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Reasons Why You Should File Your Taxes (Early)

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Your challenge: File Your Taxes (or get closer to filing them)

Time commitment: this depends on how complicated your taxes are. For teens or young adults with W-2 jobs or relatively simple taxes, it could take less than an hour, especially filing online with free versions of software like TurboTax. If your taxes are more complicated, at least get a good chunk of things done.

Filing your taxes can feel like a chore, but getting it out of the way early is a good idea.

Why should you file taxes?

It’s the law.

T(I know this isn’t about taxes, but I just love it.)

Who should file taxes?

If your income is over $12,200 as a single person (and slightly higher amounts for married and “head of household” filers), the IRS does not require you to file a tax return. However, you may want to file a tax return even if your income falls below that.

For instance, if you are a teenager earning income and want to contribute to a Roth IRA, it’s not a bad idea to file a return. Here’s why:

*You’re likely to get a refund.

*you can show that you have income that you have contributed to an IRA (ideally, a Roth IRA). That’s because only people with earned income can contribute to a traditional or Roth IRA.

Here is a quick article about the minimum income limits over which tax filing is required.

When should you file your taxes?

April 15 is the tax filing deadline, and it actually is April 15 this year—a Wednesday.

Some years the date is slightly later because of Patriot Day, (a Massachusetts holiday that’s celebrated on the third Monday of April, which is also—trivia alert— the day of the Boston Marathon–) or other holidays (in 2017 it was April 18). 

But why not file your taxes early, if you have everything you need to file?

This is especially true if you are not in a state that allow you to get an IRS Identity Protection PIN. If that is the case, filing your taxes early helps you keep ahead of the small but real chance of tax identity theft.

If you have small business, such as an S Corp, your taxes are required to be filed by Monday, March 16 this year (normally it is March 15). And there are various extension deadlines. Here are all the deadlines, including extension deadlines.

Where should you file your taxes?

Filing taxes online is best for virtually everyone. And there are a lot of ways to file online.

I am using TaxAct this year for my business taxes, double checked with an accountant. (This affiliate link offers 40 percent off of personal taxes for TaxAct.)

For my personal taxes, I have long used TurboTax and I have always found it to be helpful and relatively easy to use.

How should you file your taxes?

Full disclosure: I have not yet filed our taxes, nor my business taxes. I have a few questions out to our accountant and then I am ready to finish up.

Nevertheless, I have done something different in tax preparation this year that has helped me a lot. I have “chunked” my tax preparation.

Rather than set aside several hours on a weekend to “work on taxes,” I have been taking 10-minute intervals when I have free time to go through my tax files and enter the data into TurboTax. (I’ve used TurboTax for years, and it imports over all the general information from prior years to this one.)

This did not save me much time, but it made the process more manageable.

This interview with a “tax strategist” was actually very helpful in giving guidance on when to have a professional help with your taxes, and the importance of finding the right person. My two big takeaways from this podcast interview:

* CPAs and other tax professionals can work with people across the country; and

*enlisting a CPA who specializes in your business type

I know a lot of people do not like to do taxes, but I actually enjoy the process.

Have you filed your taxes yet?

Why You Should Get Organized for 2019 Taxes ASAP

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Your Challenge: Gather What You Need for Your 2019 Taxes

Time commitment: 20 minutes, more or less, depending on how long you take to decide what to include, and to find the information if you do not have it handy.

I am always amused by the stories in the news in mid-April. Or the television reports with correspondents buttonholing people (who are filing their taxes at the last minute) outside of the post office at midnight on April 15.

Now, I can procrasti-clean with the best of them, but for taxes, I have found getting started early is the way to go. It makes filing your taxes a lot simpler when you want to complete this task. It also helps you get a refund earlier if you are likely to get one.

And as covered last week, keeping criminals from filing your taxes is important. If you’re not eligible for an IRS IP PIN, the easiest way to do this is to file your return as early as possible.

Now that it is February, most people will have most, if not all, of the documents and forms they need. It is time to gather them!

What documents and data should I gather to get ready for taxes?

These are just a few of the documents and records that you might need to file your personal taxes:

*W-2 from a job for either you and/or spouse

*any 1099s from your bank, from self-employed income; mortgage interest statements

*brokerage forms

*receipts for donations to charity

*any other miscellaneous receipts for things like education, medical expenses, and so forth.

If you are married, gather all of those documents for your spouse.

