourself. Even if you aren’t able to use a free service to prepare your taxes, you’ll find that the costs of using a tax preparation software are much lower than hiring a professional.
What you need to do your taxes
If you choose to handle your taxes on your own, then you’ll want to collect all of your information in a convenient spot. You can save yourself a lot of time by collecting this information before starting your filing process. Instead of pausing to find another document every few minutes, you’ll have everything you need ready to go.
Let’s see where you should start your filing process.
1. Gather your paperwork
Gathering all of your necessary tax documents is critical to a smooth filing process. Without the paperwork you need, you might find yourself unable to complete the entire process. Take a few minutes to find everything you need ahead of time. Here's what you might need:
- W-2s. You’ll need a W-2 form from each employer. In most cases, your employer will provide this document without you making a request. However, if you don’t have your W-2, then you can talk to your Human Resources department. They should be able to send you a W-2 with minimal fuss.
- 1099s. If you have a side hustle or earn income as an independent contractor in any way, then you’ll need your 1099. Each client should provide you with a 1099 that reflects the amount of money you earned for the calendar year.
- Interest statements. If you own a home, then you should report any interest that you’ve paid on your mortgage during the course of the year. This only applies when the amount you’ve paid in interest is over $600. You’ll use the 1098 form to report this expense.
- Deductible expense receipts. If you run your own business, then you may be able to deduct some expenses from your business revenue. It is important to maintain a record of these receipts for tax purposes.
This is some of the basic information you should have ready for filing your taxes. However, it is not an exhaustive list of all tax forms. Consider your unique income situation to determine what other information you’ll need to include in your tax forms.
2. Determine your filing status
One critical part of your tax preparation is correctly determining your filing status. Based on your filing status, your tax burden can be altered significantly. You shouldn’t have any trouble determining your filing status.
There are only five different tax filing options.
- Single. If you aren’t married, then you’ll choose this option. Additionally, if you are divorced or legally separated, then you can claim this status.
- Married filing jointly. You can file your taxes with your spouse. However, your marriage should have taken place on or before December 31st of the tax year. If you got married later, then you can not file as a joint married couple on that year's tax form.
- Married filing separately. You can choose to file your taxes separately from your spouse. In some cases though, that may lead to a higher amount of taxes owed at a higher tax rate. You can prepare your taxes in both ways to determine whether or not this is a good option for your household.
- Head of household. If you are not married but maintain a home for yourself and at least one dependent, then you may qualify for this. With that said, there are some special rules surrounding your circumstances.
- Widow or Widower with Dependents. This filing status is the least common. If your spouse passed away during the year leaving behind you and a dependent child, then you might qualify for this status.
Take a minute to determine your filing status based on the IRS guidelines. In most cases, it will be fairly easy to find out which status you should claim.
3. Research your tax deductions
If you are choosing to do your own taxes, then make sure that you understand what tax deductions and credits you are eligible for. You don’t want to overpay the IRS because you didn’t know that you were eligible for a credit or deduction.
A few common tax deductions and credits to look out for include childcare costs, charity contributions, and higher education credits. Don’t forget to include these in your tax return.
How to DIY your taxes
Once you’ve collected your paperwork and determined your filing status, you are ready to do your own taxes. There are three different ways for you to prepare your taxes. Each of these options offers a slightly different way to prepare your taxes. However, the basics are all the same. Choose the option that best suits your lifestyle.
You can download the forms you’ll need to fill out from the IRS website. It is completely free to download these forms. If you choose to print them, you can complete them by hand and mail them in.
In most cases, this manual method for doing your taxes is only a good option if you have a fairly simple tax situation. Although you can work through a more complex financial picture with these paper forms, it might become tedious after a few forms.
With IRS online fillable forms
The IRS offers free file fillable forms on their e-File site. With the fillable forms, you’ll have line by line instructions to help you complete the form. If this is your first time filing your own taxes, then the instructions can be helpful to follow.
Using an online tax software program
As a final option, you can use online tax software programs to file your own taxes. Although you may need to pay to use an online tax software program, it might be worth it if you have a complex tax situation.
Most tax software programs walk you through the filing process with prompts along the way. It can be helpful to see these prompts. You might see something that helps you notice easily forgettable details of your tax year.
Here are a few good options:
- Credit Karma Tax. In addition to their free credit monitoring and savings accounts, Credit Karma offers free tax filing via a simple and easy to use interface. Learn more here.
- TurboTax. You can use TurboTax to file your basic tax return for free. However, you may need to upgrade to a paid version if you have a complicated situation.
- H&R Block. H&R Block is another well-known tax software program that can help you file basic returns for free. However, their paid options are very affordable if you need more help.
Simply choose the software that you are most comfortable working with.
Which option should you choose?
Each of these options is a completely acceptable way to do your own taxes. There is no single option that is better than the other. The choice should come down to your personal preferences. For example, if you are more comfortable working with pen and paper, then work by hand. But if you are comfortable with using your computer, then the online tax preparation software might be a better fit.
Either way, you’ll be able to file your taxes. Plus, you’ll determine whether you owe taxes to the government or if you’ll receive a tax refund. If you need to make a tax payment, then you can also mail your check to the IRS. However, you can also complete this transaction with a credit card, debit card, or wire transfer. You can find details about these options in the IRS online payment system.
Is doing your taxes a good option?
The process of taking care of your own taxes is not for everyone. Let’s take a closer look to see if it is a good option for you.
When is it a good idea?
Preparing your taxes can be time-consuming and somewhat tedious, but it is completely possible to tackle this annual task on your own. You might be able to save some money, but you’ll also feel more in control of your finances.
If you choose to do your own taxes, then you’ll need to pay close attention to details along the way. It will likely take several hours to work through your tax forms, so make sure to set aside the right amount of time.
When should you consult a professional?
If you don’t have hours to set aside for this task, then you should seek out a professional.
Another good reason to consider a professional is if you have a complicated tax situation. If you have a complex tax situation with multiple W-2s, 1099s, and your own side hustle, then you might want to consult a tax professional. They can help you clarify your filing and make sure that you don’t miss out on any savings.
The bottom line
If you want to do your own taxes this year, make sure to take action soon. The deadline for filing your 2019 taxes has been extended to July 15th, 2020 due to the Coronavirus Pandemic. Consider knocking this item off your financial to-do list asap.