How to Do Your Taxes: A Guide to Make Filing Taxes Simpler




A Basic Guide to Help Making Filing your Taxes Easier

Tax return season is here.

Filing your taxes does not need to be difficult. For most Americans, it can be completed in a few hours or less.

However, if you visit the IRS website and have a look around, there really is no simple tax guide to get you started, and things can seem overwhelming. And if you’re a first-time DIY’er, nobody teaches you the basics of how to do taxes. So I wanted to do you the service and highlight a good chunk of the basics on how to do your taxes here.

When you’re ready to file your taxes, the following tips should help you with noteworthy dates, credits, deductions, reminders, and some of the most common deductions, credits, deadlines, best and cheapest e-file tap prep vendors, and more.

What Tax Forms You Need to do your Taxes?

Before you get started, you’ll need to get tax forms from your employer(s), bank(s), brokerage(s), and more. Without proper forms, you can’t do your taxes. Here is a full list of tax forms, but a few of the more common ones include:

  • how to do taxesW2: covers income, withholding, etc. from your employer
  • 1095A: if you bought health insurance on a state or federal exchange.
  • 1098: covers mortgage interest paid, over $600.
  • 1098-T: higher education expenses paid.
  • 1098-E: student loan interest paid.
  • 1099-MISC: miscellaneous income exceeding $600 from any one source (i.e. freelance or consulting.
  • 1099-B: investment brokerage statement that covers gains/losses from trades.
  • 1099-DIV: investment brokerage statement that covers any taxable capital gains or dividends paid out to you.
  • 1099-INT: taxable interest exceeding $10, typically from a savings, checking, CD, or money market bank account.

File your Taxes Early to Help Prevent Identity Theft

Once you have everything you’re expecting, get started! There is incentive to file early. For starters, if you are owed a refund, the sooner you file, the sooner you will receive your refund.

Second, e-file tax identity theft fraud is a problem. This occurs when fraudulent tax returns for refunds are filed in your name. The longer you wait to file a return, the greater the chance someone could fraudulently beat you to it and claim a refund in your name.

This has become an epidemic in recent years. In just the 2015 tax year, the Government Accountability Office estimates that thieves attempted to claim $14.5 billion in fraudulent tax refunds.




A 20somethingfinance reader, KM, had the following warning for others,

“My mother waited (or rather, her tax prep person waited) until late March to file last year. She never got her refund because someone else had filed in her name! She’s still sorting out this mess.”

If you have self-employment income, you should also consider using an IRS EIN number in place of a Social Security Number to help limit the possibility of SSN theft.

How Should I File my Taxes?

Last year, 132,319,000 of 152,235,000 returns were e-filed (86.9%) returns were e-filed. E-filing is the quicker, safer, and more reliable way to file.

Where Should I E-file?

There are many cheap or free ways to e-file. Here are a few deals from the best vendors:

My two favorite (and the two best tax software programs) are:

For very basic returns, both companies offer a free 1040-EZ federal e-file version as well.

Others include:

  • TaxAct (15% off at that link)
  • e-file.com (use code SAVE30 for 30% off at that link)

How Should I Pay My Taxes?

For reasons I just highlighted, I recommend that you pay your taxes online – it’s quicker, safer, more reliable, and can help prevent identity theft tax fraud.

There are ways to actually pay your taxes with a credit card and profit. With estimated tax payments, there are abundant opportunities to do so (if you do it wisely).

What’s New for this Year’s Taxes?

Starting last year, a new law requires the IRS to hold refunds on tax returns claiming the Earned Income Tax Credit (EITC) or the Additional Child Tax Credit until mid-February. Under the change required by Congress in the Protecting Americans from Tax Hikes (PATH) Act, the IRS must hold the entire refund — even the portion not associated with the EITC and ACTC — until at least Feb. 27 this year. This change helps ensure that taxpayers get the refund they are owed by giving the IRS more time to help detect and prevent fraud.

When can I Start Filing my Taxes this year?

You could start filing your taxes as soon as January 29, 2018. So long as you have all of the required income, deduction, and other tax forms you are expecting, you can begin filing your return ASAP.

