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.
Safe Investments for Seniors to Consider
One of the most beneficial components of investing is time. Time is a factor in compound interest, helping your money grow exponentially over the years. Time also allows you to ride out downfalls in the market, sticking to your investments until their value returns (and avoiding a loss in the process).
But what if you didn’t get an early start in your investment journey? What if you are just now considering investing your money, well into your older years?
Lucky for you, there is never a bad time to begin investing. There are always ways for you to safely and reliably grow your savings, accounting for your own personal plans and preferences. Seniors will need to change their investment strategy a bit — especially when compared to younger investors — but that doesn’t mean it’s not still well-worth the effort.
Let’s take a look at what investing means for seniors, where to begin and things to keep in mind along the way that are unique to older investors.
Is Investing Safe for Seniors?
It’s important to remember that no true investment is without risk. There is always the chance that, at the very least, your money will not earn its expected return. With some investments, there’s even the chance of losing your money altogether.
This is why investing is considered a long-term strategy. By starting early, one can ride out the rough investment waters that recessions and economic hiccups can bring, and come out the other side relatively unscathed.
With that said, can investing still be a good idea — or even safe — for older generations, especially those who may need to access their savings sooner rather than later? Without the benefit of time, investing is admittedly a bit trickier for seniors — but that doesn’t mean it’s impossible or even inadvisable.
By opting for investment vehicles that inherently carry a lower risk, seniors can still enjoy an impressive growth in their savings that is both impactful and safe. The only difference is that this growth may not be as profound as it is for younger investors who have a higher risk tolerance.
Before investing, seniors should sit down to map out their current financial situation, their future plans, and even their present-day cash flow. This will allow them to determine exactly what level of risk they can comfortably tolerate, and which investment vehicles are the safest for their savings.
Investment Options for Seniors
Technically, there is nothing stopping a 70-year-old from investing in the exact same places as a 30-year-old — meaning that the investment options for seniors are not officially limited in any way.
With that said, there are a few savings vehicles that are a much smarter choice for older investors, as they offer better protection and lower risk levels. This includes things like bonds, certificates of deposit, bank savings, money market accounts and even fixed annuities.
Each of these options provides a low level of risk for investors. On the flip side, though, they also offer a lower return than more aggressive investment products.
As you’ll notice, there aren’t any individual stocks or target-date index funds included in this list. While seniors can certain opt to save their funds in those types of vehicles, older investors are usually recommended to choose from one of these safer, more reliable options.
Investing in Gold
If you're hesitant to invest your money or expand your cash portfolio, you may consider investing in gold. Gold has always been considered a safe option for investment, as its value doesn't ebb and flow the same way as the financial markets. Gold has always held historic value, and is expected to continue to be of high value for years to come.
Birch Gold Investment Companies is the leading dealer for precious metals in the United States. If you're considering investing in gold you should consider their services. They are headquartered in California, but serve clients across the country. You can choose two options: purchasing gold items, or converting your IRA or 401k into a precious metal investment. For the latter option, you can choose between gold, silver, platinum or palladium.
What’s Different About Investing as a Senior?
Any investor knows that the more risk you take on, the greater the (potential) reward you could see on that investment. For seniors, there is a need to lower the risk tolerance in an effort to avoid financial ruin during — or immediately before — retirement.
For example: let’s say that you invest in an exciting fund, only to watch the economy take a nosedive the following year. Common knowledge would advise you to leave the money alone and wait for the market to bounce back. And if you’re 28 years old, you can afford to do so for the next 15 years, until your investment regains its value.
However, if you are 65 years old and entering retirement, you cannot afford for something risky like that to happen. Sure, a riskier investment could earn you a greater return, but it could also wipe out your entire savings in an instant, leaving you without any liquid resources.
Each of the five savings vehicles in the chart above offers a return on investment, and a safe place to store one’s nest egg. Some are better than others, of course; the vehicle you choose will depend on your own personal plans, how much you hope to earn and your cash flow at any given time.
Why Should Seniors Continue to Invest Their Money?
The best money is free money, and the earnings on your investments are essentially just that. There is no age or life stage during which free money isn’t ideal, either.
Whether you’re 27 or 77, investing is always a wise decision if you have the cash flow to do so. This allows you to take whatever savings you may have and grow it into something even bigger. That concept is especially important (and impactful) for older generations, most of whom are likely retired already and not earning any additional monthly income,
With that said, the older you get, the more intentional you will need to be with your investing. Younger investors can afford to take on the risks involved with certain investments, riding out the waves over the decades to come and slowly rebalancing their portfolios to account for less and less risk.
Older investors simply can’t risk losing their life savings so late in the game. They have already reached the “low risk” stage of their finances, which limits the types of investment vehicles they should choose.
By opting for a safe investment — such as bonds, fixed annuities, CDs or even a high-yield online savings account — seniors can enjoy a notable return while also resting easy that their money is secure.