How to File Your Income Tax Return
Many people would prefer not to do their own taxes. They find all those forms and directions confusing and would rather have an expert deal with it. And most importantly, they want to want to avoid an audit by the IRS
I fully understand that. When I do my taxes, I used to get in a horrible mood, and tell people to stay away from me that day. Just the idea of taxes practically gave me a headache.
In my hub, My Experience as a Tax Preparer, I showed you what I learned about how taxes are prepared at the tax preparation services. There is a few weeks of training followed by an onslaught of taxes to prepare, and after a month or so, many of the employees are laid off. What does this mean? It means that there is a lot of turnover in the place. More importantly, it means that the person who is preparing your taxes probably doesn't know much more about taxes than you do. At least you can compare your taxes to what was done last year.
The only comfort you have is that they are putting your information on a software program that is actually doing your taxes, and the company is responsible for any mistakes in the software code and in inputting your information on it.
While the office will certainly go with you to a tax audit, they are there to cover themselves. If they can put the blame on the customer - "this is the information they gave me,"- I know they would choose that option.
During a tax audit, the IRS is simply trying to make sure you completed your taxes accurately. If you cheated on your taxes, you will get caught whether you used a tax service or whether you completed the forms yourself. If you made an honest mistake and didn't cheat, either way, they are likely to be lenient with you.
How can you get your taxes done without the headaches?
I have listed some step-by-step directions to help you avoid the pitfalls in doing taxes.
Choose a Tax Preparer
Instead of going to one of those offices that are practically on every corner, go to an experienced tax professional. Just like you would get referrals for a plumber or a doctor, get a recommendation from your friends for someone who is experienced and knowledgeable about taxes. You may be able to go to one of the box stores and ask for a particular experienced person. But I recommend finding an accountant who will do it for you.
I'm not sure how much an experienced accountant will cost you, but I really don't like the idea of paying more than a hundred dollars for someone who is merely doing data entry on a software program.
Personally, I think the tax preparer should be you. Unless you have a really complex tax situation, you can do it on your own. In fact, I think that if your tax situation hasn't changed much from last year, you should be able to use last year's forms as guidance to help you complete this year's forms. Sure there are tax laws that change every year. But a lot of them don't change the way your forms look - they affect percentages, etc., but not what you input and where you input it. Also, the tax law changes are announced in the news and listed prominently in the tax booklet.
Even if you have someone else do your taxes, I think you should try to do it yourself as well. You may be missing out on a deduction simply because you didn't know you could use it. Plus, it will help you know how accurate and competent your tax professional is. They won't be able to impress you simply by using some tax jargon.
Keep Your Tax Records Organized
Whether you do your own taxes, or have someone else do them for you, you will need to have your tax records organized. At the beginning of each year, create a folder labeled Taxes and the year. In this folder, put any tax related receipts, such as donations to charity, or any tax-deductible purchases. Then as the 1099s and W-2s come in, put them in the folder as well.
By keeping them all in one place as they come in, you don't have to spend time looking for tax information and trying to remember what you did during the year. The records also help ensure that you are providing an accurate picture of your tax situation to the IRS, and have the documentation to prove it.
Do Your Own Taxes and Save Lots of Money
I know that this may be scary, and you may feel like you are not qualified to do your own taxes. But remember that when you go to a tax preparation service, you have to fill out a form telling them your tax situation. Why not input that same information directly on a tax software program that will compute your taxes for you? It really is that easy.
I was a high school when I started doing my own taxes, and those of my family members and neighbors and coworkers. You don't need a college degree to do your own taxes. You don't even need a high school diploma. You are capable of doing your own taxes.
There are tax forms at the library, post office, IRS offices, and many other places, along with instructions on completing them. You can manually do your taxes by using these forms, but I think that doing them using software is easier. I still recommend that you pick up a copy of the form and the instructions, so that if you have a question, you can look up the answer. You can also look up the answers to your questions online.
