I think we can all agree.
When you do something new yourself (vs outsourcing it), you typically learn something new – both about the process of what you’re doing, AND about yourself.
Filing taxes is no exception. I recently filed my own taxes using TurboTax. Here’s the why and what I learned from the experience.
Why I Did My Own Taxes
When I was in college and a couple years there after my Father, a CPA, did my taxes for me.
Gotta love free tax prep service. 🙂
Since 2002 (when I received MY license) I’ve been doing my own.
Although I’m not in the tax prep business, I feel obligated to do my own. What kind of CPA doesn’t do his own taxes, right?
I’m by no means a tax guru, but had little trouble with the very basic 1040EZs and 1040As that were required of me the past few years. Then, I got married in 2006. Since that time my taxes have become a bit more complex. This year was by far the most difficult. So much so that I think next year I’ll hand them back over to Dad. Here are some of the things I learned that may help you as well.
How to Properly Fill Out a W-4 When You Get Married
Many people are getting married this Spring. When they return from the honeymoon, one of the first things they’ll do is call up human resources at work and change their marital status. They should also change their Federal tax withholding on Form W-4.
Unfortunately for us, we didn’t properly make this change. We ended up owing $3,500 in taxes this year partly because of this. Ouch. Here’s the correct way to change your W-4 when you get married AND both spouses work. It’s easy, if you know where to look. This from the top right corner of the Form W-4:
“Two earners or multiple jobs. If you have a working spouse or more than one job, figure the total number of allowances you are entitled to claim on all jobs using worksheets from only one Form W-4. Your withholding usually will be most accurate when all allowances are claimed on the Form W-4 for the highest paying job and zero allowances are claimed on the others.”
Thanks to a reader for bringing this to my attention. Mrs. PT and I have since made the proper changes and hope to be all squared away for next year. So if you, or someone you know is getting married this year, be sure not to make the same mistake we did. Make the change today.
What to Do When You Withdraw from Your IRA Early
Last Summer I decided to withdraw from my IRA early to use toward a down payment on our first home. I had a “basis” in this Traditional IRA (because I had previously paid the tax on some contributions…it’s a long story why I did this) and so I didn’t have to pay taxes upon withdrawal. Also, I was able to avoid any penalty because I used the money to purchase our first home.
If you’re in need of a bigger down payment, consider making this move for yourself. Here are the IRS rules for early withdrawal. You’ll need to complete a Form 5329 to let the IRS know that you’ve used the withdrawal for an exempt purpose.
How to Complete a Schedule C for Small Business Income and Expenses
Last but not least, I was able to include my blog’s very small income and increasing expenses (mainly the depreciation of a new computer) in a Schedule C. The loss from my business ended up reducing my taxes quite a bit.
I guess the main thing I learned from completing this schedule is that I’m going to have to get organized for next year. Income and expense will both increase greatly so I’ll need to do a better job of tracking both and making sure my personal and business finances remain separate. I’ve got a head start on this by opening up a separate bank account.
Okay, one more quick thing I learned this year: there are many ways to file your taxes for free!
Did you learn something new about your taxes this year? Share your story below…