It's that time of year again! The time of samoas, thin mints, and tagalongs, oh...and taxes.
For a lot of twentysomethings, tax season is a relatively new phenomenon (it is for me!*) - or perhaps your dad is still doing them for you.
Well, if you're finally taking over tax duties, let's go over what you need to know, and nothing more:
What the heck am I actually doing when I file taxes?
You're figuring out if you still owe money to the government (boo), or if the government owes money to you (woot!). Over the course of the prior year, you cut a chunk of your paycheck to the government every pay period, and now it's time to settle the tab and see if you paid them too much or too little.
When are taxes due?
April 18, 2016 - that's a funday Monday. They need to be mailed or emailed on or before this day.
How do I do taxes?
You'll get some official-looking tax-related papers in the mail. Store them up; I just have an old school folder. Here's what to look for:
From your employer
W-2: Your employer will send an earnings statement from last year. It has a lot of numbers on it and the same muted color scheme as a standardized test.
From your bank or other financial companies
1099: While a W-2 keeps track of your wages, the 1099 keeps track of other forms of income. You'll get a 1099-SA if you have an HSA, you'll get a 1099-INT for interest earned, and a 1099-R for retirement plan-related income. There are a whole slew of 1099 types, all with corresponding letters. Just keep 'em all as they roll in.
For deduction-related categories
Charitable donations: If you gave money last year, the organization will send you a receipt-type paper for your taxes around this time.
Interest Paid on Loans: If you have a car loan, a mortgage, or a student loan, you should receive paperwork on these topics because they can count toward your deductions (AKA less money being taxed).
How do I file?
Well, you have a few options:
Turbotax
Cost: Free/$30/$50
They have a free option with very basic forms, which is great for folks that don't have kids or houses yet. I might recommend the $30-$50 Deluxe version that offers clearer guidance. You'll have greater chances to get money back on your tax return, which can soften the up-front price. But don't worry, if you start the simple version and it becomes too complicated, you can upgrade at any point without losing your information. An easy tax return takes a few hours, while a more complicated case takes up an entire Saturday and a bottle of wine.
Certified Public Accountant (CPA)
Cost: $200-$500
CPAs know a lot about numbers. This is a great outlet for those with complicated tax situations, because CPAs dream in tax code. Ask friends for referrals or look on Yelp for reviews.
H&R Block
Cost: $90-$200
H&R Block is made up of a lot of mathy folks. They might be accountants in their day jobs, retired business teachers, and people who just "get" taxes better than the rest of us. They'll do your taxes for you at a price, and are a good option for people who don't have the time or don't trust their math skills to do their own taxes.
A piece of advice from a wise sage:
My always-teaching father recommends at least once in your life, you should do your own taxes. This will help you grasp the math and also give you an appreciation for how screwed up our tax system is (a theme also shared by Legendary Larry, the tax guru who helped me with this post).
Then what?
Time for the tax return form! For most of us it'll be some version of the 1040:
If you use Turbotax, you'll fill the form in online.
With a CPA or H&R block, they'll do the form after you've dropped off your paperwork.It's super easy, hence the price.
So...what are the forms?
1040: a long and ridiculous form that has a lot of special cases, deductions, and may require a few ibuprofen, choice swear words, or a drink of choice when finished. Blame Congress.
1040A: a shorter version of the aforementioned, but instead of tallying up your personal deductions one by one, you'll just take the "standard deduction," basically just a flat amount (for single folks in 2013 it was $6,100 and roughly double for married) that reduces how much you can be taxed on.
1040EZ: finally. something that actually makes sense in the tax world. EZ actually means easy. Wow. It's one page long and particularly applicable to many 20-somethings. If you don't have any dependents and do not make more than $100,000 a year, you can fill out this form. WOOT!
After filling in the form, you'll see if you owe money or get a return, right down to the dollar. If you owe money, pay up at this time. If you get money, wait happily for your return (a few weeks) and start dreaming.
A few notes on taxes:
- If you're doing your own taxes, don't forget to sign it! It's an easy mistake to make.
- REVIEW! Even if you have your taxes done for you. Stupid things like a misspelled name or wrong digits in your social security can really screw things up.
- If you're married, no need to file separately. This used to be a "thing," but government has changed the code so it makes sense to file jointly.
Ok. That's it. STOP READING. Do your taxes, buy some girl scout cookies. Enjoy life.
*special thanks to Legendary Larry and Wise Sage Dad for the help on this one - thanks for your tax code kung fu and deep wells of knowledge.