Choose Your Tax Preparation Software Program
If you have a complex tax situation, you will want to make sure that your tax preparation software is able to handle it. Not all of them can handle every situation. In fact, I was almost complete with my taxes last year when I received a message that the software couldn't handle my tax situation, and that I needed to buy the deluxe version to do my taxes. I simply switched to another free program, and was able to complete my taxes with no problem.
According to IRS.gov, everyone will be to file their taxes online for free, starting January 17, 2012. If your annual income is less than $57,000, you can use the free software. A list of eligible companies will be provided so you can choose one that best meets your needs. If your annual income is more than $57,000, you can fill out forms online. I recommend buying software in that case, unless you are comfortable filling out the forms.
The free filing at the IRS only covers the federal taxes. You can pay extra to have them file your state returns for you, but I prefer to go straight to the state website and do mine for free there. I do have to enter the information again, but it is less information than the federal return required, and it also is easy to do.
Just try it. Remember, it really isn't submitted until you press the final submit button. If you try it, and decide you still want someone else to do your taxes, you can do that as long as you haven't pressed the final submit button. You really won't have wasted your time - since you will have learned a great deal about taxes during the process.
What are the Advantages of Doing Your Own Taxes?
There are many advantages to doing your own taxes. These are just a few of them:
- You save money.
- You don't have to wait in line at the tax preparers office.
- You don't have to answer personal questions in a crowded office hoping that those around you don't hear.
- You become more knowledgeable about taxes, and can make sure that your tax preparer is competent.
- You can learn about additional deductions you can take to save on taxes this year and future years.
- You can try different scenarios on the software to see how they affect your tax situation. I particularly like to see how much putting additional money into an IRA saves me on my taxes, so I will put in 0 at first to see how much I have to pay in taxes, and then change that number to see how it increases my refund. Remember, you have until April 15 to deposit last year's IRA contribution.
- It is more clear to see how much your actions are affecting your taxes. For example, you can see how each year you are getting less and less savings on your deduction for your mortgage interest. You will know when it is time to accelerate your payments so you can pay off your mortgage.
What If You Have Tax Questions?
There are a myriad of resources to help you with your tax questions. The IRS has many recordings you can access by phone that will help you with frequently asked questions about taxes. You can call the IRS with the 800 number they provide to get individual help.
You can also go to your local IRS office or one of the community agencies that help people with taxes.
You can read the tax instructions, and look up information on the IRS website.
How to Get Your Taxes Done Without the Headaches?
Here is a list of Millionaire Tips to avoid the headaches when doing your taxes.
- Keep your tax forms organized
- Choose a competent tax preparer or use tax preparation software
- Set aside some distraction free-time and space
- Be patient with yourself as you learn how to do your own taxes
- You don't have to do it all in one sitting - you can take breaks. Just be sure to come back until you have actually submitted your taxes.
- Look things up if you have any questions
- Do your taxes as soon as you have all the forms. This will keep taxes from hanging like a cloud over your head until April 15 or later. It will also get any potential refund in your hands earlier so that you can invest it and start earning interest. If you wind up owing money, you will have time to get your money together without having to borrow it at the last minute. Remember, even if you calculate your payment early, you don't have to submit your tax return with your tax check until April 15.
Your Tax Refund
You will receive your tax refund from 10 to 21 days after you electronically file your return. Generally speaking, if you file your return early in the week, you will likely get your refund late the next week. If you file it late in the week, then it won't come until two weeks later.
Since refunds come fairly quickly, it makes no sense to me to pay money to get a tax anticipation loan. Ask for a direct deposit and the money will be deposited into your account without having to go through the mail. Be patient and wait for the refund to come in.
Income Tax Return Preparation
Taxes are an annual ritual, and you do not have to dread them each year.
When you learn about taxes, they no longer are a scary mystery. You will find that you are capable of learning and discussing taxes as a knowledgeable individual, and will be able to make better choices about whether to do your own taxes, or hire someone else to do it for you.
Becoming knowledgeable about taxes will help you save even more money as time goes on, because you will be able to find deductions and make decisions that will save you money in the long run.
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