Here is an excellent overview of the documents and paperwork you might need to do your taxes.

Tax forms are required to be delivered by January 31. By now, you should have received, or can download, all the documents you will need to complete your taxes.

If you begin to gather your documents and realize you do not have something, you’ll know early and can reach out to get the forms.

Why should you gather documents for taxes so early?

Getting a head start on taxes is just a good idea.

For many people—especially if you are young and you do not have a lot of unique sources of income—gathering your materials should be pretty easy. If not, getting a head start is smart.

When should you gather all of your documents & data for doing taxes?

This week! You will be so glad that you did.

Where should you keep your documents for taxes?

Everyone will have a different system, but the important thing is to have one.

I keep a very basic manila file folder labeled “Taxes 2019” or the current year. Through the year, I file anything away that I might need for taxes. This includes receipts for gifts to charity, tax forms as they come in, record of miscellaneous income and expenses, etc.

And as the tax forms begin to arrive in January, I put them in the file.

How should I gather things for taxes?

If you haven’t received your W-2, any bank interest statements, mortgage interest/real estate taxes statement/brokerage account statements, take a few minutes to hunt them down.

Log into your various accounts—most financial websites will have a “tax forms” location. This time of year, it’s usually a banner at the top of bank/brokerage. Here, you can view and/or print the form.

Have you started gathering your tax forms for 2019 taxes?

Week 5 e-mail: Get an IRS IP PIN

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This is Week Five of 2020: The Clarity Project, a yearlong effort to get organized and simplified with your money.

You can read more about The Clarity Project, including all the weekly challenges, in this overview post here.

It is a new month, so a new theme–February’s theme is TAXES.

This week, I’ve been busy with:

*finally getting a Real ID driver’s license. This is the type of ID that people will need to fly after October 1. Many people have already done this by now, or your state’s licenses qualify as Real IDs, but Illinois requires a separate process. I am glad to have it behind me, and I will be nudging the other members of our family to get theirs ASAP. Have you gotten yours yet?

*taxes! I try to complete the challenges before I post the challenge. So in the past few weeks, I’ve been diligently focusing on taxes. I actually enjoy doing taxes (until I hit a snag, and then it can be frustrating). I try to file taxes as early as possible, and I hope that this year is no different.

**listening avidly to this podcast episode of “HerMoney”–an interview with former con artist-turned FBI agent Frank Abagnale– on how everyone i susceptible to being scammed, and ideas on how to protect yourself. I had never heard of the movie “Catch Me If You Can,” which is based on his early life (before he turned good). I see it’s not available on Amazon Prime or Netflix. I can get it from the library, but I wonder if it’s worthwhile. If you’ve seen it, let me know. I definitely want to check out his new book about avoiding scams.

*getting more organized about my reading, and sharing favorites. I wrote about January’s reads here.

What is new with The Clarity Project?

I intend for these (mostly weekly) e-mails to be quick to read, easy to understand, and simple to implement.

Simple, but not necessarily easy.

The word for February is TAXES.

This Week’s TAXES Challenge:Get an IRS Identity Protection PIN (if you are eligible).

The challenge has a blog post with resources and more about the topic.

As with the others, this post follows the 5W1H format–who, what, when, where, why, and how.

Here is my weekly reminder to you: you may be way ahead of a particular challenge, or way behind. It is okay either way.

But you can take some kind of action on the challenge, even if that is just learning about the topic. (though this week’s challenge is one of the easiest all year). Studies show that people often have to hear about something seven times before it “sticks.” Consider this one of the seven.

This week, I write about why it’s a good idea to get an IRS Identity Protection PIN. People in 19 states and the District of Columbia are eligible, as well as people who have been victims of identity theft.

You can reply to this e-mail with any questions, suggestions, or anything else. I love to hear from you!

Remember, you’re doing well with your money, and you can do better.

All the best,

Nancy

Your Money Mom

What is an IRS Identity Protection PIN and Should You Get One?

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TL:DR — If you already know you want one, and you’re eligible, visit this IRS link to get your own IRS IP PIN.

This Week’s TAXES Challenge: Get an IRS Identity Protection PIN (if you are eligible)

In this world nothing can be said to be certain, except death and taxes.

-Benjamin Franklin, 1789

Getting an early start for tax day on April 15 is a great idea, and if you haven’t been in this habit, this year is a great time to start.

If you’re eligible, consider getting an IRS Identity Protection PIN (personal identification number).

