How To File Your Tax Returns: 6 Things You Should Know This Year
For something that's legally required, taxes can be tough to figure out. The U.S. system is complicated — and unfortunately, most of us never learned how to do our taxes in school.
The deadline to file your taxes this year was April 18, but for most Californians — including anyone living in Los Angeles, Orange, Riverside, San Bernardino, Ventura and San Diego counties — it has been extended to Oct. 16. They're among 51 counties in the state included in Federal Emergency Management Agency emergency and disaster declarations. For those covered by this extension of the federal deadline, California has extended the deadline to file your state taxes to Oct. 16 as well.
Still, it never hurts to get started as soon as possible.
In this guide from Life Kit, we share six expert tips you should know about filing your taxes — from what steps to take as the deadline approaches, to whether hiring a tax preparer is worth it.
1. You don't have to pay to file your taxes
One free option: Download your tax forms from the IRS website, read the instructions, fill everything out, and submit by mail or online. That's easier if someone like a parent has walked you through it before, or if you have a simple tax situation like one job, in one state, for the entire year.
If your tax situation is more complex, there's free online software you can use. If your adjusted gross income is $73,000 or less, you qualify for a program called IRS Free File. Find out more at the IRS website.
If you don't qualify, you can still get deals on online tax software, says Akeiva Ellis, a certified financial planner and co-founder at The Bemused. She uses a service called Free Tax USA; it charges $15 per state, and the federal return is free.
2. Consider tagging in a professional
Another option is to go to an accountant or tax preparer. That might make sense if you're doing your taxes for the first time, or if you've had a major life change — like getting married or starting a new business. It may also make sense if you want to do some tax planning for the year ahead, says Andrea Parness, a CPA and certified tax coach.
If you're looking for a pro, start by asking friends and family for referrals, she says. And then interview the person. Prepare questions for them: Will they be giving you tax advice, or just filling out the forms and submitting them? Will you have an appointment? And what happens if they make a mistake?
"It's like kicking the tires," Parness says.
3. Gather your documents
The IRS has a list of documents you might need. Tax preparers can give you one, too. Some common examples: W2 forms, which report your income and your employers send you by mail, student loan interest forms, bank interest forms, and any receipts for things you're planning to take as a tax credit or deduction, like medical expenses or charitable donations.
4. Look into tax credits and deductions
Both are benefits that save you money on taxes. A tax credit lowers your final tax bill; it comes off the top of what you owe. A tax deduction, on the other hand, "reduces the amount of income you have to pay tax on," Ellis says.
To figure out which credits and deductions you're eligible for, you can look at the IRS website. If you use software, it'll prompt you with questions to help figure this out. So will tax preparers.
But do your research. "You certainly always want to be able to educate yourself and not just depend on someone else asking you, 'Hey, did you buy a new car? Did you do this? Did you put your kid in daycare?' ... Everybody runs their practice differently and not everybody asks those questions," Parness says.
5. You can file an extension — but you still have to pay
If you think you won't make the Oct. 16 deadline this year, you can file an extension with the IRS online. But if you owe money, you still need to estimate how much and pay it now, or you might get hit with penalties later.
6. Plan ahead for next year
Think about what went wrong on your tax return this year. For instance, did you end up owing a ton of money? Did you get a huge refund? That just means you gave the federal government an interest-free loan. You can make changes now so that doesn't happen next year. For instance, "ask your employer for a form W-4 so that you can properly tell them how much taxes to take out of your check," Ellis says.
Also, look out for tax credits, deductions, or rebates that you're newly eligible for. A little planning and research now could lower your next tax bill.
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