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 Manage Money as a Couple
You’ve finally found that special person, and you two decide to spend the rest of your lives together. Congratulations!
Unfortunately, as anyone in a marriage can attest, it is a union that requires a fair bit of work. It isn’t just enough to exist. You must continually show your spouse that they matter to you and allow them to live their own life. Even if that path might not be ideal for you.
One of the biggest things couples fight about is money. The specifics of how to manage money as a couple aren't always straightforward. Some couples don’t have enough of it. Others feature one spender and one saver, with conflict arising when deciding what to do with excess cash. One of the keys to a good relationship is avoiding fights about this sensitive topic.
This article will take a closer look at how to manage money as a couple and will present some strategies you can use to keep your relationship happy. We’ll look at what types of accounts you should use, how to make the best household budget, various investing strategies and the difference between cohabitation and being married will have on your finances.
The Ultimate Question – Joint or Individual Accounts?
Let’s start off with the question on the top of most people’s minds when they get married or move in with that special someone. Should you combine finances into a joint account? Or just stick with individual accounts?
My answer will likely disappoint many of you. The correct answer is… it depends.
I know! What a cop-out, right?
Here’s the skinny. There are a million variables to consider, and they all depend on how you and your partner view money. Generally, if you both view things approximately the same, then there won’t be as many issues if you combine finances. Two spenders will be naturally inclined to drain the account every month, just as two savers will be reluctant to spend every month. Being on the same page makes things easier.
Having separate accounts might also be a good idea even if you both view money in a similar way. If each person in the relationship is making sure financial goals are being met, then keeping money separate can give each spouse a little bit of freedom.
Ultimately, couples need honesty to make separate accounts work. You must be willing to show your spouse where your money goes, especially if you’re not contributing your share to shared household goals. Honesty is important in a joint account too, but with those, it is much easier to see what’s going on.
How to Budget as a Couple
Like many other aspects of a good relationship, setting an appropriate household budget comes down to compromising. It's much like creating a personal budget, but with a greater emphasis on splitting and sharing.
The first step is to sit down with your partner and figure out what’s important for both of you. One person might really want to live in a nice house, while the other cares about the vehicle they drive. You’ll likely have separate hobbies, too, with some costing more than others. Consider other financial aspects as well, including attitudes towards charity or helping family.
Ideally, you’ll have enough in the household budget to make each person happy without much compromising. This might be easier than you think, especially if you both make a decent income.
Things start getting a little trickier if you have two spenders who get together. I’d recommend allocating enough joint cash to pay all the bills and then make sure some gets taken right off the top into savings. After that, split up what’s left into spending accounts and spend it on whatever you want. Let your partner do this no matter how frivolous you might think it is.
Next, let’s talk about how to budget if you have separate finances. It should be simple; each member contributes 50% of household expenses and then does whatever they’d like with the rest. But that’s not always the best approach, especially if your spouse makes less than you do. Consider a more even split based on income.
Finally, you might want to have a cap on purchases one spouse can make without telling the other. It’s important to discuss big ticket purchases with each other beforehand to avoid hurt feelings.
Investing as a couple can be complicated.
Let’s start with the basics. Ideally, you’ll want to open joint investing accounts. That way the division of assets is very clear; you’re both equal owners. This isn’t just important from a legal standpoint, it’s also important from a psychological perspective as well.
After that, it gets more complicated. For instance, a higher-earning spouse can contribute to a 401(k) on behalf of their spouse and collect the tax incentives to do so. This can be an effective way to split income and get the future tax liability into the lower-earning spouse’s name.
Some couples take this even further, with the higher-earning spouse putting every spare nickel into their partner’s investment accounts. These capital gains and dividends are then taxed at a much lower rate. Learn more about tax brackets.
These are just some of the basics. You’ll want to talk to an accountant or financial advisor if you really want to maximize gains as a couple over the long-term.
The Legal Differences
The institution of marriage has been falling out of favor for years now, with many couples choosing not to bother. It’s expensive, requires a lot of paperwork and really doesn’t change much for a committed relationship.
One area where it does matter is your finances. You’ll want to take a slightly different approach depending on what path your relationship follows.
Divorce laws in the United States are straightforward, at least from an asset perspective. Community property — which includes any assets acquired while you’re both married — is split evenly upon divorce. It doesn’t matter whose name is on what account. What’ll make this tricky are assets that are brought into a marriage.
You get fewer protections if you don’t bother to get married. This means one member of the relationship could stockpile assets in their name and be in great shape once the relationship ends, while the other person is left with nothing. There are some states that have laws which help protect against this, but for the most part you’ll need to take steps to ensure this doesn’t happen to you.
Many couples sign a cohabitation agreement, a contract that outlines what assets are considered to be joint assets and what assets are excluded from this designation. These are a great idea, and I’d think twice before moving in with someone without having one.
The Bottom Line for How to Manage Money as a Couple
Ultimately, it comes down to this: the details don’t matter as much as the sentiment behind them. So, talk to your significant other about what they’d like to do, make compromises, and then be consistent and honest with each other. Having joint accounts, for example, would be a good solution for some couples, but it might not work for your relationship.
You’ll likely make changes in whatever method you choose over time, as both you and your partner change and mature. Don’t sweat this at all. Ultimately what really matters is the consideration for the other’s feelings. Get that right and the rest will fall into place.