Filing taxes is something everyone is not only expected to do but required to do. However, the odds are that we have never taken a class on basics of how to file taxes in school or college.
The complex tax system, filing, and paperwork can make your head spin. But filing taxes can be stress-free and simple with a little effort and organization.
If you have never filed taxes before yourself here are six guidelines to help you cruise through the process.
Know Your Filing and Dependent Status
Your tax rate is mainly assessed on your filing status. If you married or single and if you can claim any dependents in your household. The IRS (Internal Revenue Service) defines a dependent as a person who is supported by the taxpayer, like a child or an elderly relative. If you are still a student you will have to identify yourself as a dependent on your parent or guardian’s behalf.
Make Sure You Need to File
The government does not require that everyone has to file a tax return, so the first step is to determine if filing taxes is necessary. The three main factors that determine if you have to file your taxes is your age, filing status, and income. You can use the IRS online Interactive Tax Assistant to ascertain whether you need to file a return. It is a questionnaire on filing status, gross income and whether you have a federal income tax withheld. It takes only about 10 minutes to complete and once you are done, you will know if you have to file a return for a particular tax year or not.
Gather Required Documents and Forms
Staying organized is the key to making the tax process simple. It is important that you collect all the necessary forms and documents ahead of time. It is common for documents to trickle in slowly so make sure to collect all forms that include income informatio(W-2s), your deductions and that which show how you spent money on a big expense like education and charitable donations and designate a place for them all like manila folders, an accordion file or a filing system.
Take Advantage of Deductions and Tax Credits Relevant to You
It is very helpful to know the difference between tax credits and deductions. Tax credits are a sum deducted from the total taxes you owe and deductions reduce your taxable income. Both are valuable items to consider when you are doing your taxes as they can reduce your overall tax bill and also help you get the maximum refund.
Students and former students must consider credits and deductions to help navigate student payments or student loans on their taxes. They include student loan interest deductions 1098E, American Opportunity Credit, Tuition Fee deduction, and Lifetime Learning Credit. Other deductions you can avail of can be earned Income Tax Credit (EITC) and Home Office Deduction. Money spent on recognized charities is another popular deduction. If you have contributed to a recognized charity and have exceeded the new standard deduction threshold then you might be able to write off the donation on your taxes.
Visit the IRS website to find out the other deductions and credits that can apply to you. Do proper research to ensure that you do not miss out on money this tax season.
Decide If You Are Going To DIY or Hire a PRO
- Tax software: You can file your taxes electronically by using online programs such as TurboTax or H&R Block at Home. As long as you are using accredited software it will be safe and simple. They offer step-by-step guidelines plus filing electronically will expedite your refund if you are getting one. This method of filing taxes can be straight if your situation is simple. If you are earning less than $64,000 then you can use the IRS’ free filing tool.
- In-person assistance: If you need more guidance and make under $54,000 then you can get free in-person help. You can get help from an IRS-trained volunteer by visiting a Volunteer Income Tax Assistance (VITA) location To find locations in your area you should go to treasury.gov/freetaxprep.
- Hire a tax professional: If your tax return is somewhat complicated or too confusing, you can consider hiring a tax professional such as a CPA who can handle the whole process for you and ensure you get the maximum refund available.
When choosing the option you think is best for you, you must consider how complex your taxes are. If you are employed, have a side hustle and have nothing financially complicated like a business partnership or many investments then using a tax software will be more than enough.
But if you have a business and own rental property, and your taxes are complex then you may need professional assistance.
Though it may not sound exciting the IRS website is considerably easy to navigate. It is a great resource for any queries that still may arise. You can find numerous articles, laid out guidelines, tutorials, as well as any other forms you may need. Being familiar with the website will also provide you with a simple way to remain aware of any changes to the tax laws and how you may be affected.
Doing taxes may not be the ideal way to spend a few hours on Saturday on any other day for that matter. But by spending a little time to do your taxes yourself, you will learn a lot and feel empowered – and probably save some money too.