Taxes, for most of us, are our biggest expense. It seems like they are everywhere, when you buy a pack of gun, when you sell a stock, when you get your paycheck. Shoot we even have to pay taxes when we die! They are basically unavoidable (although you can work to reduce them). So in the spirit of tax season, and the recent changes made in 2018, here are some handy resources to get you through this April 17th.
- IRS Withholding calculator: using your income and possible write offs, this withholding calculator will give you an idea if you’re using the correct withholding. There is nothing worse than thinking you’ve been paying your fair share in taxes only to find out that you owe. Do yourself a favor- give yourself this little checkup.
- Understand your tax bracket: A basic understanding of tax brackets can go a long way. Do you know that your tax bracket represents what you pay on your “last dollar earned”?For example say you are single and make $40,000 annually. That means that you pay 10% taxes on the first $9,524, 12% on anything between $9,525 and $38,699, and 22% on everything else. You fall into the 22% tax bracket, but most of your taxable income falls within the 12% bracket.
a VERY COMMON MISCONCEPTION is that you pay ALL your taxes in the highest rate you fall into. That simply just isn’t true. You pay in…well…brackets, hence the term tax bracket.
- Do your research: There is an overwhelming amount of information on the web, so sometimes it pays to sift through it and find what’s most helpful, or better yet, listen to someone who has already done the research! REVIEWS.COM has complied a list of “the best” online tax software. They rank by best overall, best customer support, and best bargain. Depending on what you’re looking for, they have already done the research for ya.
- Know when to get a professional involved: Obviously I am a huge advocate for learning and being self sufficient, but sometimes you gotta know when to call in the pros. Here are times when you should consider working with a tax professional- You have significant assets, multiple streams on income, and/or make large charitable contributions
-You own one or multiple business(es)
-You do not have the time or patience to file on your own
-You’re planning on itemizing your deductions
-You have a lot of questions that you want to discuss with an expert
- Plan accordingly: I personally start my taxes as soon as I get all my necessary documents in the mail. My taxes are fairly straightforward, but I know that I am not going to sit and get them wrapped up in one day. That’s why I give myself time to get things done well before the deadline (April 17th) Plus I know it takes a few weeks before I’ll receive my refund.If you want to make IRA contributions or need to gather receipts, then create a basic timeline for that. Similarly if you know you’re going to owe, then start working to get your funds in order. I know some people who owe every single year, and they are always stressed around March/April because they are hustling to try to earn the money they’ve already spent. If this is similar to your situation- consider saving X% from each paycheck to prepare for tax day.
If your situation is more complex then you’ll need to request an extension. The last thing you want is to add more stress to this situation by being close to the deadline; be honest with yourself and plan accordingly.