Content of the material
- Step 1: Gather Your Tax Documents
- Filing by Hand vs. Using Online Software
- 12. Properly Deduct Charitable Donations
- Step 5: Get Organized for Next Year
- 3. Determine Your Filing Status
- Which filing option should I choose to do my own taxes?
- Manual Filing vs Tax Software
- Who Should Do Their Own Taxes?
- Method 2: File Using a Tax Program
- Prepare ahead of time when doing your own taxes
Step 1: Gather Your Tax Documents
In order to do your taxes, you need to collect all of your tax documents. Think of it as a scavenger hunt, if that makes it a little more fun! What forms will you need? Here are a few to keep in mind:
- Mortgage interest statements
- Investment income statements
- Charitable contribution statements
And if this is your first season filing taxes as a married couple, congrats! There are several tax tips newlyweds should know. But getting hitched isn’t the only major life change that might require some additional paperwork. To keep your tax prep running smoothly, here are a few more documents you may need to add to your list:
- Form 8822 (to change your address if you moved)
- SS-5 (if you changed your name)
- W-4 (to adjust tax withholdings based on your new household income)
Income and investment interest forms should be mailed or sent electronically to you by January 31, so keep an eye out for those documents. You can find and download many of these documents early through your bank, mortgage provider or payroll company. If you haven’t received your tax statements or can’t find them online by the first or second week of February, call the necessary people to be sure you receive your paperwork in plenty of time to get your taxes done.
Afraid of forgetting a document you’ll need around Tax Day? To help you get all your ducks in a row, download our free tax preparation checklist.
Filing by Hand vs. Using Online Software
If you choose to file your taxes by hand, you’ll download and fill out relevant IRS forms and mail them to your local collection address. Tax forms are available for free at IRS.gov, and you may need to fill out more than 1 depending on your deductibles, employment situation and marital filing status.
To make a payment, you may mail a check to the IRS directly or you use a debit card, credit card or same-day wire transfer by using the IRS online payment system.
Filing your taxes by hand may take a little longer, but it can be a good option if you have a simple return. If you aren’t interested in learning more about tax process or have a complicated return, a tax prep software can help guide your way.
This is especially true if you own rental properties or make regular income through the stock market with investment taxes. Tax prep software can also walk you through the process if you’re a business owner who needs to calculate capital gains taxes. Software can navigate the myriad of tax laws, deductibles and exemptions you need to detail.
12. Properly Deduct Charitable Donations
If you want to claim a deduction for charitable contributions, you must itemize your deductions, said Nisall. “Any single cash donation over $250 or non-cash donation in excess of $500 should have a receipt in your records — and it would be ideal to have a receipt for any donation,” he added.
However, not all donations are deductible. For example, you can’t deduct the entire amount of your donation if you received a benefit like a fancy dinner at a fundraiser. You have to subtract the fair market value of the meal from the amount of your donation.
Step 5: Get Organized for Next Year
If you end up with a big tax refund or a large tax bill, you probably want to go ahead and adjust your withholdings so that you’re not taking too much or too little out of your paycheck for taxes.
And one more thing: Once your taxes are signed, sealed and delivered to the IRS, you might be tempted to celebrate by starting a bonfire and burning all those receipts and tax forms in a blaze of glory … don’t do that.
Instead, promptly file any tax documents and important receipts when you receive them so you don’t have to search the house for them next spring. Buy a few manila folders, an accordion file or a filing systemthat will hold your tax documents and save those documents for at least three years. You might need them if the IRS comes knocking.
3. Determine Your Filing Status
Your filing status is based on what your marital status was on the last day of the tax year, and it applies to all of the tax year. There are five possibilities:
- Married filing jointly
- Married filing separately
- Head of household
- Qualifying widow(er) with dependent child
If you legitimately fit into more than one category, pick the one that requires you to pay the least amount of taxes.
Make Your Money Work
Which filing option should I choose to do my own taxes?
Each of these options is a completely acceptable way to file. 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.
Manual Filing vs Tax Software
If your tax situation is somewhat complicated, in that you need to fill out Form 1040 and other supplemental forms, then you’ll need a tax filing software. The software will help you handle the workload.
If you opt to do your taxes manually, you’ll download and fill out the necessary IRS forms and send them to your local collection address. You can get these forms at IRS.gov. You won’t pay for them.
To make a tax payment, you have the option of mailing a check to the IRS directly or using the credit card, debit card, or same-day wire transfer via the IRS online payment system.
This option usually takes more time, but it can be a great option if you have a simple return. You can also use their free e-file system to fill out the necessary forms online.
If you have a complicated return or don’t have a lot of time at your disposal, you may need to use a tax filing software to guide you through the process.
Using tax software is ideal if you generate regular income through the stock market and need to determine investment taxes, you own rental properties, or you run a business and need to calculate capital gain taxes.
Who Should Do Their Own Taxes?
Generally, people should do their own taxes if they have a straightforward financial and tax situation.
In other words, you can do your own taxes if you don’t have dependents, investments, businesses, charitable contributions, or a considerable number of assets.
Conversely, if you make at least $200,000 a year, it can be overwhelming to do your taxes on your own.
It would be a good idea to hire a professional to do the tax preparation for you. This is because you become more susceptible to an IRS audit once your household income exceeds $200,000.
You could also consider hiring an expert to file your tax returns if you have gone through a life-changing event in the past year.
Engaging a professional may also be essential if you have a more complicated tax situation that may encompass dependents, assets, investments, and businesses.
Another great reason to work with a professional is if you wish to itemize your deductions.
While these factors don’t mean that you can’t do your own taxes, they can make it a bit more challenging.
Method 2: File Using a Tax Program
Most Americans who do their own taxes choose to use tax preparation software. Some of the benefits of choosing a tax software program include:
- You’re less likely to make a mistake. Mistakes on your tax return can be costly — from audits to additional fees to missed deductibles and credits. Carelessness can cost you when filing your taxes. Tax software programs make it less likely that you’ll make an expensive error on your return.
- You’ll save time. The tax code of the United States is over 70,000 pages long and has sextupled in length since 1955. Though most of this tax code does not apply to the individual filing taxes, it can still take a long time to sift through over 10 million words’ worth of tax laws to find relevant materials. Tax software distills the overly-complicated tax code to guide users with a simple Q&A style format that finds deductions and fills out all necessary forms.
- You may be able to file with a free federal version. If cost is high on your list of concerns, know that most major tax software manufacturers offer a free edition to help users fill out federal income tax files.
If you’ll be using a tax software program to help you file your returns, you’ll need to choose a provider first. From industry standards like Intuit TurboTax to save-as-you-go programs like TaxAct, there are a number of software options and packages currently available on the market to suit every individual’s needs.
For more information on the best tax software programs, check out Benzinga’s list of current favorites and offerings.
Prepare ahead of time when doing your own taxes
So now you know how to do your own taxes! If you decide to do your own taxes this year, make sure to take action. It’s best to start sooner than later just in case.
Keep all of your important documents in one place to streamline the process too. Knock this item off your financial to-do list early so you can focus on your other financial goals!