Every year, I do my own taxes. It’s a timely venture but it’s my belief that doing it yourself helps you understand your finances and your spending habits much much better. I take after my father, a frugal, do-it-yourself kind of guy. You wouldn’t expect a cancer surgeon to spend their free evenings on doing their own tax prep and filing, but that’s my dad! If you can even prepare it yourself once, it will be well worth your while and give you a greater understanding of a very intimidating subject.
1. Create a spreadsheet of your expenses
Here is an actual snapshot of the spreadsheet I use to keep track of my expenses. Strangely enough, I would consider this one of my hobbies LOLLL. I do it every month on the last day or so and I download my bank statement and compartmentalize it into different categories like car (which you’re looking at now), home, entertainment, business, health, etc…
First, it’s really interesting to see how much you’re spending on different things each month. I have a page with the totals and averages as well that allows me to see where I’m allocating most of my money and where I can cut back on. Keeping record of this not only keeps you actively aware of your spending habits, but will really help you when it comes time to file your tax deductions.
2. Gather all of your documents
Before you start filing, you need to reach out to your employer(s) and ask for the proper forms that report your wages and the taxes that have already been taken out. This will usually be in the form of a W2, for pay-rolled employees, or a 1099 which is an independent contractor (someone who earns a commission, like myself). No matter what kind of job you have, you will need to submit a 1040 form to the IRS to state any and all income you’ve made using the information from your W2 or 1099 form.
There are other forms you may need individually, such as a W-2G (gambling winnings) form or a SSA-1099 (Social Security benefits) to claim other forms of income. The entire list of forms can be found here.
Another important step is compiling the proper documents to make adjustments to your income, or essentially, what I like to calling shrinking your income. If you’re paying for college, you could use form 1098-T (tuition) and 1098-E (student loan interest) to help increase your tax return.
Last, if you plan on doing an itemized deductions, another way of shrinking your income, you will need those forms. If you’re a homeowner, you can get a return because of your mortgage with a 1098 (mortgage interest), or if you pay for your own healthcare you can use 1095-B (health coverage). This goes along with charitable contributions and many other deductions. Again, the entire list can be accessed here.
3. Find the right program for you
Now, it is time for you to decide how hands on you want to be. Being the cheapskate that I am, I file my taxes through one of the free websites that the IRS suggests. They suggest a number of different sites according to your income level, residency and filing status here. I believe last year I used FreeTaxReturns.com, but there are plenty of recognizable name brand services listed like H&R Block, Taxslayer, and Turbotax.
These free solutions are pretty bare bones and a little mind-numbingly boring, but they get the job done. If you need something more user friendly and … engaging? I’m not sure what the right word would be for doing taxes… Let’s say, if you need something a little nicer to look at, consider trying Intuit Turbotax. This ranges from a one time payment of $40-$100 and walks you through the process much easier. If you have a little more to keep track of, like you own your own business, I suggest going with Intuit Quickbooks. This is a subscription based (monthly or annually) service that can track your payments of employees and sales as well as your own income.
And remember– taxes must be paid by April 15th! I hope this was helpful. Please leave me a comment with any questions, concerns, or suggestions yourself!