Getting Started: A Quick Tax Guide for Everyone

April’s coming, and those same difficult questions start cropping up – How should I do my taxes this year? Should I hire somebody to do them for me? Or try to file them myself? Do I go online, or just mail them in? What forms and information should I have on-hand before I start? The answers are different for every person, but a little basic knowledge can prepare you to make the best decisions, get your taxes filed, and get on with life.

How to file taxes: choosing your filing method

As the April deadline approaches, the first decision to make is, how will you file taxes? Taxes can get done using a number of different methods, each with their own advantages and disadvantages. Here’s a breakdown of the principal methods of filing, as well as the benefits and drawbacks of each.

Tax advisors

When reading printed articles or websites that offer you information about your personal taxes, you’ll often see the phrase “consult your tax advisor.” A tax advisor is a professional who charges you a certain fee to prepare your taxes for you. Although a professional license is generally not required to prepare tax returns, individuals with these designations have special training:

  • Enrolled agents – These experts meet competency and educational requirements established by the IRS, and have authority to communicate directly with the IRS on your behalf.
  • Certified public accountants – A certified public accountant (CPA) generally has been educated and passed exams in financial accounting and auditing as well as taxation. Like enrolled agents, CPAs have unlimited ability to represent you before the IRS.

Tax advisors will usually be a more expensive option over using online software or filing directly with the IRS. But you might save money by avoiding costly errors that professionals catch. Having someone else prepare your taxes for you also takes a lot of the stress out of tax season. And it arms you with a paid professional by your side to help you if you get confused or have a difficult tax issue.

Online tax preparation services

Several websites can help you prepare your federal and state taxes. They tend to target certain types of taxpayers based on how complex your taxes are.

High-end services charge a bit more for their services, but give comprehensive solutions for people who own their own companies, have complex investments, or just need to do some serious number crunching at tax time. Less expensive or free services offer more simplified interfaces for those of us who don’t have as many unique details to report to the IRS.

Some web-based services will give you forms one at a time to fill out. Others offer an interview-style interface that asks you questions one at a time about your income, deductions and such. Some services offer tiered levels of complexity with variable pricing.

The IRS website offers a program that waives the tax preparation fees of several popular preparation services. The program is called Free File and is offered only to certain individuals based on your income level, age and other factors. Keep in mind that some companies participating in Free File also offer free or inexpensive return preparation with fewer restrictions if you visit the company website directly instead of through the IRS.

Online tax sites are often the fastest method for filing taxes. They concentrate on ease-of-use as a selling point. But remember, many of these services may not be perfectly tailored to your unique circumstances. If you get stuck or have questions, it can be difficult to get help from a website, as compared to an in-person tax professional.

Packaged tax software

Even in today’s era of internet-based services, many companies still sell tax software you can install on your computer. Almost all boxed or downloadable software has an online, no-download equivalent these days, and you may find yourself paying more for the physical version. But having the software running right from your hard drive or CD-ROM can sometimes make it easier to leave and return to taxes in-progress, or retrieve previous-year tax information without log in names and passwords. Keep in mind, however, that almost all software will ask you to get online at some point. You may also need to retrieve software updates online.

Fillable forms

If you don’t need software to guide you through the process of filling out your tax forms, you can always go straight to the IRS website and use the Fillable Forms service. This service will provide you with online versions of paper forms, and you’ll use these forms to e-file. There’s no charge for the service, but it’s not recommended for first-timers or anyone who doesn’t feel confident in preparing their own returns without help from an advisor.

If you decide to Free File with Fillable Forms, you can get started at any time on the IRS Fillable Forms website.

Taxes by-mail

The oldest method of filing your taxes is by-mail. Broadly, there are four steps:

  • Determine which IRS forms you need to fill out;
  • Obtain the tax forms and instructions online, or at places like your local library, post office, or local IRS offices;
  • Fill out the forms; and
  • Mail the forms as a package to a designated address provided by the IRS for taxpayers where you live.

Fewer and fewer people use this method with each passing tax year, as various online methods and tax advisory services offer a faster and more convenient experience. Paper forms are also more likely to contain errors than computer-generated forms, and if you have a refund coming, you’ll receive it faster if you file electronically. The IRS doesn’t require electronic filing, but strongly encourages it.

If you decide to mail in your taxes, use the IRS Where to File page to find the appropriate mailing address.