When is the Tax Deadline?

This year’s tax filing deadline is Tuesday, April 17, 2018. The normal IRS tax date of April 15 falls on a Sunday this year, so there is a weekend extension to the following Monday. However, Emancipation Day – a legal holiday in the District of Columbia – will be observed on that Monday, so the nation’s filing deadline is pushed to Tuesday, April 17, 2018 instead.

Your tax filing deadline AND payment deadline, if you are out of country, is Thursday, June 15, 2018.

Note that this is the date that you must have your return postmarked or e-filed.

What if I Need to File a Tax Extension?

If, for one reason or another, you are unable to file your tax return by the April 17 tax deadline, you can file for an IRS tax extension. Note that the extension must be postmarked by the April 17 deadline also.

Also, a key disclaimer – an extension of time to file is not an extension of time to pay. Any taxes due are still due on the normal filing deadline date.

How to File a Tax Extension

In order to file a tax extension, you will need to fill out IRS form 4868. Note that filing the extension does not get you off of the hook, you still need to pay any estimated taxes by the April 17 deadline. If you don’t you will owe interest and possibly a penalty on your taxes owed.

Important note: filing the extension does not mean you don’t have to pay expected taxes for 6 months. You still need to pay estimated taxes by the original deadline. If you don’t, you could owe interest and possibly a penalty on taxes owed.

Can I Still Lower my Tax Obligation for Last Year?

Yes. Even after a calendar year is over, there are still last minute tax deductions and credits that can lower your taxes, up until the tax deadline.

You can contribute to personal retirement accounts, such as a traditional IRA, Keogh Plan, HSA (believe it or not), or SEP IRA. Contributions are considered tax-deductible since you will pay taxes on that income when you withdraw funds. The IRA contribution deadline and HSA contribution deadline are the same date as the tax deadline.

Contributing will lower your overall adjusted gross income (AGI) and potentially bring you a bigger return or cut the taxes you owe. And it’s an “above the line” deduction, which means that you do not need to itemize to claim it.

Make sure your income is eligible for these contributions, based on income level, before you contribute. If your income is low enough, you might also qualify for the Saver’s Credit for contributing to one of these types of retirement accounts.

However, it is too late to take advantage of many tax deductions for 2017, such as charitable contributions or employee contributions to tax advantaged accounts (i.e. 401K’s, 403B’s, 457B’s). The deadline to contribute was the final day of the calendar year.

Should I Take the Standard Deduction or Itemize My Taxes?

Unless you have almost no expected tax credits or deductions, run the numbers to see if itemizing your taxes could result in a lower tax obligation for you versus a standard deduction. Itemizing deductions could even put you in to a lower tax bracket.

The standard deductions for 2017 are:

  • $6,350 for single filers
  • $6,350 for married, filing separately
  • $12,700 for married filing jointly
  • $9,350 for head of household
  • personal exemption: $4,050

If your itemized deductions don’t surpass those amounts, the standard deduction is the way to go (and it’s simpler).

The Most Popular Tax Deductions and Credits

If you did any of the following during 2017, it could impact your return:

  • If you made home energy efficiency improvements? You could qualify for a energy tax credit. The credits for efficiency-improving items like windows, doors, furnaces, etc. in 2017, was in addition to the big 30% credits for solar, fuel cells, wind, and geothermal. Note that aside from solar, these were late retroactive additions, due to the bi-partisan Congressional budget deal that passed in January. The IRS has still not updated their websites and forms with this development.
  • Pay interest on a mortgage or property tax? Both are deductible.
  • If you have earned income below certain levels, you might be eligible for the Earned Income Tax Credit (EITC).
  • If you sold investments at a loss and those losses were greater than your gains, you could claim a capital loss tax deduction.
  • Have a child this year or act as guardian for at least half a year? You could claim a child tax credit.
  • Have self-employment income? You may be able to deduct business related expenses and your home office and can contribute a portion of your income to self-employment retirement accounts, such as a solo 401K or SEP IRA. And you may still be able to contribute for last year.
  • Participate in the sharing economy? The IRS has created a sharing economy tax guide to help you make sense of deductions (and income) that you should report.
  • Contribute to an HSA outside of payroll? That’s deductible.
  • Pay tuition or have other education related expenses? There are education tax credits and deductions that you can claim.
  • Make charitable donations? You can deduct them. Note that there is a IRS maximum charitable donation limit, which is based off your income level and what type of organization you contribute to.

