The arrival of tax season often brings a mix of dread and confusion, but it doesn’t have to be a source of stress. Learning how to do your own taxes is one of the most empowering financial skills you can acquire. Not only can it save you hundreds of dollars in professional preparation fees, but it also gives you a front-row seat to your financial health. Whether you are a salaried employee, a freelancer, or a small business owner, the process of filing is more accessible today than it has ever been.
Understanding the Basics of Tax Filing
Before you dive into forms and figures, it is essential to understand what filing your taxes actually entails. At its core, filing a tax return is the process of reporting your income to the government, calculating the tax you owe based on that income, and determining if you have already paid enough through withholdings or estimated payments.
The tax system is progressive, meaning different portions of your income are taxed at different rates. When you do your own taxes, your goal is to ensure you are reporting everything accurately while simultaneously identifying every legal way to reduce your taxable income. This is done through deductions and credits. A deduction reduces the amount of income you are taxed on, while a credit is a dollar-for-dollar reduction in the actual tax bill you owe.
Gathering Your Essential Documentation
Success in DIY tax preparation is 90% organization. You cannot effectively file if you are hunting for receipts or missing income statements. Create a dedicated folder—either physical or digital—to house the following documents as they arrive in your mail or inbox.
Income Statements
- Most people will receive a W-2 from their employer, which summarizes annual earnings and taxes withheld.
- If you have multiple streams of income, you might receive various 1099 forms. These include 1099-NEC for non-employee compensation, 1099-INT for interest earned in bank accounts, and 1099-DIV for dividends from investments.
- If you sold stocks or cryptocurrency, you will also need your 1099-B forms to report capital gains or losses.
Records of Adjustments and Deductions
- To lower your tax bill, you need proof of expenses that the government deems deductible. This includes student loan interest statements (1098-E), mortgage interest statements (1098), and records of contributions to traditional IRAs or Health Savings Accounts (HSAs).
- If you plan to itemize rather than take the standard deduction, you will need detailed records of medical expenses, property taxes, and charitable donations.
Choosing the Right Filing Method
Once your paperwork is in order, you need to decide how you will actually submit your return. There are three primary paths for those doing their own taxes.
IRS Free File and Direct File
The IRS offers a Free File program for taxpayers whose adjusted gross income falls below a certain threshold. This program provides access to name-brand tax software at no cost. Additionally, the IRS has introduced “Direct File” in many states, allowing taxpayers with relatively simple tax situations to file directly with the government for free.
Commercial Tax Software
For those with more complex situations—such as rental properties, significant investment portfolios, or self-employment income—commercial software like TurboTax, H&R Block, or FreeTaxUSA is often the preferred choice. These platforms use an interview-style format, asking you questions about your life and finances to populate the forms automatically. They are excellent for catching errors and ensuring you don’t miss common credits.
Paper Filing
While it is still possible to print out Form 1040 and mail it in, this is generally discouraged. Paper returns take significantly longer to process, are more prone to human error, and delay the issuance of refunds. Electronic filing (e-filing) is the gold standard for security and speed.
Navigating Deductions and Credits
This is where you can truly impact the outcome of your tax return. Most taxpayers choose the standard deduction, which is a flat dollar amount that reduces your taxable income based on your filing status. However, if your total deductible expenses exceed the standard deduction amount, itemizing on Schedule A might be more beneficial.
Common Tax Credits to Look For
The Child Tax Credit is a significant boon for parents, providing a credit for each qualifying child. The Earned Income Tax Credit (EITC) is designed to help low-to-moderate-income working individuals and families. For students or those paying for higher education, the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC) can provide substantial relief.
Self-Employed Deductions
If you are a freelancer or “gig” worker, you are essentially a small business. You can deduct “ordinary and necessary” expenses required to run your business. This includes a portion of your home used exclusively for work, equipment, marketing costs, and even half of your self-employment tax. Keeping a meticulous log of these expenses throughout the year is vital for a smooth filing process.
Executing the Filing Process
When you are ready to sit down and file, ensure you have a quiet space and a few hours of uninterrupted time. Start by entering your personal information: your Social Security Number, the SSNs of your spouse and dependents, and your current address.
Follow the prompts of your chosen software or the instructions of the Form 1040 carefully. Be honest and precise. If you find yourself guessing a number, stop and find the documentation to verify it. Once the software calculates your final numbers, it will show whether you owe money or are due a refund.
If you owe money, you can set up a payment plan or pay via electronic funds withdrawal. If you are due a refund, the fastest way to receive it is through direct deposit. Providing your bank’s routing and account numbers ensures the money hits your account much faster than a mailed check.
Common Pitfalls to Avoid
Even the most diligent DIY tax preparer can make mistakes. The most common errors include simple typos in Social Security Numbers, math errors (if filing on paper), and failing to sign the return. Another frequent mistake is choosing the wrong filing status; for example, qualifying for “Head of Household” can be much more beneficial than filing as “Single,” but you must meet specific criteria to claim it.
Always double-check your bank account information. A single transposed digit in your account number can lead to your refund being sent back to the IRS or, worse, deposited into someone else’s account. Finally, never hit “submit” until you have reviewed a PDF summary of your entire return.
FAQs
What happens if I make a mistake on my taxes after I already filed?
If you realize you made an error after your return has been accepted, you don’t need to panic. You can file an amended return using Form 1040-X. This allows you to correct information regarding your filing status, income, or deductions. It is best to wait until your original return has been processed before filing the amendment.
Is it safe to do my own taxes online?
Yes, as long as you use reputable, IRS-authorized e-file providers. These platforms use high-level encryption to protect your sensitive data. Always ensure you are on a secure, private Wi-Fi connection when filing, and enable two-factor authentication on your tax software account for an added layer of security.
How long should I keep my tax records after filing?
The IRS generally recommends keeping your tax returns and all supporting documentation (W-2s, receipts, etc.) for at least three years. This is the period during which the IRS can audit a return. However, in some cases, such as failing to report over 25% of your income, they can look back up to six years.
What is the difference between a tax deduction and a tax credit?
A tax deduction lowers the amount of your income that is subject to taxes. For example, if you earned 50,000 dollars and have a 1,000 dollar deduction, you are only taxed on 49,000 dollars. A tax credit, however, is much more valuable as it is subtracted directly from the total tax you owe. If you owe 3,000 dollars and have a 1,000 dollar credit, your tax bill drops to 2,000 dollars.
What should I do if I cannot afford to pay the taxes I owe?
You should still file your return on time even if you cannot pay. The penalty for failing to file is much higher than the penalty for failing to pay. Once you file, you can apply for an IRS installment agreement or a “payment plan,” which allows you to pay off your balance over time. In some cases of extreme hardship, you may qualify for an “Offer in Compromise” to settle for less than you owe.