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.
How to Balance a Checkbook
People spend money every day, and it can be hard to keep track of. Debit cards, credit cards, automatic bill payments, and yes, even old-fashioned paper checks can add up throughout the month.
Balancing a checkbook today is a bit different than it was before we had access to online budgeting apps and could access up-to-the-minute information about our account balances 24/7.
It's still crucial to understand where every one of your hard-earned dollars goes, and balancing your checkbook, or reconciling your accounts, is an important part of keeping your finances organized.
4 Steps to Balance Your Checkbook
If you want to balance your checkbook the old-school way, here's how to get it done:
1. Record Your Transactions
Remember your grandmother's tiny transaction register attached to her checkbook? You could use paper to record your transactions, or you could use an app on your phone. It could be as simple as creating a file in your phone's notes and recording every transaction as you make it, or you could use a budgeting app to help you keep track of your spending.
Either way, you'll keep a running balance of your transactions by adding deposits and subtracting each withdrawal. This is also a good exercise if you want to see where you spend most of your money.
2. Review Your Bank Statements and Compare Transactions
You may receive bank statements via email, or your bank may hold them in a special file in their online portal. It's rare to get monthly statements on paper in the mail these days, but if you do, you can use them to balance your checkbook.
Open your latest monthly bank statement and start at the top. Compare each transaction to the records you've kept. Mark off any transactions in your records that cleared your bank account. Add transactions to your records that you may have missed and appear in your bank statement.
Add up withdrawals that haven't cleared and subtract them from the balance. Add up deposits that haven't cleared and then add them to the balance. This number is the amount of money you have available to spend.
3. Use Your Bank's Checkbook Balancing Tools
Some banks offer special online tools that are connected to your account to help you quickly and accurately balance your checkbook.
If your bank offers this service, simply log into your bank account, choose the online checkbook balancing tool, and enter transactions that haven't been posted to your account and deposits that haven't gone through. The computer will produce your available balance.
4. Contact Your Bank if You Find Mistakes or Suspect Fraudulent Activity
If you don't recognize a transaction, call the bank to get more information. You may have been charged for a subscription you previously canceled, your card number may be compromised, or you may have made a mistake and forgotten you authorized the transaction.
A bank representative can offer more information about the origin of the transaction. They can also help if you discover fraudulent activity.
Why Balance a Checkbook?
Your online account history shows your recent and pending account activity, but it doesn't show checks you've written that aren't cashed yet. It also doesn't show bills that you have on autopay that are about to go through your account.
Your balance as it appears in your bank's online portal may not be accurate if you figure in outstanding checks and payments that are about to clear.
For example, if you have $600 in your checking account, but you put gas in your car this morning (which usually triggers a $1 authorization charge until the correct amount clears) and you paid off an old debt of $450 by mailing a check last week, you don't have $600 available to spend. After the check clears, you'll have $150. If you spent $60 at the gas station, your actual available balance is $90.
You may be able to swipe your debit card to pay for a $140 purchase today, but when the $450 check goes through your account, you'll be overdrawn by $50 plus the fee imposed by your bank. If your bank chooses to deny the check, they'll send it back to the company you tried to pay, which could trigger additional charges from that company.
Balancing your checkbook helps prevent overdraft fees, returned check fees, and bounced checks. Balancing your checkbook also helps you identify unauthorized activity on your account. If you find charges you don't recognize or didn't authorize, it's crucial to let your bank know right away so they can issue a new debit card and refund those charges.
Balancing a checkbook may sound like something that adults did in the 80s and 90s. While that's true, it's also a good way for you to keep track of the money you've spent and prevent overspending, which could trigger fees.
Balancing your checkbook also allows you to keep an eye on your account so if there's a problem with fraud, you can avoid being held liable for charges you didn't authorize.