Doing your own taxes doesn’t have to be difficult! Check out these awesome, must-know tips and tricks to make filing your own taxes simple and easy.
The pressure of delivering your taxes on-time is stressful enough, having to do them error-free is another. That’s why the idea of doing your own taxes can be so intimidating. The truth is, most tax errors occur in the same areas for the majority of filers.
Over 51 million people self-filed for taxes last year, with the average refund check being about $2,900. That means you don’t need a professional in order to get your just dues. You just have to be honest and prepared while filing.
You can avoid making mistakes and successfully learn how to do your tax preparation if you just follow a few guidelines. We’ll show you how and what is the easiest way to do taxes. Whether you’re just a humble small businessman or someone who has investments, doing your taxes can be done–and accurately!
The Power of Tax-filing Software
Filing electronically used to be somewhat of a privilege, when software used to cost hundreds to use. These days, it is much more affordable and user-friendly. Tax software looks less like a spreadsheet and more like a thorough interview now.
This makes efiling a more natural process and doesn’t overwhelm you with math. It also allows you to avoid filling out the wrong fields, using the wrong forms, and etc. This cuts down significantly on incorrect filings, which can cost you in fees from the IRS.
Know Your Filing Status
You have five choices on status:
- head of household
- filing jointly married
- filing separately married
- widowed with a dependent child
You can’t mess this up because if you do, it will not only void your tax return, it could get you in trouble. On the flip-side, if you mistakenly don’t file as “head of household”, you would be leaving money on the table. People also lose out on money by filing while married incorrectly.
Remember, if you’re only separated, not divorced, you have to file accordingly. Some states actually see separation and divorce the same way on tax returns. Mucking up the filing status for married couples is one of the most common reasons for underpaying or overpaying taxes.
Don’t. File. Late!
Many of us choose to gather receipts and forms after the April due date since we can’t afford to pay the IRS what is owed. Sending it in late creates bigger issues, to no surprise to many. There are quite huge fines and punishments for not sending it in on time, particularly in the event that you owe taxes.
Late punishments normally cost 5% of your unpaid expenses for every month your filing is late. Furthermore, late-installment fees run 0.5% of your unpaid duty for every month your installment is late. That is at the government level, not including interest. Opting for the extension doesn’t get you more opportunity to pay. It only applies to the initial filing date.
There’s additionally no motivation to stall on handling your taxes. You being proactive and filing early doesn’t mean you need to pay early. That is a common misunderstanding. The due date for paying your taxes doesn’t change, so it’s actually in your best interest to find out as soon as possible.
Determine Your Dependents
Dependents are another category you should pay close attention to when doing your own taxes. Above all else, the one thing you should avoid at all costs is claiming the same dependent twice.
Meaning, you and your spouse should not have the same name down on each tax return.
If you’re divorced, you should either determine who gets to claim who, or neither tax return should claim them. If you fail to ask your other half, you will only wind up getting yourself into trouble. The government doesn’t allow ignorance as a good excuse.
Kids that have grown up and graduated to college also get missed on tax forms. You need to make it clear to your kid(s) if you are claiming them on your taxes. Most assume that they can’t claim their children once they enter college, but that isn’t true if they’re still technically a dependent.
If your child winds up getting a little part-time job for spending money, they could file their own taxes. If this happens, you could be seeing a bill from Uncle Sam. If you send them to college and pay for it, you are eligible for a huge tax break!
Get Updated Tax Software
Using outdated tax software can really set yourself up for failure. Sure, it might seem to do the job if you don’t have a lot of investments. The truth is, if you do anything big, like buy a house, get new insurance, have a kid, or get married, you’ll miss out on a lot of update tax code.
We’ll cover some examples of tax credits that get added and changed often below. The key is to just not use old, offline tax software. Something like UltimateTax.com is a great example of doing your own taxes without the fuss.
Mistakes from old or outdated filing software can be missed some years, but if your software is putting out bogus info, the IRS will find it. This is only because of how the IRS audits the monumental pool of files. They pull randomly, it is not based on tax brackets or status.
You are just as likely to get audited as a humble waitress or as the owner of the same restaurant. Taking risks by taking shortcuts is just not worth it in the long run. If you own a business, you have to be smart with your money; a bad filing can ruin your future.
Tax Breaks You Should Not Miss
Okay, now that we have covered your most common mistakes, it’s time for some potential money-saving, or earning, tips. As tax law changes, new credits or tax breaks get added. You should check for applicable tax breaks every year, but here are some ones that are constant every year:
Earned Income Tax Credit
If you’re living in the lowest tax bracket, chances are you will qualify for some of this money. The maximum is over $6,000, typically for those living below the poverty line and have dependents. Unfortunately, this opportunity is often missed, with twenty percent of people who are eligible not claiming it.
Don’t forget, there are special rules that apply to those with disabilities, military, and members of the clergy.
American Opportunity Credit
We hinted towards this one earlier. This is the tax credit parents will get for sending their kid to college. This amounts to $2,500 each student for their first four years enrolled. An additional $1,000 refund is given if you paid for books, supplies, and etc.
College Tuition and Fees
This is separate from the American Opportunity Credit. This deduction applies to only tuition and associated fees. This deduction will vary from state to state, but anyone can qualify if they, their spouse, or any dependents are enrolled in college.
Any teachers in elementary or secondary school can get a $250 tax deduction to cover expenses. These include, but are not limited to: books, art supplies, computer supplies, folders, food, and entertainment. Of course, this deduction isn’t much, but it’s there to relieve a little burden off teachers’ shoulders.
Child and Dependent Care
This is your baseline child dependent tax credit. You can get up to $1,050 for one child, but $2,100 is the maximum for more than one. This only counts for younger children that are 13 years or younger. This tax credit is roughly 1/3rd of what it used to be.
The government will only recognize this tax credit if both parents are either working or enrolled in college and child care is a necessity. This is to prevent neglectful parents from abusing the system. Where do you find a daycare for $1,000 per year? Your guess is as good as ours.
Child Tax Credit
We’re including this standard credit to point out that it can be used in combination with the Child Care Credit. It’s only $1,000 per child under 17.
This credit has gone up over the years, it is now worth $13,400. This credit covers adoption cost, fees, court payments, attorney fees, and any travel expenses. This credit is not affected by any employment adoption benefits.
Lifetime Learning Credit
Similar to the American Opportunity Tax Credit, this one applies to certificate and job licensing programs. You don’t need to be in a degree program to get it and you aren’t capped at four years. This credit is good for up to $2,000. However, you can’t use it with the other college tax credits.
Start Doing Your Own Taxes
We know, it can be difficult to jump head-first into tax forms. This is especially true if you’re running your own business. Thankfully, there is a trove of information out there for you to learn from, making it easy to start doing your own taxes.
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