Tax Tips
TweetTax season is upon us once again. It comes the same time every year; still, many taxpayers find themselves unprepared for April 15 - Tax Day. Perhaps you are one of those people who is ahead of the game and have already filed. But, if you are in the same boat as most taxpayers, you are having a hard time getting motivated and will continue to put off filing as long as you can.
Sometimes it is just a matter of knowing where to start. The following tips will help you get organized and hopefully motivate you to get your taxes prepared a little earlier this year.
- Set time aside. There always seems to be something more pleasant to do than taxes. But the only way you are going to get them done is to sacrifice some time dedicated solely for tax filing purposes. Be committed. If it has to be done anyway, why not just get it out of the way so you don't spend more time and energy worrying about it?
- Get organized. Hopefully you have stayed relatively organized with tax documents throughout the year. However, having one collection of receipts in your glove box, one on your night stand, one on top of the fridge, etc. - none of them being itemized or categorized - has just made your tax filing much more burdensome. From here on out, put all receipts and tax documents for the current year in a folder. Separate into categories and commit to spending a little time each week itemizing. It will make your job at tax time much easier.
- Review current tax policies. The U.S. tax code is under constant revision and often changes from year to year. You can never assume that what you filed for last year will apply for the current year. The IRS provides a free publication that details all of the current tax codes and explains any changes that have been made from the previous year. Go to http://www.irs.gov/formspubs/index.html and click on Publication 17; a PDF download that will tell you everything you need to know about how to prepare the current year taxes. There are also several other publications that can help answer your tax questions.
- Decide on your filing status. There are many variables to consider when deciding your filing status. Know the stipulations and what you qualify for. If you are down to a couple of different options, run the numbers under each to see which one yields the highest return and go with that status.
- Make Adjustments. There are many adjustments that can be claimed against your income. Adjustments are found on the front pages of the forms 1040 and 1040A. There are several more adjustments that can be claimed on the 1040 than on the 1040A. Adjustments that are on both forms are the Educator Expenses, IRA Deductions, Student Loan Interest, and the Tuition and Fees Deduction. On the 1040 form you will also find adjustments for certain business expenses, health savings account deductions, moving expenses, several self-employment deductions, and any alimony paid.
These adjustments are set up to give taxpayers a break on their expenditures.
Adjustments to your income will play an important role not only in how much you pay in taxes, but also in determining your itemized deduction amounts, the amount of various credits you will qualify for, and any earned income that you are entitled to. Keep in mind that you may need additional forms for some of these adjustments and that you will need to keep receipts for various items claimed as well.
Itemize Deductions. Each year when you file your income tax return, you have to choose between using the standard deduction (a flat amount) or claiming your actual allowed deductions, called itemizing. If your actual expenses exceed the standard deduction, you'll save money by itemizing.
To decide whether to itemize or take the standard deduction, use Schedule A (included with the long version of Form 1040) to list all of your allowable expenses, and compare the total to the standard deduction for your filing status. If your allowable expenses are more than the standard deduction, you can itemize. Some of the most common allowable expenses include:
- State and local income taxes
- Real estate taxes (if your taxes include service fees for things like trash pickup, recycling, etc., only the portion related to the value of your property is deductible)
- State and local personal property taxes based on the value of personal property such as cars or boats
- Mortgage interest
- Charitable contributions
- Medical expenses (but only if they exceed 7.5% of your Adjusted Gross Income
Get Help. Consider hiring a professional to help with your filing.
Qualified tax preparers know tax laws and will be able to maximize your return. Expect to pay from $150 to $450, depending on how complicated your tax return is. However, that fee is likely to end up right back in your pocket due to more meticulous filing and the deduction you get from using a tax professional.
You have the following to choose from:
- A CPA is a professional accountant licensed by the state. Best for corporate accounting, tax audits, and business consulting.
- An Enrolled Agent is a tax professional licensed by the IRS. Best for complex tax issues, tax audits, and responding to tax collectors.
- A Tax Preparer may be registered by the state. Best for straightforward tax returns.
- The national Tax Franchises are H&R Block, Jackson Hewitt, and Liberty Tax. Offices nationwide. Often fast, courteous, and convenient. But some employees will be less trained than others. Be sure to ask for a senior-level tax preparer.
You'll need to provide:
- All of your tax documents
- Photo identification
- Social Security Cards for yourself and your dependents
- Checkbook for direct deposit of your refund
- Copy of last year's tax return
