It's Not Fun, but It Has to be Done Benjamin Franklin wrote a 1789 letter that states, “But in this world nothing can be said to be certain, except death and taxes.” Even at the United States’ early beginnings, federal taxes were a necessary evil to fund various public projects and administrative costs. Today, federal taxes serve much of the same purpose. While virtually no one likes to prepare and file their taxes, it is a necessity if you want to avoid fines and further hassle. It is no secret that preparing and filing your taxes is notoriously complicated. Many people lament that it should not be so difficult to pay the government. However, some of the complications allow people to save money if they discover specific tax benefits. Knowing how to file your own taxes may be a good option if your tax situation is relatively straightforward, or if you are willing to learn the process. Why Do You Need to File Your Taxes Every Year? The short answer is that federal law requires that most individuals file taxes annually. Income taxes are assessed every year based on your income earned during that period. You then pay a percentage of that income to the government, less any deductions, adjustments, or credits that you qualify to receive. If you do not file (and pay) your taxes, then you may be assessed penalties and interest. The Internal Revenue Service (IRS) can even go as far as garnishing your wages and repossessing your property if you do not file and pay as required. The Benefits of Filing Your Own Taxes If you are one of the 43% of Americans that are doing your own taxes, you are certainly not alone. Roughly 53 million people prepared and filed their own taxes in 2018. There are many benefits to filing your own taxes, including: Saving money: Hiring a tax professional is expensive, and many people can prepare and file their returns on their own, completely free of charge. Control: Some people like knowing the exact information that is included in their return and being able to control the data, and for some, knowing precisely how the numbers work out, is comforting. Gain helpful information: When you prepare your taxes, you can see what items saved you money this year or which issues you should address so you can save money next year. While filing your own taxes is complicated, it can be beneficial under the right circumstances. There are several programs online that walk you through the process to help ensure you are taking advantage of all of your available deductions and credits. The Drawbacks of Filing Your Own Taxes In addition to the benefits, there are also some disadvantages to filing your own taxes. These include: Time and effort: Preparing and filing your taxes takes time and work You have to sift through financial information and deal with concepts that you may not understand well. The process can be frustrating and take a considerable amount of time. Error risk: If you do not completely understand how your taxes work, you run the risk of making a mistake because of misconceptions. If that happens, it could lead to underpayment and audits down the road. Questions: Even if you use a tax preparation software, you may still have questions that will remain unanswered unless you do significant research or reach out to a tax professional. For some people, the risk of having a substantial error that triggers the IRS’s attention is enough to scare them away from preparing their own taxes. Preparing for Filing Your Taxes When you begin work on your taxes, you should have information gathered throughout the year. Some of the most common items that you will need include: Social Security numbers for you, your spouse, and any dependents Information about wages, such as W2s or 1099s Investment income information Documents that represent any other source of income Information regarding adjustments to income, such as student loan interest paid, IRA contributions, and health savings account contributions, just to name a few Information regarding potential credits, including, for example, child care expenses, education expenses, or retirement savings contributions Data about any tax payments that you may have made throughout the year Keeping good records will help make tax preparation easier at the beginning of the year. [youmaylike] The Basics About What You Can Claim When Filing You must pay income taxes on all your income earned throughout the year. However, that income is reduced by a few things. The further you can reduce your taxable income, the less you tax you will pay. There are three general categories of tax reduction methods: Standard or Itemized Deductions Everyone can claim either the standard or itemized deductions. Standard deductions are a set amount that is based on your filing status. Itemized deductions are based on actual expenses that you incurred throughout the year. You can choose to use the higher deduction. The higher the deduction, the less tax you will have to pay on your income because your income decreases on paper. Itemized deductions include things like medical expenses, state and local tax payments, and home mortgage interest deductions. Itemized deductions will only decrease your income by a certain percentage, or up to a specific point. Adjustments Some adjustments to your income may also be available. These include things like paying student loan interest or alimony. Adjustments are more valuable compared to deductions because they decrease your income dollar for dollar. Credits A credit decreases your taxable income as well. Some credits are refundable while others are not. For example, you get a child tax credit simply for having children that qualify for that credit, but that credit will not be paid out to you if you do not have any tax obligations. On the other hand, the Earned Income Credit, which is available for low-income filers, will be refunded to you even if you do not owe any taxes. There are a wide variety of deductions and credits available. Take a look at the federal forms and related schedules to determine whether you might qualify for any of these. How to File Your Own Taxes If You Live Overseas If you earned income in the United States as a U.S. citizen or resident alien, you likely need to pay taxes on that income. This is true even if you live overseas. You can still choose to e-file or mail your tax return to the IRS once you have it prepared, just as if you physically lived in the United States. In some cases, you will be taxed on the income that you earned throughout the world. However, you may be able to deduct a portion or all of the revenue that was not made in the United States in some circumstances. Filing Online The IRS offers an online filing option that is free for individuals that have an adjusted gross income below a specific threshold. Generally, your income must be below $66,000 to qualify for this service. You can also file online by using a commercial tax preparation software. Examples of this type of software include: H&R Block TurboTax TaxCut TaxSlayer There are many programs available that will file your taxes for you, often for a fee. Knowing how to file your own taxes can be a great way to save money, but it can be tricky as well. If you want to file your taxes yourself, be sure to read the form instructions thoroughly and get familiar with various tax saving opportunities before you begin preparing your return.
