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.
Personal Loans for Poor Credit
Are you looking for a personal loan with poor credit? Credit scores in the U.S. range between 300 and 850. Generally speaking, if you have a credit score of 579 or below, you’re considered to have poor credit.
The lower your credit score, the more difficult it will be to obtain a personal loan. That’s because in the eyes of the lender, a poor credit score means there’s a lesser chance you’ll repay the loan on time and in full.
While obtaining a personal loan application approval may be more challenging, a personal loan is usually better than payday loans. Although you may pay a higher interest rate for your personal loan compared to someone with good or excellent credit, the interest rate is most likely a lot lower than you’d be paying for a payday loan.
In this article we’ll look at types of personal loans for people with poor credit, how a small personal loan can help repair bad credit, the more rigorous lending terms and the importance of monthly payments.
Types of Personal Loans for People with Poor Credit
There are two main types of personal loans for those with poor credit: unsecured and secured personal loans.
As its name alludes to, an unsecured personal loan doesn’t have any assets securing it. For that reason, unsecured personal loans tend to be more challenging to get when you have a poor credit score. That being said, since there isn’t an asset you’re pledging as security, unsecured loans usually take less time to be approved and require less paperwork. Since the risk for the lender is higher (because there isn’t an asset being used as security), the interest rate is almost always higher than secured personal loans.
On the other hand, secured personal loans use an asset, such as your home or car, as collateral to secure the loan. Secured loans can take longer to be approved, since the lender usually needs to determine the value of the assets you’re pledging as security through an appraisal. However, the upside is that you can usually borrow a larger sum of money at a lower interest rate with a secured versus an unsecured personal loan.
How a Small Personal Loan Can Help Repair Bad Credit
Before we discuss how a small personal loan can help repair bad credit, it helps to understand how credit scores are calculated.
In the U.S. there are three major credit reporting bureaus: Equifax, Experian and TransUnion. Although the credit reporting bureaus are secretive about how exactly credit scores are calculated, we do know there are several factors used to determine your credit score. Those factors are payment history, how much you owe, length of credit history, new credit applications and types of credit used.
Each of those factors has a different weighting, but what we do know is that payment history matters the most when it comes to your credit score. If you consistently do a good job of making payments on time on your various credit accounts, it should reflect well in your credit score.
Now that we have a better understanding of how credit scores are calculated, let’s go back to the question at hand.
A small personal loan can help repair bad credit because it can help improve your payment history. By consistently making your payments on time for your small personal loan, it can go a long way in repairing and rebuilding your credit score.
Before signing up for a small personal loan, it’s important to make sure it will show up on your credit report. To find out, be sure to ask the lender if the small personal loan will be reported to the major credit bureaus. If it is, then it should help you, but if it isn’t, it won’t do you any good with respect to improving your credit.
The More Rigorous Lending Terms
Similar to most things in personal finance, there’s no such thing as a free lunch. The same holds true with small personal loans. It’s important to note that small personal loans for poor credit almost always come with higher interest rates. Some also come with steep fees. There also isn’t a guarantee they’ll greatly contribute to improving your credit score.
A better approach may be to rebuild your credit score with a secured credit card (a credit card where you’re required to make a security deposit). However, not everyone has the savings to make a security deposit. If you’re one of those people, then you can either wait until you’re able to save up enough for a security deposit for a secured credit card, or you can sign up for a small personal loan now and start rebuilding your credit score right away. The choice is yours.
The Importance of Monthly Payments
I can’t emphasize enough the importance of regular monthly payments. When the small personal loan is reported to the credit reporting bureaus on a monthly basis, you’ll be able to rebuild your credit faster than if the payments occur less frequently.
Monthly payment is a common payment frequency for credit, whether it’s credit cards, car loans, personal loans or lines of credit. By demonstrating that you can handle monthly payments on a regular basis, it should go a long way to showing lenders that you’re someone they can trust.