I’m fairly certain that all these droids will be in Star Wars episode 18:

• W-2
• 1099
• 1098
• W-4P

That can only mean one of two things. Droids are finally making their long awaited arrival on Earth, or it is tax time.

Just in case it is tax time, here are some answers to common questions to help make tax season a little less taxing.

1. How early can I file my taxes?

Wait to file your taxes until you have ALL the tax forms. This includes W-2s, 1099s, Interest statements, etc. Employers and companies have until January 31 to send you everything, so you should have everything shortly after that. Make a list of what you should receive and wait to start until you have it. The most common forms are:

• Form W-2: You should receive one from each of your employers
• Form 1098: If you paid interest on a home or student loan or paid college tuition you will receive a 1098
• Form 1099-DIV: If you received dividends, distributions or capital gains on any investments, watch for one of these to grace your mailbox
• Form 1099-INT: Any interest paid to you, such as interest on a CD or bank account, will be reported on this form.
• 1099-MISC: If you did work as an independent contractor you’ll get one of these.
• If you donated to a charity they will either provide you a receipt when you donated, or an end of year statement.

There’s other forms as well, but those are some of the most common ones.

Here’s a great printable checklist from TurboTax:

http://images.turbotax.intuit.com/iqcms/marketing/lib/TurboTax_TaxPrepChecklist.pdf

2. Should I file my own taxes or have someone do it for me?

There’s a few different ways you can file your taxes:

• On paper
  • I don’t recommend this – calculations can be complicated
• Software such as TaxAct, TurboTax or H&R Block at home
  • As long as you use top-rated software you’ll find it’s intuitive and simple. You’ll enter your tax forms in and the software will search for possible errors. I personally use TaxAct.
• Discount tax preparation services, such as H&R Block or Jackson-Hewitt
  • These companies have their place, but can be expensive. Their tax preparers are trained, but basically use similar software that you can use on your own. If you want the peace of mind from having someone do your taxes, this can be a good option.
• Volunteer Income Tax Assistance (VITA) or Tax Counseling for the Elderly (TCE)
  • VITA and TCE volunteers are IRS-certified and will file your taxes for free. You read that correct. It’s free, and there’s no catch. VITA is available for anyone that makes under $54,000, and TCE is available for those over age 60. You can find them here: https://www.irs.gov/Individuals/Free-Tax-Return-Preparation-for-You-by-Volunteers. Both VITA and TCE tend to fill up quickly, and many are first-come, first-served.
• Accountant or CPA
  • Unless you run a business you probably don’t need an accountant or CPA to prepare your return. I have several small businesses, and we still file our own, but if your business starts to move beyond small you should work with the accountant or CPA throughout the year.

3. What is the due date to file my tax return?

It’s normally April 15, but this year it is Tuesday, April 18. Why? The 15^th is a Saturday, and anytime tax day falls on a weekend it is pushed to Monday. However on Monday the 17^th Washington DC has a holiday (Emancipation Day), therefore tax day gets moved to the next business day.

To close up this week’s article, I strongly encourage you to check out one of the VITA sites if you make less than $54,000 a year. Almost anyone who uses a discount tax preparer could have their taxes filed for free instead.

One last note – don’t ever get a Tax Refund Anticipation Loan. Companies will offer to give you your tax refund right then, for a fee that ranges between $30 and $150. Don’t fall for it – if you file electronically you’ll have your refund in 1-2 weeks.

Today’s post is meant for those of you running, or thinking about running, a small business, and how you can make tax-time easier.

I want to establish up-front that I am not a tax accountant or tax lawyer, nor do I play one on TV.

My wife and I do, however, run three home-based businesses and I have filed my own taxes for years. My wife runs a business called Hair Springs and I have an insurance business and maintain and host a few websites for some friends.

The key to doing your taxes is to KEEP GOOD RECORDS!

What should I do in order to maintain good records?

There are four steps to maintaining good records in order to make tax time easier.

Step One: Open a checking account that you only use for your business. Get checks and a debit card.

Step Two: Download business accounting software. For a long time, QuickBooks was the only player in this market, and for years they offered a free version for those running home-based businesses. This ended a few years ago, though, and the cheapest version is now $10 a month. QuickBooks holds over 90% of the market, and is a great choice for many businesses.

If you have less than 9 employees, though, you should check out WAVE, which is free. You can find it here: https://www.waveapps.com/accounting/.

Step Three: Make all purchases and pay all expenses with your business account, and make all deposits from sales into this account.

Step Four: Get a receipt for EVERYTHING, and anytime you make a sale print up a receipt. Enter all sales and expenses into your accounting software.