Bad Credit Debt Consolidation Loans
Do you have bad credit and are looking for bad credit debt consolidation loans? In this article we will look at what bad credit consolidation loans are, the pros and cons, the steps for applying and the different options.
What is a Bad Credit Debt Consolidation Loan?
Before you can understand what bad credit debt consolidation loans are, it is important to understand what debt consolidation is.
Debt consolidation is when you blend several debts into one payment. Having one payment instead of several can make it a lot easier to manage from a bookkeeping perspective. It can also help you potentially save on interest. If your interest rate is higher due to you having bad credit, consolidating your debts can help lower your overall cost of borrowing.
A popular way to consolidate debt is by applying for a debt consolidation loan. A debt consolidation loan is a personal loan that you can utilize to pay off more than one credit account.
A bad credit debt consolidation loan is simply one of those types of loans for someone with bad credit. Qualifying for one of those types of loans can be challenging when you have bad credit. However, if you do manage to qualify, the benefits of the loan can be many.
What Are the Pros and Cons?
Here are the pros and cons of debt consolidation loans.
- When you take out a debt consolidation loan, it can help simplify your financial life. Instead of having many payments to worry about, you only have to be concerned with one. This can help you pay off your debt sooner and lower your chances of a missed payment, which can further damage your credit score.
- A debt consolidation loan can also lower your overall cost of borrowing. It typically only makes sense to sign up for a debt consolidation loan if you can get a lower interest than you paying individually on your various credit accounts. For example, if you are paying 20% or more on your credit cards but you can sign up for a debt consolidation loan for under 10%, it makes a lot of financial sense.
- Debt consolidation loans can help make it a lot easier to budget. That’s because instead of having several payments to worry about that fluctuate over time, you only have one payment to be concerned about. If you get a debt consolidation loan with a fixed interest rate, not only will your interest rate stay the same, but your payment will stay the same as well.
- Although in theory a debt consolidation loan is supposed to help you pay off your debt sooner, there is nothing stopping you from racking up even more debt when you take one out. You might find yourself in a vicious debt cycle, racking up more debt on your credit cards and the process repeats itself.
- There may be costs associated with taking out debt consolidation loans. Typical costs include closing costs, annual fees and loan origination fees. That’s why it is important to ask about any potential fees before signing up, so that you are not surprised by them later on.
- Your cost of borrowing might actually be higher with a debt consolidation loan. That’s because a debt consolidation loan is based on your current credit score, and your credit score when you first applied for these loans might have been a lot higher than it is now.
Steps to Applying
Here are the steps in applying for a debt consolidation loan with bad credit.
1. Keep an Eye on Your Credit Score
Aside from your income, one of the biggest factors lenders base their decision on is your credit score. Applying for a loan only to get rejected can negatively impact your credit score. That’s why it is a good idea you keep a watchful eye on your credit score.
You’ll need to meet the lender’s minimum credit score in order to qualify. By knowing what your credit score is, you can avoid applying for debt consolidation loans that you won’t qualify for and hurting your credit score when the application is turned down.
2. Do Your Due Diligence
Don’t just apply for the first debt consolidation loan that you come across — do your due diligence and look into several options. This may require some effort on your part, but it can be well worth it. You can potentially end up with a loan on more favorable terms, that could save you hundreds or thousands of dollars.
3. Submit Your Application
Once you have narrowed down your list, you will want to make your final choice and submit your application.
Each lender has its own application. With that being said, you will usually be requested the same information. The lender will want personal information to verify your identity, such as your full name, date of birth and home address, as well as financial information. This includes a list of assets and any properties you own.
You should then hopefully hear back in the coming days or weeks with the lender’s decision on whether they will lend to you.
Understanding Your Options
The first and most obvious option is the bank or credit union where you do your everyday banking. This can be a good starting point, but it shouldn’t be your only stop. You can also check into competing banks and credit unions to see if there are better options elsewhere.
But you shouldn’t limit your options there. You can also check out online lenders. Some banks operate exclusively online.
Then, there are alternative lenders. These are lenders with more flexible qualification criteria. For someone with bad credit, this can be a way for you to qualify for the financing you need.