Taxes

Doing your own taxes won’t earn you a merit badge and there is no grand celebration once you hit the “send” button on your e-filed return. But preparing your own taxes does build confidence and knowledge that can open the door to better financial decision making throughout the year. Additionally, it saves you the expense of hiring a professional tax preparer—until your taxes become so complex that they are better left to the experts.

Step 1: Gather Your Thoughts (and Your Paperwork)

Those who fall in the single-and-simple category have it easy. It’s not until you have property, children, investments, and multiple income sources that tax filing gets hairy. Start by taking inventory of any relevant life events from the past year. Did you: Get married or divorced? Have a baby? Buy or sell a home? Start a 401K or other retirement account? Collect Social Security benefits? Make an early withdrawal from a retirement fund? Now, gather up your documents: A copy of last year’s tax return W-2s and 1099s (and other documents showing income) Interest statements (mortgage, student loan) Records of contributions made to health savings and retirement accounts Any receipts or bank statements that you will use to support deductions What if you didn’t receive a tax document that you need to file? The Internal Revenue Service (IRS) offers tips on what to do if you do not receive your W-2 or other income documents by January 31. If you need interest information from your bank or a lending institution such as a student loan provider, log in to the secure online site. Often financial institutions post PDF versions of tax documents for secure download. The best rule of thumb is, if you haven’t received a tax document in the mail by January 31, contact the company or organization directly to check the status.

Step 2: Do Your Homework

The more you know, the more empowered you will be to tackle your taxes year after year and find ways to fatten your refund—or adjust your withholding to spread that money evenly throughout the year. Start by studying tax credits and deductions, such as earned income tax credits, education credits, and charitable contribution deductions to see what you qualify for. Then determine which federal tax forms you will need. Some of the most common forms include: Form 1040—Used by most U.S. citizens and residents. Schedule A—Used for calculating itemized deductions. Form 1040-ES—Used for calculating and paying estimated tax on income that isn’t subject to withholding (such as self-employment pay and alimony). Form 1040 EZ—Used for the simplest filings that have no itemized deductions, adjustment claims, or tax credits (with the exception of the earned income tax credit).

Step 3: Explore Tax-Filing

Options Once you gain some understanding of all that goes into filing your own taxes, take a deep breath and know that you are not alone. Tax help abounds, and often for free. Free Tax Return Preparation The IRS offers free tax help for individuals who qualify. Volunteers lend a hand from January to April through two programs: Volunteer Income Tax Assistance (VITA) Program—Available to those who made $52,000 or less. Tax Counseling for the Elderly (TCE) Program—Available to all, with priority given to those 60 years and older. These IRS-certified volunteers specialize in pension- and retirement-related tax issues. Free File Software Electronic tax-filing software can spare you some confusion and frustration. Plus, with the IRS Free File program, you save the expense of paying professionals who use similar software anyway. Check out the IRS Free File options as these vary depending on how much you made last year. Paid Tax-Filing Software Commercial tax software companies often offer live support, easy-to-follow questions, planning calculators, error checks, and more. Depending on the complexity of your return, you’ll want to shop around for the software that best meets your needs. Start by checking out TaxACT, TurboTax, eSmart Tax, or other programs that offer a range of filing services.

Step 4: Reap the Rewards

Whether you owe the IRS or can look forward to a tax refund, know that filing on your own is a huge accomplishment. It builds your knowledge and gets easier year after year. Just be sure if you owe, that you handle payments immediately, even if you can’t pay in full when you file. Your options include: Paying by debit or credit card, electronic funds transfer, or by check or money order. Entering an installment agreement to pay your taxes over an extended period. Entering an offer in compromise that allows for a lower settlement.

Step 5: Prepare for Next Year

Take what you’ve learned this go ‘round, and start preparing for next year’s tax time. This gives you the opportunity to dig a little deeper into tax topics you didn’t have time to tackle this year. Maybe you could have used some recordkeeping tips to make the process smoother? Or perhaps you weren’t aware you needed to make quarterly estimated tax payments? Whatever your unique situation, preparing your own taxes is an accomplishment to be proud of. So, go ahead. Throw yourself a tax-time party once your return is filed. You’ve earned it.

- See more at: http://www.smartaboutmoney.org/Hot-Topics/Tax-Time/5-Steps-for-Doing-Your-Own-Taxes.aspx#sthash.96uSSNyt.dpuf

[Any reference to a specific company, commercial product, process, or service does not constitute or imply an endorsement or recommendation by First State Bank of Bedias.]