We’re Approaching THAT Time of Year Again…
Dear Rich Lifer,
It’s only January, and already people are starting to feel stressed about April…
I don’t mean spring, of course. Everyone’s looking forward to warmer weather – or, at least, I know I am.
I’m talking about Wednesday April 15th, in specific – a day more commonly known as Tax Day.
As you know, this is the day that all U.S. federal taxes must be filed…
Or, in some cases, a request for an extension must be filed by this day.
Either way, this is a day that many Americans dread because the process of determining how much tax they owe is cumbersome, confusing, time-consuming, and expensive.
In preparation for Tax Day, many people spend hours upon hours looking for receipts, tallying up how much they can deduct, and – in the worst cases – gritting their teeth in fear of how much they’ll have to pay.
Why Are Taxes Such a Pain?
One of the main reasons taxes seems so hard is that people learn one way to prepare their taxes early on in life and then they only use that one method moving forward.
There’s no “official class” on how to do your taxes, and the IRS certainly isn’t sending out pamphlets entitled, “How to Pay Us Less”
For most people, this means they learned how to file a 1040 (or, for about 35 years, the 1040EZ) when they had their first job – without any itemized deductions – on their own.
That’s ok if you’re under a certain income threshold and you have no serious deductions, but when you start adding in things like dependants, home ownership, and job changes, this form is no longer adequate for people who want to make sure they’re not paying more than their fair share.
Isn’t There a Better Way?
That lack of understanding leads to either hiring a tax professional (which can be expensive) or trying to DIY with a box of receipts, a basic knowledge of the tax code, and a handful of visits to the IRS website just to make sure they’re doing it all right.
Without any sort of guidance, this can be a paperwork nightmare!
And if you get it wrong, the looming threat of federal prison or liens on your property are no small concern.
It doesn’t have to be this hard, though.
When it comes to tax prep, you have options – and each one has its own ways to save.
Here are some ways you can make tax season easier and save a little money at the same time.
Do It Yourself.
The cheapest way to do taxes is to handle them yourself, but that doesn’t necessarily mean it’s the best method for everyone.
You’ll have to wade through form after form in order to take all the deductions you’re owed, or you’ll have to kiss a chunk of your refund goodbye and use the 1040.
Either way, you’ll have to look through all of the existing tax statutes and stay abreast of what’s new as different tax laws come into play.
At a total cost of $0, this option is great for people who are very detail oriented and have a lot of time on their hands. If you do your due diligence to make sure you’re not overpaying, the DIY method can be just fine.
On the other hand, if you want a little help to make sure everything’s on the up and up, read on…
Do It Together.
The “do it together” method is the best of both worlds – with a program like TurboTax to guide you, you’ll be able to calculate your taxes accurately and fairly.
The downside here? You still have to gather all the necessary paperwork to make it happen.
Here are some ways to make this method pay off.
TurboTax has a feature called ItsDeductible. Once you use the TurboTax software, you can add your deductions to this feature all year round, so every charity you donate to is logged – you won’t have to worry about this come April.
While TurboTax is the most comprehensive and user friendly tax prep software, it’s not always free…
It ranges from $0 for Free (a stripped down edition with no deductions – you’ll still have to pay $29.99 per state) to $39.99 for Basic to $109.99 for Home & Business.
There are other tax prep programs out there, and each one has its pros and cons, so see if there’s a lower priced version that fits your needs.
If you want to stay with the TurboTax suite of products, just make sure you’re picking (and paying for) the edition that fits your situation best. Just by picking the right version, you can save $50 or more right off the bat.
No matter which one you pick, take a moment to look for coupon codes and discounts. Many retailers (like Costco) and financial institutions (like Capital One) will help you save even more by offering you the same software at a discounted price.
Send It Out.
Surprisingly, this is the most popular method of all. The IRS estimates that as many as 60% of Americans send their taxes to a professional to handle it for them.
One cool thing to know about this? If you choose to send your taxes out, the fee you pay the preparer is tax deductible. See? You’re already saving!
If you’re getting help from a tax pro, one crucial thing to know is that things get busier and busier as April approaches.
If you want the best help they have to offer, go in early while they’re still fresh and ready to give their absolute best advice. Tax preparers generally charge more as the tax deadline gets closer, so start ASAP.
Tax preparation is a service business, so these folks make their living by the hour. In order to make sure you’re getting your taxes done at the lowest price, bring all the documentation you need to the first meeting.
Every time you have to pop into their office after the fact results in more work for them and potentially a greater cost for you, so bring all the paperwork and know the answers to all of their questions – or risk paying more for more of their time.
There are many ways you can prepare your taxes. The way you started doing them when you had your first job might not be the right choice for you anymore.
If you put a little effort in, you can find a method that’s the right blend of accuracy and convenience – and you can save some serious cash in the process, too.
Forget about waiting until April. Start early and you won’t regret it!
To a richer life,