Your Complete Guide to Doing Your Taxes This Year
Get a headstart on getting your finances in order.
With the start of the new year, it’s time to start getting your financial house in order. April 15 will arrive in no time, and you know what that means — it’s time to remember how to do your taxes.
The good news is, taxes don’t have to be taxing! Here’s your complete guide to doing your taxes this year.
1. Step One: Gather the Necessary Documentation
If you only have one W2, all you need to do is wait by the mail. However, many people’s taxes are far more complicated, with deductions and credits to claim, necessitating this complete guide to taxes. You’ll need to gather all your necessary receipts other than those for charitable donations of cash or items less than $250.
If you didn’t keep a shoebox of receipts, what can you do to claim deductions when filing taxes? Your bank and credit card statements can serve as proof of expenses, but this method works best if you separate your business and personal expenditures into different accounts.
Please don’t delay filing if you can’t find all the documents you need — request an automatic extension. You could end up forgetting, and there’s no time limit on when the IRS can come after you and collect principal, penalty and interest on unfiled returns. Once you file your return, they have 10 years.
2. Step Two: Choose the Right Software Program
When selecting tax software, you have a ton of options. First, you need to pick a provider, then the correct product version designed for your unique needs. Low-price and free offers entice many, but they generally only apply to taxpayers who file simple returns with no deductions or business expenses.
As a rule, the more complex your taxes are, the more you pay for prep software. When learning how to do your taxes, look for combination packages that can benefit your business. For example, Intuit’s TurboTax self-employed suite includes a free year of Quickbooks Online — an invaluable tool for keeping your books straight.
3. Step Three: Determine Your Filing Status
Considerable confusion arises for many taxpayers over the head of household status. When you’re navigating your tax software, it looks like checking this button can save you a bundle, and many people feel tempted to select it when they shouldn’t.
Please note that you must have an eligible dependent and be unmarried to qualify for this filing status. While this rule primarily applies to single parents with dependent children, it also covers you if you are the custodian of an older adult in your care.
4. Step Four: If Self-Employed, Consider Your Business Structure
If you are self-employed, you have until March 15 to decide whether to incorporate. That’s the deadline by which the IRS requires S-corps to submit their annual returns. Doing so involves considerable time and filing compliance with the state, but it can also lead to significant tax advantages.
Please note that if you are a single-member LLC who hasn’t filed form 2553, you’ll file your taxes the same way a sole proprietor would — using a Schedule C. Pro tip: When you select your software, choose the personal self-employed version, not the business.
5. Step Five: Check for These Frequently Missed Credits and Deductions
Before you file, ensure you don’t pay a cent more than you owe — or maximize your refund — by checking for frequently overlooked deductions and credits.
Saver’s credit: If you earn less than $64,000 annually but contribute toward your retirement, this credit could put money back in your pocket.
Child care tax credit: Many people might overlook this credit this year due to COVID-19. Even if you kept the kiddos home most of the year, remember to deduct those expenses from last January and February.
College and continuing education costs: Here’s another one to reap the advantages of, thanks to COVID-19. Even if you didn’t enroll in a specific degree program, you could still claim the lifelong learning credit for any courses you took to make yourself more employable during the lockdowns.
When adding up your deductions, please remember that you can deduct any job search expenses as miscellaneous deductions on Schedule A. However, they must exceed 2% of your gross annual income, and you must itemize to get the benefit. Don’t worry if yours don’t qualify — the higher standard deduction under the Tax Cuts and Jobs Act will more than make up the difference.
6. Step Six: File and Pay
Finally, it’s time for paying and filing your taxes — or entering your bank account information so you can receive that sweet refund. Doing so electronically means you get your money more quickly. If you are a lower-income wage earner, you can use IRS free filing software — you don’t have to fill out paperwork by hand, and your local post office might not even carry the forms anymore.
Your Complete Guide to Filing Your Taxes This Year
Few people look forward to learning how to do their taxes, but it’s an obligation all citizens must fulfill. Now you have your comprehensive guide to what you must do to stay in compliance with filing taxes this year.