If you plan to use a professional tax preparer, that is pretty much all you need to do. This person can handle all the accounting details for your company and they will file your return and other taxes for you.

The IRS has a post that discusses in detail what type of records you should keep. You can find that here: https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/What-kind-of-records-should-I-keep

How do I figure out how much I need to pay in taxes?

Most home-based businesses will file an annual tax return and you will do so with your regular tax return. Your business income and expenses will be entered on Schedule C, then your profit or loss is  transferred to Form 1040.

You are going to either have a business loss or profit. If you have a profit (which is the point of having a business) you are going to pay self-employment tax of 15.3% plus income tax. To figure out if you have a profit or loss you deduct all business expenses from your business income. If the number is still positive, you have a profit. If the number is negative, you have a loss.

A profit gets added to your income and a loss can actually lower your income, meaning that you will owe less in taxes.

NOTE: The IRS understands that you may have a loss for a year or two when starting up, and occasionally you may have a bad year. The point of having a business, though, is to make a profit. If you don’t make a profit at least 3 out of every 5 years the IRS will classify your business as a hobby, which means that losses are only deductible up to the amount of profits, and you may have to pay back the taxes you avoided by taking a loss.

15.3% plus income taxes can add up to a big number. Many experts recommend setting aside 25-30% of your income for taxes. I think this is wise advice!

Do I have to pay quarterly taxes?

When you are an employee your employer withholds part of your check and sends it to Uncle Sam. As a self-employed individual, though, no one is withholding anything. The government wants their money regularly, so you may have to pay quarterly taxes.

If you are in your first year running a small business, you don’t need to pay quarterly taxes. After year one, though, you may need to pay quarterly taxes if:

• You paid more than $1,000 in taxes the previous year
• You expect to pay more than $1,000 in taxes this year

If you paid no income tax last year you probably don’t need to pay quarterly taxes this year. It still can’t hurt to set some aside for later taxes, though.

A rule of thumb is that is you are going to make more than $15,000 in your business you probably need to pay quarterly taxes. I personally feel that it can’t hurt you to pay quarterly taxes, regardless of how much you are going to make.

To determine how much you should pay, get last year’s tax return and find how much tax you paid (Line 78 of Form 1040). Multiply that amount by .90. If you paid $10,000 in taxes last year you would get $9,000. Divide that number by four ($9,000/4 = $2,250). This is the amount you should pay each quarter.

You pay estimated taxes on Form 1040-ES.

If business slows down (or you do better than expected) you can adjust the amount you are paying.

Quarterly taxes are due April 15, June 15, September 15 and January 15.

As you can see, filing taxes can be quite complex. There are a number of other things to consider as well, such as:

• What type of business structure to use (sole proprietorship, LLC, etc.)
• If you are going to keep working full-time or part-time at another job, and how withholding there will affect your business taxes
• How much of a deduction you can take as a home-office deduction

If you run a very small business you might be able to do this all yourself, but for many people you should strongly consider hiring a tax professional to help you maintain your books throughout the year and file your tax return. Tax professionals understand the tax code and are likely to find deductions you may miss.

You still need to maintain great records, and you should know exactly what your tax professional is doing and why they are doing it. Make sure they take the time to educate you.

Even though I don’t mind filing my own taxes, my business income is getting complicated enough that it’s probably time for me to consider hiring someone to do my taxes for me. A good tax professional is worth their fee.

For additional tax help for your small business, the IRS actually has a helpful page: https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Self-Employed-Individuals-Tax-Center.

To conclude, I want to stress again the vital importance of maintaining good records. Nothing will make tax time more difficult than incomplete or inaccurate records. Set up a separate account, download business accounting software and enter all income and expenses into the software.

Politicians love to talk about how long the tax code is and compare it to how long the Bible is. I found quotes of politicians who said it ranged anywhere from 2,500 pages to 1.3 million pages.

It’s actually 13,458 pages (and growing every year), and if you want to order a copy of it you can purchase all twenty volumes of the code and regulations for just $10 for your Kindle device!(1) What a bargain!

In what has to be one of the greatest marketing strategies of all time, the U.S. Government Publishing Office, where you can order a printed copy of the tax code, encourages you to “Cozy up with a book from our latest Catalog,” or in the case of the tax code, cozy up with 20 books. Happy reading!

Here’s answers to common questions to help make tax season, well, a little less taxing.

