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.
In Need of Short-Term Financing?
If you are a business owner, or if you are thinking about becoming one, you’re likely aware that the financial hurdles can be daunting.
You may be especially aware that situations happen that can affect your cash flow. You may not need long-term financing, such as a loan. You may simply need something to bridge the financial gap, i.e. short-term financing.
Don’t fret if this is your situation. Business lines of credit (LOC) could help you tremendously.
This finance option is often used by those who are unable to qualify for a small business loan, or who simply don’t want to take on additional debt. This option is also useful for startups and owners who want to expand.
Here, we’ll go over the ins and outs of business LOCs.
- Define line of credit
- Explain how to qualify for an LOC
- Note how best to use an LOC
- Go over who provides LOCs
- Go over when they may not be the best option for you
- Address LOC pros and cons
The Business Owner’s Credit Card
A good way to think of business LOCs is think of them as credit cards. The way you charge purchases to your credit card is the same way you use LOCs. You have a maximum spending limit, and the only way to continue using it is to pay down your balance.
For LOCs, the amount of credit available to you is replenished once you pay off the balance. Therefore, you can reuse and repay at your leisure as long as you don’t miss payments. You must also be sure to not exceed the credit limit.
A plus is that you are typically only responsible for paying fees for an LOC when you tap it.
Business lines of credit are available for outfits of all sizes. Their sums can range from $10,000 to $100,000.
They can be secured and unsecured, however most are unsecured. They typically come with a variable interest rate.
Qualifying for an LOC
Before you get too excited about LOCs being an option, understand that you have to hit certain criteria to qualify.
While LOCs are not loans, the best way to get one is through a bank. Just like bank-issued loans, traditional LOC providers want specific information about you and your business.
Be prepared to provide documentation that shows your revenues. Providers want to see that you’re making money, and not losing it. If you have at least $25,000 in annual revenue, you’re on your way to getting approval.
If your LOC request is large — $100,000 or more — you may be asked to put up collateral. This includes the property where the business is located, if you own it. You may also be able to use your home if you own it.
Other documents you may have to provide include:
- Personal and business tax returns
- Bank account statements
- Business financial statements, such as profit-and-loss statements and your balance sheet
Startups may be required to have been in business for at least six months. Credit requirements vary, but be prepared to make improvements if your score is below 550. LOC providers look most favorably on prime borrowers who have credit scores of at least 620, or even 650.
Putting a Business Credit Line to Use
Getting approved for a business LOC can cause you to breathe a sigh of relief. That’s because there are many beneficial ways you can put it to work. They can be used to:
- Supplement you cash flow
- Expand, remodel or make improvements to your business
- Cover surprise expenses
- Buy new equipment, such as computers, or upgrade your systems
- Purchase inventory to meet seasonal demands
- Launch advertising and marketing campaigns
The Government Beauty Known as the SBA
As a business owner, you may gripe about a host of issues related to the government. However, there is a part of the government that you’ve likely found to be very useful — the Small Business Administration (SBA).
When it comes to LOCs, reviewing the options offered by the SBA should be on your to-do list. It backs unsecured revolving lines of credit that are offered by banks. It’s called the CAPLines program, and it helps business owners meet short-term and cyclical working-capital needs. It’s also ideal for business that are less than 5 years old.
There are four lines, so there’s something that fits almost all business needs. See the SBA’s site here for options that could suit you.
Traditional LOC providers
Big banks, as well as smaller banks like regionals, often provide LOCs. There are a slew of non-traditional financial outfits that offer them as well. Your choice depends on which you feel most comfortable with. The main difference between the two relates to their qualification requirements.
Bank of America and Wells Fargo are among the traditional banks that offer LOCs to businesses.
Bank of America’s LOC is secured by a blanket lin on your assets or a certificate of deposit. Its LOCs feature revolving loan terms with annual renewal, no cash advance fees and no interest charges until you use the funds.
To qualify, your business must be at least 2 years old, with you as the owner. It must be generating at least $250,000 in annual revenue.
Wells Fargo’s secured business LOC requires that you have a Wells Fargo savings or CD account to be used as collateral. Its LOC is offered up to 95% of the amount pledged as collateral.
While Wells Fargo does not impose an opening fee for its secured LOCs, it does charge a $50 annual fee. There is no cash advance fee unless you withdraw from an ATM or over the counter.
Avoiding the Traditional Banking Route
Also consider non-traditional financial outfits for LOC options. Some of the popular choices are Fundbox and StreetShares. Their attractiveness relates to their more lenient terms.
For example, Fundbox works with businesses that are just 3 months old. There is no minimum credit score requirement. Businesses with just $50,000 in revenue can qualify.
StreetShares requires a mere $25,000 in annual revenue. However, your maximum credit limit is limited to 20% of your annual business revenue.
Pros, Cons and Tips
Business LOCs can be saving graces for several reasons, including their flexibility. As long as you don’t miss your payments, you can reuse them as much as you need to meet a wide array of needs.
Bank of America points out that maintaining a line of credit in good standing may help build your business credit rating and position you for better loan terms if you seek future financing.
Be aware that business LOCs do carry risks — the biggest being to your own credit. If your business fails, you’ll still have to repay the LOC. If you structure your business as a sole proprietor outfit, you may be liable.
If you want to pursue a business LOC, be sure to speak to a professional, in addition to researching each financial institution’s offerings.