It's close to the end of March which means that the day of forced financial reckoning for almost every American adult is upon us. April 15 - TAX day!
Have I done our taxes yet? Nope. But I'll get to them in the next week or so. In years past, I found that I was really stressed out about doing our taxes. You might be stressed about doing them too! Getting all of the paperwork, knowing what deductions and credits we needed to select, figuring out if we could itemize or not. Not to mention that there is the threat of legal action by the IRS if you get any of this wrong.
But there is something nice about getting older - you know more of what to expect for these annual life events. I'm not stressed this year because...
- I know which forms I need and I've been keeping all of my tax-related documents in one place since the start of 2014. For tips on how to get organized, check out this post from last year.
- I've been around the block a few times with our deductions and credits. I know that itemizing doesn't make sense for us even before I even start all of my calculations.
- I always stay aboveboard. I don't even think about fudging on my taxes. Period. When you start honest and stay honest, you have a lot less to worry about.
But what would I tell someone who hasn't done her own taxes for over a decade? What if you've been using your parents' tax preparer and now have to do it on your own? I'll share some of my own tips, plus a few articles from around the interwebs to help you learn beyond just me.
1. DIY taxes
First and foremost - do your own taxes. At least for the first few years of your career. I know it is "easier" to go to a CPA, or a tax prep company like H&R Block. (I.hate.their.commercials) But YOU know your financial situation and personal life best. How will you know if a CPA did your taxes correctly if you don't know how to do them? I don't mind the use of a tax preparation software like TurboTax - just do it yourself.
2. Zero is your goal
Why do I hate H&R Block's commercials telling America to "get your billions back"? Because that means that they are promoting the idea of a large tax refund as ideal. You do not want to get a large tax refund each year. You want your tax refund to be as close to zero as possible. Why? Because if you are getting money back from the government, that means you have effectively given the federal government a free loan throughout the year. That's money you could have been investing or spending throughout the year. I would rather owe money, than get a refund. If you are getting a refund, you need to adjust your W-4 withholding to take home more of your salary (if you work for an employer) or adjust your estimated taxes on your 1040-ES (if you are self-employed - that means you, freelancers!)
3. Put it all on the table
Always report all your income. ALWAYS report ALL your income. I'm not a tax lawyer. I don't know IRS policy backwards and forwards. But I do know that hiding income from the IRS is a very bad thing. So always report all your income no matter how inconsequential it might seem. Driving for Lyft or Uber? Report it. Doing freelance work? Report it. It's better to take as many deductions as you can than to underreport income.
For other tax tips...
What 20-Somethings Should Know About Taxes from U.S. News and World Report
9 Best Tax Breaks for Millennials from Forbes
6 Things Millennials Need to Know About Their Taxes on the TurboTax Blog
Tax Tips from Dave Ramsey