Q. How early can I file my taxes?

A. Wait to file your taxes until you have ALL your tax forms. This includes W-2s, 1099s, Interest statements, etc. Employers and companies have until February 2 to send you everything, so you should have everything shortly after that. Make a list of what you should receive and wait to start until you have it. The most common forms are:

• Form W-2: You should receive one from each of your employers




• Form 1098: If you paid interest on a home or student loan or paid college tuition you will receive a 1098




• Form 1099-DIV: If you received dividends, distributions or capital gains on any investments, watch for one of these to grace your mailbox




• Form 1099-INT: Any interest paid to you, such as interest on a CD or bank account, will be reported on this form. If you get a pink one of these, you actually win $1,000(2)




• 1099-MISC: If you did work as an independent contractor you’ll get one of these.




• If you donated to a charity they will either provide you a receipt when you donated, or an end of year statement

There’s other forms as well, but those are some of the most common ones.

Here’s a great printable checklist from TurboTax:

http://images.turbotax.intuit.com/iqcms/marketing/lib/TurboTax_TaxPrepChecklist.pdf

Q. Should I file my own taxes or have someone do it for me?

A. There’s a few different ways you can file your taxes:

• On paper
  I don’t recommend this – calculations can be complicated.




• Software such as TaxAct, TurboTax or H&R Block at home
  Most of the top-rated software packages are simple and intuitive to use, and they are made for consumers (not accountants). You’ll enter your tax forms in and the software will do the calculations, search for possible errors, and file your taxes electronically. I personally use TaxAct.




• Discount tax preparation services, such as H&R Block or Jackson-Hewitt
  These companies have their place, but can be expensive for what they provide. Their tax preparers are trained, but use similar software that you can use on your own. If you want the peace of mind from having someone do your taxes, this can be a good option.




• Volunteer Income Tax Assistance (VITA) or Tax Counseling for the Elderly (TCE)
  VITA and TCE volunteers are IRS-certified and will file your taxes for free. You read that correct. It’s free, and there’s no catch. VITA is available for anyone that makes under $54,000, and TCE is available for those over age 60. You can find them here: https://www.irs.gov/Individuals/Free-Tax-Return-Preparation-for-You-by-Volunteers. Both VITA and TCE tend to fill up quickly, and many are first-come, first-served.




• Accountant or CPA
  Unless you run a business you probably don’t need an accountant or CPA to prepare your return. I have several small businesses, and we still file our own, but if your business starts to grow you should work with your accountant or CPA throughout the year.

Q. What is the due date to file my tax return?

A. It’s normally April 15, but this year it is Monday, April 18. Why? Basically it’s because Washington DC has a holiday (Emancipation Day) on Saturday, April 16, and by law when that holiday falls on Saturday or Sunday it is observed the Friday before. A federal holiday on Friday, April 15 means that tax day gets moved to the following Monday.

To close up this week’s article, I strongly encourage you to check out one of the VITA sites if you make less than $54,000 a year. Most people who uses a discount tax preparer could have their taxes filed for free instead.

One last note – don’t ever get a Tax Refund Anticipation Loan. Companies will offer to give you your tax refund right then, for a fee that ranges between $30 and $150. Don’t fall for it – if you file electronically you’ll have your refund in 1-2 weeks.

(1) http://www.amazon.com/Complete-Internal-Revenue-Federal-Regulations-ebook/dp/B006KS43L8/ref=sr_1_2?ie=UTF8&qid=1453835893&sr=8-2&keywords=irs+code+26

(2) Just kidding.

Over the past 6 weeks I saw more than 500 graduating seniors come through my office (The Office for Financial Success) to receive student loan exit counseling. Exit counseling is required for all graduating students with federal student loans. At the University of Missouri they can choose to do the counseling online or they can come through our office and meet with another student who is trained to offer this counseling.

Seeing all these seniors come through our doors has caused me to reflect on my own graduation and some things I did well as well as some things I wish I had known or done upon graduation.

Today’s post will focus on some specific steps that I think all graduating seniors should take (but don’t worry – it’s good advice for everyone – even if you haven’t graduated yet or graduated years ago).

Become financially literate

Financial literacy in the United States is, unfortunately, not widespread. Most high school students fail a personal finance exam (less than 50% of questions answered correctly) and college students score just 62%^[1]. One of the best things you can do for your future is to become financially literate. If you can take a college course in personal finance I highly recommend it. In a 3-credit personal finance class you will learn about everything on this list and you will be more financially literate by the end of the course than most people in America. If you don’t have the option to take one on campus look into one of the many excellent Open Courseware classes – you won’t get any college credit for it, but you can’t beat the price tag – free!^[2]

As a part of becoming financially literate I recommend you learn the fundamentals of how the U.S. economy works. Learn about the business cycle, unemployment rates, inflation and interest rates. All of these things affect your personal finances, so a basic understanding of them is helpful.

