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 Find a Financial Advisor
Are you looking for a financial advisor? Knowing how to find a financial advisor is important, and you have come to the right place. In this article we will explain what a financial advisor is, why it is important to have one, what the benefits are and the steps to finding a financial advisor.
What is a Financial Advisor?
A financial advisor helps you better manage your personal finances. Financial advisor is a general term. It’s often used to describe a host of financial professionals, from financial planners to investment managers. In more recent times, the term financial advisor has also been used to describe robo-advisors.
Perks of Having a Financial Advisor
Unfortunately, most of us aren’t good money managers and it is not our fault. When it comes to financial literacy, most of us have received little to no education from school. We’re mostly on our own when it comes to our personal finances. That means we often must learn the hard way by making mistakes. These mistakes can be costly. You can help avoid them by hiring a financial advisor.
It's important to have a financial adviser because they are a trained second set of eyes. A financial advisor can review your current financial standing and recommend areas that can be improved. A good financial advisor will do a close review of your assets, liabilities and expenses and make specific suggestions for you to implement.
A big part of financial advice is goal setting. Any good financial advisor should take some time to sit down with you and ask you about your goals. This includes both short-term and long-term goals. The financial advisor can then help you take the necessary steps to reach those goals.
This usually involves planning how much you comfortably need to retire on, as well as what your retirement will look like. It also involves looking after yourself in the near future. This involves making sure you have enough money set aside for a financial emergency, planning for your taxes for the next year and beyond and addressing the debts that you should focus on paying off.
We’re not going to ignore the elephant in the room. Financial advisors also help you invest your money by recommending certain investments. You can have as much or as little oversight as you need. The fees typically go up based on how much oversight you want and need. You usually get a break on the fees the bigger your portfolio is.
Most people think that financial advisors only provide investment advice. While that is certainly a big part of what they do, good financial advisors provide so much more.
The Steps to Finding a Financial Advisor
Are you ready to find a financial advisor? Here are the steps you can take.
Step 1: Make a List of Potential Financial Advisors
While you could just Google financial advisors, a far better way is to ask for recommendations from family and friends. If a family member or friend has had a good experience with a financial advisor, they should have no problem referring you to them. It’s better if they are a current client of the advisor to ensure the service is still excellent, but even if they are a past client, it doesn’t hurt to get in touch with them.
When reviewing the financial advisor’s website, take a look at the services offered to make sure they are good fit. Also, see who their website is geared towards. Is it geared towards younger people or older people?
Step 2: Interview Potential Financial Advisors
Once you have narrowed it down to two or three potential financial advisors, you will want to interview them to make sure they are a good fit. Here are some good questions to ask:
- How are you paid? This is an important one. Find out if they are fee only, or if they are paid based on the size of your investment portfolio.
- What are your credentials? You’ll want to know what the financial advisor’s credentials are. For example, do they just do trading for you, or do they have credentials in financial planning? Usually, the more credentials, the better, depending on what you are looking for.
- What is your minimum portfolio size? A lot of financial advisors may have minimum portfolio sizes. These are the ones that charge you a percentage of your investments. You’ll want to make sure you meet their minimum portfolio size. Otherwise, you won’t be able to work together, unless they are willing to make an exception for you.
Step 3: Make Your Final Decision
Once you have narrowed down the list and interviewed everyone, you will want to make your final decision. Making your financial decision isn’t jut about how they answered the questions; it is also about who the best personal fit is. If you have a good feeling about someone, you might choose to work with them.
Just make sure you get everything in writing because at the end of the day this is a business relationship. Happy investing!