The New Grad's Guide to Personal Finance

Taxes: the misunderstood beast

Filing taxes seems to be an activity that causes everyone much panic and stress. However, it can actually be straightforward if you grasp a basic understanding of how the filing process works and if you use a software tool to file electronically.

Tax returns and filing

Every year, you must file a tax return to the government indicating your income and assets as well as tax that you have paid already. The Internal Revenue Service then reviews the return and either collects money from you for the difference you owe or sends a refund check for the amount you overpaid.

The deadline to submit your tax return is always April 15. Your tax return details income, assets, and tax paid from the previous year. So, for example, a tax return that you filed on/before April 15, 2010 was for your finances for the year of 2009.

There are two types of tax returns that almost everyone must file:

A federal tax return is the body of documents that determines whether or not you owe money as tax to the federal government.
In addition, you must file a state tax return for any state in which you earn income (e.g., through a job or internship) as you may owe tax to that particular state as well.

A note about required forms

As everyone’s financial situation differs, some people may require many different forms to complete their tax forms. However, there are just a handful of essential forms that everyone should be familiar with:

Completed before filing

W-4: Although not used while filing taxes, you usually complete this form when starting a job so that your employer withholds federal tax appropriately.
I-9: Just like the W-4, you complete this form when starting employment to ensure that you are eligible to work and receive income.

Used while filing

W-2: This form details the income you have received from a current or former employer. It also has information on the tax that has been withheld from that income.
1099-INT: This form is usually issued by banks and indicates the amount of interest you have received from the bank for that year across all of your accounts with that bank.
Charity receipts: As we’ll see in the next major section, charitable donations are tax-deductible. Many charities will send you tax-exemption receipts after you contribute or statements indicating how much you contributed for the whole tax year.

TaxACT: a straightforward software solution

Even with just the forms mentioned above, you might start to be a bit confused about which form is used for what purpose. Now if you think of all of the forms that could apply, it’s easy to lose track of everything. Luckily, filing taxes has become significantly easier with the advent of software solutions that allow you to file electronically.

I personally recommend TaxACT because:

It has an intuitive click-through flow.
It will guide you in entering the information from the above forms in the appropriate locations in a way that matches the layout of the form itself.
It will do a final check to make sure you haven’t made any errors in your submission.
It will notify you via text message and/or email if/when your return has been accepted or rejected.
As an example, The last couple of times I’ve filed my taxes, I received a text message confirmation that my return was accepted within a few days after filing, and I got my refund check within a week after filing.

Filing your federal tax return with TaxACT is free, and state tax returns cost $14.95 each.