It’s that time of year again – tax season.
This is arguably many people’s least favorite time of the year. It can often be a stressful experience between trying to make sense of last year’s expenses and projecting where you stand financially this year.
Everyone from salary employees to hourly earners and self-employed individuals experiences tax stress at some point. No matter the situation, all it boils down to is knowing how to do your taxes.
The more you know, the easier it is to handle this task every year.
Here is your ultimate guide to filing taxes for this year and those to come.
1. Gather Your Information
Trying to tackle your tax form right away will only waste time. Before you get to that step, you have to get all of your information from the past year together.
Consider all of the earnings you made and where they came from. Think through any big expenses you had – like a big vacation, a mortgage, or medical expenses.
Gather receipts or bank statements for all of these things. You may not end up using every bit of information you gather. But, you will be glad you had it all in one place as you’re filing your taxes.
Preparing to File
While gathering information, keep in mind your tax situation is unique to another person’s. Everyone in the United States has different forms of income and various spending habits.
To make such a diverse economy easier, the IRS has a few different filing status options and forms.
The filing status options are:
- Married filing jointly
- Married filing separately
- Unmarried head of household
- Qualifying widow or widower with a dependent child
These might seem straightforward to some people.
But, say you are a single person who is also the head of a household. You may have your own place or one who share with other people you are responsible for.
Other variations apply, which is why the IRS has online resources to help you figure things out. Keep their guidance in mind as you select the form with which to file your taxes under.
The different kinds of forms are:
Each varies on your filing status, how you get your income (from an employer or self-employed) and how much money you make each year. The next section breaks everything down to be sure you understand how to do your taxes.
Understanding Financial Forms
One who uses a Form 1040EZ is a person who meets all qualifications below.
- You make less than $100,000 taxable income a year
- Your filing status is single or married filing jointly
- You have no dependents
- You make $1,500 or less as interest income
If you don’t meet these requirements, you may be eligible to file a 1040A. Check the following statements to be sure.
- You make less than $100,000 taxable income a year
- You have capital gains to claim and meet tax credits
- You claim income adjustments from student loans and IRA funds
Sill not seeing something that fits your situation? Then, you should probably file a 1040 form. This form is for those who meet all of the following.
- You make $100,000 or more taxable income
- You have itemized deductions to claim
- You are self-employed
- You have a property sale to claim
Further explanation and resources to understand the details above can be found here. Remember, the form you file is a crucial part of how to do your taxes.
Once you’ve found the one that is right for you, you can easily print it out from the IRS website.
Those who are salary or hourly employees will have W-2s to gather from their employers. Those who are self-employed should have a 1099 form available.
These are statements of income for the tax year you are handling.
The W-2 includes all deductibles that have been given to the IRS from each paycheck – like social security and insurance funds. This is also where you can find 401K information.
A 1099 form, on the other hand, does not have a record of these things.
This is because you have likely been taking in all of your income, without paying social security or other expenses out over time. Tax season is your time to pay these amounts back to the IRS.
2. Seek Filing Support
Whether you are adding up how much you owe or planning what you’re going to do with your tax return, every penny counts. To be sure you have a strong understanding of how to do your taxes, consider seeking professional support.
There are a few ways to go about this, from online software to in-person consultations.
Tax File Programs
Tax file programs are specifically made to help you learn how to do your taxes.
Some, like Quickbooks, will track your earnings and investments throughout the year to make filing a simpler process. For the end of the year purposes, though, use something like:
- H&R Block
These can easily be found for one-time purchase as online downloads or at certain brick and mortar locations. They walk you through each line of the filing process, which is where most people get tripped up.
If you are someone who gets particularly confused when filing taxes, you may want to invest in a professional who definitely knows how to do your taxes.
Accountants are not just for large corporations and those who make the big bucks. You can easily find one in your area to help you file this year’s tax information.
But, this will be for a price. Some accountants charge per project while others charge each hour they spend going through your information. The rates add up, especially if you keep falling back on this service every time tax season rolls around.
This is time and money you can spend elsewhere. Cut this expense out by learning how to do your taxes for yourself.
3. Fill Out and Check Your Forms
The best way to learn how to do your taxes is by doing.
Remember to keep your financial information mentioned at the beginning on hand as you go through the form that suits your needs.
You will begin with basic information – name, address, social security number – then move through the lines to claim earnings and deductions.
Know Your Deductions
Some deductions are applicable based on your filing status. There are certain amounts you can claim that vary between being single or married and filing separately, married and filing jointly, and being the head of a household.
Other tax deductibles are unique to your financial situation.
They fall under the following categories:
- work expenses that have not been reimbursed
- student loan interests paid by another party
- self-owned business expenses
- charitable donations
- mortgage interest payments and personal property tax
- real estate taxes and points
- gambling losses
Did you travel for your job and incur expenses that were never paid back? Did you buy a new house this year or sell an old one? Did you win big on a craps table – enough to cover losses you may have had up to that point?
Such questions are worth asking yourself. A lot can happen in a year, often ending up with more money in your pocket than you think.
Make Note of New Financial Habits
Speaking of things that happened this year, be sure to record new or out of the ordinary expenses. One example is the house mentioned above.
In some cases, a new car or even work uniforms are eligible to be claimed. These may not be things you are used to filing for, but they come in handy.
Consider all the new roles, investments, and general spending habits you took on this year. This helps you cover all of your financial bases.
Review Information from Previous Years
After everything is filled out, check yourself.
Calculate and re-calculate the numbers you’re working with.
The last thing you want to do is to send in a tax error! This would result in learning how to do your taxes all over again, or it could leave you with less money than you have the right to.
To help you check yourself, look at the forms you’ve filed in recent years.
This is particularly helpful if not much has changed in regards to your financial habits. On the other hand, your financial history can serve as a benchmark if you have taken on many new money opportunities.
4. Send Forms to the IRS
Once you’ve checked and double-checked the information you’re filing is correct, all that’s left is getting your form in the hands of the IRS.
You can send forms electronically or go the old-school route of mailing your information. Whatever you choose, try to get your taxes in as soon as possible.
The longer you wait to send in your forms, the more time will pass before you get your return.
It also pays to have a sense of urgency when you have taxes owed. This gets such a big expense out of the way and allows you to focus on generating income the rest of the year.
Just when you think you’re done, there is one more thing to consider.
Some states require you to file taxes separately for their state income taxes. There are seven states that spare their residents, though. Check to see where you stand with the state you call home.
How to Do Your Taxes, How to Build Your Credit Score, and More
It’s not every day you sit down and look at all of your income and expenses from the year before. Similarly, you likely don’t check your credit score or make new investments on a day to day basis.
But, you should at least have a general understanding of how these things work.
For more money-making and saving tips and tricks, click here.