5 Steps to Do Your Taxes

Let’s talk taxes! One of the most dreaded times of year is upon us… tax season. Are you ready to do your taxes or does the thought of them make you break out in a rash? Here is a step-by-step guide on how to do your taxes without the preemptive meltdown!

5 steps to doing your taxes

Gather all needed documents

Here are a few of the forms you need to file on your taxes, here are the most common ones to look for:

• W-2s
• 1099s
• Mortgage interest statements
• Investment income statements

If you got married this year (congratulations!) or are filing joint tax returns for the first time, there are some things you should know (which we’ll write about in another blog post). There are a few other documents you may need if you go through any of these life changes:

• Form 8822 if you moved
• SS-5 if you changed your name
• W-4 to adjust tax withholdings based on your new household income

Income and investment interest forms should be mailed to you by January 31^st, so make sure to keep an eye out for those! If you still haven’t received these tax statements by the first couple of weeks in February, call the necessary people to be sure you receive your paperwork in plenty of time to get your taxes done.

Pick a Filing Status
Picking your filing status helps you figure out what you need to do to file, including what your standard deduction is, your eligibility for certain credits, and how much you’ll owe in taxes.

Sometimes picking your status is straightforward, such as when you’re single, but other times it might be more beneficial to file one way versus another. So how do you choose a filing status? Here are the 5 different statuses you can choose:

• Single
  If you are not married, are divorced/legally separated, or widowed before the tax year, you would file as a single taxpayer.
• Married Filing Jointly
  Most married couples choose to file a joint return because they usually save more money.
• Married Filing Separately
  Even though you are married, you might choose to file separately for many reasons, such as filing separately resulting in a lower tax bill or wanting to be responsible solely for your taxes (we’ll go more in depth into this in our post about filing taxes while married).
• Head of Household
  This one can be difficult to identify because there are a few requirements to be considered the head of household. You must have paid for more than half of the household expenses for the year, be unmarried, and must have a “qualifying child or dependent”. This means that if you are a single parent or caring for a sick family member, you may qualify to file as head of household.
• Qualifying widow(er)
  If your spouse passes and you do not remarry in the same tax year, you can file jointly with your deceased spouse. For the 2 years following the death, you can use this filing status if you choose to.

Most people file as single taxpayers or married filing jointly but there are some instances where it would be beneficial to file under another filing status. Make sure you always do the math!

Standard Deduction vs Itemizing

When you file your taxes, you have two choices: take the standard deduction or itemize your deductions. Tax deductions lower your taxable income and the lower your taxable income is, the smaller your tax bill comes out to!

But A Plus, how do we know which option is better for us? No worries! Here are somethings to consider.
The standard tax deduction (in 2020) is $12,400 for single filers and $28,400 for married couples filing jointly. If you can write off more than those amounts, it’s best for you to itemize. If not, you can save yourself some time and energy by taking the standard deduction. Many times, the standard deduction is more than enough to cover the deductions, so really consider what can be counted as deductible before deciding!

If you chose to itemize your deductions, you need proof to back up these claims. Proof can come in the form of receipts and tax credits. Here are a few examples of things you can itemize:

• Childcare
• Education costs
• Charitable giving
• Medical expenses

Keep in mind that some things you can deduct have to be specifically calculated to figure out the actual deductible amount. We recommend seeing an accountant or a tax expert for these things.

File Your Taxes
Once you have everything ready and organized, you’re ready to file your taxes?

Some people choose to file their taxes themselves, but many (53% of Americans, according to the IRS) choose to hire a professional to help them file their tax returns electronically. If you decide to do so yourself, you have the option of using a tax software or filing the physical paper and mailing it in.

Online software can be straightforward, especially if you plan on taking the standard deduction. However, if you plan on itemizing your deductions or own a business, you should consider hiring a tax professional.

The tax deadline is April 15^th. Some years (like the fabulous 2020) the tax deadline will be extended, but don’t count on this happening every year. You also don’t want to wait until the last minute. It becomes difficult to find a tax pro (read: nearly impossible) and it makes you more vulnerable to tax fraud. Think about what happened if you procrastinated a big school project until the last minute and your parents weren’t available to help.

Get Organized for Next Year

Once you submit your taxes, you probably want to throw away all your receipts and tax forms and never look at them again, BUT you need to save those forms and receipts for at least 3 years in case the IRS comes to audit you.

If you end up with a big tax refund or tax bill, you may want to adjust your withholdings so that you’re not taking too much or too little out of your paycheck for taxes.

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