Solutions to Make Better Decisions with Your Taxes and Money

Why filing your own taxes is beneficial to your financial health

Why filing your own taxes is beneficial to your financial health - TaxAct Blog

Filing your taxes may not be a task you look forward to, but making the decision to file your own instead of outsourcing the task can be beneficial to your financial health.

By taking the time to sit down and go through each section of your taxes, you’ll quickly realize how small decisions made throughout the year can impact your tax outcome – and your bottom line.

Here are some of the ways filing your own taxes can help you make smart financial decisions.

Take another look at your W-4

If you work for a traditional employer, you probably filled out loads of paperwork on your first day. A document indicating how much income tax your employer should withhold from each paycheck was likely in the mix.

That document is a Personal Allowances Worksheet – Form W-4 if you want to get technical.

Filling out that form and determining your allowances is often the most mind-bending part of starting a new job. What exactly does picking 0, 1, 2, 3 or more matter in the scheme of your taxes?

Well, the number you pick impacts how much of your income you’ll see deposited into your bank account each pay period. The more tax you have withheld, the smaller your paycheck. On the flip side, if you have less tax withheld, your paycheck will be bigger.

When you’re in control of preparing your tax return, you get a more complete understanding of how choices like your withholdings impact your tax outcome.

It’s your money, make sure you understand how it’s working for you. It starts with your tax return.

An interest-free loan to Uncle Sam?!

As you complete Form W-4, ask yourself if you’d rather have more money in your paycheck each payday or if you want a bigger refund after you file your tax return.

Some people prefer not to receive a large refund because they want to avoid giving the government an interest-free loan by overpaying taxes throughout the year.

But for others, receiving a big refund is a great way to save money without the responsibility of setting it aside on their own during the year. In that case, they elect to pay a little more tax each pay period in order to get a payout during tax season.

Either way, all this comes down to what you claim on your Form W-4.

How to legally reduce your taxable income

No one is more motivated to keep money in your pocket than you.

Filing your own taxes and learning about all of the opportunities for deductions and credits can open your eyes to the ways you can reduce your taxable income throughout the year.

Deductions are available to help offset the cost of various expenses, like mortgage interest, health care costs, job-related expenses, etc. Taking a deduction lowers your taxable income, and therefore lowers your tax liability.

In some cases, if you take enough deductions and significantly lower your taxable income, you can change the tax bracket you fall into and lower the percentage that your income is taxed.

Credits are different. They subtract from your tax liability – rather than your taxable income.

For example, if you owed $3,000 in taxes, but had a tax credit for $1,000, you’d only pay $2,000.

Taking control of your financial health by filing your own tax return

It’s understandable if filing your own tax return feels like an intimidating task, especially if you’ve never done it before. The good news is the process has greatly changed from when your parents first started doing their own taxes.

Gone are the days when filers had to spend countless hours working through multiple forms, wondering which tiny box they should input numbers and manually calculating the outcome. DIY tax filing software has streamlined the process, making it easier than ever to file on your own.

Take TaxAct, for example. The software guides you through a Q&A interview to help identify opportunities for credits and deductions so you can file your return with ease and accuracy. No matter how simple or complex your tax situation is TaxAct can help ensure you get the best possible outcome.

The best part? TaxAct does the math for you – music to your ears if you’re rocking even a little math anxiety!

As a bonus, the software also provides detailed explanations about how the information you input alters your tax liability. And a variety of additional resources are available if you want to learn more – like, what happens to your tax situation if you buy a home? Get married? Begin investing?  To give it a try, click here.

This tax season, take control of your taxes and file your own return. You might be surprised in just how much you can learn to help make better-informed financial decisions in the future.

TaxAct makes preparing and filing your taxes quick, easy and affordable so you get your maximum refund. It’s the best deal in tax. Start free now or sign into your TaxAct Account.
About Erin Lowry

Erin is the founder of BrokeMillennial.com, where she uses sarcasm and humor to explain basic financial concepts to her fellow millennials. Erin lives and works in New York City. She's developed quite the knack for finding deals and free events. Connect with Erin on Twitter, Facebook and Google+.

Comments

  1. Suzanne Matt says:

    Oops! They did not take any taxes out of some dividends and my husband’s RMD. Is it too late to send some money to the IRS or am I going to get penalized?

    • Hi Suzanne! Based on the information you’ve shared, it’s hard for us to provide any feedback. There’s potential you could face an underpayment penalty but without more details we cannot say that for sure. Our suggestion is to contact the IRS to discuss the situation further. Thank you!

  2. Hello, Will the plus edition accommodate a 1099 M (miscellaneous income)? I am not seeing this listed on the forms. Thank you

    • Hi Shirley! Yes, the Plus Edition does allow you to input information from a 1099-MISC. However, keep in mind, income listed on a 1099-MISC has to be reported on either Schedule C-EZ or Schedule C. Schedule C-EZ is available in Plus, but if you need Schedule C you’ll need to use our Premium Edition. Thank you!

  3. Gerald Tabbut says:

    My login issues are forcing me to change to another tax preparation software!!!!!!!

    • Hi Gerald! Sorry to hear you’re experiencing some trouble – that’s definitely not what want to to have happen! If you need help logging in, please feel free to contact our Customer Support Center at support@taxactservice.com, and they’ll be happy to help figure out what’s causing the problem. Thank you!

  4. Erin – you are so correct with your advice to do your own taxes. As the founder of BrokeMillennial, please tell your followers that it is much easier to start with the simple returns. As a new filer, taxes are usually more simple. Doing your own taxes is a great way to learn the inequities of the tax code.

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