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 More Money Each Month
Saving money isn't a lot of fun. It's much more exciting to act like you can't run out of money, which is super fun, until you run out of money.
Budgeting has a terrible reputation. In these stressful times, when we are all stuck at home and our routines have been disrupted for months. This makes it easy to justify additional spending on luxuries. Fortunately, you don't have to give up the things that make you happiest to save money. There's no need to dive into a budget that sucks the joy out of your life. Saving money is a simple matter of deciding what you love more; this or that. In this article, we’ll talk about how to save more money each month in easy and painless ways.
Can you give up a subscription box that is full of stuff you don't use to free up your bathroom counters and reduce your high-interest debt? Can you spend a few minutes looking at your bank account and cancel recurring bills for services you don't use or even like? If so, you can save more money each month.
Budgeting Could Help You Save Money
Many people have no idea where their money went at the end of the month. A budget helps you become more aware of your spending habits, which could reduce unconscious spending.
Technology makes budgeting simple. There are several free apps that allow you to keep track of your finances in real-time, making it easy to check in with your bank account balances before swiping your debit card for an impulse purchase.
Technology also makes spending money easy. You can click on a Facebook or Instagram ad and make impulse purchases from your phone. Having a budget may not prevent you from making these purchases, but it could help you take a moment to think about whether you really need (or even want) the item before you hit the "purchase now" button.
Make Savings Automatic
Saving money is tough, especially if you don't have excess income or are struggling to pay your bills. Creating a savings plan that you don't have to think about helps you put money away. You may have heard "pay yourself first". Setting up an automatic deposit from your paycheck is one way to make saving painless.
If you have an irregular income, an app like Catch can automatically help you set aside money for taxes, your emergency fund, and even a retirement account.
Paying Off Debt
When you decide to pay off your debts, you also eliminate interest payments. Make sure you pay more than the minimum amount due each month on your revolving credit accounts to help reduce the amount of interest you pay each month. If your payments are higher than you can easily manage, consider paying off all your credit cards and store cards with a lower-interest consolidation loan.
Eliminate Unnecessary Spending
Everyone's definition of "necessary" spending is different. One person may consider a subscription for unlimited car washes necessary, while someone else thinks it's frivolous. Don't give up your precious morning latte right away though.
Take a quick look through your bank account transactions for the past month. Make a list of subscriptions you don't love. Cancel those right now and add the total amount you would have spent to your automatic credit card or store card payment.
Look for duplicate spending, as well. Do you pay for HBO through Amazon Prime and your ROKU account? Cancel one right away. If you signed up for free trials and forgot to cancel before you get charged, take a few minutes to terminate those accounts, as well. Every time you cancel a service or subscription, add that money to a high-interest debt payment. If you don't have any high-interest debts, add the money you would have spent to your automatic savings plan. Use an app like Truebill to help identify and cancel subscriptions.
Reduce Impulsive Spending
If it's easy to spend money while scrolling through social media, so try disconnecting your Paypal or bank account from your phone. When you come across something that you really want, you won't mind getting up off the couch to fetch your debit or credit card.
You can reduce the number of impulse purchases you make by creating a bit of friction between a compelling advertisement and your ability to purchase the item or add the subscription box to you list of monthly bills.
Time to Spend Less
Ready to start saving more money each month? Check out a few free budgeting apps like
PocketGuard, You Need A Budget (YNAB), or Mvelopes. Get rid of recurring bills for subscriptions you don't love and move closer to achieving your goal of saving more money each month.