taxes

Don’t Be Afraid to Do Your Own Taxes

Even if you have to pay for tax software, it’s cheaper than hiring a tax preparer.

Last year my mother told me it was time to start doing my own taxes. I panicked at this thrust into adulthood. But, with a beer in hand, I persevered and learned two things: Freelancing and moving across the country make filing your taxes more complicated—and more expensive.

Software with strings attached. Many millennials can file their taxes free. The IRS’s Free File program partners with tax software giants such as H&R Block and TurboTax to offer free online tax preparation for taxpayers who made less than $66,000 in 2018. (The big tax software providers also offer their own free versions for taxpayers with straightforward returns.)

However, even if you meet the income requirement, you may be disqualified from free filing if, say, you made (or lost) money trading stocks or you contributed to a health savings account. For example, H&R Block’s Free File program lets users file a federal tax return and up to three state returns at no cost. But if you made money from a side gig or have investment income, you’ll be prompted to use the Premium version, which can cost between $50 and $70 to prepare and e-file a federal return and $36.99 for each state return. Before you start plugging in numbers, read the fine print and disclaimers for the software.

Overlooked write-offs. The new tax law nearly doubled the standard deduction for single filers, to $12,000 (it’s $24,000 for married couples who file a joint return). Even if you take the standard deduction, you could still qualify for money-saving tax breaks.

For instance, if you’re paying off student loans, you may be able to deduct up to $2,500 a year in interest. The interest deduction is phased out as you climb the income ladder, and single filers are locked out of this break if their adjusted gross income (AGI) is $80,000 or more.

If you had a ton of unreimbursed medical expenses last year because of, say, a catastrophic illness, you may be able to deduct them, but you’ll have to itemize. And you can only deduct expenses that exceed 7.5% of your AGI (that will rise to 10% in 2019).

The tax overhaul eliminated a great tax break for millennials and others who relocate for a new job—and one I neglected to claim in 2016. You can no longer deduct your moving expenses unless you’re an active member of the military. If you made the same mistake I did in 2016 (or moved in 2017 and failed to claim the deduction), you could file Form 1040X with the IRS to claim the moving expenses. You’ll need your original tax return and accompanying documents, plus the receipts for your moving costs. The deadline to file an amended return is three years after your original filing deadline.

Don’t overlook tax breaks from your state or city. In the District of Columbia, some of my colleagues are eligible for a tax credit of up to $1,025 for residents who made less than $51,000 in 2018 and lived in D.C. for the whole year. Minnesota offers a tax credit of up to $2,150 for single renters who made less than $61,320 in 2018.

If you’re feeling overwhelmed and don’t qualify for the free programs, it’s probably worth it to pay for tax software. The programs also generally have live chat boxes and explanations that will guide you through the process. If you’d rather entrust your taxes to a human, you could hire a tax preparer, but the average cost for preparing a tax return is $216, according to a survey by the National Association of Tax Professionals.

I’m filing with H&R Block Premium again (for a total cost of $124) because I earned a little bit of freelance income in 2018 and need to file a federal and two state returns. I don’t qualify for the Maryland renter’s tax credit, and I have no interest to deduct on any student loans. I have until Tax Day 2020 to file an amended 2016 return to claim the now-defunct moving deduction, but I’m not sure it’s worth trying to recreate the return and find all my documents. That was three years ago, and I didn’t keep the receipts.

Most Popular

Is the Stock Market a House of Cards?
investing

Is the Stock Market a House of Cards?

The stock market volatility we’ve been experiencing and the apparent disconnect with the broader economy have some investors wondering just that. But …
October 12, 2020
Stock Market Holidays in 2020
Markets

Stock Market Holidays in 2020

Is the stock market open today? Take a look at which days the NYSE, Nasdaq and bond markets take off in 2020.
October 12, 2020
10 Worst Things to Keep in Your Wallet
Scams

10 Worst Things to Keep in Your Wallet

Storing your passport book or card, a spare key, or any of these other important items in your wallet leaves you open to identity theft -- or worse.
October 9, 2020

Recommended

Election 2020: Joe Biden's Tax Plans
taxes

Election 2020: Joe Biden's Tax Plans

With the economy still in trouble, tax policy takes on added importance in the 2020 election. So, let's take a look at what Joe Biden wants to do abou…
October 22, 2020
Will Joe Biden Raise YOUR Taxes?
taxes

Will Joe Biden Raise YOUR Taxes?

There's little doubt that, if elected, Joe Biden will try to raise taxes for some people. Will you be one of them?
October 22, 2020
13 States That Tax Social Security Benefits
social security

13 States That Tax Social Security Benefits

You may have dreamed of a tax-free retirement, but if you live in these 13 states, your Social Security benefits are subject to a state tax. That's on…
October 21, 2020
States With Scary Death Taxes
inheritance

States With Scary Death Taxes

Federal estate taxes are no longer a problem for all but the extremely wealthy, but several states have their own estates taxes and inheritances taxes…
October 19, 2020