Doing your taxes can seem like a daunting task, but it doesn't have to be. If you've recently gone through a major life change, like starting a business or buying real estate, or if you're not quite ready to take the training wheels off yet, an accountant can help you out along the way. However, most people can do their all on their own. All it takes is a bit of preparation, organization, and the motivation to begin.
If you're ready to tackle your taxes head on by yourself, heed the advice of William Perez, a senior tax accountant at , and start early. If you begin now, you'll have plenty of time to gather important documents, create a rough draft of your tax return, and review your information prior to filing well before the April 17 deadline. Take control of your finances this year, and start planning that's possibly in your future. This is exactly how to do your own taxes like a pro.
"When filing taxes on your own, start by gathering and organizing all your tax-related documents," says Perez. That means it's time to round up any W-2 and 1099 forms you should have received in the mail by now. The W-2 form comes from your employer and reports wage and salary information along with how much federal, state, and other taxes have been taken out of your paycheck over the last year. If you've held more than one job in the past year, you may have multiple W-2 forms. Unless you have a side hustle, you likely won't have to worry about any 1099 forms. These are for anyone who is self-employed, like a business owner or contractor. If you do own your own business or do freelance work, you'll have at least one 1099 form to file.
Make a Plan
Once you've collected all the necessary documents and neatly organized them in a snazzy manila folder, it's time to make a plan of action. "Figure out how you are going to prepare your tax return," instructs Perez. "Are you going to put pencil to paper and prepare your tax return by hand? Or are you going to use software to put everything together?" Unless you like doing things the old-fashioned way, utilizing a tax software is likely the simplest way to do your own taxes.
Perez explains that there are two distinct types of . You can choose between downloadable software and web-based software. Each comes with its pros and cons, and you'll need to weigh the options for yourself.
"The advantage of downloadable software is that all your financial data is stored on your computer's hard drive," says Perez. This way, data can only leave your computer when you file your tax return electronically. The downside is that this software needs to be kept up to date. Perez recommends checking for updates before filing if you choose this route.
"The advantage of web-based software is that you can just log in and use the software; you won't need to download and install updates," explains Perez. However, your financial data will be stored on the software company's servers, so if security is of the utmost importance to you, you may want to opt for a downloadable software to ensure your data is secure.
Do the Work
Now for the fun part: reducing your tax through deductions and credits in order to get the most out of your return. You can claim itemized deductions for any number of expenses that you may have made throughout the year. For example, Perez explains that if you bought a home, you can deduct property tax and interest paid on home loans. Additionally, if you donated to charities, your home endured damages, you paid vehicle registration fees, or you had out-of-pocket medical expenses, you can list those costs as well.
Finally, if you are a student, you can deduct tuition for both undergraduate and graduate classes, as well as the cost of books and travel between school and work if you do both.
In order to correctly enter your deductions and credits, Perez advises using what's called an organizer. It's essentially a paper worksheet, used to tally up expenses and keep your documents and information organized. An accountant can provide one for you or you can create your own. "This makes the job of collecting your financial data a little more structured. The end result is having solid numbers that can then be entered into the tax software or directly on the forms if you're filling it out by hand," he says.
"We don't know what we don't know, and that can result in making mistakes inadvertently," says Perez. Before filing your completed tax return, do your best to avoid trivial errors when preparing your taxes on your own. "Common mistakes include forgetting to report income from a side job or not having good documentation for their deductible expenses or not understanding the rules for a particular deduction," according to Perez. After double- and triple-checking your tax return for accuracy and completeness and sending it off to the IRS, sit back, relax, and make some plans for how you'll spend your extra cash (if you get a return, that is).
Perhaps a to somewhere warm and sunny.