It may seem terrifying at first, but you can learn how to do your own taxes.
Let's take a look at what forms you'll need to fill out, tax credits and deductions you can take, and your filing options. You can DO this!
Organize Your Tax Forms
Your first step is to gather all your tax forms. If you work as an employee, you'll get a W-2 from any jobs you have.
Freelancers and independent contractors will usually get 1099 forms. If you work a side hustle, you may also have received a 1099, even if you work a traditional job.
A 1098 is another important form, especially if you have a mortgage or interest income from a savings account. You may also have a 1098-T if you or a dependent are in school. This form shows you how much you've paid in tuition, as well as any money from grants or fellowships.
It's important that you receive your forms by January 31 each year. If you don't, make sure to follow up!
Contact the company or organization and ask for it to be sent immediately. Don't let someone else's mistake derail your filing!
If you have business expenses, you should also gather your receipts for those. That way, you know how much you spent on what, and when you spent the money.
Here's a list of all the forms you'll need:
- W-2s and/or 1099s (and other documents showing income, such as rental properties, lottery wins, etc.)
- Last year’s return
- Interest statements (mortgage, student loan)
- Records of contributions made to health savings and retirement accounts
- Medical expense receipts, such as receipts for unreimbursed medical expenses ,and the health insurance coverage form 1095-A
- Any receipts or bank statements that you will use to verify your deductions
Know Your Status
After you have everything you need to file your, consider your tax status. Your status can make a difference in your tax liability.
Luckily, figuring out your status is pretty simple. Here are the five options for how to do your own taxes:
- Married filing jointly
- Married filing separately
- Head of household
- Widow or Widower with dependents
Many individuals will fall into the single filing status. A lot of married couples file jointly, but you don't have to. And if you own a home and have dependents, you can file as a head of household.
The head of household status could give you a lower taxable income and greater possible refund than the single filing status.
Look at Deductions and Credits
Next, you can look at the available tax deductions and tax credits. A tax deduction is something that lowers your taxable income, and you want to take as many as you legally can!
Freelancers and small business owners should be aware of all their options to save money, especially if they have incorporated.
Common business deductions deductions include home office costs, health insurance, and business networking expenses, professional fees, auto expenses and quite a few more.
Tax credits lower the amount of taxes you owe. Some credits only apply up to the amount of tax you would have to pay. But others can be more than your tax bill, so you can get a refund.
Common credits include child care and healthcare credits. You can find a full list of tax credits and tax deductions, so you can see if you qualify for any of them.
<< Related: 21 Tax Deductions Small Businesses Need to Know >>
Choose Your Method
One of the most important things to consider, is what method to use to do your taxes. Doing your own taxes can seem complicated, but some methods can make things easier.
Online Tax Software
Online programs let you plug in your information from your tax forms, and they make it simple. For example, TurboTax asks for information with questions like, “What types of income do you have?”
If you have simple taxes, such as a W2 and no homeownership, you can use online tax software for free. But if you own a business or do freelance work and have more forms, you will have to pay.
Prices range from $60 – $120 on TurboTax. The most expensive version in for people who are self-employed, and it includes one-on-one help from self-employment specialists.
Good tax software may help you find more deductions than you knew about. Therefore the cost will be outweighed by the money you could end up saving in taxes.
IRS Online Forms
If you don't want to have to pay to file taxes but want to do them on your computer, you can use fillable forms on the IRS website. The forms have instructions to help you fill out the forms correctly.
Using the instructions can help you make sure you put your information where it needs to go. When you're done, you can file your taxes online.
The IRS forms are a good option for simpler taxes, but you can use them with more complicated taxes, too. As long as you can follow directions, you shouldn't have a problem using the online system.
Another option to consider when deciding how to do your own taxes is to use paper. Yes, you can print your tax forms from the IRS website, and you can fill them out by hand.
The forms are free to download and print, and you can do your taxes whenever. However, you'll have to organize the forms and mail them to the IRS.
While paper forms are a great option for people without stable internet, they can be hard. If you have multiple jobs or have more complicated taxes, it can be easy to get confused when using paper forms.
Tips for How to Do Your Own Taxes
If you want to do your own taxes, you should consider how to set yourself up for success. While organizing your documents and using the right forms are important, here's some advice to make the process easier.
Take It Slow
If this is the first time you're doing your own taxes, give yourself as much time as possible. Don't wait until April rolls around to organize all of your tax files!
Start organizing everything as soon as you get your files from your employers and bank. If you use the IRS forms, be sure to read the instructions to make sure you understand them.
Ask for Tax Help
If you decide to pay for online tax software, such as TurboTax, you will have access to specialists who can answer many of your questions.
H&R Block is sort of the middle ground of “doping it yourself” and using a CPA. If you feel uneasy about doing it yourself, you might opt for this route.
Once you file, you can celebrate! It's a huge accomplishment. Hopefully you learned more about your finances in the process.
Now, start to think about next year. Is there any way you can make it easier? Maybe you'd like to get more organized so it's not such a huge endeavor? Or maybe you're a freelancer who wants to incorporate to save more money in taxes?
You could also prepare by getting more educated and taking a course in personal finance. Check out these finance and business courses to take your confidence and financial health to the next level.