You might not enjoy doing your own taxes, but if you can grin and bear it you might end up keeping more of that money you earned. Now, if you just hate doing it then I guess you could go out and get someone else to do it for you. Just be sure that you find someone with a good reputation. You really need to do your homework on this one too if you’re not going to do it yourself. You’re going to have to pay them for the service, and hopefully they do it well, but hopefully it’ll turn out better than you trying to do it yourself.
However, if you’re like me then you want to do it yourself because yourself is going to take care of you. Nobody is going to take care of your money like you, and that includes your taxes. We won’t do it without help though. Gone are the days where you had to find all the right forms and fill them out by hand. Thankfully, I have never had to do my taxes that way. I’m lucky enough to take advantage of computer software that makes the whole process really easy.
Where can you file your taxes online?
There’s a ton of websites you can use to file your taxes, but you should be careful in your decision making process. This website is going to have a lot of your sensitive info so you want to pick the right one. You can check where the IRS website recommends for filing your taxes. http://apps.irs.gov/app/freeFile/jsp/index.jsp Some of these sites will let you file your federal for free if you meet a certain requirement threshold. Whatever site you choose be sure you do your research beforehand.
I have tried a couple different ones, and then I finally came across TaxAct and I love them. http://www.taxact.com/ Taxact makes it easy with prompts that ask you questions with a step by step guide to the next section of your taxes. I highly recommend TaxAct, but that’s just my personal preference. You may like something else. Whatever you choose is fine because they’ll all give you the ability to work with your numbers.
Working with your tax numbers to get free money
When you’re doing your taxes you need to play around with the numbers. But what numbers? Aren’t those numbers already set from what happened during the year? Well, yes they are, but you also have things you can still change up until April 15th.
Obviously, you can’t change the income you made for the year, but you can make a contribution to your IRA for the past year. You may find that you’re near a “sweet spot” threshold within your tax bracket. Maybe you’re so close that just a small contribution to your IRA edges you into a lower tax bracket.
The best way is to put in hypothetical numbers into the site software and check. You may find out that putting $2,000 into your IRA also gets you another $500 back on your tax return. So now you’re saving $2,000 towards retirement and you’ve been rewarded $500 for doing so. Obviously, this is a generalization; but I can’t tell you how many times we’ve done something just like that. The amounts would be different, but we’d find some type of sweet spot where it would be worth it to stock away more money into our retirement account. Even still, we like to try and put away as much money as we can into our IRAs, and Roth IRAs each year. The earlier you can start saving the better.
What is this IRA, Roth IRA mumbo jumbo?
For simplicity let’s just say that a Roth IRA is when you pay taxes on it now, and an IRA is when you pay taxes on it later. More accurately with a Roth IRA you’ll pay your taxes on your contribution when you make the contribution, but when you take it out of your account during retirement you won’t have to pay any taxes on it because you’ve already done so. With an IRA you’re putting that money in with a tax advantage now, but you’ll have to pay taxes on it later when you take it out during retirement.
So which one should you do? Really, you should figure out what’s most beneficial to you and do that in any given year. This is where you play around with those numbers. You may find that it would be better for you to put some money into each one. It’s all dependent on your individual situation.
However, ideally you want to build yourself a nice Roth IRA nest egg that you can use tax free in retirement. As much as it’s hard to believe, historically taxes a pretty low right now so it would be smart to pay your taxes now when you know they’re low. Taxes may be higher when you start to take your money out in retirement, and if you have an IRA you’ll have to pay taxes on what you take out.
This is really just the tip of the iceberg for doing your taxes. What you should do though regardless of anything else is to save some of your money for retirement. Open that Roth IRA! Go get yourself an IRA account. Do it now! Stop wasting time and start saving already. Nobody else is going to do it for you.