Tax Season Begins - File Now Or Wait? And Free Filing
Welcome to Saving Money with Andrew!
Tax Season has begun! Call me weird, but I find almost everything about taxes fascinating. The stakes are high—most Americans pay between one-tenth and one-third of their income in taxes (counting federal, state, local, and payroll). And debates over tax policy can be extremely heated for such a dry topic.
A few key questions/tips for tax time:
File Now or Wait?
My general rule is that if you have a very simple return and expect a refund, file as soon as you can.[1] But, if your return is more complex (e.g., multiple sources of income, owning investment real estate or your own business), you may want to wait until March or early April in case you receive an amended tax form, such as a corrected Form W-2, 1099, or K-1.
How Should I File?
Each year, the IRS releases statistics on how Americans filed their tax returns. A decade ago, ~35% of Americans filled out their tax returns by hand, ~20% filed electronically using tax software, and the remainder used a tax preparer. Today, about 40% file electronically and a bit less than half use a preparer. If your return is simple, you really should not be afraid to do it online, which could easily save you $100-200 versus using a tax preparer. And if you earn less than $73,000, you are also eligible for IRS Free File (free federal filing and free state returns in some states).
Is there anything I can do now to reduce my 2021 taxes?
Unfortunately, once the tax year ends, there is little you can do after the fact to save on the prior year’s taxes. One exception is to make a 2021 IRA contribution, which you can do until April 15th, subject to relevant rules and contribution limits. Filers with lower incomes (under $68,000 for a married couple filing jointly) may even be eligible for the Savers’ Credit, which provides a tax credit of up to 50% of your contribution.
And now…Andrew’s pick(s) of the week:
Somehow, I managed to miss the extremely fun and good-hearted Kim’s Convenience (available on Netflix) when it first came to US streaming services a few years ago. It is hilarious and refreshing, funny without being snarky or cruel. Like one critic said, “[T]he show is good. Possibly even great.”
Also, Cookie Delays Turn Girl Scouts Into Economics Experts.
I hope this has been helpful. If you liked it, please share it on social media! Also, please send me your feedback, requests, and success stories.
[1] One reason is to get your refund as soon as possible. Another is to make it harder for a scammer to file a fraudulent return in your name (which is unfortunately very common).