What if I Got a Refund?

Getting a tax refund is not a good thing. A refund is the equivalent of loaning your paycheck to the federal government, interest-free, over the prior year. And refunds typically result in a spending spree that I like to call Tax Refund Windfall Syndrome.

The average tax refund last year was $2,895. That’s an average of $2,895 in interest-free loans from 111,873,000 lenders (aka taxpayers), for a combined $323 billion.. This works out to just over 73.48% of returns resulting in a refund.

If you want to stop giving out an interest-free loan to the government, change your withholding tax allowances through your payroll department. Aim for a slight amount due back to the government, without having to pay a penalty. That way, you’re the one getting the interest-free loan, and you have more money over the rest of the year that you can save in employer sponsored retirement accounts.

How Can I Check my Tax Refund Status?

If you start getting worried or just plain impatient, you can check on your tax refund status.

Beware of scams in the form of helping you check your refund status. Keep in mind that the IRS will never send you an email with this option. To check it, you should go to www.irs.gov and click ‘where’s my refund‘.

How Long Should you Keep your Tax Records?

There are varying opinions on how long to keep your tax records. I tend to err on the side of caution when it comes to being ready for possible audits. The IRS has a 3-year period of limitations, within which you can be audited or amend your returns.

However, if they have reason to believe that you have filed a fraudulent return or no return at all, they can audit you at any time. Some states have a statute of limitations that is longer that 3 years as well. So, I personally recommend keeping 3 years of paper documentation, but then going the extra step of digitizing documentation and keeping it stored securely in the cloud. It will help you sleep easier at night.

Tax Tips from Readers

Here are a few tips from readers from the H&R Block contest that I recently ran:

From Michael:

“My tax recommendation is to calculate your taxes based on your income and deductions in advance so you can figure out how many exemptions to put on your W-4, in order to get the lowest refund possible. That way your paychecks throughout the year are maximized. Generally a tax return windfall gets used on impulse purchases if you don’t already have a plan in place.”

From Spencer:

“Keep all of your receipts, basis calculations and other supporting documents together throughout the year and make backup copies electronically so that you’re not scrambling to find them when tax time comes.”

From Trevor:

“I recently had a scammer try to pose as a debt collection agency for a major city that I used to work in 7 years ago call me trying to tell me that I didn’t pay taxes to the city that year. Several things that he said made me question the legitimacy of the call. So be diligent and treat any call with skepticism. Also file your taxes ASAP. Stop the scammers!”

From Adam:

“Don’t confuse the fact you can deduct medical bills and saving in your HSA. Only medical bills over $10k can be deducted while HSA you get instant tax savings and reduce your taxable income. Anyone not using one with a HDHP plan is missing out on serious tax savings.”

From Syed:

“You can still contribute to your 2017 Traditional and/or Roth IRA’s until the tax deadline. This is by far the best way to get some tax advantaged savings. And if you get a refund this year, just deposit that in your 2018 IRA!”

From Justin:

“If you work from home, don’t forget to claim the home office deduction. If you prefer the itemized deduction make sure to keep detailed records of your utility expenses so you can add those in as a percentage based on the square footage of the office relative to your total home sqft.”

Thanks all, and happy filing!

Tax Return Discussion:

  • Have you started or finished your tax return yet?
  • How did you first learn how to do your taxes?
  • Are you expecting a refund or taxes owed?
  • What are your favorite tax tips?

9 Comments

  1. Max
  2. Amy Xiong
  3. Salman Khan
  4. B.A.

Leave a Reply

Join 10,000+ wealth builders. Get posts emailed to you, for free.

Thank you for subscribing!

Oops... Please try again.