Taxes, taxes, taxes - how do they work?
January 10, 2012 8:03 AM   Subscribe

I've submitted taxes a few times in the past, but the forms were filled out by a surpassingly generous and competent friend with a lot of free time. This year for the first time I have to do everything myself. Please explain the process to me as if I were the stupidest person in the world.

My situation is mildly complicated due to the number of different sources of income, but I don't think any are particularly off the wall (there are just a lot of them). How do taxes work? Somehow I've made it into my 20s without ever really learning, and I quite literally have no idea what to do or how to do it. Things are complicated slightly by the fact that I'm overseas.

Is there some magic software that will make it easier? I more or less need step by step "first you go here and fill out this form, and here are instructions for that form, then you go here and fill out this form, and here's how you do that..."

The number of AskMeFi threads on taxes was too overwhelming to sort through, but links to other questions along these lines would be great as well.
posted by resiny to Work & Money (23 answers total) 7 users marked this as a favorite
You should probably get a copy of TurboTax or similar.
posted by doomtop at 8:10 AM on January 10, 2012 [4 favorites]

Response by poster: I'm a fool - should have added that this is for America.
posted by resiny at 8:11 AM on January 10, 2012

Step 1: Hire an accountant.

Step 2: Give them all your information.

Step 3: Sign the returns and submit them.

Seriously, if you're overseas filing in the US, this will be by far the simplest approach. It may cost a few hundred dollars, depending on the complexity of the situation, but it will save you many headaches.
posted by alms at 8:16 AM on January 10, 2012 [3 favorites]

I more or less need step by step "first you go here and fill out this form, and here are instructions for that form, then you go here and fill out this form, and here's how you do that..."

Disclaimer: I am not an accountant or tax professional. Please educate yourself or seek the advice of a qualified professional.

The forms aren't really that hard. It's mostly addition and subtraction. The booklets that the IRS provides to go along with each form provide exactly this sort of instruction.

In all likelihood, you will file a Form 1040 if your income situation is at all complicated. Your sources of income will shortly be sending you the evidence of your annual income for the year (these will often be IRS Form W-2 and Form 1099-x -- where x is different depending on the sort of income). These forms _should_ tell you where to put the various numbers on your tax return (which will probably be, as I mentioned, a Form 1040).

If you have a form you don't know what to do with, check the IRS website.

If you really don't want to do this, you can hire a tax preparer for what will probably be a not-that-large amount of money (say, less than $500), or you can go through a website like TurboTax or HR Block for (often somewhat) less money.
posted by gauche at 8:17 AM on January 10, 2012

Definitely turbotax. My dad was a CPA, which meant that while I ended up learning some weird arcana about tax stuff (since I got put to work typing stuff for him a lot when I was growing up), I also didn't do my own taxes until I was well into my mid thirties. Turbotax made it all easy and I've been using it for years, now. (including snowflake complications like owning rental real estate rental and holding a note on a loan to someone else)
posted by rmd1023 at 8:18 AM on January 10, 2012

Seconding alms. Take your stuff to someone who knows what you're doing, pay them a couple hundred bucks, and sign the resulting paperwork.
posted by valkyryn at 8:18 AM on January 10, 2012

TurboTax. It makes things very easy, despite my own various income sources. Soooo easy.
posted by DoubleLune at 8:22 AM on January 10, 2012

TurboxTax. My tax situation is significantly more complicated than yours, and even I have been able to get through it all with no headaches thanks to TurboTax.
posted by drlith at 8:27 AM on January 10, 2012 [1 favorite]

Nthing Turbotax. I knew nothing about filing taxes, and TurboTax did exactly the step-by-step guiding that I (and you) wanted. Plus, there is/was some free version where they do all the guiding at no cost; I ended up paying to have them submit my state taxes, but it was like $35 total.
posted by verbyournouns at 8:32 AM on January 10, 2012

Nthing Turbotax- it will also allow you to submit your taxes online so you could be in Timbuktu and submitting would be just as easy as if you lived stateside (assuming you have internet).
posted by Esteemed Offendi at 8:34 AM on January 10, 2012

Oh Jesus. First off there are professionals. They do this shit for a living because complicated tax returns are complicated and personal. Most people only know the small corner of the tax code they "live in" so to speak.

So I can't really hold your hand here, but I can give a general overview of US income tax (in five easy steps!).
1. The sum total of income is gross income.
2. Subtract untaxable income and adjustments (also called above the line deductions) to arrive at your Adjusted Gross Income.
3. From AGI you subtract your exemptions ($3700 per "person), and your deductions to arrive at taxable income. You can itemize your deductions using Schedule A, or you can just take the standard deduction, usually you try to itemize and take the standard if it's still larger.
4. Find your taxable income in the tax table to arrive at tax owed.
5. Subtract tax credits and tax withheld from your tax owed to arrive at your refund or bill.

