A simple individual tax return is one that lists all your income and expenses, but where you don’t have to calculate anything. Instead the government does all the calculations for you.
An example of a simple return is the 1040EZ form in the United States. To use it you only need to give your name, address, Social Security number, and answer eight questions about your income. The government then fills in two more fields for you, one for how many dependents you have and one for your taxable income.*
There are situations in which it makes sense to have a more complicated tax return. I’ll go into the details later in the book. But most people are better off with a simple return. It’s easier, faster, cheaper, and less stressful than doing it yourself.
What’s so great about simple returns? They are easier because they have less math in them. And they are cheaper because they produce larger refunds due to lower tax rates. But the real advantage is that they produce less stress throughout the year.
The key thing about stress is that it doesn’t feel like stress while it’s happening; it comes out later when you’re wondering what happened to your day.* If you get into the habit of doing your taxes early each year,
The point of doing your taxes is to figure out how much money you owe. The easiest way to do that is with a 1040EZ: you put all your income and expenses on one page, write in the total at the bottom, and mail it in.
The next most convenient tax form is the 1040A; it’s like a 1040EZ but without the line for writing in an amount. If you make less than $100,000 and have no dependents, then you can use either form. And if you have really simple finances — no job, no investments, no business or farm, just some interest and dividends — then a 1040 is fine too.
You don’t need a CPA unless you have serious tax-minimizing strategy. You don’t need a lawyer unless there’s something wrong with your taxes that you don’t know how to fix yourself or some tax authority has some demand from you that you don’t understand. And as long as you’re dealing with the IRS directly, as opposed to going through a paid representative, there’s no reason to spend more than maybe fifty bucks on tax preparation software or online services.
If you can get your tax return to match IRS forms, and you don’t need help from a tax preparer, and you don’t do anything fancy like itemize or claim dependents, and your income is under $100,000, the easiest thing to do is to use an online tax service.
Even if you’re not sure whether this is true for you, it’s almost certainly true for someone in your family. The only way to find out who it is is to try doing his or her taxes online. Tax software will ask questions about everyone’s life, so everyone will have to answer the questions.
If the person whose taxes you want to do is a business owner with a home-based business (or a lot of freelance income), and you don’t mind making quarterly estimates of taxes due on that business, TurboTax might be easier than doing his or her taxes online. But if that person has more than one job or owns a house or rental property (and most people do), the individual tax return approach is probably better.
If you are filing as an individual, and your gross income is less than $100,000, you can use the simplest possible tax form: the 1040EZ.
Filling out this form is as easy as filling out a job application. If you make less than $100,000 a year, you have enough deductions to offset all your income. Your taxable income will be zero. You can fill out your 1040EZ by checking boxes and checking a few lines of calculations that all work out to be zero. This is a very simple tax return, and it is easy to do yourself.
Whether you are filing taxes for the first time or preparing your taxes for your business, it can be a daunting task. If you are using tax software, the software will ask you to enter information related to your business or individual tax return.
You will need to provide information about your income, deductions and credits, assets and liabilities, and other financial details.
You may also need to provide information related to any dependents you claim on your return as well as information on investments and retirement plans. In addition, some businesses may need to file an informational return as opposed to a formal business tax return. All of this may seem overwhelming at first glance. However, if you follow these five steps when preparing your taxes, then you should have no trouble completing them in a timely manner:
Doing your taxes with a personal tax account is easier than with a conventional program. Here is why:
It’s easier to find information on the Web. Doing taxes with a conventional program means going to a library, where you can find relevant information only by scanning page after page of tax books and forms. Doing taxes with a personal tax account means typing a few words into Google, and reading what comes up.
There are two ways to prepare your taxes. One way is to use a tax preparation program, the other way is to do it by hand with forms you get from the IRS.
Here’s an example of how it works using TurboTax, one of the most popular tax preparation programs.
TurboTax knows most of the rules for doing taxes, and it can figure out what you owe if you follow its directions. All you have to do is answer questions about your life: where you lived, what your job was, how much money you made, if you own expensive things like boats or houses or big collections of Beanie Babies. If there were any unusual circumstances in your life — say you got divorced or adopted a child — TurboTax will ask about those too.
If everything goes according to plan, after you answer all the questions and TurboTax does its calculations, it will tell you that you owe $0 and here’s where to send the check.
But maybe not! Maybe there was some question TurboTax didn’t understand or some calculation it could not do. In that case it will display a screen saying “We’re sorry but we can’t file your tax return because [reasons].” If that happens to you, then what?
Emil is a contributor at Accountant Log. We are committed to providing well-researched, accurate, and valuable content to our readers.
