t’s officially tax season. You might be pretty lost if you have never filed your own taxes before. We get it -- it’s challenging! However, filing your own taxes might be something you want to consider.
The decision between filing your own taxes or hiring someone depends on a lot of factors -- it’s really not a one size fits all situation. In fact, it’s not even a one size fits all situation for yourself from year to year. Most people find that their financial situation changes every year, so it’s worth reevaluating once that time comes around again, as it always does. Mark your calendars!
Not everyone needs to file taxes. It depends on your income and filing status (married, single, whether or not you have children, etc.). It also depends on whether or not anyone claims you as a dependent, or if you claim anyone as a dependent. Once you figure this information out, it’s time to move forward with the rest of the tax filing process! Do you want to do it yourself, or hire a professional?
It’s a decision that requires a lot of thought. Sure, most of us know what an accountant is, but do we know exactly what they do? Do we actually need one at this point in our lives? Do we need one at all? Or are we just made to believe that based on movies and TV, or the fact that it’s a somewhat popular career path? These are the questions every adult should be asking themselves! As you read on, you’ll learn that this decision and many others regarding taxes are quite personal to your own situation.
Filing Your Own Taxes
So, you’re going ahead with filing your own taxes. What do you need to know? What do you need to do?
Double-check deadlines
Double check those deadlines! It’s typically an April 15th deadline, but if it falls on a mail holiday it may be moved. Other extenuating circumstances (2020 itself falls into this category… enough said) may cause the date to be moved, too, so make sure you are double checking the deadlines as well as the filing requirements in your state.
Set aside a lot of time
Filing your own taxes can be a long and, well, taxing experience. It can take up to 11 hours to complete organizing your documents, tax planning, submitting the forms, and any other relevant steps you need to take as an individual. You’re going to want to plan for this in advance!
Gather your documents
You’ll need a lot of documents when you are filing your taxes. A lot. First, make sure you have your information from last year nearby. It will help you speed up the process and with a task as tedious as filing taxes, it’s important to save time wherever you can.
Another option is to use a software such as TaxAct that will save all of your data from past years and allow you to import it this time around -- one less thing for you to keep track of this tax season!
TaxAct is a great resource to use for other reasons throughout the process, too. They have a ton of tips available, not just regarding taxes but finances in general. Plus, they’re committed to making sure you get your maximum tax refund -- and after all this work, who doesn’t want that?
Now, here’s a reason to always go through your endless piles of mail: you’re going to receive a lot of important tax information via the mail. It may be time to start a folder of all your important documents as you get them, so you’re not scrambling at the last minute to collect all those documents that you can’t quite remember where you stashed. But what tax forms should you be looking for in the mail?
- W-2: You’ll receive this from any part or full time employers, regarding how much you made and how much was deducted in taxes.
- 1099: This form details any outside income -- if you’re a freelancer, a landlord earning money from rent, unemployment payments, interest from a savings account or elsewhere, and more.
- 1099-C: This report details canceled or forgiven debt.
- 1095-A: This form is important if you are enrolled in a qualified health plan through Obamacare’s Health Insurance Marketplace. It assures that you’ll receive “advanced premium tax credits” -- credits to help you purchase insurance.
- 1098: You’ll be alerted of any payments that may be tax-deductible on this form (student loans, mortgages, etc.).
As you can see, you may not need all of these forms -- you’re probably catching on by now, but tax information depends a lot on your individual income and filing status. However, it’s a good idea to be familiar with these forms, or even just the names of the forms, at the very least. You’ll want to be able to spot them in your mailbox.
Claim your deductions
To put it plainly, tax deductions reduce the amount of taxes you’ll need to pay. There’s a little more to it than that, but that’s the main thing you’ll want to understand. There are two options for deductions:
- Standard Deduction: This is just what it sounds like -- standard for everyone, though it does change every year. Going with this option depends on filing status, age, and whether or not you’re claimed as a dependent. There are a few reasons one would not be able to choose a standard deduction. You can’t go this route if you’re married and your partner is itemizing, if you’re filing for a period of less than 12 months, or if you were not a U.S. citizen during the year.
- Itemized Deduction: Choose this if you can’t use the standard deduction or if it offers you more money than the former. These may be limited, but you can benefit from this route if you’re working with mortgage interest or insurance premiums, state and local income/sales taxes, real estate/personal property taxes, charity donations, unreimbursed medical expenses, or personal casualty/theft losses.
It’s usually easier to choose the standard deduction. Thanks to recent tax reforms, it’s typically higher than most individuals’ itemized deductions. Itemized deductions vary between individuals, so look into whether or not it would benefit you.
Which forms to submit?
You’re going to submit Form 1040, using your documents and personal information to complete the form. Pretty much all taxpayers use this same form these days. It asks basic personal info including the simple stuff like your birth year, filing status, and address, and the trickier stuff, like the deduction you’re claiming, if you’re claimed as a dependent, or if you’re claiming someone else as a dependent. If you are claiming someone as a dependent, you need their personal details, too.
You’ll also want to look into whether or not you need to submit Schedule Forms or any additional forms for your specific state.
Manual filing or tax software?
Filing manually is the most time consuming route, but it’s also free. If you have the time, you might as well save the money. But if you don’t have the time, there are ways to save yourself the stress. It just depends on your individual situation.
You can use a tax software to help you fill out Form 1040 electronically. We’ve mentioned TaxAct, but there are other options out there that you’ll probably recognize, such as H&R Block and TurboTax. Typically, you will have to pay a fee for a tax software, but some options may be free.
Hiring a Professional
Accountants and tax professionals are readily available to help you make the best decisions for your individual situation. If you’re overwhelmed and this seems like a lot to keep track of, it may be best to get some assistance. You’ll definitely have to pay for the help of a professional, though, so that is something to take into account.
The cost of hiring an accountant varies based on your location and personal situation -- maybe you’ve realized by now how individualized taxes are! However, on average it will cost between $146 and $457. You can expect the price to fall on the lower end of this range unless you are self-employed.
Experienced accountants are a great resource for all things tax related. Though it’s a little pricier than other options, they have advice to offer and access to sophisticated, efficient software.
That was a lot of information. Don’t worry -- there are experts who are trained to help you, and there are so many step-by-step guides out there. Soon enough, you’ll be an expert at filing your taxes, too -- and an expert at adulting!
