How To Prepare For Preparing Your Taxes.

It’s that time of year again – time to start thinking about the dreaded tax season. While I have someone do my taxes because of my self-employment income and deductions, many people choose to their own taxes. It all can be confusing, but some of these general tips can at least point you in the right direction come January when you start preparing!

The three forms that you can choose from for filing federal income tax returns are Form 1040EZ, Form 1040A and Form 1040. Your goal is to use the easiest and quickest form that you can. You may qualify to use the easiest one, Form 1040EZ, if you:

  • Have taxable income is below $100,000
  • File either Single or Married Filing Jointly
  • Are under age 65
  • Do not have any dependents
  • Do not have deductions other than the standard amount

I used 1040EZ for years when I was younger, but the older I got the more income I had, the more deductions I could take, and the more retirement/bank accounts and interest income I had. The next “simplest” form is Form 1040A. You may be able to use this form if you:

  • Have taxable income is below $100,000
  • Have capital gain distributions
  • Can claim tax credits
  • Claim deductions for retirement contributions or student loan interest

If you cannot use either of the above forms, you will probably need to use Form 1040 along with any add-on forms. The reasons include:

  • Taxable income is $100,000 or more
  • You can claim itemized deductions for any reason
  • You have self-employment income

Because I am a sole-proprietor, I use Form 1040 along with a schedule C for my deductions for running my business. And so while choosing the correct form is important, equally important is choosing the right filing status for your life situation. Here are the 3 main choices (although there are a few others as well):

  • Single: This is your filing status if you are unmarried, divorced or legally separated.
  • Married Filing Jointly: If you are married, you and your spouse may file a joint return. This is what we use.
  • Married Filing Separately: Married couple filing separate returns.

Taxes are complicated, no doubt about it. They certainly don’t make it easy, and the tax code keeps getting bigger and bigger every year. If you have anything you don’t understand, or think you can benefit from taking certain deductions or changing your filing status, you might want to talk to a tax professional. Having someone do my return for me and making sure to find all the deductions and credits we are entitled to is well worth the expense!

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Comments (8)

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  1. Nehal says:

    Any thoughts on how to evaluate whether it makes sense to file separately vs. jointly if you are married? e.g. I make about 3x what my wife does. How can I tell whether we’re better off filing separately vs. jointly? Just try it both ways and see?

  2. david says:

    I would run the numbers both ways to see, that’s what my guy did the first time we filed jointly!

  3. It’s pretty uncommon for it to make sense to file separately. Most of the time, when people are married and filing separately, it’s because they *are separated* (but still married). Not because it’s going to save them money.

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  7. […] How To Prepare For Preparing Your Taxes My Two Dollars offers some tax planning tips and discusses which tax form you should fill out based on your overall financial picture. Personally, I’ve used TurboTax for the past four years and even with my investments and alternative income, I’ve never had much to do in the way of preparation. (Knock on wood) […]

  8. JC Samujya says:

    Thanks David. This was a great post!!