I still remember the first time my husband and I felt inclined to pay someone to do our taxes. We were in our mid-20’s with hardly any money, but worried our marriage would make our taxes overly complex. So we packed up our W-2s and pay stubs and took them to a tax preparer.
I cried when I found out we needed to pay over $400 for tax preparation, mostly because that amount was on top of the $1,200 we owed in federal taxes. We weren’t poor, but that $1,600 was our entire emergency fund.
From that point on, I vowed to do things differently. Not only did we change our withholding in our paychecks so we would never owe money to the government again, we vowed to do our taxes to avoid paying someone $400 (or a lot more) for an hour of work.
These days, our taxes are more complicated. Not only are we self-employed with an LLC taxed as an S Corp, but we also own two rental properties.
Still, we do our taxes, not only because we’re cheap but because we’ve gotten quite good at it. That didn’t happen overnight. Here are the big steps we took — and the lessons we’ve learned along the way.
While you want to ensure you’re paying every cent of taxes you owe, it’s perfectly reasonable to take every deduction you can. The Internal Revenue Service offers a list of the most common tax deductions you can take in categories like family and dependents, income and savings, homeowners, health care and education. You can reference this guide to learn about the child tax credit (important for families) and whether you qualify for deductions for charitable expenses, moving expenses, health insurance or the Earned Income Tax Credit.
Tax software can make filing your taxes easy. It walks you through each step and asks you important questions to make sure you get all the deductions you’re eligible for. You usually pay for the convenience. If you make under $66,000 a year or you have a super-simple tax return (read: 1040-EZ or 1040A), there are ways to file for free. If you don’t, the $70 or so you’ll pay for software is certainly less than you’d pay a tax preparer — and often easier than doing your taxes by hand.
While tax software can do the bulk of your tax work, the process is much easier if you keep tax-related paperwork and receipts in one place as the year progresses. My husband and I set up special folders where we can keep track of our vendor payments and expenses as well as our earnings and income. We also have a special file where we keep all our business-related receipts for each month of the year.
Plus, keep a copy of your taxes so you can look back on them if the need arises. It helps to print out your receipts, expenses or other tax-related paperwork, or you can save documents as a PDF and keep them in a file on your computer.
Keep in mind, if you make a mistake, it’s not the end of the world. Generally speaking, the IRS notifies you of mistakes made on your tax return. If you owe money, you receive a bill in the mail and, as long as you pay it, you’re OK. On the other hand, if you’re due a refund, you receive a check and an explanation once your tax return has been assessed.
With the new tax changes coming into effect in 2018, now may be the best time ever to learn about your taxes and how to minimize what you owe. Most changes won’t apply until you file next year, though you might see a change in your paycheck in coming months. You can learn more about filing your taxes in 2018 here.
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