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Monday, February 10th
April 15 approaches on the calendar, and we all let out a collective groan: tax season once again. No matter how many times we've done our taxes, every year seems to catch us off guard and feeling unprepared. What is it that the meme says? "I'm so glad I learned all about parallelograms in high school math instead of how to do my taxes. It comes in so handy during parallelogram season.”
You decide to let someone else do all the heavy lifting and have your return prepared professionally - until the sticker shock hits you. Even the easiest tax return - young adult, simple W2 wages, no donations or property taxes to deduct, etc. - will probably cost at least $100 to file. And, if your tax situation is more complex because you own a business, have capital gains and losses on your investments, or some other combination of factors, an accountant could charge you over $1000 to get your taxes done.
So, like more than 17 million Americans, you opt for the do-it-yourself approach to sending in your tax return. What should you expect: smooth sailing or lots of aggravation?
The good news is, most people find it incredibly easy to do their own taxes. There are a number of trustworthy, affordable tax preparation software options out there, most of which can be used online without having to purchase a CD-ROM as in days past. But, before you choose your tax prep platform, you'll need to do a bit of work.
First, you should round up your tax documents. The most obvious ones are documentation of your income and taxes paid during the year: a W2 if you have a salaried or hourly job or 1099s if you're an independent contractor. You should also receive statements from your bank and/or investment brokerage if you earned interest, contributed to an IRA, or bought/sold stocks and bonds. If you have a mortgage, your lender will send you a form showing the interest you paid, plus any property taxes paid from your escrow account. Forms sent to you are required to be postmarked by January 31st, so you may want to wait until February to work on your taxes - but you can always start earlier, filling out whatever you already know (e.g. names and SSNs of household members).
Next, determine which filing status is best for the tax year you're preparing: single, married filing jointly, married filing separately, head of household, or qualifying widow(er). Of course, not every status applies to every individual; most people either file as single or married filing jointly, but under some circumstances it can be advantageous to file separately if you qualify. Also, consider whether or not someone else can claim you as a dependent in that tax year: for example, if you're a full-time college student and you get married after graduation, your parents may want to claim you one last time before you're on your own tax-wise.
Finally, evaluate whether or not you'll take the standard deduction or itemize. If you qualify for deductions for childcare expenses, education costs, medical expenses and/or charitable giving, it might be worth it to itemize. You can always enter your information in the tax prep software one way and then switch to the other, to see which one makes the most sense for the tax year you're working on. Just remember that you'll need to document what you spent on anything you itemize, in the event that the IRS wants you to prove it.
And, with those three to-dos complete, you're ready to choose a tax preparation software program! Most of them work in roughly the same way, giving you an extensive series of questions to analyze your situation in-depth and maximize your deductions and credits. Some providers have a live professional option, in the event that you get into the preparation of your return and want to talk to an actual human about any questions or concerns you may have. And, most online tax prep services let you file your return electronically at no charge (though some do have fees if you need to prepare and file federal and state returns).
The bottom line is there's just no need to spend hundreds - or thousands! - of dollars to file your taxes. Preparing your return on your own is not only straightforward but also much more affordable, with most tax preparation programs costing $120 or less. (And, by the way, you can deduct that $120 on the following year's tax return!)
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