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If you are thinking about doing your own taxes for the 2020 year, it’s very important to get things right the first time around.
Why?
Because doing your own taxes can be all of the following:
- Tedious
- Complicated
- Time-consuming
If you find yourself making any mistakes on your tax returns – then you may see some serious consequences (meaning extra money out of your pocket).
But no pressure!
Before we check out my guide on how to do your own taxes and avoid basic, rookie mistakes, let’s take a look at some questions that may need answering before you hit the tax returns.
When are taxes due for 2021?
Taxes are due the same day every year.
| Tax Deadlines | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Tax Deadline |
April 15, 2022 |
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Tax Extension Deadline |
October 15, 2022 |
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“Tax Day” is April 15 of every year.
There are some cities (such as New York City) that levy income taxes and states (such as Massachusetts) that levy income taxes on top of your federal income taxes.
Make sure you are aware (and if you aren’t then do some research) of your situation so when it comes to filing your taxes, you are ready to tackle them head-on.
What is the tax extension deadline?
Typically speaking, your taxes are due every day on April 15 – on “Tax Day.”
However, you may request a 6-month tax-filing extension to give you more time to file your taxes.
You don’t need to provide a reason, you simply just request the tax extension by submitting Tax Form 4868.
However, knowing that there is such a thing as a 6-month tax extension does not mean you should take advantage of it.
My suggestion is to file your taxes asap – who knows, you may receive a nice refund!
Best Tax Software
Best Tax Software for the Professional Person: H&R Block
H&R Block is one of the best, professional and nationally recognized tax software programs. It offers:
- A free version
- Straightforward directions
- Availability to customer support, but at a cost
Best Tax Software Bargain: TaxSlayer
TaxSlayer is the tax software if you know you don’t want to spend big bucks and still want to file your taxes properly. TaxSlayer offers:
- A free version
- Very attractive pricing
- Customer support, but at a cost
Is it easy to do your own taxes?
It’s a walk in the park to do your own taxes if you:
- Have 1 job
- Have no dependents
- Understand basic tax laws
- Can handle your own money
- Have an unchanged tax situation
- Have no other outside investments
There is no reason why you should pay an accountant to do your own taxes assuming your tax situation is that simple.
As you add more layers to your tax picture such as:
- Dependents
- HSA account
- Increased deductions
- Self-employment income
- You own real estate investment property
Then it might be time to consider hiring a professional instead of doing your taxes on your own.
Who should do their own taxes?
Anyone can do their own taxes. It comes down to your personal tax situation and your comfort level with taxes.
If you have a simple or unchanged tax situation, 1 income stream and no or minimal investments, then you should consider doing your own taxes.
Why should you consider doing your own taxes?
My number 1 reason to take control of your own taxes has to do with taking control of your money.
You are:
- Becoming in tune with your finances
- Improving your financial literacy
- Taking control of your finances
- You are helping your wallet
If you’ve been keeping up with my blog and started implementing the suggestions I’ve made, you really should be on top of your personal financial situation – which should make your tax filing situation much easier.
How to do your Own Taxes Online [5-Step Guide]
Ready to get started?
Check out my 5 step guide on how to do your own taxes below!
Step #1: Collect your Paperwork
The first step to successfully preparing for tax filing is to gather the right paperwork as it relates to:
- Medical bills
- Your income streams
- Work-related expenses
- Receipts for possible deductions
- Receipts for charitable donations
Collecting the right paperwork (emphasis on right) is critical to ensure your tax filing is as smooth as can be.
Below are a few document suggestions that may apply to your tax situation:
| Tax Document Name | What it’s Used for |
|---|---|
|
W-2 |
Document for your tax filing provided to you by your employer. |
|
1099 |
Document for your tax filing if you earn money through a side hustle or as an independent contractor. |
|
Mortgage Interest Document |
If you’re a home owner and have paid over $600 in mortgage interest payments, use form 1098 to report the interest expenses. |
|
Dividends and/or Interest from investments
(Form 1099-DIV or Form 1099-INT) |
If you have investments and earned dividends and/or interest from these investments, you may receive 1099-DIV and/or 1099-INT forms recording how much you earned in any given year. |
|
Student Loan Interest |
This form is for any student loan interest you’ve paid in the past year. |
|
Receipts |
Receipts are important to gather from the past year if you plan on deducting any expenses. |
If you find yourself approaching the April tax filing deadline and have not received your tax documents, then you can pursue 1 of 2 actions:
- Call your client/employer/investment company to request the tax form
- Request a tax filing deadline extension
Step #2: Determine your Filing Status
It is very important that you choose the correct filing status before you go ahead and prepare your tax return.
Below are some common tax filing status suggestions that may apply to you and your situation:
| Tax Filing Status | What it Means |
|---|---|
|
Single |
This is the basic tax filing status for unmarried people with no dependents. |
|
Married Filing Jointly |
This is the tax filing status for any couple that wed as of Dec. 31 of the last tax year. The couple may use only 1 tax return. |
|
Married Filing Separately |
This is the tax filing status that allows you to claim responsibility for only yourself. |
|
Unmarried Head of Household |
This is the tax filing status for unmarried individuals who have dependents and pay more than 50% of the living costs. |
|
Qualifying Widow / Widower |
This is the tax filing status that still gives you the tax benefits of the married filing jointly tax return for 2 years after your spouse’s passing. |
To familiarize yourself further with additional details (or if you can’t fall asleep and need something to help you sleep fast), I suggest you check out the IRS publications about filing statuses.
