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 Open a Bank Account Online
Online banking offers many of the same advantages and services as in-person banking. If you never need to speak with a teller in person or make a cash deposit, it may be wise to take advantage of an online bank's higher interest rates and lower fees. Don’t know how to go about this? Don’t worry. We will lead you through how to open a bank account online.
Online banks do not have branch locations that you can visit in person. You can still access customer service via chat, phone, or email. With online banking, you may be able to avoid overdraft fees and monthly account maintenance fees. Many banks charge a $10 maintenance fee each month plus $35 when a transaction causes a negative account balance.
Types of Online Banks
When choosing an online bank, you have a few options. Online credit unions are ideal for people who move frequently but want the advantages of being a member of a credit union. Credit unions may offer lower interest rates on student loans, free financial education, and be more lenient when issuing credit cards.
Credit unions must maintain a not-for-profit status, which minimizes fees and maximizes interest on account balances. Golden 1 Credit Union, Alliant, and Connexus are three online credit unions with excellent online reviews.
Neobanks, managed by financial tech companies, offer low monthly fees and the same high interest rates as some other online banks. They could work if you want an online bank, but be aware that you may not be able to get cashier's checks or make wire transfers with this type of pared-down bank account.
Online banks are for-profit institutions, but they often provide free checking account services and better interest rates on savings accounts. When choosing an online bank, look through their entire fee structure. Make sure they offer an account that meets your needs.
Pros and Cons of Online Banking
While online banking offers several perks, it is not for everyone. Before you go through the simple process of opening an online bank account, understand the pros and cons of this type of banking.
Online bank account pros:
- Choose from any bank in the U.S. that offers online banking
- Online banks may offer higher annual percentage yields (APY) on checking and savings accounts
- Online banks may have more advanced technology available to account holders than your local bank
- It's easy to find a fee-free checking account with many online banks
- No minimum account balance requirements
Online bank account cons:
- Can't deposit cash directly into your account, or you may have to pay a fee to do so via Green Dot
- Can't cash a check; deposit paper checks via the bank's app or website
- May have to open accounts at other banks if you want a certificate of deposit (CD) or money market fund
- Must have reliable internet access or a smartphone to access account information easily
Documentation Needed to Open an Online Bank Account
Federal laws dictate how online banks open new accounts. Each institution must verify your identity with a valid driver's license or government-issued identification. You may have to provide a photo of your ID along with your state-issued driver's license number.
All banks require your full Social Security number, Individual Taxpayer Identification Number (ITIN), alien identification card number, or a government-issued document proving your residence or nationality. You may also need to provide a photo of your unexpired passport, birth certificate, or consular ID, depending on whether you are a U.S. citizen.
Be prepared to offer your contact information, full legal name, date of birth, and proof of address. You may need to send a picture of a recent utility bill or another piece of mail showing your street address.
If you do not have a Social Security number, check out online account options at Chase, Bank of America, Marcus by Goldman Sachs, and Self-Help Federal Credit Union. These institutions accept ITINs as one form of proof of identity.
Is Online Banking Right for You?
If you are comfortable accessing your financial information via an app on your phone or through a website and do not currently visit your brick-and-mortar bank in person, online banking may be a good choice. People familiar with modern technology will find that they can easily do everything (except seeing a bank teller in person) with their online bank that they did with their local bank.
Unless you need to deposit cash into your account periodically or require in-person assistance from a teller, online banking could provide you with a technologically advanced and fee-free way to manage your day-to-day finances.