Filing Your Own Taxes

Filing your own taxes really isn’t as hard as many people think. For the majority of us, filing taxes boils down to collecting a year’s worth of receipts and forms from banks and employers, crunching the numbers in our trusty calculator and once tallied, entering everything in the right boxes on the right forms before sending the final results out the door. It may be a bit tedious, but it’s not rocket science.

DIY or Using a Service

If you are single, have just one job, no deductions, and just rent, you should be able to easily file taxes. If, on the other hand, you bought or sold a home in the past year, have a profit or loss from investments, have foreign income or other situations that can complicate filing and calculating taxes, you will probably (wisely) want to take your tax and income information to a professional tax preparation company to prepare taxes which will more likely be current on the latest changes in tax laws and how to use them to your advantage.

Hiring someone to do the job can be pretty expensive: at the low end, a storefront tax preparation business may charge fees of $50 to $100 for a simple return, with CPAs’ costs running into the hundreds or even thousands for more complicated paperwork. However, if you itemize, you should be able to deduct the preparer’s fee from your next year’s tax return.

What you need

If you have decided you’ll be filing taxes yourself, here are a few things you need to know before even starting work:
Get organized – Be sure you have all of the necessary receipts and documentation well ahead of time. The IRS estimates that the average return takes about 22 hours to complete so don’t wait until the last minute. You’ll need:

  1. W-2 forms from every employer you worked for over the past year. These are required to be mailed out by January 30 annually.
  2. All 1099 forms sent by banks and other financial institutions, such as those documenting real estate taxes or student loan interest paid.
  3. The correct filing forms, based on filing status, income source, whether you plan to itemize, and so on. If you are self-employed or otherwise own a business, you will need to file additional forms, such as Schedule C.
  4. Think about what tax credits and deductions you may be eligible to take, and be sure you have the necessary documentation.
  5. Check your withholding amounts using the IRS’s calculator; if self-employed you need to figure the amount of self-employment tax.
  6. Finally, do you want to file taxes electronically or use paper forms? Keep in mind that e-filing is now the recommended form.
  7. A calculator

Tip #1: Keep all receipts for expenses, such as out-of-pocket medical costs and health insurance premiums as well as tax bills, and other necessary documents in their own file folders – and not thrown into shoe boxes. If you are not keeping good financial records, it can cost a lot of money. Without proper records and proof, you can miss out on a number of deductions you may qualify for.

1040 Tax Forms

There are three different types of 1040 forms. Knowing which one is the correct one for your tax filings is important. Here we outline the three forms:

  1. 1040 EZ (the simplest and fastest) is fine as long as you earned under $100,000, your spouse and you are both younger than 65 years old, filing as single or married filing jointly, have no adjustments to income, use standard deductions and don’t itemize, you claim only the Earned Income Credit, and have income from interest below $1,500.
  2. 1040A (short form) is fine for those of any age or filing status, with incomes below $100,000, earned income from multiple sources, including IRA, pension, capital gains or similar sources, are claiming education, dependent child or elder care, and Earned Income credits. You can’t use the 1040A form for filing taxes if you plan to itemize.
  3. 1040 (long form) is more complicated and takes more time to complete but can be used for any type of filing, regardless of income, source of income, deductions, and so on. When in doubt, use this.

Tip #2: You can download forms from the IRS website as well as get other help and file taxes electronically. The IRS has recently begun an online filing program ‘Free File’, for those with adjusted gross income (AGI) under $57,000. See the IRS website for more details.

File early

Once you’ve received your W-2’s and other forms that are needed to complete your taxes, get to it – the later you wait the longer it will take to get a refund, if you are owed one. If after you’ve completed your taxes, you determine that you owe money, refrain from filing your taxes until the deadline. There’s simply no need to give the government your money early, and it gives you time to gather the funds without breaking the bank.

File electronically

If using software or filing on the IRS’s site, your job will be pretty easy: just fill in the required information as you are prompted. When done, electronically sign the return – you’ll probably be asked for a PIN or other means of verification of identity. Once done, click on ‘send’ and the information is transmitted using IRS-approved secure server channels. Your return will be immediately checked for errors and either corrected by the IRS, if a computational mistake, or returned to you for correction.

Tip#3: If you’re owed a refund, opt for direct deposit – you’ll receive it much faster.

I owe more than I can pay right now – what do I do?

If, after completing your taxes you find that you owe more than you can pay, there are three things that you can do:

  1. If filing taxes electronically, file a Form 4868 (PDF) for an automatic time extension,
  2. Pay all or part of your estimated tax due, with a credit or debit card, or
  3. File a paper Form 4868 via mail.

Remember, though, that you are still liable for the taxes owed.

In the end, filing your own taxes or hiring a tax service is a decision only you can make. The important things are that they are done and done correctly, allowing you for the best possible refund each year. We have a number of articles regarding dealing with taxes, and if you are filing your own taxes, we recommend that you read all of them.

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