Monday, February 9, 2015

Taxes and the business of being a household

I was disappointed to discover that the IRS is no longer supplying copies of most tax forms through public libraries, only the 1040, 1040A, and 1040EZ forms. Without the instruction booklets. You can order up to ten IRS forms and publications for free through, but I am going to have to wait until after we move. Another useful feature on the IRS web site is a withholding calculator.

Yes, I still do all of our taxes myself and on paper--it is the most frugal and fun way to do it, if you can handle basic math and follow directions carefully. The entire process was designed to be done on paper. Also, understanding your tax incentives is an essential part of financial management, as Don Lancaster said in The Incredible Secret Money Machine. He was talking about very small businesses, where knowing which expenses are deductible and where can make the difference between profit and loss, but it applies to households as well. I have learned enough for our particular situation that the idea of paying even $50 for tax preparation is just laughable.

So far this year, I have sorted through our financial papers from 2014, and have pulled out the numbers for income, potentially deductible expenses (medical expenses and charitable giving, in our case), and federal and state taxes paid so far. I summarize these on a single page. Some things, like the percentage of our income that goes to giving, I calculate for my own use. The next step for me is to start working through the 1040 form, line by line. I may print out some of the worksheets in the instructions; in the past I have found that trying to follow a complicated worksheet, in two columns, up and down a computer screen is no easy task.

In my state, the income tax form relies so heavily on the calculations from the federal form that it is impossible to do the state taxes first. I learned this year that there is a state version of the W4 form, for those of us who need more state income tax than federal income tax withheld.

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