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 Save Money Each Month
With COVID-19 ravaging the economy and millions of Americans out of work, it’s little wonder why so many of us are worried about our finances. Sure, government stimulus checks and unemployment insurance help, but they often don’t do enough to replace our whole salary.
Even folks with secure jobs are starting to tighten their belts. After all, the future looks anything but secure. It’s best to act now and top up your savings rather than waiting until it’s too late.
Another reason why it’s the perfect time to take a closer look at your personal finances and learn how to save money each month is because many people now have a little extra time on their hands. Rather than firing up Netflix for the 40th time, take this opportunity to save a little cash.
Let’s take a closer look at a few different ways you can easily save a few bucks. Implement all these tips and you might end up saving a thousand dollars – or more – each month going forward!
Most of us should focus on their big three expenses, which are food, transportation and housing. That’s where most savings will come from.
Let’s start with food. Many people are already off to a good start in this department by making more meals at home. This tip alone can easily save a family a few hundred dollars each month, depending on how often they end up picking up takeout.
But it isn’t just enough to go to the grocery store. I know I’ve often walked out of my local supermarket with ingredients that cost about as much as a restaurant meal.
The secret to saving big money grocery shopping is to stick to your local grocer’s loss leaders. These are items the company prices at less than their cost to get people in the door. The hope is customers buy enough to make up for the loss on a few cheap items.
Your goal should be ensuring the grocery store only makes a minimum profit off you. Ideally, you’ll want the store to lose money every time you walk in. Repeat this process at every grocery store within a reasonable drive.
To really save money on groceries will take a whole new mindset. Many people plan their meals for the week and then start making a grocery list. You’ll want to turn this process around, and meal plan based on what the store has on sale.
Say the big deal this week is on chicken breasts. You can make several different meals using this protein. Switching it up is important, or else you’ll get bored and end up with pizza delivery.
Finally, talk to the staff while you’re shopping. Ask if they have any interesting deals this week. Sometimes a store will be clearing out an item for pennies on the dollar.
Many people aren’t going to feel comfortable using public transit for a very long time, which means you’ll need to find ways to save money on your car.
An easy tip today is to simply call your insurance company and request a new quote based on the smaller number of miles driven. Savings of $50 or $100 per month using this strategy aren’t uncommon.
I’d recommend taking this a step further and shopping your car insurance to multiple different companies each year. The last time I did this I saved close to $250 on both mine and my wife’s car.
Fuel is relatively cheap right now, so that’s a plus. Good driving habits can also help keep your fuel costs down. Make sure your tires are at the right pressure and don’t speed. You’ll gain a little fuel economy that way, which can really add up if you put on a lot of miles.
Whether you rent or have a mortgage, there are steps you can take to reduce the cost of housing.
If you don’t own, it’s time to ask your landlord for a reduction in rent. It never hurts to ask, right? If the answer is no, keep an eye on local vacancies that might be offered for less.
It’ll take more work to save on your monthly housing costs if you own a house, but it’ll likely be worth it. Mortgage rates are dirt cheap right now, thanks to low interest rates in place to help boost the economy. Refinancing can easily cut thousands of dollars in interest costs off a 15 or 30-year loan. Crunch the numbers; you might be pleasantly surprised.
There are also some interesting ways to save inside your home as well. The easiest utility to save money on is your internet package. Call up your provider and threaten to leave unless you get a better rate. Depending on how expensive your internet is today, a savings of $50 or even $100 per month is possible.
Next, if applicable, do the same thing for your cable TV package and home phone. Perhaps take a closer look at bundling those services if possible.
Don’t just stop there. The next step is to research lower cost cell phone plans. This avenue is especially promising if your phone is more than a couple years old. Resist the temptation to upgrade, especially if your phone still works fine.
Like with car insurance, today is a great time to look at switching home insurance providers. Again, look at bundling options. Many insurers give a deal if you have multiple policies with the same company.
Pay Off Debt
For many people, consumer debt takes a big bite of their disposable income. An uncertain economy can provide great motivation to get your personal balance sheet under control.
Getting rid of debt isn’t just about the interest saved each month. It also frees up precious cash flow that can be reallocated to other uses.
Say you owe $10,000 on a credit card and you’re paying $500 per month towards it. The interest rate is 1.5% each month, or $150. You’re only saving $150 per month by paying this debt off completely, yet you’ll free up $500. That cash can be used in any number of different ways.
How to Save Money Each Month: The Bottom Line
Jobs are uncertain, especially right now. But you can control your spending.
Today is the perfect time to take a serious look at your finances and make a few cuts. It doesn’t even have to include much sacrifice, either. Many of these savings are completely painless, and most aren’t really big changes. Chances are, the steps for how to save money each month will be easier to implement than you think.
Any sacrifice will be worth it, especially if you’re in a tight spot. It’s empowering to take control of your financial future, even if you can’t control your own career destiny.