Step #3: Select the right tax filing software for you
Now that you’ve collected the right paperwork and determined your tax filing status, it’s time to start filing!
But first, you need to figure out the right tax filing software for you.
The top ways to file for your taxes include:
- Manual filing
- Online filing software
- “Free File” through the IRS
- Hiring a professional accountant or CPA
Now, don’t get me wrong – I trust myself and I know my financial picture by heart.
However, I still prefer to have some type of help when I start working through my tax picture – just in case.
My top 2 tips for those who also are on the side of caution are:
- File your own taxes with an online tax software
- Hire a professional accountant or CPA
Here’s when which situation is typically best for you:
| How to File | When it’s Best for You |
|---|---|
|
Filing with an Online Tax Software |
|
|
Hiring a professional accountant or CPA |
|
If you are considering filing your own taxes using an online tax software program, then I suggest either of the following 2 options:
TaxSlayer is the tax software program for people who want to do their taxes on a budget but still receive some form of guidance.
You can file your taxes for free and the interface is super user friendly.
I would suggest, however, that the more support you want and the more complex your tax situation, the better it is to upgrade to the paid version of TaxSlayer (which ranges from $17 to $47).
H&R Block is the best option for people who enjoy a bit of independence but still want a guiding hand when they need it.
If you are someone who wants a straightforward version on how to do your taxes, then I’d suggest considering H&R Block.
You can file your taxes with H&R Block for free or you can upgrade to add live assist and add a few more bells and whistles (upgrades can range from $39.99 to $169.99).
Below are the winners, based on my personal experience:
| Category | Winner |
|---|---|
|
Most User Friendly |
TaxSlayer |
|
Most Cost Efficient |
TaxSlayer |
|
Audit Defence |
H&R Block |
|
Customer Support – In Person |
H&R Block |
|
Customer Support – Online |
TaxSlayer & H&R Block |
Step #4: Understand which tax deductions and credits you can take
One thing that I will emphasize if you are doing your own taxes is to understand the following:
- The tax deductions you are eligible for
- The tax credits you are eligible for
Why is important you understand credits and deductions?
So you don’t pay the IRS more than you have to.
Before we go into some possible tax deductions and tax credits, let’s actually discuss the difference between these 2 terms.
| The Tax Term | What it Means |
|---|---|
|
Tax Deduction |
Indirectly decrease your tax bill by reducing the income you will be taxed on. |
|
Tax Credit |
Directly decrease the amount of taxes you owe to the IRS.
Some tax credits may even increase your refund or give you a tax refund when you were not expecting one. |
Some tax credits may even increase your refund or give you a tax refund when you were not expecting one.
Now that you are aware of the 2 terms and their meaning, let’s take a closer look at some of the key tax credits and tax deductions you may want to keep in mind as you start doing your own tax returns.
First, let’s take a look at some common tax deductions.
5 Common Tax Deductions
Here are the 5 most common tax deductions – check them out below.
| Tax Deduction | What it is |
|---|---|
|
Standard Deduction |
The standard deduction is the most common type of deduction because it’s easier than itemizing individually (tracking your receipts and the cost of other expenses). |
|
If you are currently paying interest on what is considered a qualified student loan (which typically is a federal loan), you could deduct up to $2,500. |
|
|
Medical and Dental Expenses |
As of 2020, you can deduct qualified medical and dental expenses as long as these expenses are greater than 7.5% of your adjusted gross income (AGI). |
|
Property Taxes |
Property taxes may be deductible for things like: Cars, land, and boats. |
|
Retirement and Health Savings Account (HSA) contributions |
Any contributions you make to traditional 401(k)s, traditional IRAs, or Health Savings Accounts are tax deductible. |
Now let’s take a look at some common tax credits.
Common Tax Credits
Check out the 4 most common tax credits below.
| Tax Credit | What it is |
|---|---|
|
Earned Income Tax Credit |
If you are working a regular job but earn a low to moderate salary, you could claim this tax credit (aka EITC or EIC). |
|
Lifetime Learning Credit |
If your adjusted gross income falls in a certain bracket, you could be eligible for the Lifetime Learning Credit – for up to $2,000. |
|
Saver’s Tax Credit |
For 2020, you can take the Saver’s Tax Credit if your adjusted gross income is $66,000 for: |
|
Residential Energy-Efficient Property Credit |
If you have a house and you’ve invested money to make it more energy saving and energy efficient, this tax credit may apply to you to help offset some of those expenses. |
As you can see, it’s very important to track your expenses throughout the tax year, keep receipts and store these in a safe area so you can use them when it’s time to pay your taxes.
My tip is to get your taxes out of the way ASAP (and possibly even get a refund) and then move on to other things on your financial checklist!
Let’s take a quick look at those tax filing deadlines again:
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Tax Deadline |
Thursday, April 15, 2021 |
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Tax Extension Deadline |
Friday, October 15, 2021 |
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Let’s say you just completed your tax returns.
How do you pay your taxes?
How to Pay Taxes
If you find yourself owing taxes to the IRS, then there are several ways you can make payments: Either immediate or through regular installment payments.
These payment options could include:
- Cash
- Direct pay
- Credit cards
- Installment plan
- Electronic funds withdrawal
The more you understand about your financial situation, the easier filing your taxes will likely be.
Just remember this: When in doubt, hire a professional to help.
How do you plan on filing your taxes this year?
Related: Net Worth Statement
