Although we love our accountants here at Nav.it, we know that it’s not possible to hire one – having to juggle finding and paying an account can actually add to our financial anxiety! For tax season we wanted to revisit one of our guides from our CEO, Erin Papworth, who last year wrote up a step-by-step guide to preparing your taxes. This has been updated for 2021!
I’ll admit it—tax season gives me the nervous sweats. I get anxious that I’ll miss something important, especially when I close in on the deadline before even taking a look at my W-2.
This year I decided to educate myself on all things taxes and break it down into easy manageable steps. This will help me to develop better money habits overall! Since I believe in sharing the wealth, I’ve compiled my learnings into a tax guide so you can get your taxes done like a boss and get back to your birthright of Netflixing.
Taxes are due April 15th, 2021. That date is fast approaching, so let’s get started.
Gather your documents.
First things first, find your W-2 (this might be the hardest part). If you’re traditionally employed, you should have received it from your employer back in January. You’ll need to report your individual income on form 1040, and if you have a side hustle (kudos, girl), but you’ll need to fill out form 1099 as well. You may need several other forms to report your deductions (more on that later).
Be a freeloader.
Download the Free File Software at IRS.gov. If your income is below $72,000 you can use the free software instead of forking money over for some commercial software or tax preparer. And you get the added satisfaction of knowing you did it yourself. You’re a strong, independent human who don’t need no TurboTax.
Get some easy credit.
For as much as we complain about Uncle Sam, there are many ways he (read: the government) gives back, and that’s especially true when it comes to tax credits. Increase the amount of your refund based on your dependents, health care, education, and so much more.
What about the stimulus checks?
This is a common question – the stimulus checks aren’t taxable income! Whether you are single or married with children, those two checks received in 2020 (with a third one on the way!) will not impact your income and how much you owe on taxes. The new addition to your tax form will be under the “Recovery Rebate Credit” – all you need to do is enter the amount you received.
Determine whether to itemize your deductions.
Deductions reduce your taxable income, so more deductions are better. Choose the method that provides the highest possible deduction list. Most tax software will help you make this decision.
Standard Deduction:
This one is easy peas-y. Just take the standard deduction based on your marital status and household size to reduce your taxes. Voila!
Itemized:
Some people don’t qualify for the standard deduction and therefore should itemize. Popular itemized deductions include but are not limited to:
- Property tax: When you pay your local government, your federal government pays you back!
- Charitable donations: Like all the clothes you donated to Goodwill that could never see the light of day at your fresh-out-of-college professional job.
- Student loan interest: The one time you might feel good about debt, right?
- Mortgage interest: Hopefully your refund helps you upgrade from a futon to a real bed, now that you have a place to call your own.
Get your refund fast.
For a speedy refund, set up direct deposit and then e-file. Filing electronically ensures the fastest possible refund and if you set up direct deposit, the cash money is sent straight into your account.
Listen up, self-employed folks.
If you have a small business or are an independent contractor (think Uber driver, AirBnb rent), you must file your net earnings if they are $400 or more. Self-employed individuals report income annually like everyone else but must pay an estimated tax quarterly.
Beware of the tricksters.
Some of these scammers can sound legitimate but are only looking to take away your hard-earned dollars (and that’s only for the government to do). Review IRS’ Dirty Dozen Scams so you don’t find yourself in a sticky situation when you make that last-minute Hail-Mary attempt to make the deadline.
Going…Going…Gone.
If you’re really not ready to do your taxes and you won’t make the April 15 deadline, you can file for a six-month extension. Be aware that penalties and interest may apply to money you owe after the deadline.
We’re changing the narrative around money but change can’t happen with a one-sided conversation. Send us an email and let us know what you think. And remember the nav.it money app offers you free tools for checking in and managing your money moves.
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