Death and Taxes
Death and Taxes
The inevitability of Death and Taxes. Both are immutable constants in the universe.
Why should you learn to do a 1040, why not just go somewhere?
First, let's address the "free" aspect of certain online tax preparation software/websites. You get exactly what you pay for so if you don't pay anything you're going to get nothing. Every "free" option for filing your taxes is going to have very poor help/support. Inevitably there is going to be a question that comes up and "free" won't provide an adequate answer. Not having the correct answer can end up costing you possible return money and that is definitely NOT FREE!
Second, let's address the "paid" aspect of the other online/software filing options. For the moment (next 5-8 years of your awesome life) you have no dependents, no allowances, and very little income. You are NOT going to get a tax refund!! You WONT get a tax refund until you are out of the house, possibly married, and have kids (dependents), and are going to college, realistically all-at-the-same-time! Why pay for someone to tell you that you're not getting any money back!
OK, that was harsh, let me put it a different way. So, you are entitled to a $75 return, congratulations, you just spent $50 to find out that you get a $75 return, I truly hope you enjoy your $25. Any questions?
What do you need to gather before you start?
Again, this is a basic list for you for the next five to eight years. Once you buy a house or start a business your list will grow beyond what I have provided here (and I truly hope you out-earn my advice!!)
Form 1040 or 1040A from irs.gov
W-2
1099-INT from all of your Banks
Form 1095 (Proof of health insurance)
Form 8863 (If going to college)
Social Security Number
Bank Account Number and Routing Number (can be found on the bottom of a check from your checkbook... keep your checks in a "safe" place... meaning a fire-rated safe) for direct deposit of any return (much faster/safer way to get your money).
Final thoughts:
As the amount of taxes that you pay AND the number of dependents/allowances increase then you can consider paying for someone to do your taxes. For instance, if you have paid over $1,000 in taxes (W-2 Line 2) and you have some dependents (more than two allowances on your W-4) then you could consider paying up to $100 to file your taxes. Basically look to pay no more than $100 for every thousand paid in Federal Income tax otherwise your return may bypass you and go to your tax-repairer/company instead.
Questions:
1. Why is it a bad idea to use a "free" service for your first few years of filing taxes?
2. Do you see any possible advantages to the "free" service at some point in your future?
3. What do you need to have already set up in order to get your return faster and safer?
Resources:
PowerPoint: IRS Simulation & Understanding Taxes Worksheet