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 Pay off Student Loans Fast
You’ve worked hard, done all the essays, pulled countless all-nighters, and it has all worked out. Congratulations on getting that well-earned degree. You deserve it!
There’s just one problem. College is expensive, and chances are you had to take out some loans to get there.
Student loans are a huge problem in America today. Collectively, there are 45 million current and former students that owe creditors a whopping $1.5 trillion. The average student emerges from university with more than $28,000 in debt, a figure that is weighed down by the thousands of students who have scholarships or wealthy parents helping them out. Your debt might be even higher than the average.
The good news is there are certain paths you can take that will help you eliminate your student loans faster than you ever thought possible. Here’s how you can pay off student loans fast.
Get the Best Job You Can
The easiest way to have more cash to throw towards student loans is to earn as much money as possible. This starts with getting the best job you can.
Most people search for jobs the same way. They fire up their computers, scroll through the various job sites and send half-hearted cover letters for jobs they only just kind of want.
There’s a lot to gain by doing things a little differently. Leverage your network — including former bosses, classmates and friends — to get your resume in front of people who matter. Have these people vouch for you and aim a little higher than the typical entry level job.
This advice will not apply for some people who end up in more standardized jobs. If you’re a nurse, teacher or police officer, you are making pretty much the same no matter where you end up working. To make a little extra cash, these folks should embrace a side hustle. There are a million things you can do that offer the possibility of enjoyable work and flexible hours. Any cash earned can go straight towards your student loans.
Live Like a College Student
You likely already have plenty of experience with this, so it should not be much of a sacrifice.
Ultimately, much of your spending comes down to three categories — housing, food, and transportation. Minimize those, combine the effort with a decent income, and you will be well on your way to making a big dent in your student loans in a hurry.
The easy way to save money on housing is to embrace living with other people. You can rent a room for far cheaper than it costs to even rent a bachelor apartment. Roommates also come with other perks too, like instant socialization and the sharing of household responsibilities. You can even take the concept to the next level and live for free — by renting a large house yourself and subletting the rooms to others.
Next, it is time to cut back on food expenses. The easy way to do this is to live off ramen and store brand mac n cheese, but that might not be the best for your body.
One big concept that will save you loads of money on food is to embrace cooking at home versus eating out. A fat juicy steak might only cost you $10 to make at home, but $40 at a restaurant. You can get your per-meal cost far lower than that by embracing sales at the grocery store, and then planning your meals around what was for sale.
The easy way to decrease transportation costs is to embrace public transport. This might not be possible depending where you live (especially if it is the suburbs), which means you will be forced to drive. Remember, there is no need for a brand-new car as a recent college grad. Something much cheaper will do the trick.
Use Smart Payoff Methods
You’ve likely heard of the debt snowball method, which advocates paying off the loan with the lowest balance first. This is a move that creates momentum that can be carried over to the next loan, culminating with finally becoming debt free.
There’s just one problem; math often disagrees with this method.
For the sake of simplicity, let’s assume you owe $30,000 in student loans broken down as follows:
- $5,000 at 1.5% interest
- $15,000 at 5.7% interest
- $10,000 at 4.2% interest
In this situation, it makes the most sense to tackle the biggest loan first. The smallest balance should be paid off last, since it has such a small interest rate.
You’ll pay just $75 per year in interest on the smallest loan, while forking out $855 in annual interest on the largest loan.
Or, to put it another way, paying off the largest loan gives you a guaranteed 5.7% return on your money. You’ll earn just 1.5% if you pay off the smallest loan.
Another thing to keep in mind when you first start paying off your loans is the grace period. Federal loans come with a six-month grace period, while private loans vary. Some will give you a little extra time to get on your feet, while others will not. Read the small print on your loan contracts and take any grace periods into consideration when creating a student loan repayment plan.
Learn About Your Options
It’s worth spending a little time to see if you can decrease the interest rate on your student loans or if you qualify for deferment. Forbearance is also an option, but it’s more short-term in nature.
Deferment would likely be your first option. Keep in mind you’ll need to apply for deferment and you’ll only get it in certain situations. Typically, you are not getting deferment unless you are unemployed or can prove financial hardship. Deferring is often only an option on federal loans, too. The savings can be significant though, so I would take some time to see if you can qualify.
There are also deferment programs if you go and work for certain parts of the federal government, like the armed forces.
Something that has a far better success rate would be to refinance your student loans. You’ll take numerous student loans and consolidate them into one, which should reduce your interest. This ultimately saves you money and makes your financial life a lot easier.
How to Pay Off Your Student Loans Fast: The Bottom Line
Your student loans might seem daunting, but they do not have to be.
If you make paying off these loans a priority, then that is half the battle. Embracing tips like maximizing your earning potential, living frugally or using deferment and refinancing strategies, will make your life much easier as well.