A tax preparation checklist: forms & other materials

Once you’ve picked your method of filing, the next step is to gather the information and forms that will be relevant to your taxes. Below is a short-list of the most common materials you’ll need to have on-hand, and where to find them. If you start doing your taxes, and you need something that’s not covered on the list below, consult with a tax advisor or take a look at the IRS Forms and Publications page.

Forms

  • W2 for all income sources – If you worked for a company, you need a W2 form from your employer. Employers will often send you a W2 automatically. Some employers may give you instructions to retrieve it online instead of mailing it. If you don’t get your W2, contact your company’s human resources department.
  • SSA-1099 for social security benefits – If you collected social security during the year, you should receive this form automatically. Copies are obtainable at https://secure.ssa.gov/apps6z/i1099/main.html.
  • 1099-G for other government payments – You’ll receive this form from the government if you took in unemployment benefits or an income tax refund.
  • 1099-INT, 1099-DIV, 1099-B and/or 1099-R for all money invested – By late February, you should receive any of these various forms for interest, dividends, retirement plan distributions, etc. from banks, brokers, or fund companies where you had a bank account or money invested during the tax year.
  • 1098 – From your lender if you have a home mortgage.

Common materials

  • Social Security numbers – You’ll need this for you, your spouse, your children, and any other dependents. Every taxpayer needs this. For a new or replacement social security card, visit http://www.ssa.gov/ssnumber.
  • Prior year adjusted gross income (AGI) – This number is requested by the IRS as a key identifying piece of information. The AGI can be found on your prior year’s 1040 forms (1040, 1040A or 1040-EZ depending on how you filed). If you don’t have your tax return from last year, you can substitute your electronic filing PIN.
  • Electronic Filing PIN – If you filed electronically last year, you have one of these. If you don’t remember your PIN, you can use the IRS Pin Retrieval page.
  • Record of income and deductions – If you have income or deductions that don’t appear in the forms listed above, gather records such as bank deposits and receipts for charitable contributions.
  • Your bank routing number – If you want to direct deposit a refund, you’ll need this number. If you’re depositing to a checking account, the first 9 numbers from the left at the bottom of your checks is your bank’s routing number. Learn more
  • Your bank account number – Check your bank or other financial institution’s website to obtain your account number. If you’re a Wells Fargo customer, you can find your account number directly to the right of the routing number on your check.

Federal tax filing status and other need-to-knows

You’ve got your method of tax preparation in place, and all the forms and materials you need on-hand to do your taxes. Now there are just a couple more pieces of information to be ready with before you begin.

Filing status

This is the first tax-specific bit of information the IRS will want to know. They use your filing status to determine the amount of your standard deduction and the tax you owe. It also helps determine which deductions and credits you qualify for.

There are five filing statuses to choose from:

  • Single – Your filing status is single if, on the last day of your tax year, you are unmarried or legally separated from your spouse, and you don’t qualify as a head of household or a widow(er) with dependent child (see below). Federal tax law now recognizes same-sex marriages that were conducted in jurisdictions where such marriages are legal.
  • Married Filing Jointly – You can choose Married Filing Jointly if you’re married and both you and your spouse agree to file a joint return. Both of you must include all of your income, exemptions, and deductions on your joint return.
  • Married Filing Separately – If you’re married, you can also choose Married Filing Separately. Since this filing status has the highest tax rate, you and your spouse will generally pay more combined tax by filing separately than by filing jointly. If you live apart from your spouse, and meet certain other criteria, you may be able to lower your taxes by filing as Head of Household, even if you aren’t divorced or legally separated.
  • Head of Household – To file with this status:
    • You must be unmarried on the last day of the tax year, or qualify to be treated as unmarried by living apart from your spouse for the last six months of the year;
    • You must have paid more than half the cost of keeping up a home for the year; and
    • You must have a qualifying person living with you in the home for more than half the year.

There are exceptions and special cases to this status; we highly recommend consulting a tax advisor before choosing it. If you qualify, your tax rate will be lower than rates for Single or Married Filing Separately.

  • Qualifying Widow(er) with Dependent Child – Only applicable for two years after your spouse dies. Your tax rate will be the same as if you filed a joint return. To qualify:
    • You must have been eligible to file a joint return with your spouse the year he/she died;
    • You can’t have remarried before the end of the year;
    • You must be able to claim a child as an exemption; and
    • You must have paid more than half the cost of keeping up the main home for your child the entire year.

Once you’ve chosen your method of tax preparation, gathered all the appropriate forms together, and considered your filing status, consult the While Filing section of our Tax Center. It has detailed information on how to report some key information as you file, such as your income, deductions, investments and homeownership.