Many people dread tax season. Whether it’s because they know they’ll have a debt to pay or they just find completing the forms too complicated, tax season isn’t looked forward to by many people.
The good news, though, is that it’s gotten easier to file your taxes yourself. Through online software complete with expert advice and recommendations, most people find completing their own taxes to be a simple process that takes less time than ever. With that said, there are still a few things you should know before filing your own taxes, and we’ve listed them below.
E-Filing is Best
In most instances, it’s best to file an online tax return. Not only does this method save you and the IRS money, but it also helps save the planet because there are no documents to print, sign, or send in the mail.
Sometimes, though, you might be required to mail in a paper copy of your tax return. In this case, the online tax software you use will tell you what forms you need and how to prepare the return for mailing.
Get Your Filing Status Right
Your filing status is important because it lets the IRS know how to treat you. Your filing status essentially determines how much you’ll pay or save in taxes, and if you get it wrong, it’s one marker that can target you for an audit.
The correct filing status determines which credits and deductions you qualify for, which forms you need to fill out, and more. If you aren’t sure which filing status you should be using, consult a tax expert through your online tax software.
Understanding the Adjusted Gross Income (AGI)
Many of the lines on the tax form mention “AGI.” Your AGI, or Adjusted Gross Income, is the magic number that determines your eligibility for credits and deductions.
The IRS assesses your AGI by taking your overall gross income and subtracting certain expenses like college tuition and IRA contributions, among other things. After taking into consideration all the deductions, credits, and exemptions, the resulting number is your taxable income.
Exemptions Lower Your Tax Bill
According to the government, you get discounts on your taxes just for being a contributing member of society. These discounts, called exemptions, include things like getting or being married and having children. Exemptions lower the amount of income you can be taxed on, so take advantage of everything you’re entitled to.
Standard Deduction vs. Itemized Deduction
One of the biggest decisions you’ll make when doing your own taxes is whether to take the standard deduction or to itemize your deductions. Most people take the standard deduction, which lowers your taxable income by anywhere from $5,000 to $11,000. If your tax situation is uncomplicated, the standard deduction is likely the best option for you.
People itemize their deductions if their sum exceeds the standard deduction. This method takes more time and requires proof to back up what you claim, but it could result in hundreds or thousands of dollars in tax savings.
Digital tax software makes it easier than ever to do your own taxes. Completing an online tax return is faster and more accurate than the old-fashioned way of filing taxes, allowing you to maximize your refund. Before you jump online and begin completing your taxes for this year, be sure you read and understand the tips outlined above.