This week I finished our taxes!!! With a little bit of motivation, Nick convinced me that I could indeed figure out how to do our taxes without spending $100 on an online program or a tax consultant. I was really nervous that if I screwed up we would end up owing more in taxes and therefore negating the idea of saving any money by doing it on my own.
NOTE: I am NOT a tax expert. This is my personal take on my first tax filing experience. Please do what you think is best given your current tax situation and don't cut corners or lie on your tax return! It is important to pay your taxes and keep our government chugging along :)
So quick basics on our tax return:
Federal Tax Return: I completed a 1040 Form and used the lengthy Instruction Booklet. The 1040 Form is only 2 pages with additional backup schedules to help calculate the individual line numbers for the 1040. Some schedules are mandatory, so be sure to read the instructions. You can file for free online or in hard-copy. I chose to complete ours online.
State Tax Return: Different for each state, but if you live in DC you can use the D-40 or a D-40EZ. Determine which is right for you here.
If you are thinking about doing your own taxes this year, I would encourage you to read through my 5 "Lessons Learned" on preparing your taxes for the first time:
1. Complete your Federal Tax Return before your State Tax Return. The two forms work together, to some degree, which was nice to learn. Their is not duplication in everything you submit to the government :) Your federal return walks you through turning your total income into your taxable income. Your total income is decreased by deductibles, such as student loan interest payments, to provide you with your total taxable income. By the way, I think the deductible for student loan interest payment should not have a cap of $2,500, especially for a joint return- give me at least $5,000!!!
2. Your previous tax returns can be a very useful tool. I sat with my 2012 paperwork for the full duration of both my federal and state returns. In terms of taxes, nothing new has changed in Nick and my life, so I knew that I could use my previous year's return as a template. Until we decide to have a kid or buy a house, I think I will be able to manage filing our own taxes using this system. But, if any life changes come our way I will probably use a consultant or online system to help complete our return to ensure that I have a new template to work from the following year.
3. Understand the different Schedules and when to use them. I went through what schedules I submitted last year and looked through each one to determine why they were used. While I was reading the instruction booklet, I made note of where I would need to use the different schedules. This helped me to get organized and not overwhelmed. The schedules seem intimidating but they really are just glorified worksheets. They help you layout how to came up with your number for line X on your 1040, so don't be scared of them.
Nick is an amateur investor and plays in the stock market. It is like his little pot of gold (note: St. Patty's Day is right around the corner!); however, when it comes to filing our taxes this is a HUGE headache. Each trade must be listed on Schedule D and includes the date of purchase, date of sale, gain/loss, a short or long term sale, and magically most of the tax forms we received did not have all of this information. This was really frustrating for me because I had to keep asking Nick to look up each transaction. In the end, I think it took about an hours worth of work for a minimal increase in our income.
4. Do not drink wine while doing your taxes :) Surprisingly I quickly lost all ambition and focus to decipher the language in the 1040 Instruction Booklet. The booklet is pretty straight forward, but at times it still didn't make complete sense. I reread sections multiple times to figure out what they were asking me to add/subtract or if we qualified for a certain deduction. This was a great time to revert back to point 2, use of our 2012 tax return. It took me 3 sittings to complete our federal return: One for wine :), Two for frustration and missing forms, and the Third sitting took extra time due to a lack of information on our tax forms- see schedule D example above.
5. Do your Taxes Early and Don't Stress! The whole process was fairly easy. By starting them two weeks ago , I was able to take my time and ensure that everything was correct. I had enough time to look through all of the information and ensure that I was comfortable with the final amount we owed. Yes, we did owe, but I could have told you that before I started. If at the end the numbers don't seem to be adding up, you can always take it to one of the tax companies to take a look and pay your fee, but at least give it a try! It is really empowering to understand exactly what deductions we can and cannot qualify for and what percentage of our income goes to taxes.
Good Luck and Happy Tax Filing!
NOTE: I am NOT a tax expert. This is my personal take on my first tax filing experience. Please do what you think is best given your current tax situation and don't cut corners or lie on your tax return! It is important to pay your taxes and keep our government chugging along :)
So quick basics on our tax return:
Federal Tax Return: I completed a 1040 Form and used the lengthy Instruction Booklet. The 1040 Form is only 2 pages with additional backup schedules to help calculate the individual line numbers for the 1040. Some schedules are mandatory, so be sure to read the instructions. You can file for free online or in hard-copy. I chose to complete ours online.
State Tax Return: Different for each state, but if you live in DC you can use the D-40 or a D-40EZ. Determine which is right for you here.
If you are thinking about doing your own taxes this year, I would encourage you to read through my 5 "Lessons Learned" on preparing your taxes for the first time:1. Complete your Federal Tax Return before your State Tax Return. The two forms work together, to some degree, which was nice to learn. Their is not duplication in everything you submit to the government :) Your federal return walks you through turning your total income into your taxable income. Your total income is decreased by deductibles, such as student loan interest payments, to provide you with your total taxable income. By the way, I think the deductible for student loan interest payment should not have a cap of $2,500, especially for a joint return- give me at least $5,000!!!
2. Your previous tax returns can be a very useful tool. I sat with my 2012 paperwork for the full duration of both my federal and state returns. In terms of taxes, nothing new has changed in Nick and my life, so I knew that I could use my previous year's return as a template. Until we decide to have a kid or buy a house, I think I will be able to manage filing our own taxes using this system. But, if any life changes come our way I will probably use a consultant or online system to help complete our return to ensure that I have a new template to work from the following year.
3. Understand the different Schedules and when to use them. I went through what schedules I submitted last year and looked through each one to determine why they were used. While I was reading the instruction booklet, I made note of where I would need to use the different schedules. This helped me to get organized and not overwhelmed. The schedules seem intimidating but they really are just glorified worksheets. They help you layout how to came up with your number for line X on your 1040, so don't be scared of them.
Nick is an amateur investor and plays in the stock market. It is like his little pot of gold (note: St. Patty's Day is right around the corner!); however, when it comes to filing our taxes this is a HUGE headache. Each trade must be listed on Schedule D and includes the date of purchase, date of sale, gain/loss, a short or long term sale, and magically most of the tax forms we received did not have all of this information. This was really frustrating for me because I had to keep asking Nick to look up each transaction. In the end, I think it took about an hours worth of work for a minimal increase in our income.
4. Do not drink wine while doing your taxes :) Surprisingly I quickly lost all ambition and focus to decipher the language in the 1040 Instruction Booklet. The booklet is pretty straight forward, but at times it still didn't make complete sense. I reread sections multiple times to figure out what they were asking me to add/subtract or if we qualified for a certain deduction. This was a great time to revert back to point 2, use of our 2012 tax return. It took me 3 sittings to complete our federal return: One for wine :), Two for frustration and missing forms, and the Third sitting took extra time due to a lack of information on our tax forms- see schedule D example above.
5. Do your Taxes Early and Don't Stress! The whole process was fairly easy. By starting them two weeks ago , I was able to take my time and ensure that everything was correct. I had enough time to look through all of the information and ensure that I was comfortable with the final amount we owed. Yes, we did owe, but I could have told you that before I started. If at the end the numbers don't seem to be adding up, you can always take it to one of the tax companies to take a look and pay your fee, but at least give it a try! It is really empowering to understand exactly what deductions we can and cannot qualify for and what percentage of our income goes to taxes.
Good Luck and Happy Tax Filing!
No comments:
Post a Comment