Somewhere in there is a foreign income exclusion, triple exempt bonds, and rental income and a billion other possibilities. The forms themselves are written as if you're an idiot, but this makes them very very long and boring. I just use the free version of TurboTax since my situation is relatively simple. I imagine their paid offerings can cope with your complications. There's also some legal protections I think you get by having a preparer handle your taxes. Something like a presumption that by hiring a professional you did not intend to defraud the government.
posted by pwnguin at 8:34 AM on January 10, 2012 [1 favorite]

Definitely tax software is your friend. I've been doing mine for almost a decade now and started off in your shoes. I've been using H&R Block's TaxCut to do mine. It can definitely handle complicated situations such as yours.
posted by Tooty McTootsalot at 8:42 AM on January 10, 2012

I am also overseas and did my taxes myself last year! Go me! You can do it, too:

Do not underestimate the value of sitting down with the correctly done forms from last year and the year before that (you saved them, right?), working through the calculations, and doing them over again for the current year. I don't plan on paying someone again until my living situation changes significantly (real estate, inheritance, lottery winnings, marriage, that kind of thing).

The only software I used was my browser and Excel. It took me one full Saturday, a box of cookies, and occasional swearing.
posted by whatzit at 8:45 AM on January 10, 2012

I agree with other people that if your taxes aren't super complicated, online tax software will be able to walk you through it without you really having to know what you're doing at all. I personally switched from TurboTax to TaxACT because it's cheaper and because somehow TurboTax leaked my email address to phishers. I know that they leaked it because I give every website a unique email address, and that's the email address the phishing emails are sent to. Also I reported it to them via email and on their support forums, where other people also reported getting the same emails, and the TurboTax support people basically just ignored what I said and gave me a canned "don't click on any links in phishing emails" response. Nothing bad happened to me personally but the fact that the leak happened and more importantly that they didn't address my concern at all made me not feel comfortable having them handle my personal financial data. As far as features go they are both good though, I have relatively simple taxes but the more obscure things I need to report have always been pretty straight-forward to do in both apps.
posted by burnmp3s at 8:48 AM on January 10, 2012

The other thing that I haven't seen people mention yet is that if you have a copy of last year's taxes and this year's tax situation is basically the same, you can use last year's taxes to sort of crib from. Obviously the numbers are different but if there haven't been major changes to either your situation or the tax laws that concern your situation then you can mostly find/replace.

What I would do, if this were me, is to

1. get TurboTax [go online and get a log in, bla bla]
2. go through the steps, answer the questions, read the FAQs
3. print out your taxes before you submit them
4. check them against last year's taxes to see if they seem more or less the same
5. if not, figure out why not or decide that this is the point that you need a competent tax professional to see you through
posted by jessamyn at 8:52 AM on January 10, 2012 [2 favorites]

TurboTax does a great job with interview-style questions that make it pretty easy. The big thing (and only you can answer this) is - do you keep detailed financial records and are you willing to spend the time being methodical about answering the questions that TurboTax throws you? It's relatively easy, but it's garbage in garbage out, and TT can't keep you from rounding off too many corners or making too many assumptions (hmmm, never heard of that, so must not be important). If not, GET A TAX GUY TO DO IT.

Last year's return IS important - I always dread years (like this one) where something has changed (like I've converted a residence into rental property) because that will be new schedules I've never seen before.

If you know any CPAs personally well enough for them to do you a BIG favor (dinner or a six-pack would be the least you should do here ) - do your taxes on TT, print them, DON'T file them, and have your CPA friend review your work (also looking at last year's tax return when they do - CPAs need help cribbing sometimes too).
posted by randomkeystrike at 8:58 AM on January 10, 2012

I used to do my own taxes old-fashioned style, using the various paper booklets you could get for free at the library or post office. But it took me hours, was stressful, and I didn't even bother with deductions. I started using Turbo Tax and now doing my taxes takes less than an hour. Yes, the program costs money, but the time and stress it's saved me... It's a beautiful thing. Just have all of the various tax documents handy, and the program will walk you through it all. (Not a shill for TurboTax, I'm sure the other tax-prep software is also great!)
posted by chowflap at 9:06 AM on January 10, 2012

As gauche, pwnguin, whatzit said, the forms are generally not hard. They're just dull and you might have to go check a phrase or two to see if it applies to you. But all that info is on the IRS website these days, and they have FAQs and a helpline and all that. And I really think it's useful to have done your own taxes from time to time so you understand how they work a little better; otherwise it's just a mysterious number that your tax software gives you.