Time commitment: 10 minutes to 30 minutes, max

What is an IRS Identity Protection PIN?

According to the IRS,

“The IP PIN is a six-digit number assigned to eligible taxpayers to help prevent the misuse of their Social Security number on fraudulent federal income tax returns. An IP PIN helps the IRS verify a taxpayer’s identity and accept their electronic or paper tax return. When you have an IP PIN, it prevents someone else from filing a tax return with your SSN.”

Basically, criminals have found a novel way in recent years to make money: file made-up tax returns on people, get a refund, and disappear. This makes a ton of work for the people taken advantage of. I know from my experience last year with identity theft that it is complicated to clean up, and combining it with the IRS adds an extra layer.

Why Should You Get an IRS IP PIN?

If you can get an IRS IP PIN, you should. It is a great tool in preventing identity theft.

Most of us already use tools like two-factor authentication with your phone number or an authenticator app, to protect important accounts, especially financial ones. If you have not yet done this, consider this an extra challenge this week. (Also, later this year we will cover security and how to do this, if you haven’t already).

Avoiding this issue entirely is ideal, and so when I learned about the IRS Identity Protection PIN, I was ready to sign up.

Who Should Get an IRS IP PIN?

You have to be a resident of DC or one of 19 states, mostly with larger populations, to be eligible to get a PIN. In addition, anyone in any state who has been a victim of identity theft can get a PIN.

Basically, if you are eligible, you should take a few minutes this week to obtain a PIN.

When Should You Get the PIN?

Right away.

When I first learned last year about the IRS PIN, I was ready to do it that minute! Unfortunately, the IRS had paused the program until late January, but it is now open again.

I recommend doing this ASAP so you do not have to worry about it later.

Once you are part of the program, you do not have to re-apply, and you will get a new PIN to file your taxes each year.

Where Can I Get a PIN?

The only place to get the PIN is the IRS page for the program, and to get to that IRS page, follow this link.

You will need your Social Security Number, a credit card or another way (mortgage or student loan number, etc.) to verify your identity (the IRS pulls this from your credit report), as well as a phone number.

I have done it for the members of our family, and it only took about 10 minutes per person. It is worth the time to do so. This may be one of the easiest challenges all year.

Have you gotten an IRS Identity Protection PIN?

My Favorite Reads, January

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THIS POST MAY CONTAIN AFFILIATE LINKS. PLEASE SEE MY DISCLOSURE FOR MORE INFO.

“If you haven’t read hundreds of books, you are functionally illiterate, and you will be incompetent, because your personal experiences alone aren’t broad enough to sustain you.”

–Jim Mattis, Call Sign Chaos: Learning to Lead

I did not plan for Call Sign Chaos to be the first book I finished in 2020, but it was, and it actually provides a great quote to begin my yearlong effort to share great reads.

This is my second year of using Evernote to capture the books I read. I kept two basic notes–one for non-fiction, one for fiction. In 2019, I read 88 books, 53 non-fiction and 35 fiction (some are re-reads ). 

For 2020 I have decided to write a round-up each month (end of month/beginning of new month) to share good books.

January 2020 Reads

I read 11 books in January: eight non-fiction, and three fiction. All three novels were re-reads (two from the far past), and one of the non-fiction books was a re-read.

Favorite Non-Fiction

My favorite non-fiction book, not surprisingly, is Call Sign Chaos: Learning to Lead by Jim Mattis & Bing West. Mattis has a long and storied military career, ending with Defense Secretary for 2017 and 2018.

This was an excellent book. I am not generally interested in military memoirs or this type of non-fiction, but I was immensely impressed by how much I learned (so many quotes written down, like the one above).

Here’s another quote, that I had a chance to share during a dust-up in a Facebook group:

“As Churchill noted, ‘A lie gets halfway around the world before the truth gets its pants on.’ In like age, a lie can get a thousand times around the world before the truth gets its pants on.”

Another book this month that inspired me–in this case, spiritually–is Becoming Women of the Word: How to Answer God’s Call with Purpose and Joy by Sarah Christmyer. Her writing style was very engaging—she compared different women/stories in her own life with Biblical women. Well done.

I won’t share all the books I read, because some I didn’t love or didn’t get a lot from. It takes me longer to explain why I don’t love a book, and I want this monthly round-up to be a good way to share great reads.

