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.
Get the Loan You Need for Your Education
Bad credit is often an impediment when you apply for a loan or a credit card. Happily, the story is different for student loans, because the federal government bases these loans on financial need, not credit score.
However, if you need additional student loan proceeds or do not qualify for a federal loan, you can turn to a private student loan, where credit is definitely a big factor. In this article, we will explore the student loans available to you and how to get them, in particular student loans for bad credit. Be sure to consult a loan calculator so you are aware of all the aspects of a loan you need to consider before signing on for one.
What Are Student Loans?
Student loans help pay for the costs of attending college. They are a form of financial aid, as are grants and scholarships. Access to student loans makes college and graduate school attendance possible for millions of Americans each year.
Most student loans are issued by the federal government, but you can also get a non-federal private loan from a school, state agency, credit union or bank.
Federal Student Loan Programs
The federal government’s William D. Ford Federal Direct Loan Program offers four types of direct loans:
- Direct Unsubsidized Loans: You can get these even if you do not demonstrate a financial need. Loan interest accrues when the money is disbursed.
- Direct Subsidized Loans: The interest on these is deferred when you are in a non-payment status — during school attendance or during the grace period after graduation.
- Direct Consolidation Loans: Combines separate federal loans into one.
- Direct PLUS Loans: For professional/graduate students and parents of dependent undergraduates.
In addition, the Perkins Loan Program consists of loans made by the school to students with exceptional financial need.
Private Student Loans
These are student loans from banks, credit unions and other private sources. The lender sets the terms and rates, which are generally higher than the federal government’s. Rates are fixed or variable. A credit check is mandatory, and repayment begins immediately. These loans lack many of the options provided by government loans.
What Options Are Currently Available?
Generally, you will get a better deal by choosing a federal student loan over a private one, for the following reasons:
Federal student loan interest rates are lower than those available from private sources. Rates for private student loans can be fixed or variable, and vary by lender and borrower — those with high credit scores pay lower private loan interest rates.
The initial teaser rate on private variable student loans might start out lower than the federal loan rate, but typically rise considerably after the first year, sometimes as high as 18%.
Federal student loans offers several borrower-friendly repayment options not available on private loans. Federal student loans for undergraduates may be subsidized, meaning the government pays the interest for as long as the loan payments are deferred, including while the student is attending school at least half-time and for a period following completion of study (the grace period).
Private student loans are not subsidized and usually require repayments right away, while you are still attending school. Federal student loans can be postponed, and monthly payments can be based on your income, two features not necessarily available from private loans. You may also obtain federal loan forgiveness if you work in public service after finishing school, a feature not available from most private loans.
Federal loans are based on need, not ability to repay, and therefore do not require cosigners to help guarantee the debt. Private student loan access and cost are based on credit scores. If you have a low score, you might need a co-signer to help get a private student loan.
Obviously, this creates risks for cosigners, as they are on the hook for missed payments and may suffer credit score damage for late or missing payments. Co-signers increase their credit utilization ratio, which could raise the cost or availability of future credit.
Federal student loans have no prepayment penalty fees. You will have to check the fine print of a private loan for any prepayment penalties.
Federal student loans (but not private ones) can be combined into a Direct Consolidation Loan featuring a single monthly payment and access to an income-based, income-contingent or pay-as-you-earn plan. The interest rate on a consolidation loan is a mix of the rates on existing loans. Private loans can be privately refinanced, but this may require a higher interest rate.
A single application form, the FAFSA, is used for all federal student loans. If you apply to multiple private borrowers, you will have to fill out an application form for each.
You may be able to deduct the interest on your federal student loan from your income. No such tax break exists for private loans.
You avoid scams when you borrow student loans from the federal government. No such assurance exists for private loans. Fraudulent private lenders might ask for an upfront payment, or falsely promise lower payments or relief from garnishment. Another scam is to charge a fee for refinancing your loans.
The Department of Education’s Student Aid website is a valuable resource to learn about all aspects of student loans. Some private lender websites are also good, some not so much.
Private loans are still a viable choice if you have a good credit score and do not qualify for a federal loan. Also, you can refinance a mix of private and federal student loans but cannot include private loans in a federal Direct Consolidation Loan. Ultimately, your financial situation will dictate whether you qualify for federal student loan, but if you can, it is definitely your best choice.
How to Apply for These Specific Loans
You obtain federal student loans by filling out the Free Application for Federal Student Aid (FAFSA). Students with good, bad or no credit are treated equally. State agencies may also use the FAFSA or provide their own application forms.
If you prefer a private loan, you must complete the lender’s application paperwork. If you have bad credit, you will need a cosigner who has good credit in order to get most private student loans. Alternatively, some private lenders accept applicants with bad credit and no cosigner, but be prepared to pay a high interest rate.