Filing income taxes for your business yourself can be challenging. However, as you prepare to do so, there are some key things to remember.
The tips below will help you avoid common mistakes and pitfalls, and you’ll save as much money as possible. Because the less money you have to give Uncle Sam, the more you can put towards achieving your business goals, paying off your debts, or positively impacting your FICO score.
So, if you’re wondering how to file your taxes, here’s a cheat sheet that’ll make it easier to get started.
- Do You Have to File Returns? Probably Yes
This primarily depends on your income, age, filing status, and other factors. Also, it depends on whether someone else can claim you as a dependent.
So, even if you think you don’t have to file taxes, file them anyway. You never know; you may qualify for a tax break which could result in a tax refund. Thus, give filing taxes serious thought if:
- You had income tax withheld from your pay
- You made estimated tax payments, or you had last year’s refund applied to this year’s estimated tax
- You qualify for tax credits such as education credits
- Gather All the Information
Start by collecting proof of income, expenses that could lead to a tax-deductible or could win you a tax credit, and evidence of tax you’ve paid throughout the year.
Here’s what you’ll need to gather:
- Your own Social Security number, as well as those for your spouse and dependents if you have any.
- W-2 form; this form helps you to know how much you earned last year and how much tax you paid on those earnings. If you have more than one job, you’ll need to have more than one W-2.
- 1099 forms; this is a record that shows that some entity or person who’s not your employer gave or paid you money.
- Education expenses.
- Retirement account contributions.
- Mortgage interest and property taxes.
- Classroom expenses.
- Charitable donations.
- Local and state taxes you paid.
- Last year’s state and federal tax returns, if this isn’t your first time filing taxes.
- Have the Right Tax Forms
Filling out worksheets and schedules is a part of learning how to file taxes, but you have to figure out the forms you need.
To file taxes, you have to get Form 1040. This is a standard form taxpayers use to report their income, calculate their tax refund or tax bill for the year, and claim tax deductions or credits. There are six additional schedules, which you may or may not need to tack onto, depending on your tax situation and if you want to claim certain credits and deductions.
- Take Stock before the Year Ends
Being hands-on can help reduce your tax bill and ultimately maximize your revenue. So, think carefully about the tax deductions and credits you can claim.
- Have you contributed as much as possible to your retirement accounts, such as your IRA or 401(k)?
- Can you make any additional charitable donations?
- How much was your interest towards your student loans?
- Were your education expenses higher?
- Can you contribute more to your health savings account?
Be wary of deadlines for tax deductions. This is because for some deductions, such as charitable donations, you have to act by the 31st of December of the tax year to claim the deduction. Also, don’t assume that federal tax returns are the only ones you have to file.
Depending on where you live or work and your income, you may need to file state taxes, too.
- Make Important Decisions
When filing your taxes yourself, you’ll need to make some key decisions which will significantly affect your tax bill.
For example, you’ll need to choose your filing status. Also, you have to review carefully the standard versus itemized deductions and choose the best option. This is very important because federal standard deduction amounts have doubled since 2017.
- Don’t Rush
It’s essential to have plenty of time to file your taxes. Start by knowing the filing deadline and allocate yourself enough time to gather all the information and file your taxes. Avoid procrastination because it leads to high stress levels and the risk of errors.
The best way is to block off time to file taxes in a quiet and uninterrupted place.
- Leverage Free Online Tax Preparation Services
When filing your taxes by yourself, you can opt to do it by hand and mail in your returns. Or you can choose to e-file. For accuracy, convenience, and speed, e-filing is the right option. Also, if you pair e-filing with direct deposit, you’ll get your refund more quickly than filing paper forms by mail.
A lot of software providers and online services offer e-filing services for free. However, while many of them advertise free filing, there’s always a catch. Many allow you to file your federal returns for free and then charge you for the state return. Others allow you to file your returns for free only if you take the standard deduction, and they charge you if you itemize.
So, there are many caveats to “free” filing of online services. Thus, it’s essential to understand the fees you may end up paying.
Filing taxes is perhaps not your ideal way to spend a few hours on a Sunday – or any other day for this matter. Every year I do mine on Super Bowl Sunday 🙂 But by taking the time to file your taxes yourself, you’ll learn so much more. You’ll also feel empowered, and you’ll save some money.