Favorite Fiction

My favorite novel read this month was The Blue Castle. I was reading it along with a daughter who had not yet read this classic, so it was especially wonderful as she discovered the plot twists and turns of this wonderful novel by Lucy Maud Montgomery, the author of Anne of Green Gables.

So many, many good quotes—I have dozens highlighted in my Kindle edition of the book from the many times I have read it. If you have not yet read The Blue Castle, do yourself a favor and read it!

The other two fiction? I also read and/or finished two novels for my Well-Read Mom book group this month—Little Women and Their Eyes Were Watching God.

I listened to the audiobook of Their Eyes Were Watching God, Zora Neale Hurston’s most famous novel.

 When I was in my 20s, I loved this novel so much. Now that I’m older, I do admire the craft of her writing, but I did like it very much. I made a good choice in listening to the Audible audiobook version—a good choice. Ruby Dee, the acclaimed actress, narrated, and her dialects and making characters distinct helped so much.

What have you been reading this month? I’m especially interested in good audiobooks, as I have several Audible credits.

Why and How to Calculate Your Savings Rate–and Increase by 1 Percent

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Time commitment: 20 minutes or more, depending on how long it takes you to decide what to include, and to find the information if you do not have it handy.

WHAT is a savings rate, and what should you include in it?

A savings rate is the percentage of your income that you save over the course of a year.

To give a super simple example, if you make $10,000, and save $5,000 of that money, you have a 50 percent savings rate. If you save $1,000, you have a 10 percent savings rate.

However, it can get tricky defining both income and savings. There is a wide range of what people include or exclude from both.

*is income before taxes or after taxes?

*does savings rate include the match that your employer contributes to your retirement plan at work?

*does it include the principal reduction in your mortgage or student loans over the course of the year?

Here’s one explanation from Investopedia on savings rates.

Know that there is no right way or wrong way to do this. You should consider the options, and include what makes the most sense for your situation.

Here’s what I do:
*use after-tax income as the base
*include 401(k) and other retirement savings accounts
*include the match for employer contributions
*include principal reduction in mortgage each year

(note: this is not how much you pay for your mortgage–or student loan, if you’re including this)–but how much your mortgage is reduced. That is easily found by checking the mortgage amount at the beginning and end of the year. The difference between the two is your principal reduction.)

I add up all the savings, and then divide it by after-tax income, and that gives me our savings rate.

Why is a savings rate important, and why should you know yours?

A savings rate is important for several reasons.

*A decent savings rate shows you can live within your means.

*Knowing your savings rate can help you set a goal to improve that number. Yes, even by 1 percent!

*A good savings rate can lead to financial independence and freedom.

There’s a famous blog post recommended often to explain the concept of savings rate and why increasing that number makes so much sense. “The Shockingly Simply Math Behind Early Retirement” on Mr. Money Mustache. This post is worth reading just for the math concepts he covers–while this site has a lot of solid information, I definitely do not agree with all of it or his website.

It’s also worth playing around with this calculator to see how different savings rate leads to a different number of years until financial independence.

How often should you calculate your savings rate?

In general, annually.

Bonus: if you are not happy with your savings rate once you do calculate it (or even if you are), consider taking the time this week to bump it up.

Take a moment to log into your work’s retirement account, and increase your contribution by 1 percent. You most likely will not notice the difference, but you will be automating saving so that you do not have to actively save in future.

WHERE should you (save money)?

Everyone’s situation is different, but here are some general ideas of places to save:

Roth IRA

This is really preferred for anyone who is eligible to open one, because the money goes in tax-free, and all the growth is tax-free. That goes double for teens and younger workers with relatively low income.

Work Retirement accounts

Those who work “w-2” type jobs often have a 401(k), 403(b), or other type of retirement savings vehicles. And many employers offer to “match” your contributions, which can also add to your savings rate.

If you’re self-employed, you should have an IRA of some kind that you can contribute to.

Taxable accounts

This could be at an higher-interest savings account bank (like you use for your multiple money funds , or a taxable brokerage account for longer term goals.

How to calculate your savings rate.

As noted above, your savings rate is very specific to you or your family. Just like your net worth, you might want to include things that others don’t, or exclude categories that others do include.

If you are on my e-mail list (sign up at the bottom of this post if not), you received a very simple spreadsheet this week to help you calculate your savings rate, and you can play around with it, adding in whatever makes sense to you.

I also found this online savings rate calculator. While it is still pretty simple, it is a little more complicated than mine.