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.
What’s the Best Accounting Software for Small Business?
Ask any small business owner and they’ll tell you the same thing; running your own show is no easy task.
Business owners are required to wear many different hats. First and foremost, you’ve got to be good at your craft. If you can’t cook, for example, good luck owning a local restaurant. Then there are several other skills that are required, depending on the scale of the business, and these include human resources, customer management, sales and keeping the operation running efficiently.
And that’s just on the operational side. A business owner must also have a solid long-term business plan, be aware of any expansion opportunities, have at least a little marketing skill and, perhaps most importantly, keep the books up to date. After all, you don’t want the IRS to pay you a visit. You can also learn how to file your business taxes as a small business owner here.
Sure, you can always pay for an accountant to manage your books for you — but that costs money — cash that comes right out of your bottom line. Besides, unless you’re a relatively large business, it might not even make sense to pay someone for this. With a little help, you can easily do up your own books.
If you’re interested in doing your own accounting, then a big part of that is having the correct accounting software. Let’s take a closer look at what exactly accounting software does and some of the advantages and disadvantages of the leaders in the space.
What Exactly Is Accounting Software, Anyway?
Essentially, accounting software is a computer program that helps a business keep track of its revenue, expenses, assets, liabilities and equity. It can also help business owners generate invoices, do payroll, decrease accounts receivable, and just generally keep a better eye on the total financial picture of the business.
The beauty of accounting software is that it automates many of the processes that a business owner would normally have to do by hand. For instance, based on the information on file, accounting software can generate a real-time balance sheet or show you how the rest of the year will play out.
If you have a simple business, then a basic version of accounting software is best. This is for an organization that doesn’t have employees, or many sources of revenue. If you’re a one-person organization, you’ll likely only need a bare-bones version.
If your business is a little larger, or more complicated, then you’ll have to upgrade to a better model. It’s not that hard to find free accounting software if you just have basic needs, but you’ll be stuck having to pay if you need premium features. However, unless your business is complex, accounting software is affordable. You won’t pay much more than $10-$25 per month.
How Accounting Software Will Benefit Your Business
The big benefit of accounting software is that it makes doing your books a whole lot easier than using a spreadsheet or using a paper ledger. It improves accuracy, makes the administration side of the business much simpler and enables a business owner to get a better overall picture of the financial state of the business.
Essentially, accounting software is a cheaper version of hiring your own accountant. And since the average small business only needs an accountant for just a few hours a month, the software provides an excellent solution.
So, Which One Should You Choose?
Here are three of the best accounting software choices for your business; these are companies that already boast thousands of happy customers.
Let’s start with QuickBooks, North America’s most dominant accounting software provider. The company is the undisputed king of this space; it must be doing something right.
Advantages to QuickBooks include the software’s easy-to-use interface, a major plus for those with zero accounting knowledge. All information is also stored online, meaning you can access it from anywhere in the world. It has all the functions a typical small business would ever need. Plus, you can also link it to your bank account.
However, there are some disadvantages. The first is the cost; some of QuickBooks’ competitors offer free versions for simple businesses. QuickBooks does not, with even a basic plan costing around $25 per month. Some users also think the program could be streamlined a bit. You also must use the online feature, something that made a lot of long-time users angry when the change was made a few years ago.
FreshBooks is another leading accounting software provider. Unlike Quickbooks, which is geared more towards small and medium sized businesses, FreshBooks is focused more towards freelancers and other one-person types of businesses.
Where Freshbooks really excels is in invoice management. The software allows a freelancer to easily submit an invoice to up to five different clients on the lite package. It also monitors when the client opens the invoice and allows either credit card or direct deposit to bank account billing.
One main issue with FreshBooks is its limitations; many users report that it isn’t a great option for larger businesses or ones with a lot of moving parts. If you’re running an e-commerce site, for example, FreshBooks probably isn’t your best choice. And like Quickbooks, there’s no free option. You’re stuck paying a monthly fee.
If you’re looking for a (mostly) free accounting software program, your best bet is Wave. The company’s main accounting functions — like invoicing and general bookkeeping — are completely free, while it does charge a fee for things like payroll and processing payments. Like the others on this list, all the info you put in is stored on the cloud; you can access it from anywhere. It’s also easy to use and has an interface most users love.
Wave’s major downfall is much like FreshBooks’s main issue. It struggles to provide adequate service to complex businesses with needs a little higher than sending out a few invoices every month. And although it’s free, Wave offers many additional services for a fee. Some people find these offers a little annoying.
The Bottom Line
If you’re still using an antiquated paper system for your business, it’s time to take the next step. Accounting software can simplify your bookkeeping system while giving you easier access to your business’s important data. Whether you choose a paid option like QuickBooks or FreshBooks, or software that’s free like Wave, your business will ultimately be more successful if you use the proper tools.