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As of November 2020, the IRS had received more than 168 million tax returns for the 2019 tax year. More than 72 million—roughly 42%—were self-prepared tax returns. Discover how to do taxes yourself in the guide below so you can decide if self-preparation is the way to go for you.
10 Steps for Doing Taxes Yourself
1. Understand the Filing Deadlines
2. Ensure You Need to File
3. Review Your Documents from Last Year
4. Gather All the Documents You Need
5. Choose Standard or Itemized Deductions
6. Add a State Tax Filing if Needed
7. Check All Your Forms and Data
8. Request an Extension if Necessary
9. File Electronically
10. Check to Ensure the Returns Were Received
Get started
1. Understand the Filing Deadlines
The federal tax filing deadline is typically on April 15. If that day falls on a mail holiday, it may be moved to the next business day. Tax returns must be e-filed or mailed by the federal tax deadline to avoid late-filing penalties.
In 2020, the federal government extended the filing and payment deadlines for 2019 taxes until July 2020. This was to provide some relief during the COVID-19 pandemic. As of now, the filing deadline for 2021 is Thursday, April 15. Whether or not such a change might be made in 2021 for the 2020 tax year is not yet known. So, keep an eye on IRS and tax news to understand when you need to file in 2021.
State deadlines may be different from the federal deadline, so be sure to check the filing requirements in your state.
2. Ensure You Need to File
Not everyone is required to file taxes each year. For example, if your income is below a certain threshold, you don’t need to file a tax return. Dependent children and adults also may not need to file a tax return.
If you’re not sure whether or not you need to file, you can find out using the IRS’s online Interactive Tax Assistant. This wizard asks you some questions about income, filing status, and whether you had federal taxes withheld the previous year. It uses that information to help you understand whether you need to file.
3. Review Your Documents From Last Year
When doing taxes yourself, you might want to review the information from your previous year’s federal and state tax returns. Much of the information will be the same, including employer federal ID numbers, children’s Social Security numbers, and even some of your credit or deduction options. The IRS also uses your prior-year AGI to verify your identity when you e-file, which means you’ll want to make sure you have the information you submitted last year on hand.
Starting with an old return can help you enter information quickly and accurately. One great tip for doing your own taxes is to use a software program that can import old tax data. That way you don’t have to enter it again, which can reduce the potential for typos and other errors.
4. Gather All the Documents You Need
Gather the forms and documents you have that indicate income, expenses, and other tax-related figures. Some common forms you might have include the following:
- W-2s, which report wages from employers.
- 1099s, which report income from contract work, royalties and rents, unemployment, interest, dividends, retirement distribution and other sources.
- 1099-Cs, which report forgiven debt, which the IRS considers income in many instances.
- 1098s, which indicate payments that may be tax-deductible.
These aren’t the only forms you might need. You may also want copies of receipts and other documents proving you made tax deductible purchases or charitable donations if you’re going to take itemized deductions.
5. Choose Standard or Itemized Deductions
When you file your taxes, you can choose to claim the standard deduction ($12,400 for those filing individually this year) or itemize your deductions. Claiming the standard deduction is easier, and for many people it is more than the itemized deduction they would be able to claim.
If, however, you had large, out-of-pocket medical and dental expenses, paid mortgage interest on your home, had large uninsured losses, or made large contributions to qualified charities, it may be worthwhile to itemize your deductions and determine whether they amount to more than the standard deduction you qualify for.
Good tax software prompts you to enter all your information and does the calculations for you. The software tells you whether itemized or standard deductions will save you the most money, taking the guesswork out of this process.
6. Add a State Tax Filing if Needed
After you enter all your federal information or complete federal forms, don’t forget that you may need to file a state return too. Most states require a separate state tax return to be filed, and it can be easier to do this all at the same time. Some free tax filing services let you add a state return too.
State tax rates may be different from federal tax rates, and some states don’t have an income tax at all. They include Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. However, New Hampshire and Tennessee do tax some types of dividends and interest income, so individuals in those states may still need to file a return in some cases.
7. Check All Your Forms and Data
However you choose to prepare your taxes, take time to double check everything. Print the forms out or review the information on screen. Pay special attention to numbers, including income and expenses, as well as Social Security numbers and other ID numbers. Make sure you didn’t reverse numbers with a typo or make another error that could hold up your return.
8. Request an Extension if Necessary
Taxes are due April 15, but if you need more time to file your federal taxes, you can apply for an extension. If you file an extension request, the IRS gives you until October 15 of that year to file. That does not change the due date for taxes owed, though. You are still required to estimate the taxes you will owe and pay those by April 15. If you think you will be unable to pay your taxes in full, you can request an installment agreement from the IRS.
9. File Electronically
According to the IRS, around 90% of all individuals file their tax returns electronically. Reasons for filing electronically include a faster time to refund, convenience, and security. You may also be able to ensure the IRS received your return within minutes or just one day, which can provide some peace of mind.
10. Check to Ensure the Returns Were Received
After you’re done filing your taxes yourself, check back to ensure your return was received. You may get an email confirming the return was accepted. Alternatively, if you used a tax preparation software, you might be able to log in to the software to check the status of your return.
Tax Filing Made Easy
Filing your taxes yourself doesn’t have to be difficult. If you follow these steps and file via a user-friendly tax software, you can be done in a couple of hours.
Sign up now.
Source: credit.com