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.
Small Business Relief: Keep Your Business Afloat
Small businesses are under more financial stress than ever. Fortunately, there are many forms of small business relief available if you qualify. From the Coronavirus Aid, Relief, and Economic Security Act (CARES) to various types of loans and grants, you have many options if you are a business owner in need of some financial assistance.
Who Qualifies for Small Business Relief?
If you have fewer than 500 employees or you run a private nonprofit or veteran organization, you are likely to qualify for some type of small business relief. If you have more than 500 employees, you may still qualify for small business relief through the SBA. You can learn more with the SBA Size Standards online tool. If your company is publicly traded, then you may not qualify for certain relief types according to the SBA Coronavirus fact-sheet. You could qualify if, "the current economic uncertainty makes the loan necessary to support your ongoing operations”.
Types of Small Business Relief
As a small business experiencing financial difficulties due to COVID-19 or another type of disaster, you have many options for relief. Large companies like Amazon and Google are offering various types of relief. Amazon has cash grants available for small businesses with fewer than 50 employees in the Seattle area. Google's $800 million coronavirus package includes $340 million in credits for Google Ads to help businesses promote themselves. Small businesses raising money through GoFundMe may be eligible for a matching grant if they raise $500 on their own.
The SBA offers two types of relief. If your business has been harmed due to the coronavirus or due to a declared disaster, you may be eligible for low-interest loans.
Coronavirus Relief for Small Businesses
The SBA has many options for small business loan resources to help mitigate debt and keep small businesses running while under the severe economic stress caused by sweeping shutdowns and illness due to coronavirus.
The Paycheck Protection Program provides small businesses with money to pay as much as eight weeks-worth of payroll. If you get a PPP loan and you meet the requirements for how your business uses the money, you could get 100% of your loan forgiven.
State-Sponsored Small Business Relief
Some states have small business relief programs to help citizens keep their businesses afloat during the pandemic. Michigan plans to provide $10 million in small business grants of up to $15,000 each. The Pure Michigan Small Business Relief Fund opens December 15, 2020.
Ohio businesses may be able to access part of the $125 million in funding from the state by applying for $10,000 grants. Small businesses located in Ohio could start applying in early November 2020.
In Pennsylvania, small business owners can apply to receive a state-sponsored grant of between $5,000 and $50,000. The COVID-19 Small Business Grants will be awarded to Pennsylvania businesses that have less than $1 million per year in annual revenue, pre-coronavirus.
Economic Injury Disaster Loans (EIDL)
You can apply for a low-interest disaster loan to help your business recover from presidential and SBA agency declared disasters through the SBA. EIDL funds can be used for working capital, to pay rent, utilities and fixed debt payments, or to continue providing health care benefits to employees.
There are special EIDL loans available to help rebuild physical damage to your business property and assets, to cover operating expenses after a disaster, and to help eligible small businesses cover operating expenses while key employees are on active duty military leave.
How Can Small Businesses Apply for Relief?
You can apply for small business relief through the SBA by completing the COVID-19 Economic Injury Disaster Loan Application. The process has been streamlined and now requires business owners to provide self-certification to verify that they are eligible. The application should take about two hours to complete.
State-sponsored small business relief provides applicants with specific lists of the financial documentation they'll need. You can complete the application online by searching for your state's name and "small business relief".
Talk to Your Local Lender
Many types of small business relief are provided locally. Your local bank or credit union may be able to help you apply for federally-sponsored relief, like the Paycheck Protection Program, if Congress passes legislation to reinvigorate the program. You may have other options for small business relief through local lenders as well.
2020 was a stressful year for many small businesses. A series of natural disasters plus a global pandemic resulting in shutdowns across nearly every industry put many small businesses in harm's way. Now is a great time to research grants and loans that may be available to help you recover from shutdowns and rebuild your business.