Don’t get your financial advice from amateurs

Financial advice can be found almost anywhere – it is prolific on the internet and on the bookshelves at libraries and bookstores. However, I would caution you to be careful that you are not getting your financial advice from amateurs. For example, a few years back there was a taxi driver who “figured out the system to wealth” day-trading stocks. A lot of people lost a lot of money following his advice. Be careful of advice received from friends or family about the latest “hot tip” on a stock. This tip, like all the others, will take you back to the first recommended suggestion – a good solid class will teach you much about how to win at personal finance.

Establish financial goals and take action to achieve them

You need to start thinking about some short and long-term financial goals. How soon do you want to pay off your consumer debt? How much money do you need at retirement? Do you plan to buy a home eventually? Do you plan to have children and send them to college? What are your plans for increasing your earning potential? I recommend you take some time to sit down and make some decisions about where you are financially, where you want to be, and how you plan to get there.

Learn to budget

No company would go one day without a good, solid budget. They understand how much is coming in, how much is going out and exactly where those dollars are going. You should likewise have a budget. A budget is not a record of where your money went (though that is important as well); it is a plan for where you want your money to go. Learn the process for budgeting then discipline yourself to take action and stick to your budget^[3]. A key component of your budget should be to spend less than you earn and to pay yourself first. As part of your budget you should work diligently to build up a 3-6 month emergency fund.

Develop a net worth statement and update it annually

A net worth statement is a snapshot of a particular moment in time. It should list all of your assets (everything you own that is worth money) and all of your liabilities (debts). Minus your liabilities from your assets and you will come up with your net worth. You should update this annually to see how you are doing. Over time this number should increase.

Care about your credit

You should know what your credit report contains^[4], what your credit score is and what steps you can take to improve that score^[5]. Your credit score determines what interest rate you pay on loans, what your auto insurance will cost, if you can rent certain apartments, and in some cases if you can even get a particular job.

Pay off consumer debt as quickly as possible

Carrying consumer debt, especially credit card debt, is toxic to your financial goals. Pay it off as quickly as possible by paying more than the minimum and refusing to take on additional unnecessary debt^[6].

Start saving now for retirement and take advantage of employer-sponsored retirement plans such as a 401(k) or 403(b)

If your employer offers a tax-advantaged retirement savings plan, such as a 401(k) or 403(b), take advantage of it! You will save on taxes now and can often get free money through a company “match” of your savings.

Time is your best friend when it comes to saving for retirement. If a 23-year old saves $3000 a year at 8% interest until he or she is age 65 they will have about $912,000 in the bank. If a 33-year old does the same thing they will have about $402,000. That is the power of compound interest!

Understand taxes, insurance and basic estate planning

Even if you pay someone else to prepare your tax return for you, you need to understand your own taxes. You should know your average tax rate, your marginal tax rate, and some steps you can take to reduce your tax burden. You should understand the difference between taking the standard deduction and itemizing deductions.

You also need to understand your insurance products. We spend a lot of money on disability insurance, life insurance, auto insurance, renter’s or homeowner’s insurance and other types of insurance. You should understand what your policy covers, what it doesn’t cover and how much you are paying for each one. You should occasionally check around to see if you can get lower cost insurance.

Everyone needs to do some basic estate planning. Even if you are single with no dependents you at least need a basic will, healthcare directives and a power of attorney. As your situation changes you should review these documents and update them and add other important estate planning documents as necessary.

Start an uncomplicated financial record-keeping system

You and your loved ones should know where important financial documents are and what each one is for. For example, if I were to pass away today I would want my wife to know exactly where my life insurance policies are and how to begin the process of collecting that money. The system I use is a fireproof file box with the HomeFile Organizer system^[7]. With this low-cost system I can file and find auto titles, insurance policies, medical records, warranties and any other financial documents.

Give yourself an annual financial checkup

I recommend that you set aside a day each year to give yourself a financial checkup. Review your goals, your budget, your net worth, your insurance and estate policies, your savings and your debt level and determine some steps you can take to improve in each area. As part of the review I recommend you choose a new personal finance book to read over the next year. Take this opportunity to reassess where you are and determine a plan for how to get to the next level.

Conclusion

Hopefully you got some good ideas about improving your financial situation from this list. I recommend you choose just one or two things from this list that you can take action on today. As that becomes a habit you can incorporate another item until you have implemented all of them that fit your situation.