Taxes, the boring way:
  1. Wait for all the people who send you forms (W2, 1099, etc.) to send them to you.
  2. Get a copy of your last year's returns.
  3. Get this year's version of all the forms and schedules you needed last year, along with their corresponding instruction booklet (download the PDFs, e.g.)
  4. Start at the top of 1040 (or 1040EZ or whatever) and just follow the instructions line-by-line. If something is unclear, flip to the instruction booklet, which has a few paragraphs explaining each line and maybe a callout box for things that are confusing.
  5. You may get sent on sub-quests to the mysterious Land of Schedule A or whatever, or have to retrieve the mystical Box 3 Of Form 1099, but just keep chugging along. The game is on rails; you can't get lost.
  6. Eventually you'll reach the end of the 1040 and the line that says how much to pay / how much refund to expect. Mail one copy of the forms to the IRS (detailed instructions are in the booklet; the address you mail to depends on where you are and stuff) and keep one copy for next year.
I spend most of my time just writing zeroes for things that don't apply to me (am I an unmarried widow under the age of 3? Did I have an interest in a foreign farm destroyed by Katrina?).
posted by hattifattener at 9:20 AM on January 10, 2012

This is nothing to fear. If you can balance a checkbook (does anybody actually do this?) then you can fill out your federal and state tax forms. They come with very detailed instructions on where to put the numbers and the math is nothing harder than addition and subtraction. Multiple sources of income do not really make it much more complicated unless they are from different states. Some income sources, such as employee stock options, can get tricky, but wages and average investment income are not. (If you are running your own business it might pay to hire an accountant though.) TurboTax makes it even easier and the better versions handle even complex tax situations.
posted by caddis at 10:44 AM on January 10, 2012

I more or less need step by step "first you go here and fill out this form, and here are instructions for that form, then you go here and fill out this form, and here's how you do that..."

Get a copy of 1040EZ and start there. It has easy and explicit instructions. If your taxes are too complex for that form then it will tell you and tell you what form to use (which would likely then be regular 1040, which also has explicit instructions). The IRS provides guidelines to tell you which form you will need, but if in doubt start with 1040EZ.
posted by caddis at 10:56 AM on January 10, 2012

Another vote for tax software, especially if you are just dealing with a bunch of W-2s (income from different jobs) and 1099s (income from interest and similar). Might be a little confusing the first year, but after that should be a breeze.

I would not advise going to a "tax professional," because if you to HR Block or similar, you're essentially paying someone to type the numbers into a computer program. That person will be more experienced but likely less intelligent and more rushed than you. Or you can pay a skilled tax professional lots of money, which is the equivalent of paying a master plumber $100 to tighten a bolt.

Also, if your surpassingly generous friend actually did ALL the work before, perhaps he or she can take 10 minutes to explain things to you in advance and 10 minutes to glance over your return after you've filled it out.
posted by Mr.Know-it-some at 11:49 AM on January 10, 2012

I consider myself reasonably intelligent and I like to think I'm pretty on top of my finances. I fix things for a living. I pride myself in figuring out a new challenge. However, when it comes to taxes, for some reason, it's like I'm 3 yrs old. I see the words on the pages, but I have no idea what they mean.

For this reason, it's worth paying someone $150 to do it for me. I fill everything out online (I use hrblock, but turbotax is also good). Then I scan in all my paperwork, and then I submit it to a professional. Inevitably, the return amounts are always better after it's been reviewed and adjusted by the professional. Plus, I always opt in for the if i'm audited, they stand by their work or whatever.
posted by getmetoSF at 1:19 PM on January 10, 2012

The forms aren't really that hard. It's mostly addition and subtraction.

If you can balance a checkbook (does anybody actually do this?) then you can fill out your federal and state tax forms. They come with very detailed instructions on where to put the numbers and the math is nothing harder than addition and subtraction.

Yeah, none of this is even REMOTELY true for me and others like me, and I run businesses and even do some bookkeeping. I can barely do my taxes with Turbotax.

It's not really a question of the math, of course: it's a question of what categories mean, and it's a question of the unintelligible language that instructs you on what to do.

The best possible way for asker to do taxes for the first time is in the presence of a tax preparer, who can describe what to do in advance, and can perhaps do a bit of education.

The second best possible way is with Turbotax, in which case, we will tell you what to do in advance in your next question.
posted by RJ Reynolds at 2:51 PM on January 10, 2012

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