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.
What Is a Credit Union?
In a world where there are seemingly hundreds of different banks, how do you decide where to put your money?
There are a million variables to consider. Some folks crave face-to-face interaction, while others are quite okay with doing everything online. Others might want an account with a good interest rate. Some banks specialize in one thing, while others seem like they have a branch located on every corner.
Some people don’t even bother going with a bank, choosing to entrust their money with a credit union instead. Credit unions seem to offer almost everything banks do, and their fans tend to be very loyal supporters. But many people don’t really know what separates a credit union from a traditional bank.
Is a credit union right for you? Should you entrust your money with one? Let’s take a closer look.
How Does a Credit Union Work?
Let’s start with the basics. What exactly is a credit union, anyway? And how does it differ from a bank?
I can understand why people might be confused about this part. On the surface, it seems like there isn’t a whole lot of difference between a credit union and a bank. They both offer deposits, loans, investment advice and other similar products. There’s very little visual difference between a bank branch and a credit union branch, too. Some credit unions even take steps to hide that fact, using generic names that could easily be mistaken for a bank.
But there are some important differences. The biggest one is a traditional bank is owned by shareholders, people who want to make a profit on their investment. A credit union, meanwhile, is owned by its members. If it makes any profit, that reward is shared by the members.
Most credit unions are non-profit entities. They strive to break-even, choosing to forego charging various fees that would lead to a profit. These cost savings are passed back to members, who get access to sophisticated banking products on the cheap. And when these credit unions do make a profit, they don’t have to pay corporate income taxes on the gains.
There are hundreds of different credit unions across the United States. Some are quite large with hundreds of different branches, millions of members and billions of assets under management. Others are much smaller, with only a few different branches.
Reasons to Use a Credit Union
For most people, choosing a credit union over a traditional bank comes down to a few very important factors.
The first reason is cost of banking. The average bank seems to charge for everything these days. Since credit unions aren’t so concerned with making money, they’ve eliminated many of these fees. Most credit unions offer no-fee chequing accounts and free ATM withdrawals. This advantage usually translates into better CD rates as well.
Most members also agree they get better service at a credit union versus a traditional bank. Since a credit union can afford to be less interested in profit, employees get more freedom to make customers happy.
Many credit union members also think they end up getting better investment advice versus folks who go with a traditional bank. Remember, major banks have major capital market divisions, which creates a certain amount of conflict of interest. Sometimes a bank will recommend a stock because it wants to help that company with its next share offer, not because it’s a good investment.
Finally, credit unions offer deposit insurance just like a regular bank. Both are ultimately backed by the federal government. You don’t need to worry; your cash inside of a credit union is just as secure as it would be inside a bank.
Reasons to Avoid Credit Unions
Although every credit union is different, most banking analysts agree that credit unions typically don’t offer great rates on mortgages or other loans. The reason is a bank might offer a low rate to entice customers to get a loan, while credit unions are only concerned with providing that service to its members. In other words, low interest rates on loans are viewed as a customer acquisition cost by a bank.
You must also apply to become a member of a credit union. Many open their branches to most everybody, but others are exclusive clubs that won’t allow just anybody to join. Some credit unions are exclusive to military personnel (like the navy federal credit union), certain big employers or even members of large trade unions.
Once you’re accepted as a credit union member, you’ll be required to make a token investment before you’re allowed to open a bank account or get a mortgage. Although this investment is usually only a few dollars, some people are annoyed to have to pay to belong to a credit union.
Many credit unions — especially smaller ones — don’t offer nearly as many perks as larger banks. It’s a lot easier to use a nationwide bank with tens of thousands of branches versus a small credit union with only a handful of locations, especially if you move. Large banks will also have more money to invest in technology, making that part of the banking process easier.
This also applies to credit cards. There are plenty of credit unions in the United States that don’t even issue credit cards. The ones that do generally have lackluster options. Credit unions can’t really compete on this front, and it shows.
Should You Join a Credit Union?
Ultimately, it all comes down to what you prefer.
You’ll likely get access to more branches, better technology and lower loan rates if you go with a traditional bank. You also won’t have to pay to join.
But credit unions offer many advantages too. You won’t get nickel and dimed on fees, your cash is protected, and you’ll likely get a better interest rate on CDs. Service when you’re inside the branch should be better as well, although some smaller banks will give credit unions a good run for their money.
More than 100 million Americans are members of credit unions. They continue to stick around because of excellent service, a member-oriented business outlook, and simply because of a kinder, gentler banking experience. If that sounds good to you, then maybe it’s time to give your local credit union a try; a simple way to start your research is to search "credit unions near me".