Most of the tech-savvy people I know aren’t afraid of a little math. But when that math is on IRS Form 1040, they are suddenly TERRIFIED! What they don’t realize is that they already have the skills they need to triumph over their taxes.
- Like programming, you can always Google your problems. StackOverflow might not cover tax topics, but there are similar Q&A forums all over the internet for filling out IRS forms
- The hardest math on IRS forms is multiplication and division. Seriously, if you made it through grade school, you’ll be fine.
- Someone else already wrote the tools you need to get your result. While it is good to learn to do taxes by hand (which I will detail later in the post), tax software is made to be easy to understand even for the slowest among us.
Taxes are not scary, and you will save a lot of money by doing yours yourself, and learning the ins and outs of some of the laws most relevant to you. Most engineers have really simple taxes for the first few years of working. Even as things get more complex (you buy a house, you sell your RSUs, you participate in ESPP, and so on), it’s nothing you can’t handle.
A common fallacy is that having a “tax man” will help you get the most out of your taxes. For someone with an incredibly complicated estate, that might be the case, but for most normal people, the most you need is a little software to help you out (and the wonderful advice of this blog!). I’ll dedicate the rest of this post to introducing you to your taxes. You two should get to know each other–as the old joke goes, aside from death, taxes are the one thing you’ll surely have to deal with in life.
Acquaint Yourself With Tax Forms
The best way to acquaint yourself with how taxes are done is to pick an evening to sit down and fill in your information into some tax software such as H&R Block’s Software, TurboTax, or TaxAct. I use TaxAct myself because I’ve found it to be the cheapest (a.k.a. free). These all have online versions that are completely free for your average person’s taxes. Unless you have something weird going on, you shouldn’t be paying to file. Tax software is designed to make everything very easy, you find your forms and fill things into the relevant boxes. If you have trouble with this step, call the customer service line for the software and see if they’ll help you learn to use it.
Then, once the software is finished (or, you can do this with a past year’s tax forms if it’s not currently tax time), pull up the form the software filled out for you. Figure out why every single number on every single line is there. If you get lost, try reading the instructions. Here are the instructions for 1040EZ, 1040A, and 1040, pick whichever one matches the the number at the top of the form your tax software gave you. If things start to get a little hairy, try the IRS’s Tax Topics, a beautifully organized FAQ for your taxes. This documentation is written for the average citizen, so it is all in very simple English and hopefully understandable. Once you’ve traced all the numbers and are feeling confident, try filling out a new, blank copy of the form all on your own. This will show you whether you’ve really learned where everything goes, since you can compare your final result (the amount you owe or amount you will be refunded) with the results from your tax software. If you’ve tried to read the documentation and you’re still confused, try asking on a forum like Reddit’s /r/personalfinance.
Learn About Different Tax Deductions
Another great way to make sure you’re getting what you deserve back from the IRS is to learn about different deductions and credits. Here’s some of the ones I think are most likely to help you:
- Moving Expenses: If you move more than 50 miles to start a new job, the money you spend moving yourself and your stuff to that job is tax deductible. See here for the details.
- Tuition: This is relevant if you’re in school or recently graduated and you’re not a dependent (If you’re not sure, ask your parents if they plan to claim you this year. Dependent basically means “a child that depends on you for more than half their financial support”). See more info here.
- Student Loan Interest: If you paid interest on student loans, you can deduct up to $2,500 from your taxes. See here for more details.
Learn About Tax-Advantaged Accounts
No one wants to pay more taxes than they have to. Tax-advantaged accounts are fantastic for that! If you’re putting money away for retirement and it’s not in either a 401k or IRA, you’re doing something wrong! I’ll be posting soon with more information about these accounts, but here’s the simple truth: if you use them, you’ll save money on taxes. There are also tax-advantaged accounts for things like health care, child care, and tuition expenses.